<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] 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)
Delaware 75-2701931
------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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) 339-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Common Stock, $.01 par value, outstanding as of November 12,
1998: 11,401,477
<PAGE> 2
CRESCENT OPERATING, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets........................................................................3
Consolidated Statements of Operations..............................................................4
Consolidated Statement of Changes in Shareholders' Equity (Deficit)................................6
Consolidated Statements of Cash Flows..............................................................7
Notes to Consolidated Financial Statements.........................................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............18
Item 3. Quantitative and Qualitative Disclosures About Market Risk........................................34
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................35
Item 2. Changes in Securities and Use of Proceeds.........................................................35
Item 3. Defaults Upon Senior Securities...................................................................35
Item 4. Submission of Matters to a Vote of Security Holders...............................................35
Item 5. Other Information.................................................................................35
Item 6. Exhibits and Reports on Form 8-K..................................................................36
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ ------------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 39,182,841 $ 43,401,132
Accounts receivable, net 31,844,004 17,099,165
Inventories 32,283,412 10,125,075
Notes receivable 2,692,360 8,454,059
Real estate 49,786,356 43,200,000
Prepaid expenses and other current assets 7,426,770 4,714,827
------------------ ------------------
Total current assets 163,215,743 126,994,258
------------------ ------------------
PROPERTY AND EQUIPMENT, NET 150,822,952 90,979,033
------------------ ------------------
INVESTMENTS 359,002,831 218,627,776
------------------ ------------------
OTHER ASSETS
Real estate 132,314,674 70,827,584
Notes receivable 14,636,169 35,343,319
Intangible assets, net 88,421,368 54,524,806
Other assets 16,024,892 4,786,559
------------------ ------------------
Total other assets 251,397,103 165,482,268
------------------ ------------------
TOTAL ASSETS $ 924,438,629 $ 602,083,335
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 62,176,857 $ 49,320,732
Accounts payable - CEI 7,162,500 6,588,606
Current portion of long-term debt - CEI 7,623,899 24,084,587
Current portion of long-term debt 46,220,364 18,759,349
Deferred revenue 29,002,902 13,686,725
------------------ ------------------
Total current liabilities 152,186,522 112,439,999
LONG-TERM DEBT - CEI, NET OF CURRENT PORTION 245,504,311 207,798,563
LONG-TERM DEBT, NET OF CURRENT PORTION 77,991,245 7,486,378
OTHER LIABILITIES 29,598,818 11,151,957
------------------ ------------------
TOTAL LIABILITIES 505,280,896 338,876,897
------------------ ------------------
MINORITY INTERESTS 428,960,313 271,266,622
------------------ ------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $.01 par value, 10,000,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $.01 par value, 22,500,000 shares authorized,
11,401,477 and 11,211,094 shares issued, respectively 114,015 112,111
Additional paid-in capital 17,666,861 14,255,423
Deferred compensation on restricted shares (212,187) (262,500)
Accumulated comprehensive income (loss) (5,095,800) --
Retained deficit (21,311,978) (22,165,218)
Treasury stock at cost, 145,000 and 0 shares, respectively (963,491) --
------------------ ------------------
Total shareholders' equity (deficit) (9,802,580) (8,060,184)
------------------ ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 924,438,629 $ 602,083,335
================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE> 4
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
-------------------------------------- --------------------
For the nine For the period from For the period from
months ended May 9, 1997 to January 1, 1997
September 30, 1998 September 30, 1997 to May 8, 1997
------------------ ------------------- --------------------
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
REVENUES
Equipment sales & leasing $ 52,999,744 $ 4,919,438 $ 4,657,260
Hospitality 169,549,863 28,141,332 --
Land development 93,462,554 -- --
---------------- ---------------- ----------------
Total revenues 316,012,161 33,060,770 4,657,260
---------------- ---------------- ----------------
OPERATING EXPENSES
Equipment sales & leasing expenses 49,823,696 4,434,298 4,499,145
Hospitality expenses 123,791,449 21,877,505 --
Hospitality properties rent - CEI 38,094,835 5,947,112 --
Land development expenses 97,398,867 -- --
General and administrative expenses 2,251,348 495,388 --
---------------- ---------------- ----------------
Total operating expenses 311,360,195 32,754,303 4,499,145
---------------- ---------------- ----------------
INCOME FROM OPERATIONS 4,651,966 306,467 158,115
---------------- ---------------- ----------------
INVESTMENT INCOME (LOSS) 12,388,341 (7,289,822) --
---------------- ---------------- ----------------
OTHER (INCOME) EXPENSE
Interest expense 11,638,808 1,485,906 135,367
Interest income (3,123,992) (284,844) (12,885)
Other (187,755) (138,794) (3,459)
---------------- ---------------- ----------------
Total other (income) expense 8,327,061 1,062,268 119,023
---------------- ---------------- ----------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND INCOME TAXES 8,713,246 (8,045,623) 39,092
MINORITY INTERESTS (4,911,506) -- --
---------------- ---------------- ----------------
INCOME (LOSS) BEFORE INCOME TAXES 3,801,740 (8,045,623) 39,092
INCOME TAX PROVISION (2,948,500) -- (13,682)
---------------- ---------------- ----------------
NET INCOME (LOSS) $ 853,240 $ (8,045,623) $ 25,410
================ ================ ================
EARNINGS (LOSS) PER SHARE
Basic $ 0.08 $ (0.73)
================ ================
Diluted $ 0.07 $ (0.73)
================ ================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 11,298,410 11,035,445
================ ================
Diluted 12,055,898 11,035,445
================ ================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
REVENUES
Equipment sales & leasing $ 33,460,868 $ 3,211,858
Hospitality 58,181,964 28,141,332
Land development 20,182,815 --
------------------ ------------------
Total revenues 111,825,647 31,353,190
------------------ ------------------
OPERATING EXPENSES
Equipment sales & leasing expenses 31,372,441 3,009,416
Hospitality expenses 43,379,506 21,877,505
Hospitality properties rent - CEI 13,578,747 5,947,112
Land development expenses 25,077,242 --
General and administrative expenses 1,112,310 495,388
------------------ ------------------
Total operating expenses 114,520,246 31,329,421
------------------ ------------------
INCOME FROM OPERATIONS (2,694,599) 23,769
------------------ ------------------
INVESTMENT INCOME (LOSS) 5,738,317 (6,890,822)
------------------ ------------------
OTHER (INCOME) EXPENSE
Interest expense 4,387,385 1,177,081
Interest income (908,121) (280,956)
Other (225,238) 20,467
------------------ ------------------
Total other (income) expense 3,254,026 916,592
------------------ ------------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND INCOME TAXES (210,308) (7,783,645)
MINORITY INTERESTS (1,021,138) --
------------------ ------------------
INCOME (LOSS) BEFORE INCOME TAXES (1,231,446) (7,783,645)
INCOME TAX BENEFIT 1,320,802 --
------------------ ------------------
NET INCOME (LOSS) $ 89,356 $ (7,783,645)
================== ==================
EARNINGS (LOSS) PER SHARE
Basic $ 0.01 $ (0.71)
================== ==================
Diluted $ 0.01 $ (0.71)
================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 11,352,291 11,037,489
================== ==================
Diluted 12,070,014 11,037,489
================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE> 6
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common stock Treasury stock
------------------------------------ ------------------------------------
Shares Amount Shares Amount
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BALANCE at December 31, 1997 11,211,094 $ 112,111 -- $ --
Comprehensive income (loss):
Net income -- -- -- --
Unrealized loss on Magellan warrants, net of tax -- -- -- --
Comprehensive income (loss)
Stock options exercised 23,662 237 -- --
Common stock issued for acquisitions 166,721 1,667 -- --
Amortization of restricted common stock -- -- -- --
Purchase of treasury stock -- -- (145,000) (963,491)
---------------- ---------------- ---------------- ----------------
BALANCE at September 30, 1998 11,401,477 $ 114,015 (145,000) $ (963,491)
================ ================ ================ ================
<CAPTION>
Deferred Accumulated
compensation other
Additional on restricted comprehensive Retained
paid-in capital shares income (loss) deficit
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
BALANCE at December 31, 1997 $ 14,255,423 $ (262,500) $ -- $ (22,165,218)
Comprehensive income (loss):
Net income -- -- -- 853,240
Unrealized loss on Magellan warrants, net of tax -- -- (5,095,800) --
Comprehensive income (loss)
Stock options exercised 23,188 -- -- --
Common stock issued for acquisitions 3,388,250 -- -- --
Amortization of restricted common stock -- 50,313 -- --
Purchase of treasury stock -- -- -- --
---------------- ---------------- ---------------- ----------------
BALANCE at September 30, 1998 $ 17,666,861 $ (212,187) $ (5,095,800) $ (21,311,978)
================ ================ ================ ================
<CAPTION>
Total
----------------
<S> <C>
BALANCE at December 31, 1997 $ (8,060,184)
Comprehensive income (loss):
Net income 853,240
Unrealized loss on Magellan warrants, net of tax (5,095,800)
----------------
Comprehensive income (loss) (4,242,560)
Stock options exercised 23,425
Common stock issued for acquisitions 3,389,917
Amortization of restricted common stock 50,313
Purchase of treasury stock (963,491)
----------------
BALANCE at September 30, 1998 $ (9,802,580)
================
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE> 7
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
---------------------------------------- ------------------
For the nine For the period from For the period from
months ended May 9, 1997 to January 1, 1997 to
September 30, 1998 September 30, 1997 May 8, 1997
------------------ ------------------ ------------------
(Unaudited) (Unaudited) (Audited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 853,240 $ (8,045,623) $ 25,410
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation 8,960,161 1,059,006 747,503
Amortization 5,383,981 -- --
Provision for deferred income taxes (2,492,522) -- --
Investment (income) loss (12,388,341) 7,507,455 --
Minority interests 4,911,506 -- --
Deferred compensation 50,313 -- --
Gain on sale of property and equipment (468,065) (82,193) (133,607)
Gain on sale of partnership -- (110,252) --
Net purchases of real estate (1,823,035) -- --
Changes in assets and liabilities, net of
effects from acquisitions:
Accounts receivable (1,520,275) (443,409) 152,231
Inventories (4,801,701) (1,971,822) 115,403
Prepaid expenses and current assets (1,603,853) (422,314) (125,205)
Other assets (53,698) (681,324) --
Accounts payable and accrued expenses (2,895,278) 4,161,933 197,384
Accounts payable - CEI 1,222,325 -- --
Deferred revenue, current and noncurrent 14,317,049 -- --
Other liabilities 1,549,542 -- --
------------------ ------------------ ------------------
Net cash provided by operating activities 9,201,349 971,457 979,119
------------------ ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business interests, net of cash acquired (16,478,835) (17,694,835) --
Acquisition of business interests by minority interests (122,603,692) -- --
Purchases of property and equipment (26,344,035) (3,597,150) --
Proceeds from sale of property and equipment 3,271,105 440,856 309,890
Proceeds from sale of partnership -- 12,550,000 --
Net proceeds from sale and collection of notes receivable 25,887,265 -- --
Net proceeds from (investment in) Hicks-Muse 5,961,907 (858,864) (1,870,636)
Purchase of Magellan warrants -- (12,500,000) --
Dividends received 9,562,500 -- --
------------------ ------------------ ------------------
Net cash used in investing activities (120,743,785) (21,659,993) (1,560,746)
------------------ ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 50,845,031 54,729,040 408,320
Payments on long-term debt (28,950,320) (15,635,787) (848,310)
Proceeds of long-term debt - CEI 21,705,672 -- --
Payments on long-term debt - CEI (49,237,312) -- --
Capital contributions by minority interests 124,028,597 -- --
Distributions to minority interests (11,090,950) (2,380,000) --
Other 23,427 1,515,768 1,164,967
------------------ ------------------ ------------------
Net cash provided by financing activities 107,324,145 38,229,021 724,977
------------------ ------------------ ------------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (4,218,291) 17,540,485 143,350
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 43,401,132 165,685 22,335
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 39,182,841 $ 17,706,170 $ 165,685
================== ================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 8
CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Crescent Operating, Inc. ("Crescent Operating") is a diversified management
company that through various subsidiaries and affiliates (collectively with
Crescent Operating, the "Company") currently operates in five business segments:
Hospitality, Land Development, Equipment Sales and Leasing, Healthcare and
Refrigerated Warehousing. Within these segments, Crescent Operating does
business throughout the United States.
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. These financial statements should be read in conjunction
with the audited financial statements and related footnotes of the Company for
the fiscal year ended December 31, 1997 included in the Company's Form 10-K. 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. Certain prior period information
has been reclassified to conform to current period presentation. Due to
acquisitions and seasonal fluctuations, operating results for interim periods
reflected are not necessarily indicative of the results that may be expected for
a full fiscal year.
Crescent Machinery Company ("Crescent Machinery", formerly known as Moody-Day,
Inc.), Rosestar Management LLC ("RoseStar"), COI Hotel Group, Inc. ("COI
Hotel"), COI Arena Company, and WOCOI Investment Company ("WOCOI"), which are
wholly-owned subsidiaries of Crescent Operating, are consolidated. The Company
owns 5% of each of Woodlands Land Company, Inc. ("LandCo"), Desert Mountain
Development Corporation ("Desert Mountain Development"), Crescent CS Holdings
Corporation ("CS I"), Crescent CS Holdings II Corporation ("CS II") and CRL
Investments, Inc. ("CRL"). The Company's 5% interests in these entities
represent 100% of the voting stock, and, therefore, these entities are
consolidated into Crescent Operating and the remaining 95% is reported as
minority interests. Crescent Operating owns a 50% general partner interest in
COPI Colorado, L.P. ("COPI Colorado"), and as it has effective control of the
partnership, COPI Colorado is fully consolidated into Crescent Operating. The
Company's investment in Hicks Muse Tate & Furst Equity Fund II, L.P.
("Hicks-Muse") is reported at cost and the Company's 50% interest in Charter
Behavioral Health Systems, LLC ("CBHS") is reported on the equity method of
accounting.
The combined financial statements of the "Predecessor" were prepared on the
basis that the Predecessor is a combination of Moody-Day, Inc. ("Moody-Day") and
Hicks-Muse (collectively, the "Carter-Crowley Asset Group"). As the Company did
not have any activity prior to May 9, 1997, the data included relating to the
periods in 1997 prior to May 9, is only with regard to the Predecessor.
8
<PAGE> 9
2. RECENT DEVELOPMENTS:
HOSPITALITY
Effective October 13, 1998, Wine Country Golf Club, Inc. a wholly-owned
subsidiary of the Company, became the lessee of the Sonoma Golf Course in
California, which is owned by Crescent Real Estate Equities Limited Partnership
("Crescent Partnership" and, together with its subsidiaries, "Crescent
Equities"). This 18-hole championship golf course is a strategic amenity to the
Sonoma Mission Inn and Spa, which will allow the Company to expand its marketing
focus to the golf-oriented guest. The lease is for a ten-year period and
provides for the payment to Crescent Equities of (i) base rent, with periodic
rent increases, and (ii) percentage rent based on annual gross receipts above a
specified amount with periodic increases of such specified amount.
Effective July 27, 1998, to enable the Company to invest in the future use of
the "Canyon Ranch" name, the Company contributed $50,500 to obtain a 5% economic
interest, representing all of the voting stock, of CRL Investments, Inc.
("CRL"). Immediately following such contribution, CRL exercised its purchase
option by paying $1 million to obtain a 10% economic interest in CR License LLC
("CR License"). CR License is the entity which owns the rights to use the
"Canyon Ranch" name. CRL has the opportunity over the next two years to pay an
additional $5 million to obtain an additional 20% interest in CR License. With
this recent acquisition, the Company has the ability to benefit from future
uses of the Canyon Ranch name. Contemporaneously, CRL acquired a 50% interest in
CR Las Vegas LLC, an entity that is building a Canyon Ranch day spa in the
Venetian Hotel in Las Vegas. Through CRL and CR License, the Company has an
effective 2.75% economic interest in the Canyon ranch day spa project.
On February 4, 1998, the Ventana Country Inn closed its operations due to a
landslide that washed out Highway 1, the major access road to the property. The
Ventana Country Inn re-opened on May 1, 1998. The Company filed a claim for
losses under its business interruption insurance policy and during the third
quarter of 1998, the Company settled this claim and collected insurance proceeds
of $.8 million, resulting in total proceeds received from the claim of $1.2
million. The proceeds received have been included in Hospitality revenues for
the three and nine-month periods ended September 30, 1998.
LAND DEVELOPMENT
Effective September 11, 1998, the Company and Gerald W. Haddock, John C. Goff
and Harry H. Frampton, III (collectively, the "CDMC Sellers") entered into a
partnership agreement (the "Partnership Agreement") to form COPI Colorado, a
Delaware limited partnership. COPI Colorado's purpose is to hold and manage the
voting stock of Crescent Development Management Corp. ("CDMC") (and,
consequently, to manage CDMC) and to invest in shares of Crescent Operating's
common stock. As of September 22, 1998, pursuant to a contemporaneous
contribution agreement among the parties (the "Contribution Agreement"), the
Company had contributed to COPI Colorado $9.0 million in cash in exchange for a
50% general partner interest in COPI Colorado, and each CDMC Seller contributed
to COPI Colorado approximately 667 shares of CDMC voting stock (collectively,
the "CDMC Shares") in exchange for an approximately 16.67% limited partner
interest in COPI Colorado; as a result, the Company owns a 50% managing interest
in COPI Colorado and the CDMC Sellers collectively own a 50% investment interest
in COPI Colorado. The Intercompany Evaluation Committee of the Company's Board
of Directors (the "Committee") consulted with independent advisors regarding the
aggregate fair value of the CDMC shares. None of the directors who serve on the
Committee has any interest in COPI Colorado or the CDMC shares. Based on the
Committee's review of the terms of the Partnership Agreement and Contribution
Agreement and consultation with the independent advisors, the Committee
determined that the aggregate fair market value of the CDMC shares approximated
$9.0 million, which equals the Company's $9.0 million cash contribution to COPI
Colorado. The operating results of CDMC from September 22, 1998 to September 30,
1998 have not been included in the consolidated results of the Company as they
were immaterial for that period. As of September 30, 1998, COPI Colorado had
purchased 145,000 shares of Crescent Operating common stock, which has been
recorded as treasury stock, at a total purchase price of $963,000. The average
price paid for such shares was $6.64 per share.
9
<PAGE> 10
The Company funded its contribution to COPI Colorado using the proceeds from a
$9 million term loan from Crescent Partnership. The loan bears interest at 12%
per annum, with interest payable quarterly and the full original principal
amount of $9.0 million, together with any accrued but unpaid interest, payable
in May 2002. The Company's interest in COPI Colorado is collateral on the loan,
which is cross-collateralized and cross-defaulted with the Company's other
borrowings from Crescent Equities.
CDMC is principally engaged in investing in partnerships and other entities that
directly or indirectly through other entities participate in the development and
management of resort, residential and vacation home real properties and
ancillary supporting services principally in Colorado and Florida.
On September 17, 1998, the Company invested $.8 million to obtain a 2.6% limited
partner interest in Hillwood/1642, Ltd. ("Hillwood"). Hillwood is involved in
developing the acreage surrounding the new multi-sports arena to be erected in
Dallas, Texas for the Dallas Stars, a National Hockey League club, and the
Dallas Mavericks, a National Basketball Association club.
EQUIPMENT SALES AND LEASING
Effective July 31, 1998, the Company acquired all of the stock of Harvey
Equipment Center, Inc. ("Harvey"), a company which is engaged in equipment
sales, leasing and servicing, located in Van Wert, Ohio. The purchase price of
approximately $8.4 million was comprised of $2.7 million in cash, the issuance
of notes payable by Crescent Operating in the amount of $1.2 million and the
assumption of $4.5 million of liabilities. The $1.2 million notes bear interest
at 8.0% per annum and are payable in eight semi-annual installments of principal
and interest of $.18 million. The transaction was treated as a purchase for
accounting purposes and accordingly the results of operations have been included
in the Company's financial statements from the effective date of acquisition.
Effective July 1, 1998, the Company acquired all of the stock of Western
Traction Company ("Western Traction"), a company that is engaged in equipment
sales, leasing and servicing, with locations in Sacramento, California, Union
City, California, Fresno, California, Sparks, Nevada and Honolulu, Hawaii. The
purchase price of approximately $52.0 million was comprised of $6.5 million in
cash, the issuance of a note payable by Crescent Operating in the amount of $7.5
million and the assumption of liabilities of $38 million. The $7.5 million note
bears interest at 8.5% per annum and is payable in 18 monthly installments of
principal and interest of $.45 million. The transaction was treated as a
purchase for accounting purposes and accordingly the results of operations have
been included in the Company's financial statements from the effective date of
acquisition.
Crescent Machinery has 14 locations in Texas, California, Nevada, Oklahoma, Ohio
and Hawaii.
10
<PAGE> 11
HEALTHCARE
Effective March 3, 1998, the Company signed a definitive agreement (the "Equity
Purchase Agreement") to acquire the 50% membership interest in CBHS currently
owned by Magellan CBHS Holdings, Inc., formerly Charter Behavioral Health
Systems, Inc. ("CBHS Holdings"). Also effective March 3, 1998, CBHS signed a
definitive agreement (the "Purchase Agreement") to acquire from Magellan Health
Services, Inc. ("Magellan") and certain direct and indirect subsidiaries of
Magellan, equity interests in certain entities, intellectual property rights,
including the "Charter" name and 800-CHARTER telephone number, and the assets
of certain staff model clinics. The Company signed a support agreement (the
"Support Agreement"), dated as of March 3, 1998, pursuant to which the Company
agreed, under certain conditions, to assist CBHS in obtaining the funds
required to consummate the transactions contemplated by the Purchase Agreement
to pay expenses incurred in obtaining such funds and to pay a $5 million
termination fee in the event that such transactions were not consummated or the
Purchase Agreement was terminated as a result of CBHS' failure to obtain the
required funds assuming other conditions to closing had been satisfied. The
closing of the transactions contemplated by the Equity Purchase Agreement and
the Purchase Agreement, which was originally scheduled for July 1998, was
subject to certain conditions which were not satisfied.
On August 14, 1998, Magellan exercised its right under the CBHS Operating
Agreement to take management control of CBHS due to arrearages in franchise fee
payments from CBHS. On August 19, 1998, the Company and Magellan each announced
its termination of negotiations with Magellan regarding the acquisition of the
50% interest in CBHS owned by Magellan.
On November 3, 1998, John C. Goff, one of the Company's two representatives on
the Governing Board of CBHS, resigned. Richard P. Knight, the Company's Chief
Financial Officer, has been appointed to fill the vacancy.
On November 5, 1998, Magellan notified Crescent Operating that Magellan
believes Crescent Operating (i) owes $2.3 million for the reimbursement of
expenses incurred in connection with attempts to obtain financing for CBHS's
payment obligations under the Purchase Agreement, (ii) owes Magellan a $5
million termination fee and (iii) may have failed to use "commercially
reasonable efforts" to secure financing for the transactions contemplated by
the Purchase Agreement. Crescent Operating disputes these claims. Magellan has
exercised its right under the Support Agreement to require that these matters
be submitted to arbitration if Magellan and Crescent Operating cannot reach
agreement on these issues. Because the Company's obligations under the Equity
Purchase Agreement and the Support Agreement was subject to prior satisfaction
of certin conditions that have not been met, the Company believes it is under no
obligation to reimburse CBHS for expenses incurred in connection with attempts
to obtain financing for CBHS's payment obligations under the Purchase
Agreement, or to pay the $5 million termination fee to Magellan. Crescent
Operating management intends to contest Magellan's claims vigorously.
REFRIGERATED WAREHOUSING
On July 1, 1998, Americold Logistics, a group of companies in which Crescent
Operating owns a 2% indirect interest, acquired five refrigerated storage
properties from Carmar Group for approximately $163 million, which required a
capital contribution from Crescent Operating of $2.7 million. These properties
contain approximately 60 million cubic feet of refrigerated storage space.
11
<PAGE> 12
3. LONG-TERM DEBT:
Following is a summary of the Company's debt financing:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
LONG-TERM DEBT - CORPORATE AND WHOLLY-OWNED SUBSIDIARIES
Equipment notes payable to finance companies due 1998 through 2003,
payments of principal and interest due monthly, bear interest from 6.0% to
10.9%, collateralized by equipment, available credit under such notes of
$43.7 million (Crescent Machinery) ............................................. $ 65,201,960 $ 11,245,727
Note payable to Crescent Real Estate Equities Limited Partnership
("Crescent Partnership") due May 2002, bears interest at 12%,
payments of principal and interest due quarterly, collateralized, to the
extent not prohibited by pre-existing arrangements, by a first lien on the
assets which the Company now owns or may acquire in the future
(Crescent Operating) ........................................................... 25,839,096 25,980,000
Line of credit in the amount of $30.4 million payable to Crescent
Partnership due the later of May 2002 or five years after the last draw
(in no event shall the maturity date be later than June 2007), bears
interest at 12%, payments of interest only due quarterly, collateralized,
to the extent not prohibited by pre-existing arrangements, by a first lien
on the assets which the Company now owns or may acquire in the future
(Crescent Operating) ........................................................... 24,839,576 13,725,000
Line of credit in the amount of $15.0 million payable to NationsBank due
August 1999, bears interest at LIBOR plus 1% (6.43% and 6.88% at September
30, 1998 and December 31, 1997, respectively), payments of interest only
due monthly (Crescent Operating) ............................................... 15,000,000 15,000,000
Note payable to Crescent Partnership due May 2002, bears interest at 12%,
payments of interest only due quarterly, collateralized by a first lien on
the assets which the Company now owns or may acquire in the future
(Crescent Operating) ........................................................... 9,000,000 --
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Note payable to the sellers of Western Traction due January 31, 2000,
bears interest at 8.5%, payments of principal and interest due monthly,
collateralized by stock of Western Traction (Crescent Operating) .............. 6,712,941 --
Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, payments of principal and interest due monthly, collateralized
by a deed of trust for certain personal property and certain
real property (RoseStar) ...................................................... 1,842,110 2,052,482
Notes payable to the sellers of Harvey Equipment due July 31, 2002, bear
interest at 8%, payments of principal and interest due semi-annually
(Crescent Operating) .......................................................... 1,158,578 --
Note payable to Crescent Partnership maturing September 2002, bears
interest at 8.5%, payments of principal and interest due monthly,
collateralized by the Company's 2/3 interest in HCAC (COI Hotel) .............. 678,353 789,820
Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, payments of principal and interest due monthly, collateralized
by a deed of trust in certain real property and certain personal
property (RoseStar) ........................................................... 498,052 554,850
Note payable to Crescent Partnership due November 2006, bears interest at
7.5%, payments of interest only due annually (RoseStar) ....................... 190,964 190,964
Note payable to Crescent Partnership due September 1998, bears interest at
8.5%, payments of interest only due monthly, collateralized by the Houston
Center Athletic Club Venture ("HCAC") $5.0 million note receivable
(COI Hotel) ................................................................... -- 1,000,000
-------------- --------------
Total debt - corporate and wholly-owned subsidiaries ..................... 150,961,630 70,538,843
-------------- --------------
LONG-TERM DEBT - NON WHOLLY-OWNED SUBSIDIARIES
Senior note payable to Crescent Partnership maturing December 2005, bears
interest at 10%, payments of principal and interest due quarterly
commencing January 15, 1998 based on sales proceeds from Desert Mountain
Properties, LP ("DMPLP"), collateralized by land, improvements and
equipment owned by DMPLP (DMPLP) .............................................. 81,463,359 110,000,000
Junior note payable to Crescent Partnership maturing December 2010, bears
interest at 14%, payments of principal and interest due quarterly
commencing January 15, 1998 based on sales proceeds from DMPLP,
collateralized by land, improvements and equipment owned by DMPLP (DMPLP) ..... 60,000,000 60,000,000
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Line of credit in the amount of $40.2 million payable to Crescent
Partnership due August 31, 2004, bears interest at 11.5% with principal
and interest payments due as distributions from projects are received, as
defined by the applicable credit agreement, collateralized by CDMC's
interests in East West Resort Development partnerships, East
West Resorts, LLC, and other CDMC property (CDMC) ............................ 32,331,903 --
Construction loans for various East West Resort Development partnership
projects, maturing from 1998 to 2003, bear interest from 6% to 9%,
payments of principal and interest or interest only payable monthly,
collateralized by deeds of trust, security agreements and a first lien
on the related assets (CDMC) .................................................. 25,437,189 --
Note payable to Crescent Partnership due January 2003, bears interest at
12%, principal and interest payments due as distributions from projects
are received, as defined by the applicable credit agreement,
collateralized by CDMC's interests in East West Resort Development
partnerships, East West resorts LLC, and other CDMC property (CDMC) .......... 13,594,798 --
Line of credit in the amount of $35 million payable to National Bank of
Arizona due May 1999, bears interest at rates from prime to prime plus 1%
(8.25% to 9.25% at September 30, 1998), payments of interest only due
monthly, collateralized by certain land owned by DMPLP, deeds of trusts on
lots sold and home construction (DMPLP) ....................................... 10,700,940 --
Note payable to Crescent Partnership maturing June 2005, bears interest at
12%, with payments of interest only due quarterly and payments of
principal payable annually in accordance with an increasing amortization
schedule, collateralized by CDMC's interests in East West Resort
Development partnerships, East West Resorts LLC and other CDMC property (CDMC) 2,850,000 --
Notes payable to Crescent Partnership maturing August 1998, bears interest
at the prime rate plus 1%, payments of principal and interest due monthly
based on lot note receipts collateralized by deeds of trust on lots owned
by DMPLP (DMPLP) .............................................................. -- 17,590,034
-------------- --------------
Total debt - non wholly-owned subsidiaries .......................... 226,378,189 187,590,034
-------------- --------------
Total long-term debt ................................................ $ 377,339,819 $ 258,128,877
============== ==============
Current portion of long-term debt - CEI ....................................... $ 7,623,899 $ 24,084,587
Current portion of long-term debt ............................................. 46,220,364 18,759,349
Long-term debt - CEI, net of current portion .................................. 245,504,311 207,798,563
Long-term debt, net of current portion ........................................ 77,991,245 7,486,378
-------------- --------------
Total long-term debt ................................................ $ 377,339,819 $ 258,128,877
============== ==============
</TABLE>
14
<PAGE> 15
4. INVESTMENTS:
Investments consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------ ------------------
<S> <C> <C>
Investment in Magellan warrants .......................................... $ 4,007,000 $ 12,500,000
Investment in CBHS ....................................................... -- 5,390,000
Investment in The Woodlands Land Development Company ..................... 39,505,458 31,403,893
Investment in The Woodlands Operating Company ............................ 696,523 597,498
Investment in Refrigerated Warehousing partnerships ...................... 289,368,418 161,850,800
Investment in HCAC ....................................................... 897,274 (2,561,361)
Investment in Hicks-Muse ................................................. 7,648,928 9,446,946
Investment in Corporate Arena Associates, Inc ............................ 900,908 --
Investment in CRL License, LLC ........................................... 1,000,100 --
Investment in non-consolidated subsidiaries at CDMC ...................... 14,978,222 --
------------- -------------
Total investments .............................................. $ 359,002,831 $ 218,627,776
============= =============
</TABLE>
Investment income (loss) consisted of the following:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Equity in loss of CBHS .................................................... $ (5,390,000) $ --
Equity in income of The Woodlands Land Development Company ................ 14,026,705 3,979,705
Equity in income of The Woodlands Operating Company ....................... 1,161,525 503,625
Equity in (loss) income of Refrigerated Warehousing partnerships ......... (538,800) 1,057,600
Equity in income of HCAC .................................................. 35,562 7,815
Hicks-Muse income ......................................................... 3,093,349 189,572
------------ -----------
Total investment income ......................................... $ 12,388,341 $ 5,738,317
============ ===========
</TABLE>
A summary of financial information related to CBHS has not been provided.
Because CBHS's fiscal year ended on September 30, 1998, financial statements
have not been finalized.
15
<PAGE> 16
5. EARNINGS PER SHARE:
Earnings per share ("EPS") is calculated as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, 1998 September 30, 1998
------------------------------------ ------------------------------------
Net Wtd. avg. Per share Net Wtd. Avg. Per share
Income shares amount income Shares amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS ......................... $853,240 11,298,410 $ .08 $ 89,356 11,352,291 $ .01
EFFECT OF DILUTIVE SECURITIES:
Stock Options ..................... 757,488 717,723
---------- ----------
DILUTED EPS ....................... $853,240 12,055,898 $ .07 $ 89,356 12,070,014 $ .01
========== ===== ========== =====
</TABLE>
The Company had 859,159 stock options and 282,508 warrants outstanding as of
September 30, 1998. Earnings per share for the Predecessor is not meaningful as
the capital structure of the Predecessor was not comparable to that of the
Company.
6. INTANGIBLE ASSETS:
Intangible assets consisted of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Goodwill, net - Crescent Machinery ....... $ 7,405,148 $ --
Goodwill, net - RoseStar ................. 1,525,119 1,599,388
Goodwill, net - CDMC ..................... 31,826,028 --
Membership intangible, net - DMPLP ....... 47,665,073 52,925,418
----------- -----------
Total intangible assets, net ... $88,421,368 $54,524,806
=========== ===========
</TABLE>
16
<PAGE> 17
7. OTHER LIABILITIES:
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ ------------------
<S> <C> <C>
Deferred revenue ........................... $ 19,076,584 $ 8,503,078
Deferred Hospitality rent .................. 3,397,295 1,199,323
Deferred tax liability ..................... 7,065,991 472,241
Other ...................................... 58,948 977,315
------------ ------------
Total other liabilities .......... $ 29,598,818 $ 11,151,957
============ ============
</TABLE>
8. INCOME TAXES:
The table below shows the reconciliation of the federal statutory income tax
rate to the effective tax rate.
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Federal statutory income tax rate ........... 35.0% (35.0%)
Tax provision related to minority interests . 37.2 (64.2)
Other ....................................... 5.4 (8.1)
---- -----
Effective tax rate ..................... 77.6% (107.3%)
==== =======
</TABLE>
The Company's effective tax rate differs from the federal statutory income tax
rate due primarily to non wholly-owned subsidiaries, which are consolidated in
the Company's financial statements. The taxes related to the minority interests
in such entities are included in the income tax provision (benefit) on the
Company's statements of operations.
9. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income, Statement 130 establishes new rules for the reporting and
display of comprehensive income and its components. Statement 130 requires
unrealized gains and losses on the Company's available-for-sale securities,
which prior to adoption were reported separately in stockholders' equity, to be
included in other comprehensive income.
In connection with the transaction in which Crescent Operating acquired its 50%
membership interest in CBHS, the Company purchased, for $12.5 million, warrants
to acquire 1,283,311 shares of Magellan common stock for an exercise price of
$30 per share. The Magellan warrants are exercisable in varying increments over
the period which began on May 31, 1998 and ends on May 31, 2009. Management
estimates the fair value of the warrants, using the Black-Scholes pricing model,
to be $4.0 million at September 30, 1998. As a result, the difference of $8.5
million between the cost and the estimated fair value of the warrants has been
included in the consolidated financial statements net of tax impact as other
comprehensive income (loss).
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. 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: 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
investments, the Company's ability to service existing debt, the possibility
that the Company's outstanding debt (some of which requires so-called "balloon"
payments of principal) may be refinanced at higher interest rates or otherwise
on terms less favorable to the Company; and business and investment risks,
including the underperformance or non-performance of its existing business
investments, the inability of the Company to identify or pursue suitable
business or investment opportunities, the impact of changes in the industries in
which the Company's businesses and investments operate and economic, demographic
and other competitive conditions affecting such industries, including
Hospitality, Land Development, Equipment Sales and Leasing, Healthcare and
Refrigerated Warehousing. Given these uncertainties, readers are cautioned not
to place undue reliance on such statements. The Company undertakes no obligation
to update these forward-looking statements to reflect any future events or
circumstances.
OVERVIEW
Crescent Operating, Inc. ("Crescent Operating") is a diversified management
company that through various subsidiaries and affiliates (collectively with
Crescent Operating, the "Company") currently operates in five business segments:
Hospitality, Land Development, Equipment Sales and Leasing, Healthcare and
Refrigerated Warehousing. Within these segments, Crescent Operating does
business throughout the United States.
The Company's operations began on May 9, 1997 with the purchase from
Carter-Crowley Properties, Inc. ("Carter-Crowley") of Moody-Day, Inc.
("Moody-Day"), an equipment sales, leasing and servicing company which
subsequently changed its corporate name to Crescent Machinery Company ("Crescent
Machinery"), and a limited partner interest in Hicks Muse Tate & Furst Equity
Fund II, LP, a private venture capital fund ("Hicks-Muse", and together with
Moody-Day, the "Carter-Crowley Asset Group"). This Quarterly Report on Form 10-Q
was prepared on the basis that the Carter-Crowley Asset Group is the
"Predecessor". As Crescent Operating did not have any activity prior to May 9,
1997, the data included relating to periods prior to May 9, 1997 is only with
regard to the Predecessor.
18
<PAGE> 19
HOSPITALITY SEGMENT
RECENT DEVELOPMENTS
Effective October 13, 1998, Wine Country Golf Club, Inc., a wholly-owned
subsidiary of the Company, became the lessee of the Sonoma Golf Course in
California, which is owned by Crescent Real Estate Equities Limited Partnership
("Crescent Partnership" and, together with its subsidiaries, "Crescent
Equities"). This 18-hole championship golf course is a strategic amenity to the
Sonoma Mission Inn and Spa, which will allow the Company to expand its marketing
focus to the golf-oriented guest. The lease is for a ten year period and
provides for the payment to Crescent Equities of (i) base rent, with periodic
rent increases and (ii) percentage rent based on annual gross receipts above a
specified amount with periodic increases of such specified amount.
On August 1, 1998, Hyatt Beaver Creek opened the Allegria Health Spa. Management
believes it is one of the finest upscale spa facilities in the country and it
has already been featured in several newspapers and magazines. During the third
quarter of 1998, the Ventana Country Inn was chosen as the number two "Best
Small Hotel in the World" and was chosen the number one small hotel in North
America by the readers of Travel & Leisure magazine. Also, in a recent survey,
Conde Naste magazine named Canyon Ranch-Berkshires and Canyon Ranch-Tucson as
the number one and number two destination health resorts in the country,
respectively.
Effective July 27, 1998, to enable the Company to invest in the future use of
the "Canyon Ranch" name, the Company contributed $50,500 to obtain a 5%
economic interest, representing all of the voting stock, of CRL Investments,
Inc. ("CRL"). Immediately following such contribution, CRL exercised its
purchase option by paying $1 million to obtain a 10% economic interest in CR
License LLC ("CR License"). CR License is the entity which owns the rights to
use the "Canyon Ranch" name. CRL has the opportunity over the next two years to
pay an additional $5 million to obtain an additional 20% interest in CR License.
With this recent acquisition, the Company has the ability to benefit from
future uses of the Canyon Ranch name. Contemporaneously, CRL acquired a 50%
interest in CR Las Vegas LLC, an entity that is building a Canyon Ranch day spa
in the Venetian Hotel in Las Vegas. Through CRL and CR License, the Company has
an effective 2.75% economic interest in the Canyon Ranch day spa project.
On February 4, 1998, the Ventana Country Inn closed its operations due to a
landslide that washed out Highway 1, the major access road to the property. The
Ventana Country Inn re-opened on May 1, 1998. The Company filed a claim for
losses under its business interruption insurance policy and during the third
quarter of 1998 the Company settled this claim and collected insurance proceeds
of $.8 million, resulting in total proceeds received from the claim of $1.2
million. The proceeds received have been included in Hospitality revenues for
the three and nine-month periods ended September 30, 1998.
Through its relationship with Crescent Partnership, which owns approximately 90
office buildings, the Company has established a program to offer tenants of
these office buildings travel packages for the hotels and destination health and
fitness resorts leased by the Company, thus gaining special access to a
significant number of potential customers to boost occupancy of these
properties.
19
<PAGE> 20
OPERATIONAL INFORMATION
The following table sets forth certain information about the properties in the
Hospitality Segment (the "Hospitality Properties"), excluding the interest in
the Houston Center Athletic Club Venture ("HCAC"), for the nine months ended
September 30, 1998 and 1997. The information for the Hospitality Properties is
based on available rooms, except for Canyon Ranch-Tucson and Canyon Ranch-Lenox,
which are destination health and fitness resorts that measure performance based
on available guest nights.
<TABLE>
<CAPTION>
Nine months ended September 30,
----------------------------------------------------
Average Average Daily Revenue Per
Occupancy Rate Available Room
Year Rate ("ADR") ("REVPAR")
Completed/ --------------- -------------- -----------------
Renovated Rooms 1998 1997 1998 1997 1998 1997
--------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury
Hyatt Regency Beaver Creek.... 1989 276(6) 72% 70% $236 $221 $173 $162
Denver Marriott City Center... 1982 613 81 82 126 118 102 96
Hyatt Regency Albuquerque..... 1990 395 70 75 102 99 71 74
Sonoma Mission Inn & Spa...... 1927/1987/1997 198 84 90 230 205 193 183
Four Seasons Hotel Houston.... 1982 399 65 68 179 159 116 108
Ventana Country Inn........... 1975/1982/1988 62 58(5) 86 380 329 221(5) 284
Austin Omni................... 1986 314 80 78 114 104 90 81
-------------------------------------------------------------
Total/Weighted Average 2,257 74% 77% $158 $147 $118 $113
=============================================================
Destination Health & Fitness
Resorts
Canyon Ranch-Tucson........... 1980 250(1)
Canyon Ranch-Lenox............ 1989 212(1)
----------
Total/Weighted Average 462 87%(2) 83%(2) $493(3) $466(3) $414(4) $370(4)
================================================================
</TABLE>
(1) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(2) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(3) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the maximum number of available guest nights for the
period.
(4) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
(5) Average occupancy rate and REVPAR decreased from the prior period due to
the closing of the Ventana Country Inn for approximately three months as a
result of the major access road leading to the property being washed out.
(6) In 1998, the number of rooms at the Hyatt Regency Beaver Creek was reduced
to 276 due to construction of a spa.
The following table sets forth average occupancy rate, average daily rate and
revenue per available room for the Hospitality Properties by full-service hotels
and destination health and fitness resorts for each of the years ended December
31, 1994 through 1997 and for the nine months ended September 30, 1998 and 1997.
The information for the Hospitality Properties is based on available rooms,
except for Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination
health and fitness resorts that measure performance based on available guest
nights and calculate occupancy, average daily rate and revenue per available
room as described in the notes of the preceding table.
<TABLE>
<CAPTION>
Nine months ended
September 30, Year Ended December 31,
------------------------ ------------------------------------------
1998 1997 1997 1996 1995 1994
---------- ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FULL-SERVICE
Average Occupancy................ 74% 77% 75% 75% 77% 73%
Average Daily Rate............... $158 $147 $155 $141 $122 $117
Revenue Per Available Room....... $118 $113 $116 $106 $ 93 $ 85
DESTINATION HEALTH AND FITNESS RESORTS
Average Occupancy................ 87% 83% 81% 81% 77% 78%
Average Daily Rate............... $493 $466 $477 $446 $437 $418
Revenue Per Available Room....... $414 $370 $370 $345 $321 $312
</TABLE>
20
<PAGE> 21
FINANCIAL ACTIVITY
Pretax income for all Hospitality Properties for the three and nine months ended
September 30, 1998 was $1.3 million and $7.7 million. Pretax income for all
Hospitality Properties as a percentage of revenues for the three and nine months
ended September 30, 1998 was 2.3% and 4.6%, respectively.
Cash flow of a Hospitality Property approximates pretax income plus non-cash
rent of a Hospitality property. Cash flow for all Hospitality Properties for the
three and nine months ended September 30, 1998 was $1.6 million and $9.2
million. Cash flow for all Hospitality Properties as a percentage of revenues
for the three and nine months ended September 30, 1998 was 2.8% and 5.4%,
respectively.
LAND DEVELOPMENT SEGMENT
RECENT DEVELOPMENTS
During the third quarter of 1998, The Woodlands announced the development of the
Village Five Country Club, a new exclusive country club with a guarded entrance
environment. The new country club will feature a new Jack Nicklaus signature
18-hole golf course. Additionally, The Woodlands has been ranked as the number
one land development in Texas and number six land development in the nation in
terms of new home sales.
Effective September 11, 1998, the Company and Gerald W. Haddock, John C. Goff
and Harry H. Frampton, III (collectively, the "CDMC Sellers") entered into a
partnership agreement (the "Partnership Agreement") to form COPI Colorado, L.P.,
a Delaware limited partnership ("COPI Colorado"). COPI Colorado's purpose is to
hold and manage the voting stock of Crescent Development Management Corp.
("CDMC") (and, consequently, to manage CDMC) and to invest in shares of Crescent
Operating common stock. As of September 22, 1998, pursuant to a contemporaneous
contribution agreement among the parties (the "Contribution Agreement"), the
Company had contributed to COPI Colorado $9.0 million in cash in exchange for a
50% general partner interest in COPI Colorado, and each CDMC Seller contributed
to COPI Colorado approximately 667 shares of CDMC voting stock (collectively,
the "CDMC Shares") in exchange for an approximately 16.67% limited partner
interest in COPI Colorado; as a result, the Company owns a 50% managing interest
in COPI Colorado and the CDMC Sellers collectively own a 50% investment interest
in COPI Colorado. The Intercompany Evaluation Committee of the Company's Board
of Directors (the "Committee") consulted with independent advisors regarding the
aggregate fair value of the CDMC shares. None of the directors who serve on the
Committee has any interest in COPI Colorado or the CDMC shares. Based on the
Committee's review of the terms of the Partnership Agreement and Contribution
Agreement and consultation with the independent advisors, the Committee
determined that the aggregate fair market value of the CDMC shares approximated
$9.0 million, which equals the Company's $9.0 million cash contribution to COPI
Colorado. The operating results of CDMC from September 22, 1998 to September 30,
1998 have not been included in the consolidated results of the Company as they
were immaterial for that period. As of September 30, 1998, COPI Colorado had
purchased 145,000 shares of Crescent Operating common stock, which has been
recorded as treasury stock, at a total purchase price of $963,000. The average
price paid for such shares was $6.64 per share.
21
<PAGE> 22
The Company funded its contribution to COPI Colorado using the proceeds from a
$9 million term loan from Crescent Partnership. The loan bears interest at 12%
per annum, with interest payable quarterly and the full original principal
amount of $9.0 million, together with any accrued but unpaid interest, payable
in May 2002. The Company's interest in COPI Colorado is collateral on the loan,
which is cross-collateralized and cross-defaulted with the Company's other
borrowings from Crescent Partnership.
CDMC is a privately-held corporation whose operations consist principally of
investing in partnerships and other entities that, directly or indirectly, own,
develop or manage residential and resort properties (primarily in Colorado and
Florida) or provide support services to such properties. All but one of CDMC's
investments are in entities in which Mr. Frampton has a direct or indirect
management interest.
CDMC's investments include indirect economic interests that vary from 18% to 70%
in the following: (i) five residential and commercial developments and seven
residential developments in Colorado; (ii) a Texaco gasoline station and
ancillary auto repair facility, car wash and convenience store in Colorado;
(iii) a timeshare development in Colorado; (iv) a real estate company that
markets and sells timeshare interests; (v) a real estate company that
specializes in the management of resort properties in Colorado, Utah and South
Carolina; (vi) two transportation companies that provide airport shuttle service
to Colorado resort areas; and (vii) an interest in a partnership that owns and
manages the Ritz Carlton Hotel in Palm Beach, Florida.
On September 17, 1998, the Company invested $.8 million to obtain a 2.6% limited
partner interest in Hillwood/1642, Ltd. ("Hillwood"). Hillwood is involved in
developing the acreage surrounding the new multi-sports arena to be erected in
Dallas, Texas for the Dallas Stars, a National Hockey League club, and the
Dallas Mavericks, a National Basketball Association club.
OPERATIONAL INFORMATION
The following table sets forth certain information as of September 30, 1998
relating to the residential development properties in which the Company owns an
interest.
<TABLE>
<CAPTION>
Total
Lots/Units Total Average
Total Developed Lots/Units Closed Sale
Lots/Units Since Closed Price Range of Proposed
Land Development Planned Inception Since Inception Per Lot/Unit Sale Prices Per Lot(1)
- - ---------------- ------------ ------------- ---------------- -------------- -----------------------
<S> <C> <C> <C> <C> <C>
Desert Mountain............ 2,543 2,000 1,715 $300,000(2) $150,000-$2,500,000
The Woodlands.............. 38,313 19,365 18,502 $ 40,000 $14,500-$500,000
Crescent Development
Management Corp............ 1,000 141 114 $532,000 $60,000-$3,250,000
------- ------- -------
Total Land Development..... 41,856 21,506 20,331
======= ======= =======
</TABLE>
(1) Based on existing inventory of developed lots and lots to be developed.
(2) Excludes golf membership.
FINANCIAL ACTIVITY
Investment income of the Land Development segment consists of equity investments
in The Woodlands Operating Company, L.P. ("TWOC") and The Woodlands Land
Development Company L.P. ("Landevco"). For the three and nine months ended
September 30, 1998, investment income related to these investments was $4.5
million and $15.2 million, respectively. Crescent Operating's economic share of
the investment income from TWOC and Landevco was $.7 million and $1.9 million
for three and nine months ended September 30, 1998, respectively.
22
<PAGE> 23
The remaining operations of the Land Development segment consists primarily of
the results of Desert Mountain Development Corp. ("Desert Mountain"). For the
three and nine months ended September 30, 1998, Desert Mountain had a net loss
of $4.7 million and $5.3 million, respectively. Crescent Operating's economic
share of the net loss was $.2 million and $.3 million, respectively. The
operations of Desert Mountain for the three and nine months ended September 30,
1998 include deferred income related to club membership sales of $2.5 million
and $16 million, respectively. This deferred income represents memberships that
have been paid but income from which must be recognized over the estimated life
of the membership. As a result, such deferred membership income will be
recognized in future years. Crescent Operating's economic share of the deferred
income was $.1 million and $.8 million for the three and nine months ended
September 30, 1998, respectively.
EQUIPMENT SALES AND LEASING SEGMENT
RECENT DEVELOPMENTS
Effective July 31, 1998, the Company acquired all of the stock of Harvey
Equipment Center, Inc. ("Harvey"), a company which is engaged in equipment
sales, leasing and servicing, located in Van Wert, Ohio. The purchase price of
approximately $8.4 million was comprised of $2.7 million in cash, the issuance
of notes payable by Crescent Operating in the amount of $1.2 million and the
assumption of $4.5 million of liabilities. The $1.2 million notes bear interest
at 8.0% per annum and are payable in eight semi-annual installments of principal
and interest of $.18 million. The transaction was treated as a purchase for
accounting purposes and accordingly the results of operations have been included
in the Company's financial statements from the effective date of acquisition.
Effective July 1, 1998, the Company acquired all of the stock of Western
Traction Company ("Western Traction"), a company that is engaged in equipment
sales, leasing and servicing, with locations in Sacramento, California, Union
City, California, Fresno, California, Sparks, Nevada and Honolulu, Hawaii. The
purchase price of approximately $52.0 million was comprised of $6.5 million in
cash, the issuance of a note payable by Crescent Operating in the amount of $7.5
million and the assumption of liabilities of $38 million. The $7.5 million note
bears interest at 8.5% per annum and is payable in 18 monthly installments of
principal and interest of $.45 million. The transaction was treated as a
purchase for accounting purposes and accordingly the results of operations have
been included in the Company's financial statements from the effective date of
acquisition.
23
<PAGE> 24
Crescent Machinery has 14 locations in Texas, California, Nevada, Oklahoma,
Ohio and Hawaii.
OPERATIONAL INFORMATION
Revenue components for the Equipment Sales and Leasing segment as a percentage
of total revenues of the Equipment Sales and Leasing segment for each period was
as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
New and used equipment sales ..... 63.2% 35.7% 65.7% 35.6%
Rental equipment ................. 20.5 32.3 17.3 37.7
Parts and service ................ 16.3 32.0 17.0 26.7
----- ----- ----- -----
Total revenue ................ 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>
FINANCIAL ACTIVITY
Earnings before interest expense, income taxes, depreciation and amortization
("EBITDA") for the Equipment Sales and Leasing segment for the three and nine
months ended September 30, 1998 was $5.2 million and $8.7 million, respectively.
EBITDA for the three months ended September 30, 1998 represents a full three
months of results for all entities in the Equipment Sales and Leasing segment
with the exception of Harvey Equipment Company which includes only two months of
results. Management believes that EBITDA can be a meaningful measure of
operating performance, cash generation and the ability to service debt. However,
EBITDA should not be considered as an alternative to either: (i) net income
(determined in accordance with GAAP); (ii) operating cash flow (determined in
accordance with GAAP); or (iii) liquidity. There can be no assurance that the
Company's EBITDA is comparable to similarly titled items reported by other
companies.
24
<PAGE> 25
HEALTHCARE SEGMENT
RECENT DEVELOPMENTS
Effective March 3, 1998, the Company signed a definitive agreement (the "Equity
Purchase Agreement") to acquire the 50% membership interest in CBHS currently
owned by Magellan CBHS Holdings, Inc., formerly Charter Behavioral Health
Systems, Inc. ("CBHS Holdings"). Also effective March 3, 1998, CBHS signed a
definitive agreement (the "Purchase Agreement") to acquire from Magellan Health
Services, Inc. ("Magellan") and certain direct and indirect subsidiaries of
Magellan, equity interests in certain entities, intellectual property rights,
including the "Charter" name and 800-CHARTER telephone number, and the assets of
certain staff model clinics. The Company signed a support agreement (the
"Support Agreement"), dated as of March 3, 1998, pursuant to which the Company
agreed, under certain conditions, to assist CBHS in obtaining the funds required
to consummate the transactions contemplated by the Purchase Agreement to pay
expenses incurred in obtaining such funds and to pay a $5 million termination
fee in the event that such transactions were not consummated or the Purchase
Agreement was terminated as a result of CBHS' failure to obtain the required
funds assuming other conditions to closing had been satisfied. The closing of
the transactions contemplated by the Equity Purchase Agreement and the Purchase
Agreement, which was originally scheduled for July 1998, was subject to certain
conditions which were not satisfied.
On August 14, 1998, Magellan exercised its right under the CBHS Operating
Agreement to take management control of CBHS due to arrearages in franchise fee
payments from CBHS. On August 19, 1998, the Company and Magellan each announced
its termination of negotiations with Magellan regarding the acquisition of the
50% interest in CBHS owned by Magellan.
On November 3, 1998, John C. Goff, one of the Company's two representatives on
the Governing Board of CBHS, resigned. Richard P. Knight, the Company's Chief
Financial Officer, has been appointed to fill the vacancy.
On November 5, 1998, Magellan notified Crescent Operating that Magellan
believes Crescent Operating (i) owes $2.3 million for the reimbursement of
expenses incurred in connection with attempts to obtain financing for CBHS's
payment obligations under the Purchase Agreement, (ii) owes Magellan a $5
million termination fee and (iii) may have failed to use "commercially
reasonable efforts" to secure financing for the transactions contemplated by
the Purchase Agreement. Crescent Operating disputes these claims. Magellan has
exercised its right under the Support Agreement to require that these matters
be submitted to arbitration if Magellan and Crescent Operating cannot reach
agreement on these issues. Because the Company's obligations under the Equity
Purchase Agreement and the Support Agreement was subject to prior satisfaction
of certain conditions that have not been met, the Company believes it is under
no obligation to reimburse CBHS for expenses incurred in connection with
attempts to obtain financing for CBHS's payment obligations under the Purchase
Agreement, or to pay the $5 million termination fee to Magellan. Crescent
Operating management intends to contest Magellan's claims vigorously.
25
<PAGE> 26
OPERATIONAL INFORMATION
The underlying data used to create the following table was provided by CBHS
management.
<TABLE>
<CAPTION>
For the Quarter For the Year
Ended September 30, Ended September 30,
------------------------------ ------------------------------------------------
1998 1997(4) 1998 1997(4) 1996(4)
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Average licensed beds ............... 7,206 7,411 7,206 7,424 7,407
Net revenue(1) ...................... $176,901,000 $179,641,000 $730,271,000 $764,059,000 $818,334,000
Total patient days(2) ............... 330,630 326,372 1,349,165 1,349,730 1,440,913
Total equivalent patient days(3) .... 372,347 367,386 1,518,412 1,523,366 1,603,354
Admissions .......................... 30,015 29,691 122,018 118,575 118,057
Average length of stay (days) ....... 11.7 11.1 11.1 11.1 12
Net revenue per equivalent
Patient days ................... $ 475 $ 489 $ 481 $ 502 $ 505
</TABLE>
(1) Includes inpatient and outpatient revenue.
(2) Number of 24-hour periods of inpatient care provided.
(3) Patient days plus outpatient revenue divided by inpatient average daily
rate.
(4) Amounts are based on carve-out financial statements and statistical data of
the Provider Segment. The year ended September 30, 1997 combines the
carved-out information and CBHS for the 106 days ended.
FINANCIAL ACTIVITY
As of September 30, 1998, the Company had made total equity and debt
contributions of $25.0 million to CBHS, including $17.5 million in redeemable
preferred interests. For financial reporting purposes, the amount of losses the
Company has recognized with respect to its investment in CBHS has been limited
to the balance of the investment in CBHS. The Company's investment in CBHS was
zero as of September 30, 1998 and the Company recognized no loss on its
investment in CBHS for the three months ended September 30, 1998. The Company
recognized losses of $7.7 million on its investment in CBHS for the same period
in 1997. The Company recognized a $5.4 million loss on its investment for the
nine months ended September 30, 1998 as compared to recognized losses of $8.1
million for the same period in 1997. CBHS's operating losses have been caused
primarily by downward trends in net revenue per equivalent patient day, which
management believes to be consistent with the general deterioration in the
behavioral healthcare industry and by certain fixed expenses, including annual
rental obligations to a subsidiary of Crescent Partnership of approximately $56
million and annual franchise fees of approximately $78 million to an affiliate
of Magellan.
REFRIGERATED WAREHOUSING SEGMENT
RECENT DEVELOPMENTS
On July 1, 1998, Americold Logistics, a group of companies in which Crescent
Operating owns a 2% indirect interest, acquired five refrigerated storage
properties from Carmar Group for approximately $163 million, which required a
capital contribution from Crescent Operating of $2.7 million. These properties
contain approximately 60 million cubic feet of refrigerated storage space.
26
<PAGE> 27
Americold Logistics, including the recent acquisitions of Freezer Services and
Carmar Group, has a market share of approximately 30%, while the market share of
the next largest competitor is only approximately 6%. According to management of
Americold Logistics, industry consolidation by Americold Logistics has created a
market share that Americold Logistics believes will allow it to offer current
and future customers a national solution to their refrigerated storage and
distribution needs and Americold Logistics believes that its national network of
storage and distribution services will permit it to capitalize on recent trends
characterized by food producers focusing on their core businesses and hiring
outside firms to meet their storage and distribution needs. According to
industry sources, during the period between 1987 and 1997, refrigerated storage
space provided by third parties grew by 60% while refrigerated storage space
provided by food producers grew by only 1%.
OPERATIONAL INFORMATION
The following information was provided by management of Americold Logistics and
shows the location and size of facility for each of the properties of the
companies in the Refrigerated Warehousing segment as of September 30, 1998:
<TABLE>
<CAPTION>
Number of Total Cubic Footage Number of Total Cubic Footage
State Properties (in millions) State Properties (in millions)
- - ----------------- ------------- ---------------------- ---------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Alabama 6 9.9 Mississippi 1 4.7
Arizona 1 2.9 Missouri 2 37.2
Arkansas 6 31.3 Nebraska 2 4.4
California 11 45.3 New York 1 11.8
Colorado 2 3.3 North Carolina 3 8.5
Florida 5 7.8 Oklahoma 2 2.1
Georgia 7 41.3 Oregon 6 40.4
Idaho 2 18.7 Pennsylvania 4 51.6
Illinois 2 11.6 South Carolina 1 1.6
Indiana 1 9.1 South Dakota 2 6.3
Iowa 2 12.6 Tennessee 3 10.6
Kansas 3 41.2 Texas 3 24.3
Kentucky 1 2.7 Utah 1 8.6
Maine 1 1.8 Virginia 1 1.9
Massachusetts 6 15.2 Washington 6 28.7
Minnesota 1 3.8 Wisconsin 2 14.0
------------- -------------
Total 97 515.2
============= =============
</TABLE>
FINANCIAL INFORMATION
For the three and nine months ended September 30, 1998, Crescent Operating's
effective 2% economic interest in Americold Logistics resulted in investment
income (loss) of $61,000 and ($30,000), respectively. For the three and nine
months ended September 30, 1998, Crescent Operating's economic share of EBITDA
of Americold Logistics was $.7 million and $1.7 million, respectively.
27
<PAGE> 28
SEGMENT FINANCIAL INFORMATION
The following is a summary of Crescent Operating's financial information
reported by segment for the three months ended September 30, 1998:
<TABLE>
<CAPTION>
EQUIPMENT
LAND SALES REFRIGERATED
HOSPITALITY DEVELOPMENT AND LEASING HEALTHCARE WAREHOUSING
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 58,181,964 $ 20,182,815 $ 33,460,868 $ -- $ --
Operating expenses ................... 56,958,253 25,077,242 31,372,441 -- 25,932
------------- ------------- ------------- ------------- -------------
Income (loss) from operations ........ 1,223,711 (4,894,427) 2,088,427 -- (25,932)
------------- ------------- ------------- ------------- -------------
Investment income (loss) ............. 7,815 4,483,330 -- -- 1,057,600
------------- ------------- ------------- ------------- -------------
Other (income) expense
Interest expense ................. 106,283 1,211,989 1,143,519 -- --
Interest income .................. (184,967) (681,227) (37,654) -- --
Other ............................ -- -- (224,738) -- --
------------- ------------- ------------- ------------- -------------
Total other (income) expense ......... (78,684) 530,762 881,127 -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before minority
interest and income taxes ........ 1,310,210 (941,859) 1,207,300 -- 1,031,668
Minority interest .................... 460 (51,014) -- -- (970,584)
------------- ------------- ------------- ------------- -------------
Income (loss) before taxes ........... 1,310,670 (992,873) 1,207,300 -- 61,084
Income tax benefit (provision) ....... (524,084) 1,191,739 (476,969) -- --
------------- ------------- ------------- ------------- -------------
Net income (loss) .................... $ 786,586 $ 198,866 $ 730,331 $ -- $ 61,084
============= ============= ============= ============= =============
Net income (loss) per share, basic ... $ 0.07 $ 0.02 $ 0.06 $ -- $ 0.01
============= ============= ============= ============= =============
Net income (loss) per share, diluted . $ 0.07 $ 0.02 $ 0.06 $ -- $ 0.01
============= ============= ============= ============= =============
EBITDA Calculation: (1)
Net income (loss) ................ $ 786,586 $ 198,866 $ 730,331 $ -- $ 61,084
Interest expense, net ............ 97,192 35,773 1,105,865 -- 224,520
Income tax provision (benefit) ... 524,068 140,272 476,969 -- 22,420
Depreciation and amortization .... 242,857 193,963 2,901,323 -- 373,640
------------- ------------- ------------- ------------- -------------
EBITDA ............................... $ 1,650,703 $ 568,874 $ 5,214,488 $ -- $ 681,664
============= ============= ============= ============= =============
<CAPTION>
OTHER TOTAL
------------- -------------
<S> <C> <C>
Revenues ............................. $ -- $ 111,825,647
Operating expenses ................... 1,086,378 114,520,246
------------- -------------
Income (loss) from operations ........ (1,086,378) (2,694,599)
------------- -------------
Investment income (loss) ............. 189,572 5,738,317
------------- -------------
Other (income) expense
Interest expense ................. 1,925,594 4,387,385
Interest income .................. (4,273) (908,121)
Other ............................ (500) (225,238)
------------- -------------
Total other (income) expense ......... 1,920,821 3,254,026
------------- -------------
Income (loss) before minority
interest and income taxes ........ (2,817,627) (210,308)
Minority interest .................... -- (1,021,138)
------------- -------------
Income (loss) before taxes ........... (2,817,627) (1,231,446)
Income tax benefit (provision) ....... 1,130,116 1,320,802
------------- -------------
Net income (loss) .................... $ (1,687,511) $ 89,356
============= =============
Net income (loss) per share, basic ... $ (0.15) $ 0.01
============= =============
Net income (loss) per share, diluted . $ (0.15) $ 0.01
============= =============
EBITDA Calculation: (1)
Net income (loss) .............. $ (1,687,511) $ 89,356
Interest expense, net .......... 1,921,321 3,384,671
Income tax provision (benefit) . (1,130,116) 33,613
Depreciation and amortization .. -- 3,711,783
------------- -------------
EBITDA ............................. $ (896,306) $ 7,219,423
============= =============
</TABLE>
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Amounts are calculated based on the Company's ownership
percentage of the EBITDA components. Management believes that EBITDA can be
a meaningful measure of the Company's operating performance, cash
generation and ability to service debt. However, EBITDA should not be
considered as an alternative to either: (i) net income (determined in
accordance with GAAP); (ii) operating cash flow (determined in accordance
with GAAP); (ii) operating cash flow (determined in accordance with GAAP);
or (iii) liquidity. There can be no assurance that the Company's
calculation of EBITDA is comparable to similarly titled items reported by
other companies.
28
<PAGE> 29
SEGMENT FINANCIAL INFORMATION
The following is a summary of Crescent Operating's financial information
reported by segment as of and for the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
EQUIPMENT
LAND SALES REFRIGERATED
HOSPITALITY DEVELOPMENT AND LEASING HEALTHCARE WAREHOUSING
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues ............................. $ 169,549,863 $ 93,462,554 $ 52,999,744 $ -- $ --
Operating expenses ................... 161,886,284 97,398,867 49,823,696 -- 63,148
------------- ------------- ------------- ------------- -------------
Income (loss) from operations ........ 7,663,579 (3,936,313) 3,176,048 -- (63,148)
------------- ------------- ------------- ------------- -------------
Investment income (loss) ............. 35,562 15,188,230 -- (5,390,000) (538,800)
------------- ------------- ------------- ------------- -------------
Other (income) expense
Interest expense ................ 304,636 4,669,306 1,844,368 -- --
Interest income ................. (321,695) (2,722,248) (71,152) -- --
Other ........................... -- -- (185,955) -- --
------------- ------------- ------------- ------------- -------------
Total other (income) expense ......... (17,059) 1,947,058 1,587,261 -- --
------------- ------------- ------------- ------------- -------------
Income (loss) before minority
interest and income taxes ....... 7,716,200 9,304,859 1,588,787 (5,390,000) (601,948)
Minority interest .................... 460 (5,483,817) -- -- 571,851
Income (loss) before taxes ........... 7,716,660 3,821,042 1,588,787 (5,390,000) (30,097)
Income tax benefit (provision) ....... (3,086,480) (2,937,481) (629,563) 2,156,000 --
------------- ------------- ------------- ------------- -------------
Net income (loss) .................... $ 4,630,180 $ 883,561 $ 959,224 $ (3,234,000) $ (30,097)
============= ============= ============= ============= =============
Net income (loss) per share, basic ... $ 0.41 $ 0.08 $ 0.08 $ (0.28) $ (0.00)
============= ============= ============= ============= =============
Net income (loss) per share, diluted . $ 0.38 $ 0.07 $ 0.08 $ (0.27) $ 0.01
============= ============= ============= ============= =============
EBITDA Calculation:(1)
Net income (loss) ............... $ 4,630,180 $ 883,561 $ 959,224 $ (3,234,000) $ (30,097)
Interest expense, net ........... 158,817 143,720 1,773,216 431,000 687,440
Income tax provision (benefit) .. 3,086,464 598,228 629,563 (2,156,000) (22,200)
Depreciation and amortization ... 625,261 475,009 5,368,744 475,500 1,036,040
------------- ------------- ------------- ------------- -------------
EBITDA ............................... $ 8,500,722 $ 2,100,518 $ 8,730,747 $ (4,483,500) $ 1,671,183
============= ============= ============= ============= =============
<CAPTION>
OTHER TOTAL
------------- -------------
<S> <C> <C>
Revenues ............................. $ -- $ 316,012,161
Operating expenses ................... 2,188,200 311,360,195
------------- -------------
Income (loss) from operations ........ (2,188,200) 4,651,966
------------- -------------
Investment income (loss) ............. 3,093,349 12,388,341
------------- -------------
Other (income) expense
Interest expense ................ 4,820,498 11,638,808
Interest income ................. (8,897) (3,123,992)
Other ........................... (1,800) (187,755)
------------- -------------
Total other (income) expense ......... 4,809,801 8,327,061
------------- -------------
Income (loss) before minority
interest and income taxes ....... (3,904,652) 8,713,246
Minority interest .................... -- (4,911,506)
------------- -------------
Income (loss) before taxes ........... (3,904,652) 3,801,740
Income tax benefit (provision) ....... 1,549,024 (2,948,500)
------------- -------------
Net income (loss) .................... $ (2,355,628) $ 853,240
============= =============
Net income (loss) per share, basic ... $ (0.21) $ 0.08
============= =============
Net income (loss) per share, diluted . $ (0.20) $ 0.07
============= =============
EBITDA Calculation:(1)
Net income (loss) ............... $ (2,355,628) $ 853,240
Interest expense, net ........... 4,811,601 8,005,794
Income tax provision (benefit) .. (1,549,024) 587,031
Depreciation and amortization ... -- 7,980,554
------------- -------------
EBITDA ............................... $ 906,949 $ 17,426,619
============= =============
</TABLE>
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization. Amounts are calculated based on the Company's ownership
percentage of the EBITDA components. Management believes that EBITDA can be
a meaningful measure of the Company's operating performance, cash
generation and ability to service debt. However, EBITDA should not be
considered as an alternative to either: (i) net income (determined in
accordance with GAAP); (ii) operating cash flow (determined in accordance
with GAAP); or (iii) liquidity. There can be no assurance that the
Company's calculation of EBITDA is comparable to similarly titled items
reported by other companies.
29
<PAGE> 30
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998,
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997
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 the nine
months ended September 30, 1997 is only with regard to the Predecessor from
January 1, 1997 to May 8, 1997 and the Company from May 9, 1997 to September 30,
1997.
REVENUES
Equipment sales and leasing revenues increased approximately $30.2 million to
$33.5 million for the three months ended September 30, 1998, compared to $3.2
million for the three months ended September 30, 1997. Revenues increased
approximately $43.4 million to $53.0 million for the nine months ended September
30, 1998, compared to $9.6 million for the nine months ended September 30, 1997.
Approximately $28.8 million and $40.0 million of this increase, for the three
and nine months, respectively, relates to the Company's purchases of Preco
Machinery Sales, Inc. ("Preco"), which was effective as of December 1, 1997,
Central Texas which was effective as of April 30, 1998, Machinery, Inc. which
was effective as of June 8, 1998, Western Traction Company which was effective
as of July 1, 1998 and Harvey Equipment Center, Inc., which was effective as of
July 31, 1998. The remaining increase in revenues relates to same store growth
at locations owned by the Company prior to the acquisitions. Same store revenues
increased $3.5 million to $13.0 million for the nine months ended September 30,
1998. Same store revenues increased $1.4 million to $4.6 million for the three
months ended September 30, 1998.
Hospitality revenues represent revenues from RoseStar and COI Hotel. Hospitality
revenues increased approximately $30.0 million to $58.2 million for the three
months ended September 30, 1998 compared to $28.1 million for the three months
ended September 30, 1997. Revenues increased approximately $141.4 million to
$169.5 million for the nine months ended September 30, 1998, compared to $28.1
million for the nine months ended September 30, 1997. The increase over prior
periods is largely due to the fact that the Company was not involved in the
Hospitality segment prior to July 31, 1997.
Land development revenues represent revenues from Desert Mountain prior to the
elimination of the 95% minority interest. As the Company was not involved in
Desert Mountain prior to September 29, 1997 land development revenues of $20.2
million and $93.5 million for the three and nine months ended September 30,
1998, respectively, represent a 100% increase over the three and nine months
ended September 30, 1997.
OPERATING EXPENSES
Equipment sales and leasing expenses increased $28.4 million to $31.4 million
for the three months ended September 30, 1998, compared to $3.0 million for the
three months ended September 30, 1997. Equipment sales and leasing expenses
increased $40.9 million to $49.8 million for the nine months ended September 30,
1998, compared to $8.9 million for the nine months ended September 30, 1997.
Approximately $27.3 million and $38.1 million of this increase, for the three
and nine months, respectively, relates to the Company's acquisitions. The
remaining increase in operating expenses relates to the additional costs
incurred as a result of the increase in equipment sales and lease revenue.
Hospitality direct expenses, which represent costs incurred by the full-service
hotels, as well as destination, health and fitness resorts and Hospitality
properties rent paid to Crescent Equities. Hospitality expenses increased $29.1
million to $57.0 million for the three months ended September 30, 1998, compared
to $27.8 million for the three months ended September 30, 1997. Hospitality
expenses increased approximately $134.1 million to $161.9 million for the nine
months ended September 30, 1998 compared to $27.8 million for the nine months
ended September 30, 1997. Increases of Hospitality expenses over the comparable
prior period amounts is due to the fact that Crescent Operating was not involved
in the Hospitality segment until July 31, 1997.
Land development direct expenses represent operating costs incurred by Desert
Mountain prior to the elimination of the 95% minority interest. As the Company
had not invested in Desert Mountain prior to September 29, 1997, land
30
<PAGE> 31
development expenses of $25.1 million and $97.4 million for the three months and
nine months ended September 30, 1998, respectively, represent a 100% increase
over the three months and nine months ended September 30, 1997.
General and administrative expenses of $1.1 million and $2.3 million for the
three months and nine months ended September 30, 1998, respectively, consisted
of corporate expenses such as legal and accounting costs, insurance costs,
corporate salaries and general overhead costs. The increase in general and
administrative expenses of $.6 million and $1.8 million over the three and nine
months ended September 30, 1997, respectively, is due to additional costs
incurred as a result of the large growth of the Company since the prior year.
INVESTMENT INCOME (LOSS)
Investment income of $5.7 million for the three months ended September 30, 1998
consisted of investment income from Hicks-Muse of $.2 million, equity in income
of Landevco of $4.0 million, equity in income of TWOC of $.5 million and equity
in income of the Refrigerated Warehousing segment of $1.0 million. The
investment loss for the three months ended September 30, 1997 of $6.9 million
represents the Company's share of losses from CBHS for that period.
Investment income of $12.4 million for the nine months ended September 30, 1998
consisted of investment income from Hicks-Muse of $3.1 million, equity in income
of Landevco of $14.0 million and equity in income of TWOC of $1.2 million,
offset by equity in losses of CBHS of $5.4 million and equity in losses of the
Refrigerated Warehousing segment of $.5 million. The investment loss for the
nine months ended September 30, 1997 of $7.3 million represents the Company's
share of losses from CBHS for that period.
OTHER (INCOME) EXPENSE
Interest expense increased $3.2 million and $10.2 million to $4.4 million and
$11.6 million, for the three and nine months ended September 30, 1998, compared
to $1.2 million and $1.5 million for the three and nine months ended September
30, 1997, respectively. The increase over prior periods is due to an increase in
debt levels due to various acquisitions late in 1997 and in 1998.
Interest income increased $.6 million and $2.8 million to $.9 million and $3.1
million for the three and nine months ended September 30, 1998, compared to $.3
million for each of the three and nine months ended September 30, 1997. The
increase over prior periods is due primarily to additional interest income from
lot sale notes receivables at Desert Mountain which was not acquired until
September 1997.
MINORITY INTERESTS
Minority interests of approximately $1.0 million for the three months ended
September 30, 1998 consisted primarily of the 95% minority interest in the
Refrigerated Warehousing segment. Minority Interests of approximately $4.9
million for the nine months ended September 30, 1998, consisted primarily of the
95% minority interest in Desert Mountain and the Woodlands Land Company. These
amounts represent a 100% increase over the three and nine months ended September
30, 1997 due to acquisitions in the Refrigerated Warehousing, Land Development
and Hospitality segments in October 1997, September 1997 and July 1997,
respectively.
INCOME TAX (PROVISION) BENEFIT
Income tax benefit of approximately $1.3 million for the three months ended
September 30, 1998, consisted of a $1.1 million benefit at the corporate level
and a $1.2 million benefit for the Land Development segment, offset by a $.5
million provision for the Hospitality segment and a $.5 million provision for
the Equipment Sales and Leasing segment. Income tax provision of approximately
$2.9 million for the nine months ended September 30, 1998, consisted of a $3.1
million provision for the Hospitality segment, a $2.9 million provision for the
Land Development segment, a $.6 million provision for the Equipment Sales and
Leasing segment, offset by a $2.2 million benefit for the Healthcare segment and
a $1.5 million benefit at the corporate level. These amounts represent a 100%
increase over the amounts for the three and nine month periods ended September
30, 1997. The Company generally provides for taxes using an assumed 40%
effective rate on the Company's share of income or loss. The effective rate
presented in the statement of operations is skewed due to the minority interest
of the Company's Assets.
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LIQUIDITY AND CAPITAL RESOURCES
Net cash flows provided by operating activities for the nine months ended
September 30, 1998 were $9.2 million compared with the net cash provided by
operating activities of $2 million for the nine months ended September 30, 1997.
Increases in cash related to the $9.2 million of cash provided by operating
activities for the nine months ended September 30, 1998 were current year income
of $.9 million, $14.3 million of depreciation and amortization, $14.3 million of
deferred revenue and $4.9 million of minority interests. Offsetting cash
increases were outflows related to cash used as a result of an increase in
accounts receivable and inventories of $6.3 million, a decrease in accounts
payable and accrued expenses of $2.9 million, investment income of $12.4
million, provision for deferred income taxes of $2.5 million and net purchases
of real estate of $1.8 million.
Net cash flows used in investing activities for the nine months ended September
30, 1998 were $120.8 million compared with the net cash used in investing
activities of $23.2 million for the nine months ended September 30, 1997.
Significant components of the $120.8 million of cash used in investing
activities for the nine months ended September 30, 1998 were cash used for the
acquisition of business interests of $139.1 million and purchases of property
and equipment of $26.3 million, offset by cash received from the collection and
sale of notes receivable of $25.9 million, cash received from Hicks-Muse of $6.0
million and dividends received of $9.6 million.
Net cash flows provided by financing activities for the nine months ended
September 30, 1998 were $107.3 million compared with the net cash provided by
financing activities of $39.0 million for the nine months ended September 30,
1997. Significant components of the $107.3 million of cash provided by financing
activities for the nine months ended September 30, 1998 were cash used for the
payments of long-term debt of $78.2 million, offset by net contributions by
minority interests of $112.9 million and cash received of $72.6 million from the
issuance of long term debt.
In connection with the formation and capitalization of Crescent Operating in the
second quarter of 1997, Crescent Operating received approximately $14.1 million
in cash from Crescent Partnership and Crescent Partnership loaned Crescent
Operating approximately $35.9 million pursuant to a five-year term loan,
maturing on May 8, 2002, of which approximately $25.8 million was outstanding as
of September 30, 1998. 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 which the Company now owns or may acquire in the future. The loan bears
interest at the rate of 12% per annum, compounded quarterly, with required
quarterly principal and interest payments limited by quarterly cash flow of the
Company as defined in the applicable credit agreement. The Company also obtained
a $20.4 million line of credit from Crescent Partnership in connection with its
formation and capitalization. Effective August 11, 1998, Crescent Operating
increased the line of credit by $10 million to $30.4 million. Its maturity date
and interest rate terms remained unchanged. Advances under the line of credit
bear 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 (in no
event shall the maturity date be later than June 2007). 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 which
the Company now owns or may acquire in the future. As of September 30, 1998,
$25.8 million and $24.8 million was outstanding under the term note and the line
of credit, respectively.
In August 1997, the Company obtained a $15.0 million short-term unsecured bank
line of credit from NationsBank. The line of credit is due in August 1999 and
bears interest at LIBOR plus 1%. The $15.0 million available under the line of
credit from NationsBank was fully drawn as of September 30, 1998.
As a part of the acquisition of a two-thirds interest in HCAC and a 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 Partnership at an
interest rate of 8.5% per annum. The $1.0 million note, which was collateralized
by the $5.0 million note the
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Company purchased as part of the transaction, was payable on an interest-only
basis through its maturity on September 21, 1998 and was paid in full upon
maturity. The $.8 million note is collateralized by the two-thirds interest in
HCAC and matures September 22, 2002. Monthly principal and interest payments on
the $.8 million loan commenced in November 1997. As of September 30, 1998, there
was $.7 million outstanding on the $.8 million note.
The Company funded its contribution to COPI Colorado using the proceeds from a
$9 million term loan from Crescent Equities. The loan bears interest at 12% per
annum, with interest payable quarterly and the full original principal amount of
$9.0 million, together with any accrued but unpaid interest, payable in May
2002. The Company's interest in COPI Colorado secures the loan, which is
cross-collateralized and cross-defaulted with the Company's other borrowings
from Crescent Equities.
Desert Mountain Properties also has a credit agreement with Crescent Partnership
pursuant to which Crescent Partnership has advanced funds to Desert Mountain
Properties through a "Junior Note", a "Senior Note" and a "Lot Sales Note". The
Junior Note evidences a $60.0 million advance from Crescent Partnership to
Desert Mountain Properties and accrues interest at 14% per annum. The Senior
Note evidences a $110.0 million advance from Crescent Partnership to Desert
Mountain Properties 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. The Lot Sales Note bore interest at an annual rate equal to the
prime rate plus 1%, and was payable in monthly installments based on the
previous month's proceeds obtained by Desert Mountain Properties from other land
note receivables. During the first quarter of 1998, Desert Mountain Properties
sold approximately $19.7 million of notes receivable on a non-recourse basis to
the National Bank of Arizona. The proceeds of such sale were used to pay off the
Lot Sales Note. As of September 30, 1998, the outstanding balances on the Junior
Note, Senior Note, and Lot Sales Note were $60.0 million, $81.5 million and $0
million, respectively.
Desert Mountain Properties entered into a $35 million credit facility with
National Bank of Arizona in May 1998. The facility is comprised of (i) a $25
million line of credit available for vertical financing related to new home
construction and bears an annual interest at the prime rate and (ii) a $10
million line of credit available for borrowings against certain notes receivable
issued by Desert Mountain Properties and bears an annual interest rate of prime
plus 1%. The credit facility is due in May 1999 with interest payable monthly,
collateralized by land owned by Desert Mountain Properties, deeds of trust on
lots sold and home construction. As of September 30, 1998, the outstanding
balance on the line of credit with National Bank of Arizona was $10.7 million.
Crescent Machinery has various equipment notes payable under credit facilities
to finance companies which are collateralized by the equipment financed. The
notes are payable in monthly principal and interest payments and bear interest
at 6% to 10.9% per annum. These notes mature between 1998 and 2003. As of
September 30, 1998, the outstanding balance on these equipment notes was $65.2
million, with available credit under the credit facilities of $43.7 million.
CDMC has a line of credit with Crescent Partnership that was increased from
$28.2 million to $40.2 million effective May 8, 1998. The line of credit is due
August 31, 2004, and bears interest at 11.5% per annum. Principal and interest
payments are due as distributions are received, as defined by the agreement. The
line of credit is collateralized by CDMC's interests in the East West Resort
Development partnerships, East West Resorts, LLC and CDMC's other property. As
of September 30, 1998, $32.3 million was outstanding under the line of credit.
CDMC also has a term loan with Crescent Partnership for $22.9 million, bearing
interest at 12% per annum, compounded annually. Principal and interest payments
are due as distributions are received, as defined by the agreement. The note is
due January 1, 2003. As of September 30, 1998, $13.6 million was outstanding on
the $22.9 million term note. CDMC has a second term loan with Crescent
Partnership for $3.1 million maturing June 2005. The note bears interest at 12%,
with interest payable quarterly and principal payable annually in accordance
with an increasing schedule. The note is collateralized by CDMC's interests in
East West Resorts, LLC, the East West Development partnerships and CDMC's other
property. As of September 30, 1998, $2.9 million was outstanding on the $3.1
million term note.
CDMC has various construction loans for East West projects which are
collateralized by deeds of trust, security agreements and a first lien on the
assets conveyed. The notes are payable in
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monthly principal and interest payments and bear interest at 6% to 9% per
annum. The notes mature between 1998 and 2003. As of September 30, 1998, the
outstanding balance on these construction notes was $25.4 million in the
aggregate.
The Company believes that equity and debt financing alternatives currently
available to the Company include public or private issuances of equity to
existing holders, issuances of equity in connection acquisitions of additional
assets and obtaining additional secured debt from Crescent Partnership, or in
connection with a refinancing of existing secured debt, from other lenders.
YEAR 2000 ISSUES
The Year 2000 issue has arisen because many computer systems use only the last
two digits, rather than four digits, to refer to any given year. In the absence
of corrective measures, computer systems that use date sensitive software may
interpret a date whose last two digits are "00" as the year 1900, rather than
the year 2000. Upon the arrival of the Year 2000, those computer systems that
are coded with only two digits may fail or cause miscalculations, potentially
causing costly interruptions to business operations. "Year 2000 compliance"
means the ability of hardware and software to interpret and manipulate correctly
date sensitive information up to and beyond the Year 2000. In addition, the Year
2000 issue relates to whether non-information technology systems that depend on
embedded computer technology will recognize the Year 2000. Non-information
technology systems that do not properly recognize such information could
generate erroneous information or fail.
In order to assess its Year 2000 compliance, the Company is currently reviewing
its information technology systems (such as accounting systems and network
operating systems) and non-information technology systems (such as
microcontrollers). The Company has requested information from the entities
comprising each of its segments regarding the systems used by those entities to
determine whether such systems are Year 2000 compliant. The assessment phase is
approximately 60% complete; and the Company anticipates that the assessment
phase will be completed by January 1999.
Upon completion of the assessment phase, the Company will implement a
modification phase. The modification phase will be followed by a testing phase.
Based on responses received from the entities as of September 30, 1998, the
Company's management believes that computer system modifications will be minimal
and that any required modifications to its mission critical systems will be
completed by the third quarter of 1999.
Management believes that the most significant risk associated with Year 2000
compliance issues relates to any inability of the Company's principal vendors
and suppliers to become Year 2000 compliant in a timely manner. For example, if
the computer systems used by the Company's principal equipment vendors or hotel
suppliers were to fail as a result of a failure to achieve Year 2000 compliance,
the Company may experience inventory shortages. Consequently, the Company could
experience business interruptions which potentially could have a material
adverse effect on the Company's operating results and financial position. The
Company is requesting from its principal vendors and suppliers information
regarding their Year 2000 issues and their plans to assure timely Year 2000
compliance. The Company is currently working with its vendors, suppliers and
other third-party contractors to assure that the Company will not be subjected
to substantial business interruptions as a result of Year 2000 issues. There can
be no assurance; however, that vendors, suppliers and other third parties will
achieve Year 2000 compliance in a timely manner or that any non-compliance on
the part of such persons will not have an adverse effect on the Company's
operations. The Company will develop a contingency plan in the event it
determines that the risks of business interruption are material.
As of September 30, 1998, the majority of the work performed has been performed
by the Company without significant additional costs to the Company. The
assessment of information technology and non-information technology systems has
not been completed and therefore a total cost to specifically remediate both
information technology and non-information technology systems cannot be fully
quantified; however, the Company estimates the total cost to repair and replace
systems that are not Year 2000 compliant to be immaterial to the Company. All
such costs will be expensed as incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 5, 1998, Magellan notified Crescent Operating that Magellan
believes Crescent Operating (i) owes $2.3 million for the reimbursement of
expenses incurred in connection with attempts to obtain financing for CBHS's
payment obligations under the Purchase Agreement, (ii) owes Magellan a $5
million termination fee and (iii) may have failed to use "commercially
reasonable efforts" to secure financing for the transactions contemplated by
the Purchase Agreement. Crescent Operating disputes these claims. Magellan has
exercised its right under the Support Agreement to require that these matters
be submitted to arbitration if Magellan and Crescent Operating cannot reach
agreement on these issues. Because conditions to the Company's obligations
under the Equity Purchase Agreement and the Support Agreement was subject to
prior satisfaction of certain conditions that have not been met, the Company
believes it is under no obligation to reimburse CBHS for expenses incurred in
connection with attempts to obtain financing for CBHS's payment obligations
under the Purchase Agreement, or to pay the $5 million termination fee to
Magellan. Crescent Operating management intends to contest Magellan's claims
vigorously.
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
(a) In September 1998, the Board of Directors of Crescent Operating amended
the Preferred Share Purchase Rights Plan to allow Gotham Partners, Ltd.
and its affiliates to acquire up to 15% of the outstanding common stock
without triggering the Rights Plan.
(b) Not Applicable
(c) 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
STOCKHOLDER PROPOSALS AT THE COMPANY'S
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN 1999
Under the rules of the Commission, stockholders who intend to submit proposals
for consideration at the Company's annual meeting of stockholders to be held in
1999 must submit such proposals to the Company no later than January 8, 1999, in
order to be considered for inclusion in the proxy statement and form of proxy to
be distributed by the Board of Directors in connection with that meeting.
Stockholder proposals should be submitted to Jeffrey L. Stevens, Secretary,
Crescent Operating, Inc., 306 West 7th Street, Suite 1025, Fort Worth, Texas
76102.
Under the Company's Amended and Restated Bylaws (the "Bylaws"), a stockholder
must follow certain other procedures to nominate persons for election as
directors or to propose other business to be considered at an annual meeting of
stockholders. These procedures provide that stockholders desiring to make
nominations for directors and/or to bring a proper subject before a meeting must
do so by notice timely received by the Secretary of the Company. The Secretary
of the Company generally must receive notice of any such proposal no earlier
than March 10, 1999, and no later than March 30, 1999, in the case of proposals
for the annual meeting of stockholders to be held in 1999 (other than proposals
intended to be included in the proxy statement and form of proxy, which, as
noted above, must be received by January 8, 1999). Generally, such stockholder
notice must set forth (a) as to each nominee for director, all information
relating to such nominee that is required to be disclosed in solicitations or
proxies for election of directors under the proxy rules of the Commission; (b)
as to any other business, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder; and (c)
as to the stockholder, (i) the name and address of such stockholder, (ii) the
number of shares of common stock
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which are owned beneficially and of record by such stockholder, and (iii) the
date(s) upon which the stockholder acquired ownership of such shares. The
chairman of the annual meeting shall have the power to declare that any proposal
not meeting these and any other applicable requirements imposed by the Bylaws
shall be disregarded. A copy of the Bylaws may be obtained without charge on
written request to Jeffrey L. Stevens, Secretary, Crescent Operating, Inc., 306
West 7th Street, Suite 1025, Fort Worth, Texas 76102.
In addition, the form of proxy solicited by the Board of Directors in connection
with Crescent Operating's annual meeting of stockholders to be held in 1999 will
confer discretionary authority to vote on any matter, unless the Secretary of
Crescent Operating receives notice of any such matter no earlier than March 10,
1998, and no later than March 30, 1999. Such notice should be submitted to
Jeffrey L. Stevens, Secretary, Crescent Operating, Inc., 306 West 7th Street,
Suite 1025, Fort Worth, Texas 76102.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description of Exhibits
-------------- -----------------------------------------------------
3.1* First Amended and Restated Certificate of
Incorporation
3.2* First Amended and Restated Bylaws
3.3***** Amendment of Article V of First Amended and Restated
Bylaws
3.4 Repeal of Amendment of Article V of First Amended
and Restated Bylaws
4.1* Specimen stock certificate
4.2* Preferred Share Purchase Rights Plan
4.3 First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A.,
as Rights Agent
10.1* Amended Stock Incentive Plan
10.2 Intercompany Agreement between Crescent Operating,
Inc. and Crescent Real Estate Equities Limited
Partnership (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the Quarter Ended June 30,
1997 of Crescent Operating, Inc. and incorporated
herein by reference)
10.3 Amended and Restated Operating Agreement of Charter
Behavioral Health Systems, LLC (filed as Exhibit 10.3
to the Quarterly Report on Form 10-Q of Crescent
Operating, Inc. for the Quarter Ended June 30, 1997
and incorporated herein by reference.)
10.5** Amended and Restated Credit and Security Agreement,
dated as of May 30, 1997, between Crescent Real
Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note
10.6** Line of Credit and Security Agreement, dated as of
May 21, 1997, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.,
together with related Line of Credit Note
10.7* Acquisition Agreement, dated as of February 10, 1997,
between Crescent Real Estate Equities Limited
Partnership and Carter-Crowley Properties, Inc.
10.10** Security Agreement dated September 22, 1997 between
COI Hotel Group, Inc., as debtor, and Crescent Real
Estate Equities Limited 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 Real
Estate Equities Limited Partnership, as lender,
together with related $800,000 promissory note
10.12** Amended and Restated Asset Management 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 Real Estate Equities Company and
Petroleum Financial, Inc.
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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 Real Estate Equities Company and
NationsBank of Texas, N.A.
10.18*** 1997 Crescent Operating, Inc. Management Stock
Incentive Plan
10.19*** Memorandum of Agreement executed November 16, 1997,
among Charter Behavioral Health Systems, LLC, Charter
Behavioral Health Systems, Inc. and Crescent
Operating, Inc.
10.20*** Purchase Agreement dated August 31, 1997, by and
among Crescent Operating, Inc., RoseStar Management
LLC, Gerald W. Haddock, John C. Goff and Sanjay Varma
10.21*** Stock Purchase Agreement dated August 31, 1997, by
and among Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Sanjay Varma
10.22 Amended and Restated Lease Agreement, dated June 30,
1995 between Crescent Real Estate Equities Limited
Partnership and RoseStar Management LLC, relating to
the Denver Marriott City Center (filed as Exhibit
10.17 to the Annual Report on Form 10-K of Crescent
Real Estate Equities Company for the Fiscal Year
Ended December 31, 1995 (the "1995 10-K") and
incorporated herein by reference)
10.23 Lease Agreement, dated December 19, 1995 between
Crescent Real Estate Equities Limited Partnership and
RoseStar Management LLC, relating to the Hyatt
Regency Albuquerque (filed as Exhibit 10.16 to the
1995 10-K and incorporated herein by reference)
10.24 Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among Crescent Real Estate Equities
Limited Partnership, Mogul Management, LLC and
RoseStar Management LLC, relating to the Hyatt
Regency Beaver Creek (filed as Exhibit 10.12 to the
1995 10-K and incorporated herein by reference)
10.25 Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C.,
assigned by Canyon Ranch, Inc. to Crescent Real
Estate Equities Limited Partnership pursuant to the
Assignment and Assumption Agreement of Master Lease,
dated July 26, 1996 (filed as Exhibit 10.24 to the
Quarterly Report on Form 10-Q/A of Crescent Real
Estate Equities Company for the Quarter Ended June
30, 1997 (the "June 1997 10-Q") and incorporated
herein by reference)
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited Partnership and
Wine Country Hotel, LLC (filed as Exhibit 10.25 to
the Annual Report on Form 10-K of Crescent Real
Estate Equities Company for the Fiscal Year Ended
December 31, 1996 and incorporated herein by
reference)
10.27 Lease Agreement, dated December 11, 1996, between
Canyon Ranch-Bellefontaine Associates, L.P. and
Vintage Resorts, L.L.C., as assigned by Canyon
Ranch-Bellefontaine Associates, L.P. to Crescent Real
Estate Funding VI, L.P. pursuant to the Assignment
and Assumption Agreement of Master Lease, dated
December 11, 1996 (filed as Exhibit 10.26 to the June
1997 10-Q and incorporated herein by reference)
10.28 Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Facilities (filed as Exhibit 10.27 to
the June 1997 10-Q and incorporated herein by
reference)
10.29*** Form of Indemnification Agreement
10.30*** Purchase Agreement, dated as of September 29, 1997,
between Crescent Operating, Inc. and Crescent Real
Estate Equities Limited Partnership, relating to the
purchase of Desert Mountain Development Corporation
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10.31**** Lease Agreement dated December 19, 1997, between
Crescent Real Estate Equities Limited Partnership, as
Lessor, and Wine Country Hotel, as Lessee, for lease
of Ventana Inn
10.32**** Lease Agreement dated September 22, 1997, between
Crescent Real Estate Equities Limited Partnership, as
lessor, and COI Hotel Group, Inc., as lessee, for
lease of Four Seasons Hotel, Houston
10.33**** Asset Purchase Agreement dated December 19, 1997,
among Crescent Operating, Inc. Preco Machinery Sales,
Inc., and certain individual Preco shareholders
10.34**** Asset Purchase Agreement dated April 30, 1998, among
Crescent Operating, Inc., Central Texas Equipment
Company, and certain individual Central Texas
shareholders
10.35**** Credit Agreement dated August 29, 1997 between
Crescent Real Estate Equities Limited Partnership, as
lender, and Desert Mountain Properties Limited
Partnership, as borrower, together with related
Senior Note, Junior Note and deed of trust
10.36**** Buy-Out Agreement dated April 24, 1998, between
Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership
10.37***** Stock Acquisition Agreement and Plan of Merger dated
June 4, 1998, among Machinery, Inc., Oklahoma
Machinery, Inc., Crescent Machinery Company, Crescent
Operating, Inc. and certain individual Machinery
shareholders
10.38***** Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited
Partnership and National Bank of Arizona
10.39***** 1997 Management Stock Incentive Plan
10.40 Credit and Security Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.,
together with related Note
10.41 First Amendment to Amended and Restated Pledge
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc.
10.42 First Amendment to Line of Credit Credit and Security
Agreement, dated as of August 11, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc., together with related Note
10.43 First Amendment to Amended and Restated Credit and
Security Agreement, dated as of August 11, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.44 Second Amendment to Amended and Restated Credit and
Security Agreement, dated as of September 21, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.45 Second Amendment to Line of Credit Credit and
Security Agreement, dated as of September 21, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.46 Agreement of Limited Partnership of COPI Colorado, L.
P. (filed as Exhibit 10.1 to that Schedule 13D
Statement dated September 28, 1998, filed by COPI
Colorado, L. P., Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III, and
incorporated herein by reference)
10.47 Contribution Agreement effective as of September 11,
1998, by and among Crescent Operating, Inc., Gerald
W. Haddock, John C. Goff and Harry H. Frampton, III
(filed as Exhibit 10.2 to that Schedule 13D Statement
dated September 28, 1998, filed by COPI Colorado, L.
P., Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III, and incorporated
herein by reference)
10.48 Agreement Regarding Schedules and Other Matters made
as of September 11, 1998, by and among Crescent
Operating, Inc., Gerald W. Haddock, John C. Goff and
Harry H. Frampton, III (filed as Exhibit 10.3 to that
Schedule 13D Statement dated September 28, 1998,
filed by COPI Colorado, L. P., Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Harry H.
Frampton, III, and incorporated herein by reference)
10.49 Stock Purchase Agreement dated as of August 7, 1998
by and among Western Traction Company, The Carlston
Family Trust, Ronald D. Carlston and Crescent
Operating, Inc.
10.50 Stock Purchase Agreement dated as of July 31, 1998 by
and among Harvey Equipment Center, Inc., L and H
Leasing Company, William J. Harvey, Roy E. Harvey,
Jr., Betty J. Harvey and Crescent Operating, Inc.
10.51 Credit Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership and
CRL Investments, Inc, together with the related Note.
10.52 Security Agreement dated as of July 28, 1998,
between Crescent Real Estate Equities Limited
Partnership and CRL Investments, Inc.
10.53 First Amendment to Credit Agreement effective as of
August 27, 1998, among Crescent Operating, Inc.,
NationsBank, N. A., and the Support Parties
identified therein.
10.54 Lease Agreement dated as of October 13, 1998, between
Crescent Real Estate Equities Limited Partnership and
Wine Country Golf Club, Inc., relating to Sonoma Golf
Club
27 Financial Data Schedule
* Incorporated by Reference to the Company's
registration statement on Form S-1 dated July 12,
1997
** Incorporated by Reference to the Company's September
30, 1997 Form 10-Q
*** Incorporated by Reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
**** Incorporated by Reference to the Company's March 31,
1998 Form 10-Q
***** Incorporated by Reference to the Company's June 30,
1998 Form 10-Q
(b) Reports on Form 8-K
Not Applicable
38
<PAGE> 39
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, on the 16th day of November, 1998.
CRESCENT OPERATING, INC.
(Registrant)
By /s/ Gerald W. Haddock
------------------------------------------------
Gerald W. Haddock, President and Chief
Executive Officer and Director (Principal
Executive Officer)
By /s/ Richard P. Knight
------------------------------------------------
Richard P. Knight, Chief Financial Officer
(Principal Financial and Accounting Officer)
39
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
-------------- -----------------------------------------------------
<S> <C>
3.1* First Amended and Restated Certificate of
Incorporation
3.2* First Amended and Restated Bylaws
3.3***** Amendment of Article V of First Amended and Restated
Bylaws
3.4 Repeal of Amendment of Article V of First Amended
and Restated Bylaws
4.1* Specimen stock certificate
4.2* Preferred Share Purchase Rights Plan
4.3 First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent
10.1* Amended Stock Incentive Plan
10.2 Intercompany Agreement between Crescent Operating,
Inc. and Crescent Real Estate Equities Limited
Partnership (filed as Exhibit 10.2 to the Quarterly
Report on Form 10-Q for the Quarter Ended June 30,
1997 of Crescent Operating, Inc. and incorporated
herein by reference)
10.3 Amended and Restated Operating Agreement of Charter
Behavioral Health Systems, LLC (filed as Exhibit 10.3
to the Quarterly Report on Form 10-Q of Crescent
Operating, Inc. for the Quarter Ended June 30, 1997
and incorporated herein by reference.)
10.5** Amended and Restated Credit and Security Agreement,
dated as of May 30, 1997, between Crescent Real
Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note
10.6** Line of Credit and Security Agreement, dated as of
May 21, 1997, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.,
together with related Line of Credit Note
10.7* Acquisition Agreement, dated as of February 10, 1997,
between Crescent Real Estate Equities Limited
Partnership and Carter-Crowley Properties, Inc.
10.10** Security Agreement dated September 22, 1997 between
COI Hotel Group, Inc., as debtor, and Crescent Real
Estate Equities Limited 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 Real
Estate Equities Limited Partnership, as lender,
together with related $800,000 promissory note
10.12** Amended and Restated Asset Management 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 Real Estate Equities Company and
Petroleum Financial, Inc.
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
-------------- -----------------------------------------------------
<S> <C>
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 Real Estate Equities Company and
NationsBank of Texas, N.A.
10.18*** 1997 Crescent Operating, Inc. Management Stock
Incentive Plan
10.19*** Memorandum of Agreement executed November 16, 1997,
among Charter Behavioral Health Systems, LLC, Charter
Behavioral Health Systems, Inc. and Crescent
Operating, Inc.
10.20*** Purchase Agreement dated August 31, 1997, by and
among Crescent Operating, Inc., RoseStar Management
LLC, Gerald W. Haddock, John C. Goff and Sanjay Varma
10.21*** Stock Purchase Agreement dated August 31, 1997, by
and among Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Sanjay Varma
10.22 Amended and Restated Lease Agreement, dated June 30,
1995 between Crescent Real Estate Equities Limited
Partnership and RoseStar Management LLC, relating to
the Denver Marriott City Center (filed as Exhibit
10.17 to the Annual Report on Form 10-K of Crescent
Real Estate Equities Company for the Fiscal Year
Ended December 31, 1995 (the "1995 10-K") and
incorporated herein by reference)
10.23 Lease Agreement, dated December 19, 1995 between
Crescent Real Estate Equities Limited Partnership and
RoseStar Management LLC, relating to the Hyatt
Regency Albuquerque (filed as Exhibit 10.16 to the
1995 10-K and incorporated herein by reference)
10.24 Form of Amended and Restated Lease Agreement, dated
January 1, 1996, among Crescent Real Estate Equities
Limited Partnership, Mogul Management, LLC and
RoseStar Management LLC, relating to the Hyatt
Regency Beaver Creek (filed as Exhibit 10.12 to the
1995 10-K and incorporated herein by reference)
10.25 Lease Agreement, dated July 26, 1996, between Canyon
Ranch, Inc. and Canyon Ranch Leasing, L.L.C.,
assigned by Canyon Ranch, Inc. to Crescent Real
Estate Equities Limited Partnership pursuant to the
Assignment and Assumption Agreement of Master Lease,
dated July 26, 1996 (filed as Exhibit 10.24 to the
Quarterly Report on Form 10-Q/A of Crescent Real
Estate Equities Company for the Quarter Ended June
30, 1997 (the "June 1997 10-Q") and incorporated
herein by reference)
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited Partnership and
Wine Country Hotel, LLC (filed as Exhibit 10.25 to
the Annual Report on Form 10-K of Crescent Real
Estate Equities Company for the Fiscal Year Ended
December 31, 1996 and incorporated herein by
reference)
10.27 Lease Agreement, dated December 11, 1996, between
Canyon Ranch-Bellefontaine Associates, L.P. and
Vintage Resorts, L.L.C., as assigned by Canyon
Ranch-Bellefontaine Associates, L.P. to Crescent Real
Estate Funding VI, L.P. pursuant to the Assignment
and Assumption Agreement of Master Lease, dated
December 11, 1996 (filed as Exhibit 10.26 to the June
1997 10-Q and incorporated herein by reference)
10.28 Master Lease Agreement, dated June 16, 1997, between
Crescent Real Estate Funding VII, L.P. and Charter
Behavioral Health Systems, LLC and its subsidiaries,
relating to the Facilities (filed as Exhibit 10.27 to
the June 1997 10-Q and incorporated herein by
reference)
10.29*** Form of Indemnification Agreement
10.30*** Purchase Agreement, dated as of September 29, 1997,
between Crescent Operating, Inc. and Crescent Real
Estate Equities Limited Partnership, relating to the
purchase of Desert Mountain Development Corporation
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibits
-------------- -----------------------------------------------------
<S> <C>
10.31**** Lease Agreement dated December 19, 1997, between
Crescent Real Estate Equities Limited Partnership, as
Lessor, and Wine Country Hotel, as Lessee, for lease
of Ventana Inn
10.32**** Lease Agreement dated September 22, 1997, between
Crescent Real Estate Equities Limited Partnership, as
lessor, and COI Hotel Group, Inc., as lessee, for
lease of Four Seasons Hotel, Houston
10.33**** Asset Purchase Agreement dated December 19, 1997,
among Crescent Operating, Inc. Preco Machinery Sales,
Inc., and certain individual Preco shareholders
10.34**** Asset Purchase Agreement dated April 30, 1998, among
Crescent Operating, Inc., Central Texas Equipment
Company, and certain individual Central Texas
shareholders
10.35**** Credit Agreement dated August 29, 1997 between
Crescent Real Estate Equities Limited Partnership, as
lender, and Desert Mountain Properties Limited
Partnership, as borrower, together with related
Senior Note, Junior Note and deed of trust
10.36**** Buy-Out Agreement dated April 24, 1998, between
Crescent Operating, Inc. and Crescent Real Estate
Equities Limited Partnership
10.37***** Stock Acquisition Agreement and Plan of Merger dated
June 4, 1998, among Machinery, Inc., Oklahoma
Machinery, Inc., Crescent Machinery Company, Crescent
Operating, Inc. and certain individual Machinery
shareholders
10.38***** Master Revolving Line of Credit Loan Agreement
(Borrowing Base and Warehouse) dated May 14, 1998,
between Desert Mountain Properties Limited
Partnership and National Bank of Arizona
10.39***** 1997 Management Stock Incentive Plan
10.40 Credit and Security Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities
Limited Partnership and Crescent Operating, Inc.,
together with related Note
10.41 First Amendment to Amended and Restated Pledge
Agreement, dated as of September 21, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc.
10.42 First Amendment to Line of Credit Credit and Security
Agreement, dated as of August 11, 1998, between
Crescent Real Estate Equities Limited Partnership and
Crescent Operating, Inc., together with related Note
10.43 First Amendment to Amended and Restated Credit and
Security Agreement, dated as of August 11, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.44 Second Amendment to Amended and Restated Credit and
Security Agreement, dated as of September 21, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.45 Second Amendment to Line of Credit Credit and
Security Agreement, dated as of September 21, 1998,
between Crescent Real Estate Equities Limited
Partnership and Crescent Operating, Inc.
10.46 Agreement of Limited Partnership of COPI Colorado, L.
P. (filed as Exhibit 10.1 to that Schedule 13D
Statement dated September 28, 1998, filed by COPI
Colorado, L. P., Crescent Operating, Inc., Gerald W.
Haddock, John C. Goff and Harry H. Frampton, III, and
incorporated herein by reference)
10.47 Contribution Agreement effective as of September 11,
1998, by and among Crescent Operating, Inc., Gerald
W. Haddock, John C. Goff and Harry H. Frampton, III
(filed as Exhibit 10.2 to that Schedule 13D Statement
dated September 28, 1998, filed by COPI Colorado, L.
P., Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III, and incorporated
herein by reference)
10.48 Agreement Regarding Schedules and Other Matters made
as of September 11, 1998, by and among Crescent
Operating, Inc., Gerald W. Haddock, John C. Goff and
Harry H. Frampton, III (filed as Exhibit 10.3 to that
Schedule 13D Statement dated September 28, 1998,
filed by COPI Colorado, L. P., Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Harry H.
Frampton, III, and incorporated herein by reference)
10.49 Stock Purchase Agreement dated as of August 7, 1998
by and among Western Traction Company, The Carlston
Family Trust, Ronald D. Carlston and Crescent
Operating, Inc.
10.50 Stock Purchase Agreement dated as of July 31, 1998 by
and among Harvey Equipment Center, Inc., L and H
Leasing Company, William J. Harvey, Roy E. Harvey,
Jr., Betty J. Harvey and Crescent Operating, Inc.
10.51 Credit Agreement dated as of July 28, 1998, between
Crescent Real Estate Equities Limited Partnership and
CRL Investments, Inc., together with the related
Note.
10.52 Security Agreement dated as of July 28, 1998,
between Crescent Real Estate Equities Limited
Partnership and CRL Investments, Inc.
10.53 First Amendment to Credit Agreement effective as of
August 27, 1998, among Crescent Operating, Inc.,
NationsBank, N. A., and the Support Parties
identified therein.
10.54 Lease Agreement dated as of October 13, 1998, between
Crescent Real Estate Equities Limited Partnership and
Wine Country Golf Club, Inc., relating to Sonoma Golf
Club
27 Financial Data Schedule
* Incorporated by Reference to the Company's
registration statement on Form S-1 dated July 12,
1997
** Incorporated by Reference to the Company's September
30, 1997 Form 10-Q
*** Incorporated by Reference to the Company's Annual
Report on Form 10-K for the year ended December 31,
1997
**** Incorporated by Reference to the Company's March 31,
1998 Form 10-Q
***** Incorporated by Reference to the Company's June 30,
1998 Form 10-Q
</TABLE>
<PAGE> 1
EXHIBIT 3.4
EXCERPT FROM MINUTES OF NOVEMBER 2, 1998, MEETING OF BOARD OF DIRECTORS
"WHEREAS, the Board at a meeting held April 15, 1998, amended and
restated Article V (the "Amendment") of the Amended and Restated Bylaws of
Crescent Operating, Inc. (the "Bylaws") ...; and ...
WHEREAS, prior notice of the proposed repeal of the Amendment was set
forth in the notice of this meeting given to and received by all members of the
Board, in accordance with Article VII of the Bylaws governing amendments to the
Bylaws;
NOW, THEREFORE, BE IT RESOLVED, that the Amendment be and hereby is
repealed and revoked in its entirety and accordingly Article V of the Bylaws is
reinstated as it was immediately prior to the enactment of the Amendment."
[Article V as reinstated is attached]
<PAGE> 2
ARTICLE V
OFFICERS
Section 1. Categories of Officers. The elected officers of the
Corporation shall consist of a Chairman of the Board, a Vice Chairman of the
Board, a Chief Executive Officer, a President, one or more Executive Vice
Presidents or Vice Presidents, a Secretary and a Treasurer. Such other officers,
assistant officers, agents and employees as the Board of Directors may from time
to time deem necessary may be elected by the Board of Directors or appointed by
the Chairman of the Board. The Chairman of the Board and the Vice Chairman of
the Board shall be chosen from among the directors. Two or more offices may be
held by the same person, except that a person may not concurrently serve as the
President and a Vice President or Executive Vice President. Each officer chosen
or appointed in the manner prescribed by the Board of Directors shall have such
powers and duties as generally pertain to his or her office or offices, subject
to the specific provisions of this Article V. Such officers also shall have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof authorized to do so.
Section 2. Election and Term of Office. The elected officers of the
Company shall be elected annually by the Board of Directors at the regular
meeting of the Board of Directors held after each annual meeting of the
stockholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as is convenient. Each officer
shall hold office until his or her successor shall have been duly elected and
shall have qualified, or until his or her death or until he or she shall resign
or be removed from office.
Section 3. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors. The
Chairman of the Board shall be responsible for general management of the affairs
of the Corporation and shall perform all duties incidental to the office which
may be required by law, and all such other duties as may properly be required by
the Board of Directors. Except where by law the signature of the Chief Executive
Officer or the President is required, the Chairman of the Board shall possess
the same power as the Chief Executive Officer and the President to sign all
certificates, contracts, and other instruments of the Company which may be
authorized by the Board of Directors. The Chairman of the Board shall make such
reports to the Board of Directors and the stockholders as are properly required
by the Board of Directors. The Chairman of the Board shall see that all orders
and resolutions of the Board of Directors and of any committee thereof are
carried into effect.
Section 4. Vice Chairman of the Board. The Vice Chairman of the Board
shall, in the absence of the Chairman, preside at all meetings of the
stockholders and of the Board of Directors. The Vice Chairman of the Board
shall, together with the Chairman of the Board and the Chief Executive Officer,
act in a general executive capacity and shall have such powers and duties as
from time to time may be established by the Board of Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer shall
act in a general executive capacity and shall assist the Chairman of the Board
in the administration and operation of the Corporation's business and general
supervision of its policies and affairs. The Chief Executive Officer may, in the
absence of or because of the inability to act of the Chairman of the Board,
perform all duties of the Chairman of the Board and, in the absence of or
because of the inability to act of the Chairman of the Board and the Vice
Chairman of the Board, preside at all meetings of stockholders and of the Board
of Directors. The Chief Executive Officer may sign, alone or with the Secretary
or any assistant secretary or any other officer of the Corporation properly
authorized by
<PAGE> 3
the Board of Directors, certificates, contracts and other instruments of the
Company as authorized by the Board of Directors.
Section 6. President. The President shall be the chief operating
officer of the Corporation, shall act in a general executive capacity and shall
assist the Chairman of the Board and the Chief Executive Officer in the
administration and operation of the Corporation's business and general
supervision of its policies and affairs. The President may, in the absence of or
because of the inability to act of the Chairman of the Board and the Chief
Executive Officer, perform all duties of the Chairman of the Board and, in the
absence of or because of the inability to act of the Chairman of the Board, the
Vice Chairman of the Board and the Chief Executive Officer, preside at all
meetings of stockholders and of the Board of Directors. The President may sign,
alone or with the Secretary or any assistant secretary or any other officer of
the Corporation properly authorized by the Board of Directors, certificates,
contracts and other instruments of the Company as authorized by the Board of
Directors.
Section 7. Vice Presidents. The Vice President or Vice Presidents, if
any, including any Executive Vice Presidents, shall perform the duties of the
Chief Executive Officer and the President in the absence or disability of both
the Chief Executive Officer and the President, and shall have such powers and
perform such other duties as the Board of Directors or the Chairman of the Board
from time to time may prescribe.
Section 8. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of shareholders and directors and all other notices
required by law, by the Articles of Incorporation or by these Bylaws, and in
case of his or her absence or refusal or neglect so to do, any such notice may
be given by any person thereunto directed by the Chairman of the Board, the Vice
Chairman of the Board, the Chief Executive Officer, the President or the Board
of Directors, upon whose request the meeting is called, as provided in these
Bylaws. The Secretary shall record all the proceedings of the meetings of the
Board of Directors, any committees thereof and the stockholders of the
Corporation in a book or books to be kept for that purpose, and shall perform
such other duties as from time to time may be prescribed by the Board of
Directors, the Chairman of the Board, the Chief Executive Officer or the
President. The Secretary shall have custody of the seal, if any, of the
Corporation and shall affix the same to all instruments requiring it, when
authorized by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President, and shall attest to the same.
Section 9. Treasurer. The Treasurer shall have custody of all
Corporation funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the Corporation. The Treasurer
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation in such
manner as may be ordered by the Board of Directors, the Chairman of the Board,
the Chief Executive Officer or the President, taking proper vouchers for such
disbursements. The Treasurer shall render to the Chairman of the Board, the
Chief Executive Officer, the President and the Board of Directors, whenever
requested, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Treasurer shall give the Corporation a bond for the faithful discharge of
his or her other duties in such amount and with such surety as the Board of
Directors shall prescribe. The Treasurer also shall perform such duties and have
such powers as the Board of Directors from time to time may prescribe.
<PAGE> 4
Section 10. Removal. Any officer elected by the Board of Directors or
appointed in the manner prescribed hereby may be removed by a majority of the
members of the Whole Board whenever, in their judgment, the best interests of
the Company would be served thereby. No elected or appointed officer shall have
any contractual rights against the Corporation for compensation by virtue of
such election or appointment beyond the date of the election or appointment of
his or her successor, his or her death, resignation or removal, whichever event
shall first occur, except as otherwise provided in an employment or similar
contract or under an employee deferred compensation plan.
Section 11. Salaries. The Board of Directors shall fix the salaries of
the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive
Officer and the President of the Corporation, or may delegate the authority to
do so to a duly constituted committee of the Board of Directors. The salaries of
other officers, agents and employees of the Corporation may be fixed by the
Board of Directors, by a committee of the Board, by the Chairman of the Board or
by another officer or committee to whom that function has been delegated by the
Board of Directors or the Chairman of the Board.
Section 12. Vacancies. Any newly created office or vacancy in any
office because of death, resignation or removal shall be filled by the Board of
Directors or, in the case of an office not specifically provided for in Section
1 hereof by or in the manner prescribed by the Board of Directors. The officer
so selected shall hold office until his or her successor is duly selected and
shall have qualified, unless he or she sooner resigns or is removed from office
in the manner provided in these Bylaws.
Section 13. Resignations. Any director or officer, whether elected or
appointed, may resign at any time by serving written notice of such resignation
on the Chairman of the Board, the Chief Executive Officer, the President or the
Secretary, and such resignation shall be deemed to be effective as of the close
of business on the date said notice is received by the Chairman of the Board,
the Chief Executive Officer, the President or the Secretary. No action shall be
required of the Board of Directors or the stockholders to make any such
resignation effective.
<PAGE> 1
EXHIBIT 4.3
FIRST AMENDMENT TO PREFERRED SHARE
PURCHASE RIGHTS AGREEMENT
This First Amendment to Preferred Share Purchase Rights Agreement (this
"Amendment") is made and entered into effective this __ day of September 1998 by
and between Crescent Operating, Inc., a Delaware corporation (the "Company"),
and BankBoston, N.A., as Rights Agent (the "Rights Agent"), with reference to
that certain Preferred Share Purchase Rights Agreement, dated as of June 11,
1997, by and between the Company and the Rights Agent (the "Rights Agreement").
Each capitalized term used in this Amendment and not defined herein shall have
the respective meaning ascribed to such term in the Rights Agreement.
WHEREAS, the Board of Directors of the Company has approved and adopted
this Amendment and the terms hereof;
WHEREAS, the Company has authorized certain of its officers and directors
to execute and deliver this Amendment on behalf of the Company;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the Company and the Rights Agent hereby agree as follows.
1. Amendment to Section 1(a). Section 1(a) of the Rights Agreement is
hereby amended by deleting such section in its entirety and substituting for
such section, as a replacement Section 1(a), the following:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner
of 10% or more of the Common Shares of the Company then outstanding but
shall not include (i) the Company, (ii) any Subsidiary of the Company,
(iii) any employee benefit plan of the Company or of any Subsidiary of the
Company, or any entity holding Common Shares for or pursuant to the terms
of any such plan, (iv) Crescent and its controlled Affiliates and its
directors and executive officers and their controlled Affiliates, or (v)
Gotham Partners, L.P., together with all Affiliates and Associates thereof
(collectively, "Gotham"), but only if and to the extent that Gotham,
together with all Affiliates and Associates thereof, shall be the
Beneficial Owner of 15% or less of the Common Shares of the Company then
outstanding. Notwithstanding anything in this definition of Acquiring
Person to the contrary, no Person shall become an "Acquiring Person" as the
result of an
<PAGE> 2
acquisition of Common Shares by the Company which, by reducing the
number of shares outstanding, increases the proportionate number of
shares beneficially owned by such Person to 10% or more of the Common
Shares of the Company then outstanding (or, in the case of Gotham, to
more than 15% of the Common Shares of the Company then outstanding);
provided, however, that if a Person shall become the Beneficial Owner of
10% or more of the Common Shares of the Company then outstanding, or if
Gotham shall become the Beneficial Owner of more than 15% of the Common
Shares of the Company then outstanding, by reason of share purchases by
the Company and shall, after such share purchases by the Company, become
the Beneficial Owner of any additional Common Shares of the Company,
then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding anything in this definition of Acquiring Person to the
contrary, if the Board of Directors determines in good faith that a
Person who would otherwise be an "Acquiring Person," as defined pursuant
to the foregoing provisions of this paragraph (a), has become such
inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer
be an "Acquiring Person," as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
2. Amendment to Section 3(a). Section 3(a) of the Rights Agreement is
hereby amended by deleting such section in its entirety and substituting for
such section, as a replacement Section 3(a), the following:
(a) Until the earlier of (i) the tenth day after the Shares Acquisition
Date or (ii) the tenth Business Day (or such later date as may be
determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement
by any Person (other than the Company, any Subsidiary of the Company,
any employee benefit plan of the Company or of any Subsidiary of the
Company, any entity holding Common Shares for or pursuant to the terms
of any such plan, or, any Crescent Affiliate) of, or of the first public
announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or
of any Subsidiary of the Company, any entity holding Common Shares for
or pursuant to the terms of any such plan or, any Crescent Affiliate) to
commence, a tender or exchange offer the consummation of which would
result in any Person becoming an
2
<PAGE> 3
Acquiring Person (the earlier of such dates being herein referred to as
the "Rights Distribution Date"), (x) the Rights will be evidenced
(subject to the provisions of Section 3(b) hereof) by the certificates
for Common Shares registered in the names of the holders thereof (which
certificates shall also be deemed to be Right Certificates) and not by
separate Right Certificates, and (y) the right to receive Right
Certificates will be transferable only in connection with the transfer
of Common Shares. As soon as practicable after the Rights Distribution
Date, the Company will prepare and execute, the Rights Agent will
countersign, and the Company will send or cause to be sent (and the
Rights Agent will, if requested, send) by first-class, postage-prepaid
mail, to each record holder of Common Shares as of the Close of Business
on the Rights Distribution Date, at the address of such holder shown on
the records of the Company, a Right Certificate, in substantially the
form of Exhibit B hereto (a "Right Certificate"), evidencing one Right
for each Common Share so held. From and after the Rights Distribution
Date, the Rights will be evidenced solely by such Right Certificates.
3. Amendment to Exhibit C. Exhibit C to the Rights Plan is hereby
amended by deleting such exhibit in its entirety and substituting for such
exhibit, as a replacement, the attached Exhibit C-1.
4. Effect on Rights Plan. On and after the date of this Amendment, each
reference in the Rights Plan to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import referring to the Rights Plan shall mean and be
a reference to the Rights Plan as amended by this Amendment, and this Amendment
shall be deemed to be a part of the Rights Plan. Except as specifically amended
by this Amendment, (i) the Rights Plan is hereby ratified and confirmed, and
(ii) the terms and provisions of the Rights Plan shall remain in full force and
effect.
5. Applicable Law. This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely within such State.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date written above.
CRESCENT OPERATING, INC.
By:
----------------------------
Its
-------------------------
BANKBOSTON, N.A.
By:
----------------------------
Its
-------------------------
4
<PAGE> 5
Exhibit C-1
Form of
SUMMARY OF RIGHT TO PURCHASE
PREFERRED SHARES
On June 12, 1997, the Board of Directors of Crescent Operating, Inc. (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, par value $.01 per share, of the
Company (the "Common Shares"). The dividend was payable on June 12, 1997 to the
stockholders of record on that date (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
Series A Junior Participating Preferred Stock, par value $.01 per share, of the
Company (the "Preferred Shares") at a price of $5 per one one-hundredth of a
Preferred Share (the "Purchase Price"), subject to adjustment. The description
and terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and BankBoston, N.A., as Rights Agent (the
"Rights Agent"). Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons has
acquired beneficial ownership of 10% or more of the outstanding Common Shares
(subject to certain exceptions described generally below, an "Acquiring Person")
or (ii) 10 business days (or such later date as may be determined by action of
the Board of Directors of the Company prior to such time as any person or group
of affiliated persons becomes an Acquiring Person) following the commencement
of, or announcement of an intention to make, a tender offer or exchange offer
the consummation of which would result in any person or group of affiliated
persons becoming an Acquiring Person (the earlier of such dates being the
"Rights Distribution Date"), the Rights will be evidenced, with respect to any
of the Common Share certificates Outstanding as of the Record Date, by such
Common Share certificate with a copy of this Summary of Rights attached thereto.
The Rights Agreement contains exceptions from its operating provisions for (i)
Crescent and certain of its affiliates and (ii) Gotham Partners, L.P., together
with its affiliates and associates, but only if and to the extent that Gotham
Partners, L.P., together with its affiliates and associates, have beneficial
ownership of 15% or less of the outstanding Common Shares.
C-1
<PAGE> 6
The Rights Agreement provides that, until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), new Common Share certificates
issued after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Rights Distribution Date (or earlier redemption or expiration of the Rights),
the surrender for transfer of any certificates for Common Shares outstanding as
of the Record Date, even without such notation or a copy of this Summary of
Rights being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificates. As soon as
practicable following the Rights Distribution Date, separate certificates
evidencing the Rights ("Right Certificates") will be mailed to holders of record
of the Common Shares as of the close of business on the Rights Distribution Date
and such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Rights Distribution Date. The
Rights will expire on the date which is the tenth anniversary of the Record Date
(the "Final Expiration Date"), unless the Final Expiration Date is extended or
unless the Rights are earlier redeemed or exchanged by the Company, in each
case, as described below.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares; (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares; or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Rights Distribution Date.
C-2
<PAGE> 7
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each Preferred
Share will have 100 votes, voting together with the Common Shares. Finally, in
the event of any merger, consolidation or other transaction in which Common
Shares are exchanged, each Preferred Share will be entitled to receive 100 times
the amount received per Common Share. These rights are protected by customary
antidilution provisions.
Because of the nature of the Preferred Shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a Preferred Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold after a person or group has become an Acquiring Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current exercise price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction will have a market value of two times the
exercise price of the Right. In the event that any person or group of affiliated
or associated persons becomes an Acquiring Person, proper provision shall be
made so that each holder of a Right, other than Rights beneficially owned by the
Acquiring Person (which will thereafter be void), will thereafter have the right
to receive upon exercise that number of Common Shares having a market value of
two times the exercise price of the Right.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Shares, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such person or group which will have become void),
in whole or in part, at an exchange ratio of one Common Share, or one
one-hundredth of a Preferred Share, per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
C-3
<PAGE> 8
No fractional Preferred Shares will be issued (other than fractions which
are integral multiples of one one-hundredth of a Preferred Share, which may, at
the election of the Company, be evidenced by depositary receipts) and, in lieu
thereof, an adjustment in cash will be made based on the market price of the
Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the time that any person or group of affiliated or
associated persons becomes an Acquiring Person, the Board of Directors of the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (the "Redemption Price"). The redemption of the Rights may be made
effective at such time on such basis with such conditions as the Board of
Directors in its sole discretion may establish. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, except that from and
after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitations the right
to vote or to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997 (File No. 0-22725). A copy of the Rights
Agreement is available free of charge from the Company. This summary description
of the Rights does not purport to be complete and is qualified in its entirety
by reference to the Rights Agreement, which is hereby incorporated herein by
reference.
C-4
<PAGE> 1
EXHIBIT 10.40
Execution Copy
CREDIT AND SECURITY AGREEMENT
THIS 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
September 21, 1998 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 principal amount of $9,000,000 for the
purpose of permitting the Borrower to make certain investments identified
herein; and
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 that 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.
"Bankruptcy Event of Default" has the meaning set forth in Section 7.1.
"Borrower" means Crescent Operating, Inc., a Delaware corporation, 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 Equivalent" 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
<PAGE> 2
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 that is rated at least A-2 by Standard and Poor's Ratings
Group or P-2 by Moody's Investors Service, Inc., (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 Ratings Group or A by Moody's Investors
Service, Inc., (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 that 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.
"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.
"COPI Colorado" means COPI Colorado, L.P., a Delaware limited
partnership.
"Debt" of any Person means at any date, (a) all obligations of such
Person that in accordance with GAAP would be classified on a balance sheet of
such Person as liabilities of such Person ("debt"), (b) 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 (c) all debt of others guaranteed by such Person.
"Default" means any condition or event that constitutes an Event of
Default or that 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).
"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).
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<PAGE> 3
"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 dated as of May 21, 1997 between the Borrower and the Lender,
as amended by the First Amendment to Line of Credit Credit and Security
Agreement dated as of August 11, 1998, as further amended by the Second
Amendment to Line of Credit Credit and Security Agreement dated as of September
21, 1998, relating to the loan evidenced by the Line of Credit Note, as such
agreement may be further modified, supplemented or amended from time to time.
"Line of Credit Note" means the Amended and Restated Line of Credit
Note of the Borrower payable to the order of Lender dated August 11, 1998,
evidencing the obligation of the Borrower to repay the loan under the Line of
Credit Credit Agreement, as such note 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.
"Loan" has the meaning set forth in the recitals hereto.
"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 Promissory Note of the Borrower payable to the order
of the Lender under the terms of this Agreement dated as of September 21, 1998,
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 A hereto, in the original
principal amount of Nine Million Dollars ($9,000,000.00), 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.
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<PAGE> 4
"Pledge Agreement" means the Amended and Restated Pledge Agreement made
by Borrower in favor of the Lender dated as of June 16, 1997, as amended by the
First Amendment to Amended and Restated Pledge Agreement dated as of September
21, 1998, as the same may be further 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 Term 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, that may arise under, out of, or connection
with, this Agreement, the Term Loan Credit and Security Agreement, the Line of
Credit Credit Agreement, the Note, the Term 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.
"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 that 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 Amended and
Restated Credit and Security Agreement dated as of May 21, 1997 between the
Borrower and the Lender, as amended by the First Amendment to Amended and
Restated Credit and Security Agreement dated as of August 11, 1998, as further
amended by the Second Amendment to Amended and Restated Credit and Security
Agreement dated as of September 21, 1998, relating to the loan evidenced by the
Term Note, as such agreement may be further modified, supplemented or amended
from time to time.
"Term Note" means the Amended and Restated Promissory Note of the
Borrower payable to the order of the Lender dated as of May 21, 1997, evidencing
the obligation of the Borrower to repay the loan under the Term Loan Credit and
Security Agreement, as such note 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.
"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.
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<PAGE> 5
(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 AND NOTE
SECTION 2.1 Commitment and Fee.
(a) The Lender agrees, on and subject to the terms and
conditions set forth in this Agreement, to advance to
the Borrower the principal amount of Nine Million
Dollars ($9,000,000.00).
(b) The Borrower shall pay to the Lender a fee of $45,000
on the Closing Date.
SECTION 2.2 The Note.
(a) The Loan will be evidenced by the Note. All
outstanding principal of and interest on the Loan and
all other amounts payable hereunder, if not sooner
paid, shall be due and payable on the Maturity Date.
(b) Notwithstanding Section 2.2(a), the Borrower shall,
within one Business Day following receipt by Borrower
of any distribution from COPI Colorado (other than a
distribution in respect of tax liability incurred by
the Borrower as a result of being a partner in COPI
Colorado) make a mandatory payment of the Loan in an
amount equal to such distribution less an amount
approved by the Lender in its reasonable discretion
for unpaid expenses and payables incurred by Borrower
in the ordinary course of business and a reasonable
reserve for future expenses. All mandatory payments
made under this Section shall be applied to the
outstanding principal balance of the Loan and shall
be accompanied by a notice from the Borrower
specifying the amount of such distribution and the
date such distribution was received.
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<PAGE> 6
(c) Except as specified in Section 2.2(b), 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.
SECTION 2.3 Interest Rate and Payments.
(a) Unless an Event of Default has occurred and is
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 during 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 on the first Business Day of
each February, May, August and November, or such
other date as the Borrower and the Lender may
mutually agree in writing.
(d) 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, the Loan shall be due on a day that 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 taxing 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.
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<PAGE> 7
The proceeds of the Loan shall be used solely to enable the Borrower to
invest in COPI Colorado.
SECTION 2.7 Evidence of Debt.
(a) The Lender shall record (i) the amount of the 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 Loan 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.
This Agreement shall become effective on the date that each of the
conditions set forth below has been satisfied (or waived in accordance with
Section 8.3):
(a) The Lender has received this Agreement, duly executed
by the Borrower;
(b) The Lender has 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;
(c) The Lender has received a duly executed Note dated as
of the Closing Date;
(d) The Lender has received a duly executed Pledge
Agreement and such other documents relating to the
Pledge Agreement as reasonably required by the
Lender;
(e) The Lender has 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);
(f) The Lender has received the following (i) the
articles of incorporation of the Borrower as in
effect on the Closing Date, certified as of a recent
date
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<PAGE> 8
by the Secretary of State of Delaware, (ii) the
bylaws of the Borrower as in effect on the Closing
Date, certified as of the Closing Date by its
corporate secretary, (iii) 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, (iv) certificate as to the
incumbency of the officers of the Borrower, certified
by its corporate secretary, and (v) certificate of
good standing of the Borrower issued as of a recent
date by the Secretary of State of Delaware; and
(g) No event that, after execution of this Agreement,
would constitute an Event of Default hereunder has
occurred and is 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> 9
SECTION 4.2 Collateral Account
(a) Establishment of Collateral Account. Upon a request
from the Lender or upon the occurrence of an Event of
Default, 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 warrants to the
Lender a security interest in, all right, title or
interest (if any) that 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 shall 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 that
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
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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 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 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 that 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 have been paid in full
and the Commitment has 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 forgoing, 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 varied), 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
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<PAGE> 11
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 that the Lender reasonably selects, 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 that 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 endorse and collect
any checks, drafts, notes, acceptances or
other instruments for the payment of
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<PAGE> 12
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 in respect
of or arising out of any Collateral; (3)
sign and endorse 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 that 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.
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<PAGE> 13
(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 with, 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 the
Default Rate, 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 it 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 across 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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<PAGE> 14
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 that term is 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, such notes shall be promptly endorsed in blank and delivered to
the Lender.
SECTION 4.11 Release of Collateral.
If the Borrower desires to have any Collateral released in connection
with the sale, assignment, transfer or other conveyance of such Collateral, 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 that 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 that 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 Bylaws 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
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<PAGE> 15
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 (a) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (b) 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 that could
materially adversely affect the business, financial position, results of
operations, or prospects of the Borrower or that could materially adversely
affect the ability of the Borrower to perform its obligations under this
Agreement, the Pledge Agreement or the Note or that 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 5.13, the Borrower has and will have no Debt outstanding on
the Closing Date other than (a) the Debt outstanding hereunder, (b) Debt that
has previously been disclosed to the Lender in writing, and (c) 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
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<PAGE> 16
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.
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 306 W. 7th Street,
Suite 1025, 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, other than as
previously disclosed in writing to the Lender.
SECTION 5.13 Financial Information.
All financial information that has been or is hereafter 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.
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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 the Intercompany Agreement between the Lender
and the Borrower and such activities as are necessary or incidental thereto, and
preserve, renew and keep full force and effect its existence.
SECTION 6.2 Financial Information.
The Borrower shall 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 on 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 shall comply 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.
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<PAGE> 18
SECTION 6.4 Incurrence of Debt.
The Borrower shall not issue, assume, guarantee, incur, or otherwise be
or become liable in respect of Debt, other than Debt expressly approved by the
Lender in writing, which approval may be withheld in the Lender's sole
discretion.
SECTION 6.5 Limitation on Liens.
The Borrower shall 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 (a)
Liens in favor of the Lender; (b) Liens expressly approved by the Lender, which
approval shall not be unreasonably withheld; (c) Liens imposed by any
governmental authority for taxes, assessments or charges not yet due or that 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 (d) 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 shall 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 shall keep books and records that accurately reflect all
of its business affairs and transactions in all material respects. The Borrower
shall 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.
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SECTION 6.9 Restriction on Distributions.
The Borrower shall 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 shall 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 endorsed in
a manner satisfactory to the Lender, to be held as Collateral pursuant to this
Agreement.
SECTION 6.12 Maintenance of Insurance.
The Borrower shall maintain, with financially sound and reputable
companies, insurance policies 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 (i) 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, (ii) name the
Lender as an insured party and (iii) 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 shall 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
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<PAGE> 20
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 shall 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 shall 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 that 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 that, subsequent to the Closing Date,
becomes a Subsidiary, the Borrower shall promptly cause such new Subsidiary to
(a) 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 or other ownership interests of such Subsidiary that
is owned by the Borrower or any of its Subsidiaries, (b) deliver to the Lender
the certificates representing such capital stock or other ownership interests,
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, (c)
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.
SECTION 6.17 COPI COLORADO.
Subject to its fiduciary duties to the other partners in COPI Colorado,
the Borrower, in its capacity as general partner of COPI Colorado, shall not
take any affirmative action to cause, or fail to take any action that would
cause, COPI Colorado to (a) create, incur, assume or suffer to exist any Lien
upon or with respect to any of its assets, whether now or hereafter acquired,
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<PAGE> 21
except Liens in favor of the Lender, (b) guarantee any Debt, or (c) 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, without in
each instance (i) giving the Lender at least 10 days prior written notice of the
proposed action (including those actions taken pursuant to the Borrower's
fiduciary duties to the other partners in COPI Colorado) and (ii) receiving the
written consent of the Lender to such action, which consent shall not be
unreasonably withheld. In addition, the Borrower shall deliver to the Lender as
soon as available, but in no event more than one hundred twenty (120) days after
the end of each fiscal year of COPI Colorado, financial statements of COPI
Colorado containing a balance sheet and the related statements of operations and
cash flows, showing the financial condition of COPI Colorado at the close of and
for such year.
ARTICLE VII
DEFAULTS
SECTION 7.1 Events of Default.
If one or more of the following events ("Events of Default") has
occurred and is continuing:
(a) except as permitted pursuant to Section 2.2(b), the
Borrower fails 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 is incorrect when made in any
material respect;
(c) the Borrower fails to observe or perform the
provisions of Section 6.9 hereof for five Business
Days;
(d) the Borrower fails 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 fails 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;
-21-
<PAGE> 22
(f) the Borrower commences 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 consents 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
makes a general assignment for the benefit of
creditors, or fails generally to pay its debts as
they become due, or takes any action to authorize any
of the foregoing;
(g) an involuntary case or other proceeding is 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 remains
undismissed and unstayed for a period of 120 days; or
an order for relief is 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 is rendered against the Borrower
and such judgment or order continues unsatisfied,
unstayed and unbounded 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;
(i) an "Event of Default" under the Line of Credit Credit
Agreement; or
(j) an "Event of Default" under the Term Loan Credit and
Security Agreement;
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 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.
-22-
<PAGE> 23
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: (a) in the case of the
Borrower or the Lender at their respective addresses or facsimile numbers set
forth on the signature pages hereof or (b) in the case of any party, such other
address 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 shall 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 is
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.
-23-
<PAGE> 24
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 that
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.
-24-
<PAGE> 25
SECTION 8.8 Termination; Release.
Until the Termination Date, this Agreement shall be a continuing
agreement and 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 that 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, the Line of Credit Credit
Agreement or the Term Loan Credit and Security Agreement in its sole discretion,
against the Secured Obligations under this Agreement, the Secured Obligations
under the Line of Credit Credit Agreement, or the Secured Obligations under the
Term Loan Credit and Security Agreement.
-25-
<PAGE> 26
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: /s/ RICHARD P. KNIGHT
-------------------------------------------
Name: Richard P. Knight
-----------------------------------------
Title: Chief Financial Officer
----------------------------------------
Notice Address:
306 W. 7th Street
Suite 1025
Fort Worth, Texas 76102
Facsimile: (817) 339-1001
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
its general partner
By: /s/ BRUCE A. PICKER
----------------------------------
Name: Bruce A. Picker
--------------------------------
Title: Vice President and Treasurer
-------------------------------
Notice Address:
777 Main Street
Suite 2100
Fort Worth, Texas 76102
Facsimile: (817) 321-2000
-26-
<PAGE> 27
Exhibits and Schedules:
Exhibit A: Promissory Note
Exhibit B: Form of Closing Certificate
Schedule 1: Location of the Inventory and Equipment
-27-
<PAGE> 28
EXHIBIT A
PROMISSORY NOTE
$9,000,000.00 September 21, 1998
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 Nine Million and
No/100 Dollars ($9,000,000.00), with interest on the principal balance from time
to time 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 Credit and
Security Agreement, dated as of September 21, 1998, 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 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 that 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
<PAGE> 29
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 that 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
Rate. If from any circumstance the holder hereof ever receives anything of value
deemed interest by applicable law in excess of the Maximum Rate, 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 Rate.
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).
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW THAT, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND THAT 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:
------------------------------------
-2-
<PAGE> 30
EXHIBIT B
FORM OF CLOSING CERTIFICATE
The undersigned, _________________, ___________________ of CRESCENT
OPERATING, INC., a Delaware corporation (the "Borrower"), hereby certifies to
the best of his knowledge that:
1. Attached hereto as Exhibit A is a copy of the resolutions of the
board of directors of the Borrower authorizing the execution, delivery and
performance of the Credit and Security Agreement, certified as of the Closing
Date by the corporate secretary of the Borrower.
2. Attached hereto as Exhibit B is a certificate of incumbency of the
officers of the Borrower, certified by the corporate secretary of the Borrower.
3. Attached hereto as Exhibit C 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 21st day of
September, 1998.
CRESCENT OPERATING, INC.
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
<PAGE> 31
SCHEDULE 1
LOCATION OF THE INVENTORY AND EQUIPMENT
306 W. 7th Street
Suite 1025
Fort Worth, Texas 76102
<PAGE> 32
Execution Copy
PROMISSORY NOTE
$9,000,000.00 September 21, 1998
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 Nine Million and
No/100 Dollars ($9,000,000.00), with interest on the principal balance from
time to time 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 Credit and
Security Agreement, dated as of September 21, 1998, 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 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 that 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.
<PAGE> 33
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 that 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
Rate. If from any circumstance the holder hereof ever receives anything of
value deemed interest by applicable law in excess of the Maximum Rate, 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 Rate. 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).
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW THAT, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND THAT 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: /s/ RICHARD P. KNIGHT
------------------------------------
Name: Richard P. Knight
----------------------------------
Title: Chief Financial Officer
---------------------------------
-2-
<PAGE> 1
EXHIBIT 10.41
FIRST AMENDMENT TO
AMENDED AND RESTATED
PLEDGE AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED PLEDGE AGREEMENT (this
"Amendment") is made and entered into effective as of September 21, 1998
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lender"), and CRESCENT OPERATING, INC., a Delaware
corporation (the "Borrower").
R E C I T A L S:
A. The parties executed that certain Amended and Restated Pledge
Agreement dated as of June 16, 1997 (the "Original Agreement"). All
capitalized terms not otherwise defined in this Amendment will have the same
meaning as described in the Original Agreement.
B. The Borrower has acquired additional Collateral, and Borrower and
Lender desire to amend the Original Agreement to grant Lender a security
interest in all Collateral.
In consideration of the mutual covenants set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Schedule 1. Schedule 1 of the Original Agreement is hereby
amended and restated in its entirety by Schedule 1 attached to this Amendment.
2. Remainder of Original Agreement. Except as amended hereby, the
Original Agreement shall continue in full force and effect in the form that was
effective immediately before the execution of this Amendment.
3. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
document.
4. Binding Effect. This Amendment shall be binding upon and inure
to the benefit of the respective successors and assigns of the parties hereto.
5. Governing Law and Severability. This Amendment shall be governed
by and construed in accordance with the laws of the State of Texas. Whenever
possible, each provision hereof shall be interpreted to such manner as to be
effective and valid under applicable law.
<PAGE> 2
IN WITNESS WHEREOF, the parties below have executed this Amendment
effective as of the date first written above.
CRESCENT OPERATING, INC.
By: /s/ RICHARD P. KNIGHT
-----------------------------------
Name: Richard P. Knight
Title: Chief Financial Officer
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
By: Crescent Real Estate Equities, Ltd., its
general partner
By: /s/ BRUCE A. PICKER
-----------------------------------
Name: Bruce A. Picker
Title: Vice President and Treasurer
-2-
<PAGE> 3
SCHEDULE 1 to First Amendment to
Amended and Restated Pledge Agreement
DESCRIPTION OF PLEDGED STOCK,
PLEDGED PARTNERSHIP INTERESTS
AND PLEDGED MEMBERSHIP INTERESTS
DESCRIPTION OF PLEDGED STOCK:
<TABLE>
<CAPTION>
Class Stock No. of
Issuer of Stock Certificate No.Shares
- - ------ -------- ----------- ----------
<S> <C> <C> <C>
Crescent Machinery Company Common 038 12,500
RSSW Corp. Common 1 1,000
WOCOI Investment Company Common 1 100
The Woodlands Land Co., Inc. Common 01 500
RSCR Arizona Corp. Common 1 1,000
Desert Mountain Development Corporation Common 1 50
COI Hotel Group, Inc. Common 1 100
COI Arena Company Common 2 100
Crescent CS Holdings Corp. Common 1 50
Crescent CS Holdings II Corp. Common 1 50
CRL Investments, Inc. Common 1 500
</TABLE>
DESCRIPTION OF PLEDGED PARTNERSHIP INTERESTS:
<TABLE>
<CAPTION>
Issuer Percentage of Partnership Interest
------ ----------------------------------
<S> <C>
Hicks Muse Tate & Furst Equity Fund II, LP 1.00%
COPI Colorado, L.P. 50.00%
</TABLE>
DESCRIPTION OF PLEDGED MEMBERSHIP INTERESTS:
<TABLE>
<CAPTION>
Issuer Percentage of Membership Interest
------ ---------------------------------
<S> <C>
Charter Behavioral Health Systems, LLC 50.00%
RoseStar Management L.L.C. 100.00%
</TABLE>
-3-
<PAGE> 4
ACKNOWLEDGMENT AND CONSENT
The undersigned hereby acknowledge receipt of a copy of the Amended and
Restated Pledge Agreement dated as of June 16, 1997, as amended by the First
Amendment to Amended and Restated Pledge Agreement dated as of September 21,
1998 (as amended, supplemented or otherwise modified from time to time, the
"Pledge Agreement"), made by CRESCENT OPERATING, INC. for the benefit of
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP (the "Lender"). The
undersigned agrees for the benefit of the Lender as follows:
1. The undersigned shall be bound by the terms of the Pledge
Agreement and shall comply with such terms insofar as such terms are applicable
to the undersigned.
2. The undersigned shall notify the Lender promptly in writing of
the occurrence of any of the events described in paragraph 7(a) of the Pledge
Agreement.
3. The terms of Section 11 of the Pledge Agreement shall apply to
it, mutatis mutandis, with respect to all actions that may be required of it
under or pursuant to or arising out of Section 11 of the Pledge Agreement.
COPI COLORADO, L.P.
By: Crescent Operating, Inc.
By:
------------------------------
Name: Jeffrey L. Stevens
Title: Chief Operating Officer
Address for Notices:
306 W. 7th Street
Suite 1025
Fort Worth, Texas 76102
Facsimile: (817) 339-1001
-4-
<PAGE> 1
EXHIBIT 10.42
FIRST AMENDMENT TO
LINE OF CREDIT
CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LINE OF CREDIT CREDIT AND SECURITY AGREEMENT
(this "Amendment") is made and entered into effective as of August 11, 1998
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lender"), and CRESCENT OPERATING, INC., a Delaware
corporation (the "Borrower").
R E C I T A L S:
A. The parties executed that certain Line of Credit Credit and Security
Agreement dated as of May 21, 1997 (the "Original Agreement"). All capitalized
items not otherwise defined in this Amendment will have the same meaning as
described in the Original Agreement.
B. The parties desire to amend the Original Agreement to increase the
maximum aggregate principal amount of the Loan to $30,400,000 and to modify
certain of the terms and provisions thereof.
C. The Lender is willing to modify the Loan for such purpose on the
terms and conditions set forth herein.
In consideration of the mutual covenants set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Section 1.1. The definitions of "Note" and "Term Loan Credit and
Security Agreement" in Section 1.1 of the Original Agreement are hereby amended
in their entirety to read as follows:
"Note" means the amended and restated 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 Thirty
Million Four Hundred Thousand Dollars ($30,400,000), evidencing the
obligation of the Borrower to repay the Loan, as modified, supplemented or
amended from time to time.
"Term Loan Credit and Security Agreement" means the Amended and
Restated Credit and Security Agreement dated as of May 21, 1997 between the
Borrower and the Lender, as amended by the First Amendment to Amended and
Restated Credit and Security Agreement dated as of August 11, 1998, as such
agreement may be further amended, supplemented or otherwise modified from
time to time.
<PAGE> 2
2. Section 2.1. Section 2.1(a) of the Original Agreement is hereby
amended by deleting the phrase "Twenty Million Four Hundred Thousand Dollars
($20,400,000)" and inserting the phrase "Thirty Million Four Hundred Thousand
Dollars ($30,400,000)" in lieu thereof.
3. Exhibit B. Exhibit B of the Original Agreement is hereby amended and
restated in its entirety by Exhibit B attached to this Amendment.
4. Remainder of Original Agreement. Except as amended hereby, the
Original Agreement shall continue in full force and effect in the form that was
effective immediately before the execution of this Amendment.
5. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
document.
6. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto.
7. Governing Law and Severability. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas. Whenever
possible, each provision hereof shall be interpreted to such manner as to be
effective and valid under applicable law.
IN WITNESS WHEREOF, the parties below have executed this Amendment
effective as of the date first written above.
CRESCENT OPERATING, INC.
By:
-------------------------------------
Name: Jeffrey L. Stevens
Title: Chief Financial Officer
CRESCENT REAL ESTATE EQUITIES
LIMITED PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
its general partner
By:
---------------------------------
Name: Bruce A. Picker
Title: Vice President, Treasurer
<PAGE> 1
EXHIBIT 10.43
FIRST AMENDMENT TO
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (this "Amendment") is made and entered into effective as of August 11,
1998 between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Lender"), and CRESCENT OPERATING, INC., a Delaware
corporation (the "Borrower").
R E C I T A L S:
A. The parties executed that certain Amended and Restated Credit and
Security Agreement dated as of May 21, 1997 (the "Original Agreement"). All
capitalized terms not otherwise defined in this Amendment will have the same
meaning as described in the Original Agreement.
B. The parties desire to amend the Original Agreement to reflect an
increase in the maximum aggregate principal amount of the Line of Credit Note to
$30,400,000 and to modify certain of the terms and provisions thereof.
In consideration of the mutual covenants set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Section 1.1. The definitions of "Line of Credit Credit Agreement"
and "Line of Credit Note" in Section 1.1 of the Original Agreement are hereby
amended in their entirety to read as follows:
"Line of Credit Credit Agreement" means the Line of Credit
Credit and Security Agreement dated as of May 21, 1997 between the
Borrower and the Lender, as amended by the First Amendment to Line of
Credit Credit and Security Agreement dated as of August 11, 1998,
relating to the loan evidenced by the Line of Credit Note, as such
agreement may be further amended, supplemented or otherwise modified
from time to time.
"Line of Credit Note" means the Amended and Restated Line of
Credit Note from the Borrower to the Lender dated August 11, 1998 in
the maximum principal amount of Thirty Million Four Hundred Thousand
Dollars ($30,400,000), evidencing the obligation of the Borrower to
repay the loan under the Line of Credit Credit Agreement, as modified,
supplemented and amended from time to time, and any note or notes
issued in substitution or replacement therefor or in addition thereto.
2. Remainder of Original Agreement. Except as amended hereby, the
Original Agreement shall continue in full force and effect in the form that was
effective immediately before the execution of this Amendment.
<PAGE> 2
3. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
document.
4. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of the respective successors and assigns of the parties hereto.
5. Governing Law and Severability. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas. Whenever
possible, each provision hereof shall be interpreted to such manner as to be
effective and valid under applicable law.
IN WITNESS WHEREOF, the parties below have executed this Amendment
effective as of the date first written above.
CRESCENT OPERATING, INC.
By:
------------------------------------------
Name: Jeffrey L. Stevens
Title: Chief Financial Officer
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
By: Crescent Real Estate Equities, Ltd.,
its general partner
By:
---------------------------------
Name: Bruce A. Picker
Title: Vice President, Treasurer
-2-
<PAGE> 1
EXHIBIT 10.44
SECOND AMENDMENT TO
AMENDED AND RESTATED
CREDIT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY
AGREEMENT (this "Amendment") is made and entered into effective as of September
21, 1998 between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Lender"), and CRESCENT OPERATING, INC., a Delaware
corporation (the "Borrower").
R E C I T A L S:
A. The parties executed that certain Amended and Restated Credit
and Security Agreement dated as of May 21, 1997, as amended by that certain
First Amendment to Amended and Restated Credit and Security Agreement dated as
of August 11, 1998 (collectively, the "Original Agreement"). All capitalized
terms not otherwise defined in this Amendment will have the same meaning as
described in the Original Agreement.
B. The Borrower has requested that the Lender make a loan to it
in the principal amount of $9,000,000, the proceeds of which are to be used to
make an investment in COPI Colorado, L.P., a Delaware limited partnership (the
"COPI Loan").
C. In order to induce the Lender to make the COPI Loan, the
Borrower has agreed to modify the Original Agreement to cross default and cross
collateralize the Loan with the COPI Loan.
D. The Borrower is willing to modify the Original Agreement for
such purpose on the terms and conditions set forth herein.
In consideration of the mutual covenants set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Section 1.1. The following definitions are hereby added to
Section 1.1 of the Original Agreement to read as follows:
"COPI Credit Agreement" means the Credit and Security
Agreement dated as of September 21, 1998 between the Borrower and the
Lender, as such agreement may be amended, supplemented or otherwise
modified from time to time.
"COPI Note" means the promissory note of the Borrower payable
to the order of the Lender under the terms of the COPI Credit
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.
<PAGE> 2
2. Section 1.1. The definition of "Secured Obligations" in
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:
"Secured Obligations" means the collective reference to the
unpaid principal of and interest on the Note, the Line of Credit Note,
the COPI 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 connection with, this
Agreement, the Line of Credit Credit Agreement, the COPI Credit
Agreement, the Note, the Line of Credit Note, the COPI 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.
3. Section 4.2. Paragraph (a) of Section 4.2 of the Original
Agreement is amended by deleting the phrase "Upon the execution hereof" and
inserting the phrase "Upon a request from the Lender or upon the occurrence of
an Event of Default" in lieu thereof.
4. Section 7.1. The following paragraphs (i) and (j) are added
to Section 7.1 of the Original Agreement to read as follows:
(i) an "Event of Default" under the Line of Credit Credit
Agreement; or
(j) an "Event of Default" under the COPI Credit Agreement;
5. Section 8.11. Section 8.11 of the Original Agreement is
hereby amended and restated in its entirety to read as follows:
The parties agree that the Lender shall have the right to
apply the proceeds of any Collateral under this Agreement, the Line of
Credit Credit Agreement or the COPI Credit Agreement in its sole
discretion, against the Secured Obligations under this Agreement, the
Secured Obligations under the Line of Credit Credit Agreement, or the
Secured Obligations under the COPI Credit Agreement.
6. Remainder of Original Agreement. Except as amended hereby,
the Original Agreement shall continue in full force and effect in the form that
was effective immediately before the execution of this Amendment.
7. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
document.
8. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto.
9. Governing Law and Severability. This Amendment shall be
governed by and construed in accordance with the laws of the State of Texas.
Whenever possible, each provision hereof shall be interpreted to such manner as
to be effective and valid under applicable law.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties below have executed this Amendment
effective as of the date first written above.
CRESCENT OPERATING, INC.
By: /s/ RICHARD P. KNIGHT
---------------------------------
Name: Richard P. Knight
Title: Chief Financial Officer
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
By: Crescent Real Estate Equities,
Ltd., its general partner
By: /s/ BRUCE A. PICKER
-----------------------------
Name: Bruce A. Picker
Title: Vice President and
Treasurer
-3-
<PAGE> 1
EXHIBIT 10.45
SECOND AMENDMENT TO
LINE OF CREDIT
CREDIT AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LINE OF CREDIT CREDIT AND SECURITY AGREEMENT
(this "Amendment") is made and entered into effective as of September 21, 1998
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lender"), and CRESCENT OPERATING, INC., a Delaware
corporation (the "Borrower").
R E C I T A L S:
A. The parties executed that certain Line of Credit Credit and
Security Agreement dated as of May 21, 1997, as amended by that certain First
Amendment to Line of Credit Credit and Security Agreement dated as of August
11, 1998 (collectively, the "Original Agreement"). All capitalized terms not
otherwise defined in this Amendment will have the same meaning as described in
the Original Agreement.
B. The Borrower has requested that the Lender make a loan to it
in the principal amount of $9,000,000, the proceeds of which are to be used to
make an investment in COPI Colarado, L.P., a Delaware limited partnership (the
"COPI Loan").
C. In order to induce the Lender to make the COPI Loan, the
Borrower has agreed to modify the Original Agreement to cross default and cross
collateralize the Loan with the COPI Loan.
D. The Borrower is willing to modify the Original Agreement for
such purpose on the terms and conditions set forth herein.
In consideration of the mutual covenants set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Section 1.1. The following definitions are hereby added to
Section 1.1 of the Original Agreement to read as follows:
"COPI Credit Agreement" means the Credit and Security
Agreement dated as of September 21, 1998 between the Borrower and the
Lender, as such agreement may be amended, supplemented or otherwise
modified from time to time.
"COPI Note" means the promissory note of the Borrower payable
to the order of the Lender under the terms of the COPI Credit
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.
<PAGE> 2
"Term Note" means the amended and restated promissory note of
the Borrower payable to the order of the Lender under the terms of the
Term Loan Credit and Security 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.
2. Section 1.1. The definition of "Secured Obligations" in
Section 1.1 of the Original Agreement is hereby amended in its entirety to read
as follows:
"Secured Obligations" means the collective reference to the
unpaid principal of and interest on the Note, the Term Note, the COPI
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 connection with, this Agreement, the Term Loan
Credit and Security Agreement, the COPI Credit Agreement, the Note,
the Term Note, the COPI 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.
3. Section 4.2. Paragraph (a) of Section 4.2 of the Original
Agreement is amended by deleting the phrase "Upon the execution hereof" and
inserting the phrase "Upon a request from the Lender or upon the occurrence of
an Event of Default" in lieu thereof.
4. Section 7.1. The following paragraph (j) is added to Section
7.1 of the Original Agreement to read as follows:
(j) an "Event of Default" under the COPI Credit Agreement;
5. Section 8.11. Section 8.11 of the Original Agreement is
hereby amended and restated in its entirety to read as follows:
The parties agree that the Lender shall have the right to
apply the proceeds of any Collateral under this Agreement, the Term
Loan Credit and Security Agreement or the COPI Credit Agreement in its
sole discretion, against the Secured Obligations under this Agreement,
the Secured Obligations under the Term Loan Credit and Security
Agreement, or the Secured Obligations under the COPI Credit Agreement.
6. Remainder of Original Agreement. Except as amended hereby,
the Original Agreement shall continue in full force and effect in the form that
was effective immediately before the execution of this Amendment.
7. Counterparts. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
document.
8. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of the respective successors and assigns of the parties
hereto.
-2-
<PAGE> 3
9. Governing Law and Severability. This Amendment shall be
governed by and construed in accordance with the laws of the State of Texas.
Whenever possible, each provision hereof shall be interpreted to such manner as
to be effective and valid under applicable law.
IN WITNESS WHEREOF, the parties below have executed this Amendment
effective as of the date first written above.
CRESCENT OPERATING, INC.
By: /s/ RICHARD P. KNIGHT
---------------------------------------
Name: Richard P. Knight
Title: Chief Financial Officer
CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP
By: Crescent Real Estate Equities, Ltd., its
general partner
By: /s/ BRUCE A. PICKER
-----------------------------------
Name: Bruce A. Picker
Title: Vice President and Treasurer
-3-
<PAGE> 1
EXHIBIT 10.49
- - --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
WESTERN TRACTION COMPANY
THE CARLSTON FAMILY TRUST
RONALD D. CARLSTON
AND
CRESCENT OPERATING, INC.
AUGUST 7, 1998
- - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I -- TERMS OF THE TRANSACTION .................................... 1
1.1 Agreement to Sell and to Purchase Shares ....................... 1
1.2 Purchase Price and Payment ..................................... 1
ARTICLE II -- CLOSING, CLOSING DATE AND EFFECTIVE DATE ................... 2
2.1 Closing and Closing Date ....................................... 2
2.2 Effective Date ................................................. 2
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE COMPANY ......................................... 2
3.1 Corporate Organization ......................................... 2
3.2 Qualification .................................................. 2
3.3 Charter and Bylaws ............................................. 2
3.4 Capitalization of the Company .................................. 2
3.5 Authority Relative to This Agreement ........................... 3
3.6 Noncontravention ............................................... 4
3.7 Governmental Approvals ......................................... 4
3.8 No Subsidiaries ................................................ 4
3.9 Shares ......................................................... 4
3.10 Financial Statements .......................................... 4
3.11 Absence of Undisclosed Liabilities ............................ 5
3.12 Absence of Certain Changes .................................... 5
3.13 Tax Matters ................................................... 5
3.14 Compliance With Laws .......................................... 6
3.15 Legal Proceedings ............................................. 6
3.16 Title to Properties ........................................... 6
3.17 Sufficiency and Condition of Properties ....................... 7
3.18 Real Property ................................................. 7
3.19 Leased Property ............................................... 8
3.20 Inventory ..................................................... 8
3.21 Permits ....................................................... 9
3.22 Agreements .................................................... 9
3.23 ERISA ......................................................... 9
3.24 Environmental Matters ......................................... 11
3.25 Labor Relations ............................................... 12
3.26 Employees ..................................................... 12
3.27 Insider Interests ............................................. 13
3.28 Insurance ..................................................... 13
3.29 Bank Accounts and Powers of Attorney .......................... 13
3.30 Books and Records ............................................. 13
3.31 Illegal Payments .............................................. 14
3.32 Brokerage Fees ................................................ 14
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.33 Disclosure .................................................... 14
3.34 Representations and Warranties on Closing Date ................ 14
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF BUYER .................... 14
4.1 Corporate Organization ......................................... 14
4.2 Authority Relative to This Agreement ........................... 14
4.3 Noncontravention ............................................... 15
4.4 Governmental Approvals ......................................... 15
4.5 Purchase for Investment ........................................ 15
4.6 Brokerage Fees ................................................. 15
4.7 Representations and Warranties on Closing Date ................. 15
ARTICLE V -- CONDUCT OF THE COMPANY PENDING CLOSING ...................... 16
5.1 Conduct and Preservation of Business ........................... 16
5.2 Restrictions on Certain Actions ................................ 16
ARTICLE VI -- ADDITIONAL AGREEMENTS ...................................... 18
6.1 Access to Information .......................................... 18
6.2 Third Party Consents ........................................... 18
6.3 Employment and Noncompetition Agreements ....................... 18
6.4 Schedules To Be Agreed ......................................... 19
6.5 Public Announcements ........................................... 19
6.6 Notice of Litigation ........................................... 19
6.7 Notification of Certain Matters ................................ 19
6.8 Fees and Expenses .............................................. 19
6.9 Transfer Taxes ................................................. 20
6.10 Releases of Guaranties ......................................... 20
6.11 Negative Covenants ............................................ 20
6.12 Reporting ..................................................... 20
6.13 Survival of Covenants ......................................... 20
ARTICLE VII -- CONDITIONS TO OBLIGATIONS OF SELLER ....................... 21
7.1 Representations and Warranties True ............................ 21
7.2 Covenants and Agreements Performed ............................. 21
7.3 Legal Proceedings .............................................. 21
7.4 Other Documents ................................................ 21
7.5 Employment Agreements .......................................... 21
7.6 Certificate .................................................... 21
7.7 New Lease Agreements ........................................... 22
7.8 Schedules To Be Agreed ......................................... 22
ARTICLE VIII -- CONDITIONS TO OBLIGATIONS OF BUYER ....................... 22
8.1 Representations and Warranties True ............................ 22
8.2 Covenants and Agreements Performed ............................ 22
8.3 Certificate .................................................... 22
8.4 [Intentionally omitted] ........................................ 22
8.5 Legal Proceedings .............................................. 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
8.6 Consents ....................................................... 22
8.7 No Material Adverse Change ..................................... 23
8.8 Employment Agreements .......................................... 23
8.9 Other Documents ................................................ 23
8.10 New Lease Agreements .......................................... 23
8.11 Schedules To Be Agreed ........................................ 23
ARTICLE IX -- TERMINATION, AMENDMENT AND WAIVER .......................... 24
9.1 Termination .................................................... 24
9.2 Effect of Termination .......................................... 24
9.3 Amendment ...................................................... 25
9.4 Waiver ......................................................... 25
9.5 Remedies Not Exclusive ......................................... 25
ARTICLE X -- SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION ................ 25
10.1 Survival ...................................................... 25
10.2 Indemnification by Seller ..................................... 25
10.3 Indemnification by Buyer ...................................... 26
10.4 Procedure for Indemnification ................................. 27
ARTICLE XI -- MISCELLANEOUS .............................................. 28
11.1 Notices ....................................................... 28
11.2 Entire Agreement .............................................. 28
11.3 Binding Effect; Assignment; No Third Party Benefit ............ 28
11.4 Severability .................................................. 29
11.5 GOVERNING LAW ................................................. 29
11.6 Further Assurances ............................................ 29
11.7 Descriptive Headings .......................................... 29
11.8 Gender ........................................................ 29
11.9 References .................................................... 29
11.10 Counterparts ................................................. 29
11.11 Joint and Several Obligations ................................ 30
ARTICLE XII -- DEFINITIONS ............................................... 30
12.1 Certain Defined Terms ......................................... 30
12.2 Certain Additional Defined Terms .............................. 31
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of August
7, 1998, by and among Western Traction Company, a California corporation
("Western" or the "Company"), Ronald D. Carlston, individually (in such
individual capacity sometimes herein referred to as "Carlston") and as
Co-Trustee on behalf of the Carlson Family Trust, a trust created under an
amended declaration of trust dated March 20, 1982 (the "Trust") (Carlston,
individually and as Co-Trustee, and the Trust, collectively, are sometimes
herein referred to as "Seller"), and Crescent Operating, Inc., a Delaware
corporation ("Buyer").
WHEREAS, the Trust owns 150 shares of common stock, par value $10.00
per share, of the Company (the "Shares"); and
WHEREAS, the Trust desires to sell to Buyer, and Buyer desires to
purchase from the Trust, the Shares; and
WHEREAS, Carlston and the Company desire to join in the execution of
this Agreement for the purpose of evidencing their consent to the consummation
of the foregoing transaction and for the purpose of making certain
representations and warranties to and covenants and agreements with Buyer;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Seller and Buyer hereby agree as follows:
ARTICLE I -- TERMS OF THE TRANSACTION
1.1 Agreement to Sell and to Purchase Shares. At the Closing, and on
the terms and subject to the conditions set forth in this Agreement, the Trust
shall sell and deliver to Buyer, and Buyer shall purchase and accept from the
Trust, the Shares.
1.2 Purchase Price and Payment. In consideration of the sale of the
Shares to Buyer, Buyer shall pay to Seller an aggregate purchase price of
Fourteen Million and No/100 Dollars ($14,000,000.00) (the "Purchase Price"),
payable as follows:
(a) On July 15, 1998, Buyer deposited with Seller cash in the amount
of Five Hundred Thousand and No/100 Dollars ($500,000.00) (the "Deposit")
pursuant to that certain Deposit Agreement dated as of July 15, 1998 between
Buyer and Seller, which Deposit shall be applied towards payment of a portion
of the Purchase Price at the Closing;
(b) At the Closing Buyer shall pay to Seller Six Million and No/100
Dollars ($6,000,000.00), by corporate check; and
(c) the remaining amount of the Purchase Price shall be paid by
Buyer's delivery to Seller at the Closing of Buyer's promissory note in the
principal amount of Seven Million Five Hundred Thousand and No/100 Dollars
($7,500,000.00) (the "Promissory Note"), which Promissory Note will be on the
form of Exhibit 1.2A attached hereto, and be secured by a security interest in,
and pledge
<PAGE> 6
of, the Shares purchased by Buyer hereunder pursuant to the pledge agreement to
be granted by Buyer in favor of Seller at the Closing (the "Pledge Agreement")
in the form of Exhibit 1.2B attached hereto.
ARTICLE II -- CLOSING, CLOSING DATE AND EFFECTIVE DATE
2.1 Closing and Closing Date. The closing of the transactions
contemplated hereby (the "Closing" ) shall take place (i) at the offices of
Thompson & Knight, P.C., in Dallas, Texas, at 11:00 a.m., local time, on August
10, 1998, or (ii) at such other time or place or on such other date as the
parties hereto shall agree. The date on which the Closing is required to take
place is herein referred to as the "Closing Date."
2.2 Effective Date. Notwithstanding the date this Agreement is
executed or the formal closing referenced above, the effective date of the
transfer of the Shares shall be as of the beginning of business on July 1, 1998
(the "Effective Date").
ARTICLE III -- REPRESENTATIONS
AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company jointly and severally represent and warrant to
Buyer that:
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority to own, lease, and operate its properties and to carry on
its business as now being conducted. No actions or proceedings to dissolve the
Company are pending.
3.2 Qualification. The Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions set forth on
Schedule 3.2, which are all the jurisdictions in which it owns, leases or
operates property or in which such qualification or licensing is required for
the conduct of its business.
3.3 Charter and Bylaws. The Company has made available to Buyer
accurate and complete copies of (i) the Articles of Incorporation and Bylaws of
the Company (certified by the Secretary of State of such Company's jurisdiction
of incorporation and the secretary or an assistant secretary of such Company,
respectively) as currently in effect, (ii) the stock records of the Company and
(iii) current minutes of the meetings of the Company's Board of Directors
authorizing the transactions contemplated by this Agreement, any committees of
such Board, and the Company's shareholders (and all consents in lieu of such
meetings). Such records, minutes and consents accurately reflect the stock
ownership of the Company and the actions taken by the Company's Board and the
Company's shareholders as set forth therein. The Company is not in violation
of any provision of its Articles of Incorporation or Bylaws.
3.4 Capitalization of the Company. The authorized capital stock of
the Company consists of 7,500 shares of Common Stock, par value $10.00 per
share, of which 150 shares are outstanding and owned by Seller, and no shares
are held in the Company's treasury. All outstanding shares of capital stock of
the Company have been validly issued and are fully paid and nonassessable, and
no
2
<PAGE> 7
shares of capital stock of the Company are subject to, nor have any been issued
in violation of, preemptive or similar rights. All issuances, sales, and
repurchases by the Company of shares of its capital stock have been effected in
compliance with all Applicable Laws, including without limitation applicable
federal and state securities laws. The Shares constitute (and at the Closing
will constitute) all the outstanding shares of capital stock of the Company.
Except as set forth above in this Section 3.4, there are (and as of the Closing
Date there will be) outstanding (i) no shares of capital stock or other voting
securities of the Company, (ii) no securities of the Company convertible into
or exchangeable for shares of capital stock or other voting securities of the
Company, (iii) no options or other rights to acquire from the Company, and no
obligation of the Company to issue or sell, any shares of capital stock or
other voting securities of the Company or any securities of the Company
convertible into or exchangeable for such capital stock or voting securities
and (iv) no equity equivalents, interests in the ownership or earnings or other
similar rights of or with respect to the Company. There are (and as of the
Closing Date there will be) no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any of the foregoing shares,
securities, options, warrants, equity equivalents, interests or rights.
3.5 Authority Relative to This Agreement.
(a) The Company has full corporate power and corporate authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by the Company of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action of the
Company. This Agreement has been duly executed and delivered by the Company
and constitutes, and each other agreement, instrument or document executed or
to be executed by the Company in connection with the transactions contemplated
hereby has been, or when executed will be, duly executed and delivered by the
Company and constitutes, or when executed and delivered will constitute, a
valid and legally binding obligation of the Company, enforceable against the
Company in accordance with their respective terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
generally and (ii) equitable principals which may limit the availability of
certain equitable remedies (such as specific performance) in certain instances.
(b) Seller has full legal right, power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller and constitutes, and each other agreement, instrument or document
executed or to be executed by Seller in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by Seller and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Seller, enforceable
against Seller in accordance with their respective terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
generally and (ii) equitable principals which may limit the availability of
certain equitable remedies (such as specific performance) in certain instances.
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3.6 Noncontravention.
(a) Except as set forth on Schedule 3.6(a) attached hereto, the
execution, delivery and performance by Seller and the Company of this Agreement
and the consummation by them of the transactions contemplated hereby do not and
will not (i) conflict with or result in a violation of any provision of the
charter or bylaws of the Company, (ii) conflict with or result in a violation
of any provision of or constitute (with or without the giving of notice or the
passage of time or both) a default under or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement or other instrument or obligation to
which the Company is a party or by which the Company or any of its properties
may be bound, (iii) result in the creation or imposition of any Encumbrance
upon the properties of the Company or (iv) assuming compliance with the matters
referred to in Section 3.7, violate any Applicable Law binding upon the
Company.
(b) Except as set forth on Schedule 3.6(b) attached hereto, the
execution, delivery, and performance by Seller of this Agreement and the
consummation by Seller of the transactions contemplated hereby do not and will
not (i) conflict with or result in a violation of any provision of or
constitute (with or without the giving of notice or the passage of time or
both) a default under or give rise (with or without the giving of notice or the
passage of time or both) to any right of termination, cancellation or
acceleration under, any contract, agreement, instrument or obligation to which
Seller is a party or by which Seller or any of Seller's properties may be
bound, (ii) result in the creation or imposition of any Encumbrance upon the
properties of Seller or (iii) assuming compliance with the matters referred to
in Section 3.7, violate any Applicable Law binding upon Seller.
3.7 Governmental Approvals. Other than filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and routine
filings under applicable federal and state securities laws, no consent,
approval, order or authorization of or declaration, filing or registration
with, any Governmental Entity is required to be obtained or made by any Seller
or the Company in connection with the execution, delivery or performance by
Seller and the Company of this Agreement or the consummation by them of the
transactions contemplated hereby.
3.8 No Subsidiaries. The Company does not own, directly or
indirectly, any capital stock or other securities of any corporation or have
any direct or indirect equity or ownership interest in any other person.
3.9 Shares. Seller is (and at the Closing will be) the record and
beneficial owner of, and upon consummation of the transactions contemplated
hereby Buyer will acquire good, valid and marketable title to, the number of
Shares set forth opposite the name of such Seller on Annex I, free and clear of
all Encumbrances, other than (i) those that may arise by virtue of any actions
taken by or on behalf of Buyer or its affiliates, (ii) restrictions on transfer
that may be imposed by federal or state securities laws, or (iii) the security
interest and pledge granted in favor of the Trust pursuant to the Pledge
Agreement.
3.10 Financial Statements. The Company has delivered to Buyer
accurate and complete copies of (i) the Company' audited balance sheet as of
October 31, 1997 and the related audited
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statements of income, and stockholders' equity for the year then ended, and the
notes and schedules thereto, together with the unqualified report thereon of
Armanino & McKenna, LLP, independent public accountants (the "Audited Financial
Statements"), and (ii) the Company's unaudited balance sheet as of June 30,
1998 (the "Latest Balance Sheet"), and the related unaudited statements of
income, and stockholders' equity for the eight-month period then ended (the
"Unaudited Financial Statements"), certified by the Company's chief financial
officer (collectively, the "Financial Statements"). The Financial Statements
(i) represent actual bona fide transactions, (ii) have been prepared from the
books and records of the Company in conformity with generally accepted
accounting principles applied on a basis consistent with preceding years
throughout the periods involved, except that the Unaudited Financial Statements
are not accompanied by notes or other textual disclosure required by generally
accepted accounting principles, and (iii) accurately, completely, and fairly
present the Company's financial position as of the respective dates thereof and
its results of operations and cash flows/changes in financial position for the
periods then ended. Except as noted in the Financial Statements or in Schedule
3.10 attached hereto, the statements of income included in the Financial
Statements do not contain any items of special or nonrecurring income, and the
balance sheets included in the Financial Statements do not reflect any write-up
or revaluation increasing the book value of any assets, nor have there been any
transactions since October 31, 1997 giving rise to special or nonrecurring
income or any such write-up or revaluation.
3.11 Absence of Undisclosed Liabilities. The Company does not have
any material liabilities or obligations (whether accrued, absolute, contingent,
unliquidated or otherwise, and whether due or to become due), except (i)
liabilities reflected on the Latest Balance Sheet as of June 30, 1998, (ii)
liabilities described in the notes accompanying the Audited Financial
Statements, (iii) liabilities which have arisen since the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a material
liability for breach of contract, breach of warranty, tort or infringement),
(iv) liabilities arising under executory contracts entered into in the ordinary
course of business (none of which is a liability for breach of contract) or (v)
liabilities specifically set forth on Schedule 3.11.
3.12 Absence of Certain Changes. Except as disclosed on Schedule
3.12, since June 30, 1998, (i) there has not been any material adverse change
in or any event or condition that might reasonably be expected to result in any
material adverse change in, the business, assets, results of operations, or
condition (financial or otherwise) of the Company; (ii) the business of the
Company has been conducted only in the ordinary course consistent with past
practice; (iii) the Company has not incurred any material liability, engaged in
any material transaction or entered into any material agreement outside the
ordinary course of business consistent with past practice; (iv) the Company has
not suffered any material loss, damage, destruction or other casualty to any of
its assets (whether or not covered by insurance); and (v) the Company has not
taken any of the actions set forth in Section 5.2 except as permitted
thereunder.
3.13 Tax Matters. Except as disclosed on Schedule 3.13:
(a) the Company has (and as of the Closing Date will have) duly filed
all federal, state, local, and foreign Tax Returns required to be filed by or
with respect to it with the IRS or other applicable Taxing authority, and no
extensions with respect to such Tax Returns have (or as of the Closing Date
will have) been requested or granted;
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(b) the Company has (and as of the Closing Date will have) paid or
adequately reserved against in the Financial Statements, all Taxes due or
claimed by any taxing authority to be due, from or with respect to it, except
Taxes that are being contested in good faith by appropriate legal proceedings
and for which adequate reserves have been set aside as disclosed on Schedule
3.13;
(c) there has been no issue raised or adjustment proposed (and none
is pending) by the IRS or any other taxing authority in connection with any of
the Tax Returns;
(d) the Company has (and as of the Closing Date will have) made all
deposits required with respect to Taxes;
(e) the federal income Tax Returns of the Company have not been
audited by the IRS within the last five years;
(f) no waiver or extension of any statute of limitations as to any
federal, state, local or foreign Tax matter has been given by or requested from
Company; and
(g) the Company has not filed a consent under Section 341(f) of the
Code.
3.14 Compliance With Laws. The Company has complied with all
Applicable Laws (including without limitation Applicable Laws relating to
securities, properties, business products, manufacturing processes, advertising
and sales practices, employment practices, terms and conditions of employment,
wages and hours, safety, occupational safety, health, environmental protection,
product safety and civil rights). Neither Seller nor the Company have received
any written notice, which has not been dismissed or otherwise disposed of, that
the Company has not so complied. The Company is not charged or, to the best
knowledge of Seller and the Company, threatened with or, to the best knowledge
of Seller and the Company, under investigation with respect to, any violation
of any Applicable Law relating to any aspect of the business of the Company.
3.15 Legal Proceedings. Except as disclosed on Schedule 3.15, there
are no Proceedings pending or, to the best knowledge of Seller and the Company,
threatened against or involving the Company (or any of its directors or
officers in connection with the business or affairs of the Company) or any
properties or rights of the Company. Except as disclosed on Schedule 3.15, any
and all potential liability of the Company under such Proceedings is adequately
covered (except for standard deductible amounts) by the existing insurance
maintained by the Company described in Section 3.28. No judgment, order, writ,
injunction or decree of any Governmental Entity has been issued or entered
against the Company which continues to be in effect. There are no Proceedings
pending or, to the best knowledge of Seller and the Company, threatened seeking
to restrain, prohibit or obtain damages or other relief in connection with this
Agreement or the transactions contemplated hereby.
3.16 Title to Properties. The Company has good and marketable title
to all properties (real, personal, and mixed, tangible and intangible) it owns
or purports to own, including without limitation the properties reflected in
its books and records and in the Latest Balance Sheet, other than those
disposed of after the date of such balance sheet in the ordinary course of
business consistent
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with past practice, free and clear of all Encumbrances, except (a) as disclosed
on Schedule 3.16, (b) as set forth in the Latest Balance Sheet as securing
specific liabilities, (c) liens for Taxes not yet due and payable or the
validity of which is being contested in good faith by appropriate legal
proceedings and for which adequate reserves have been set aside, (d) statutory
liens (including materialmen's, mechanic's, repairmen's, landlord's, and other
similar liens) arising in connection with the ordinary course of business
securing payments not yet due and payable or, if due and payable, the validity
of which is being contested in good faith by appropriate legal proceedings and
for which adequate reserves have been set aside, and (e) such imperfections or
irregularities of title, if any, as (A) are not substantial in character,
amount or extent and do not materially detract from the value of the property
subject thereto, (B) do not materially interfere with either the present or
intended use of such property and (C) do not, individually or in the aggregate,
materially interfere with the conduct of the Company's normal operations.
3.17 Sufficiency and Condition of Properties. The properties owned,
leased or used by the Company are in all material respects in the same
operating condition and repair (ordinary wear and tear excepted) as when such
properties were inspected by Buyer on or about June 24-25, 1998 and on or about
July 15, 1998 (three days). Such properties and their uses conform to all
Applicable Laws, and Seller and the Company have not received any notice to the
contrary. All such tangible properties are in the Company's possession or
under its control.
3.18 Real Property.
(a) Set forth on Schedule 3.18 is a list, by street address and (in
the case of owned real property) deed reference, of all real property owned or
leased by the Company (for purposes of this Section, the "Real Property"), and
a list of all Encumbrances of any kind to which the Real Property is subject,
and, with respect to leased Real Property, a list of the applicable leases.
Except as set forth on Schedule 3.18, there are no persons (other than the
Company) in possession of any portion of the Real Property as lessees, tenants
at sufferance or trespassers, nor does any person (other than the Company) have
a lease, tenancy or other right of occupancy or use of any portion of the Real
Property. There exists no Proceeding or court order or building code
provision, deed restriction or restrictive covenant (recorded or otherwise) or
other private or public limitation, which might in any way impede or adversely
affect the continued use of the Real Property by the Company in the manner it
is currently used. The Company does not own any real property.
(b) All the Real Property is zoned for the various purposes for which
such Real Property is being used, and there exists no pending or, to the best
knowledge of Seller and the Company, threatened Proceeding which might
adversely affect the validity of such zoning.
(c) The Real Property is connected to and serviced by water, sewage
disposal, gas, telephone and electric facilities which are adequate for the
current use of the Real Property and, to the best knowledge of Seller and the
Company, are in compliance with all Applicable Laws. All public utilities
required for the operation of the Real Property enter the Real Property through
adjoining public streets or, if they pass through adjoining private land, do so
in accordance with valid public easements, and all utility lines and mains
located on the Real Property have been properly dedicated to, and are serviced
and maintained by, the appropriate public or quasi-public entity.
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(d) The buildings, improvements and fixtures situated on the Real
Property are in good condition and repair (excepting ordinary wear and tear and
minor maintenance and repair problems which would normally be associated with
such assets when used in connection with the operation of the Company's
business).
(e) Neither the whole nor any part of the Real Property is subject to
any pending Proceeding for condemnation or other taking by any Governmental
Entity, and, to the best knowledge of Seller and the Company, no such
condemnation or other taking is contemplated or threatened.
(f) Other than for routine maintenance or similar items, there are no
material unpaid charges, debts, liabilities, claims or obligations arising from
the construction, occupancy, ownership, use or operation of the Real Property
or the buildings, improvements or fixtures situated thereon or the business
operated thereon, which could give rise to any mechanic's or materialmen's or
other statutory lien against the Real Property or the buildings, improvements
or fixtures situated thereon or any part thereof or for which the Company will
be responsible.
(g) No Seller is a "foreign person" within the meaning of Sections
1445 and 7701 of the Code.
3.19 Leased Property. The Company has good and valid leasehold
interests in all properties held by it under lease. The lessee under each such
lease has been in peaceable possession (or remedied any claims relating
thereto) of the property covered thereby since the commencement of the original
term of such lease. No waiver, indulgence or postponement of the lessee's
obligations under any such lease has been granted by the lessor or of the
lessor's obligations thereunder by the lessee. The lessee under each such
lease is not in breach of or in default under such lease, nor has any event
occurred which (with or without the giving of notice or the passage of time or
both) would constitute a default by the lessee under such lease, and the lessee
has not received any notice from, or given any notice to, the lessor indicating
that the lessee or the lessor is in breach of or in default under such lease.
To the best knowledge of Seller and the Company, none of the lessors under such
leases is in breach thereof or in default thereunder. The lessee under each
such lease has full right and power to occupy or possess, as the case may be,
all the property covered by such lease.
3.20 Inventory. All inventory (except for immaterial items but
otherwise including raw materials, work-in-progress, and finished goods) and
related supplies reflected on the Latest Balance Sheet or thereafter acquired
and not disposed of in the ordinary course of business is in good condition and
is merchantable, suitable and usable for the production or completion of
merchantable products, for sale in the Company's ordinary course of business as
first quality goods at normal mark-ups. None of such items (except for
immaterial items) is obsolete, discontinued, returned, damaged, overage, or of
below standard quality or merchantability, except for items that have been
written down to realizable market value or for which adequate reserves have
been provided in the Latest Balance Sheet. Each whole good item of inventory
reflected on the Latest Balance Sheet or in the Company's books and records is
valued at cost, plus freight in plus certain repair costs. Inventory is
written down to market at the time of trade-in or at the end of each fiscal
year. Parts inventory is valued at market price which the Company believes
does not materially differ from cost. All items have not moved in five years
have been written down to zero as of the last fiscal year-end inventory. The
present quantities of all inventories of the Company are sufficient to serve
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adequately its customers in the ordinary course. Finished goods in such
inventories conform to the applicable specifications of the Company, including
all applicable warranties, whether express or implied, given in connection with
the sales of such goods and under Applicable Laws, and are free from defects in
design, workmanship, and material. The Company also maintains sufficient
inventories of spare and replacement parts to meet repair and replacement
obligations in the ordinary course, under applicable warranties or otherwise.
3.21 Permits. Set forth on Schedule 3.21 is a list of all Permits
held by the Company, which are all the Permits necessary or required for the
conduct of the business of the Company as currently conducted. Each of such
Permits is in full force and effect, the Company is in compliance with all its
obligations with respect thereto, and, to the best knowledge of Seller and the
Company, no event has occurred which permits or with or without the giving of
notice or the passage of time or both would permit, the revocation or
termination of any thereof. Except as disclosed on Schedule 3.21, no notice
has been issued by any Governmental Entity and no Proceeding is pending or, to
the best knowledge of Seller and the Company, threatened with respect to any
alleged failure by the Company to have any Permit.
3.22 Agreements.
(a) All agreements, arrangements, and understandings of any nature
(written or oral, formal or informal) other than agreements pursuant to which
the Company leases equipment to third parties (collectively, for purposes of
this Section, "agreements") to which the Company is a party or by which the
Company or any of its properties is otherwise bound, regardless of amount or
subject matter, that are material to the business, assets, results of
operations, condition (financial or otherwise) or prospects of the Company are
listed on Schedule 3.22.
(b) The Company has delivered to Buyer accurate and complete copies of
the agreements listed on Schedule 3.22. Each of such agreements is a valid and
binding agreement of the parties thereto enforceable against them in accordance
with its terms. No breach or default exists with respect to any of such
agreements, and no event has occurred which, after the giving of notice or the
passage of time or otherwise, will result in any such breach or default.
3.23 ERISA.
(a) Set forth on Schedule 3.23 is a list identifying each "employee
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered or contributed to
by the Company or any affiliate of the Company, and (iii) which covers any
employee or former employee of the Company or any affiliate of the Company or
under which the Company or any affiliate of the Company has any liability. The
Company has delivered to Buyer accurate and complete copies of such plans (and,
if applicable, the related trust agreements) and all amendments thereto and
written interpretations thereof, together with (i) the three (3) most recent
annual reports (Form 5500 including, if applicable, Schedule B thereto)
prepared in connection with any such plan and (ii) the most recent actuarial
valuation report prepared in connection with any such plan. Such plans are
referred to in this Section 3.26 as the "Employee Plans". For purposes of this
Section 3.26 only, an "affiliate" of any person means any other person which,
together with such person, would be treated as a single employer under Section
414 of the
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Code. The only Employee Plans which individually or collectively would
constitute an "employee pension benefit plan" as defined in Section 3(2) of
ERISA are identified as such on Schedule 3.23.
(b) Except as otherwise identified on Schedule 3.23, (i) no Employee
Plan constitutes a "multiemployer plan", as defined in Section 3(37) of ERISA
(for purposes of this Section, a "Multiemployer Plan"), (ii) no Employee Plan
is maintained in connection with any trust described in Section 501(c)(9) of
the Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the
minimum funding standards of ERISA and the Code, and (iv) during the past five
years, neither the Company nor any of its affiliates have made or been required
to make contributions to any Multiemployer Plan. There are no accumulated
funding deficiencies as defined in Section 412 of the Code (whether or not
waived) with respect to any Employee Plan. The fair market value of the assets
held with respect to each Employee Plan which is an employee pension benefit
plan, as defined in Section 3(2) of ERISA, exceeds the actuarially determined
present value of all benefit liabilities accrued under such Employee Plan
(whether or not vested) determined using reasonable actuarial assumptions.
Neither the Company nor any affiliate of the Company has incurred any liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. The Company and all of the affiliates of the Company have
paid and discharged promptly when due all liabilities and obligations arising
under ERISA or the Code of a character which if unpaid or unperformed might
result in the imposition of a lien against any of the assets of the Company.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make the Company or
any director or officer of the Company subject to any liability under Title I
of ERISA or liable for any Tax pursuant to Section 4975 of the Code. There are
no threatened or pending claims by or on behalf of the Employee Plans or by
any participant therein, alleging a breach or breaches of fiduciary duties or
violations of Applicable Laws which could result in liability on the part of
the Company, its officers or directors or such Employee Plans, under ERISA or
any other Applicable Law and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified since the
date of its adoption, and each trust forming a part thereof is exempt from Tax
pursuant to Section 501(a) of the Code. Set forth on Schedule 3.23 is a list
of the most recent IRS determination letters with respect to any such Plans,
accurate and complete copies of which letters have been delivered to Buyer.
Each Employee Plan has been maintained in compliance with its terms and with
the requirements prescribed by all Applicable Laws, including but not limited
to ERISA and the Code, which are applicable to such Plans.
(d) To the extent not listed on Schedule 3.22, there is set forth on
Schedule 3.23 a list of each employment, severance or other similar contract,
arrangement or policy and each plan or arrangement (written or oral) providing
for insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (i)
is not an Employee Plan, (ii) is entered into, maintained or contributed to, as
the case may be, by the Company or any affiliate of the Company, and (iii)
covers any employee or former employee of the Company or any affiliate of the
Company or under which the Company or any affiliate of the Company has any
liability. Such contracts, plans, and
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arrangements as are described in the preceding sentence are referred to for
purposes of this Section 3.23 as the "Benefit Arrangements". Each Benefit
Arrangement has been maintained in substantial compliance with its terms and
with the requirements prescribed by Applicable Laws.
(e) Neither the Company nor any affiliate of the Company has
performed any act or failed to perform any act, and there is no contract,
agreement, plan, or arrangement covering any employee or former employee of the
Company or any affiliate of the Company, that, individually or collectively,
could give rise to the payment of any amount that would not be deductible
pursuant to the terms of Section 162(a)(1) or 280G of the Code or Section
162(i)(2) of the Code prior to its amendment by the Technical and Miscellaneous
Revenue Act of 1988, or could give rise to any penalty or excise Tax pursuant
to Section 4980B or 4999 of the Code.
(f) Except as disclosed on Schedule 3.23, there has been no
amendment, written interpretation, or announcement (whether or not written) by
the Company or any affiliate of the Company of or relating to, or change in
employee participation or coverage under, any Employee Plan or Benefit
Arrangement which would increase materially the expense of maintaining such
Employee Plan or Benefit Arrangement above the level of the expense incurred in
respect thereof for the fiscal year ended December 31, 1997.
(g) The representations and warranties set forth in Sections 3.23(b),
(c), (d) and (e) above are made to the best of Seller's knowledge to the extent
they relate to occurrences or matters arising after October 31, 1997, but are
not so qualified with respect to occurrences or matters arising or in existence
on or prior to October 31, 1997.
3.24 Environmental Matters.
(a) Except as disclosed in Schedule 3.24 or in the Phase I and Phase
II Reports prepared by Law Engineering on behalf of Buyer, neither the Company
nor any property owned or leased by the Company (for purposes of this Section,
the "Property") is in violation of, or subject to any pending or, to the best
knowledge of Seller and the Company, threatened Proceeding under, or subject to
any remedial obligations under, any Applicable Laws pertaining to health,
safety, the environment, Hazardous Substances, or Solid Wastes (such Applicable
Laws as they now exist or are hereafter enacted and/or amended are
collectively, for purposes of this Section 3.24, called "Applicable
Environmental Laws"), including without limitation the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended, for
purposes of this Section 3.24, called "CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended by the Used Oil Recycling Act of 1980, the
Solid Waste Disposal Act Amendments of 1980, and the Hazardous and Solid Waste
Amendments of 1984 (as amended, for purposes of this Section, called "RCRA"),
and other applicable federal or state environmental conservation or protection
laws. No asbestos, material containing asbestos that is or may become friable,
or material containing asbestos deemed hazardous by Applicable Laws, has been
installed in any Property. The representations and warranties set forth in the
preceding sentences of this Section would continue to be true and correct
following disclosure to the applicable Governmental Entities of all relevant
facts, conditions and circumstances, if any, pertaining to the Property.
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(b) Except as set forth on Schedule 3.24, the Company has not obtained
and is not required to obtain any Permits to construct, occupy, operate, or use
any buildings, improvements, fixtures, equipment or other tangible property
forming a part of the Property by reason of any Applicable Environmental Laws.
(c) The terms "Hazardous Substance" and "Release" shall have the
meanings specified in CERCLA, and the terms "Solid Waste" and "Disposal" (or
"Disposed") shall have the meanings specified in RCRA; provided that in the
event either CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the effective
date of such amendment; and provided further, that to the extent the laws of
the jurisdiction in which the Property is located establish a meaning for
"Hazardous Substance", "Release", "Solid Waste", or "Disposal" (or "Disposed")
which is broader than that specified in either CERCLA or RCRA, such broader
meaning shall apply.
3.25 Labor Relations.
(a) Except as disclosed on Schedule 3.25, (i) there are no collective
bargaining agreements or other similar agreements, arrangements, or
understandings, written or oral, with employees as a group to or by which the
Company is a party or is bound; (ii) no employees of the Company are
represented by any labor organization, collective bargaining representative, or
group of employees; (iii) no labor organization, collective bargaining
representative, or group of employees claims to represent a majority of the
employees of the Company in an appropriate unit of the Company; (iv) the
Company has not been involved with any representational campaign by any union
or other organization or group seeking to become the collective bargaining
representative of any of its employees or been subject to or, to the best
knowledge of Seller and the Company, threatened with any strike or other
concerted labor activity or dispute; and (v) the Company is not obligated to
bargain collectively with respect to wages, hour, and other terms and
conditions of employment with any recognized or certified labor organization,
collective bargaining representative or group of employees.
(b) The Company is in compliance with all Applicable Laws pertaining
to employment and employment practices and wages, hour, and other terms and
conditions of employment in respect of its employees and is not engaged in any
unfair labor practices or unlawful employment practices. There is no pending
or, to the best knowledge of Seller and the Company, threatened Proceeding by
or before, and the Company is not subject to any judgment, order, writ,
injunction or decree of or inquiry from, the National Labor Relations Board,
the Equal Employment Opportunity Commission, the Department of Labor, or any
other Governmental Entity in connection with any current, former or prospective
employee of the Company.
(c) Seller and the Company believe that relations with the employees
of the Company are satisfactory.
3.26 Employees. Set forth on Schedule 3.26 is a list of (a) all
directors and officers of the Company, and (b) the name, social security
number, and dates of employment by the Company of each employee and consultant
of the Company as of June 30, 1998, together with the total amounts of salary,
bonuses and other compensation paid by the Company to each such person for the
current
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fiscal year. The consummation of the transactions contemplated by this
Agreement will not result in the incurring of any severance pay obligations to
any person employed by the Company. Except as set forth on Schedule 3.26,
neither Seller, nor any affiliate of Seller has entered into any type of
employment or consulting agreement, written or oral, with any employee of the
Company, nor has Seller or any affiliate of Seller engaged in discussions with
any such employee relating thereto.
3.27 Insider Interests. Except as disclosed on Schedule 3.27, no
shareholder, director, officer or employee of the Company or any associate of
any such shareholder, director, officer or employee is presently, directly or
indirectly, a party to any transaction with the Company, including, without
limitation, any agreement, arrangement, or understanding, written or oral,
providing for the employment of, furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to any such
shareholder, director, officer, employee or associate. To the best knowledge
of Seller and the Company, no shareholder, director, officer or employee of the
Company, any associate of any such shareholder, director, officer or employee
owns, directly or indirectly, any interest in, or serves as a director, officer
or employee of, any customer, supplier, or competitor of the Company. For
purposes of this Section 3.31 only, an "associate" of any shareholder,
director, officer or employee means any member of the immediate family of such
shareholder, director, officer or employee or any corporation, partnership,
trust or other entity in which such shareholder, director, officer or employee
has a substantial ownership or beneficial interest (other than an interest in a
public corporation which does not exceed three percent of its outstanding
securities) or is a director, officer, partner, or trustee or person holding a
similar position.
3.28 Insurance. Set forth on Schedule 3.28 is a list of all policies
of fire, liability, casualty, life, and other insurance owned or held by the
Company that are currently in effect. Such policies are in full force and
effect and represent such coverage as is customary for companies engaged in
lines of business similar to those of the Company. No event has occurred nor,
to the best knowledge of the Company and Seller, does any fact or condition
exist which would render any of such policies void or voidable or subject any
of such policies to cancellation or termination. The Company has given timely
notice to the appropriate insurance carrier of all pending or threatened claims
against it that are insured. Schedule 3.28 also lists all pending and
threatened insured claims that are not listed on Schedule 3.15.
3.29 Bank Accounts and Powers of Attorney. Set forth on Schedule
3.29 are (i) the name and address of each bank or other financial institution
in which the Company has an account or a safe deposit box, the account and safe
deposit box numbers thereof, and the names of all persons authorized to draw
thereon or to have access thereto, (ii) the names of all persons authorized to
borrow funds on behalf of the Company and the names of all entities from which
they are authorized to borrow funds, and (iii) the names of all persons, if
any, holding powers of attorney from the Company.
3.30 Books and Records. All of the current books and records of the
Company, including all personnel files, employee data and other materials
relating to employees, are substantially complete and correct. Such books and
records accurately and fairly reflect, in reasonable detail and in all material
respects, all transactions, assets, and liabilities of the Company.
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3.31 Illegal Payments. To the best knowledge of Seller and the
Company, none of Seller or the Company or any director, officer, employee or
agent of any Seller or the Company has, directly or indirectly, paid or
delivered any fee, commission, or other sum of money or item of property
however characterized to any broker, finder, agent, government official, or
other person, in the United States or any other country, in any manner related
to the business or operations of the Company, which such Seller or the Company
or any such director, officer, employee or agent knows or has reason to believe
to have been illegal under any Applicable Law.
3.32 Brokerage Fees. Neither Seller nor any of his affiliates has
retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby. Seller shall indemnify and hold
harmless Buyer from and against any and all losses, claims, damages and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission or similar payment in connection with
any transaction contemplated hereby asserted by any person on the basis of any
act or statement made or alleged to have been made by the Seller or any of such
Seller's affiliates.
3.33 Disclosure. No representation or warranty made by Seller or the
Company in this Agreement contains or will contain, at the time of delivery,
any untrue statement of a material fact or omits or will omit, at the time of
delivery, to state any material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they are made, not
misleading.
3.34 Representations and Warranties on Closing Date. The
representations and warranties made in this Article III will be true and
correct on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
ARTICLE IV -- REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Company that:
4.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite corporate power and corporate authority
to own, lease, and operate its properties and to carry on its business as now
being conducted.
4.2 Authority Relative to This Agreement. Buyer has full corporate
power and corporate authority to execute, deliver, and perform this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery, and performance by Buyer of this Agreement, and the consummation by
it of the transactions contemplated hereby, have been duly authorized by all
necessary corporate action of Buyer. This Agreement has been duly executed and
delivered by Buyer and constitutes, and each other agreement, instrument, or
document executed or to be executed by Buyer in connection with the
transactions contemplated hereby has been, or when
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executed will be, duly executed and delivered by Buyer and constitutes, or when
executed and delivered will constitute, a valid and legally binding obligation
of Buyer, enforceable against Buyer in accordance with their respective terms,
except that such enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (ii) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.
4.3 Noncontravention. The execution, delivery and performance by
Buyer of this Agreement and the consummation by it of the transactions
contemplated hereby do not and will not (i) conflict with or result in a
violation of any provision of the charter or bylaws of Buyer, (ii) conflict
with or result in a violation of any provision of, or constitute (with or
without the giving of notice or the passage of time or both) a default under,
or give rise (with or without the giving of notice or the passage of time or
both) to any right of termination, cancellation or acceleration under, any
bond, debenture, note, mortgage, indenture, lease, contract, agreement, or
other instrument or obligation to which Buyer is a party or by which Buyer or
any of its properties may be bound, (iii) result in the creation or imposition
of any Encumbrance upon the properties of Buyer or (iv) assuming compliance
with the matters referred to in Section 4.4, violate any Applicable Law binding
upon Buyer.
4.4 Governmental Approvals. No consent, approval, order or
authorization of, or declaration, filing, or registration with, any
Governmental Entity is required to be obtained or made by Buyer in connection
with the execution, delivery or performance by Buyer of this Agreement or the
consummation by it of the transactions contemplated hereby, other than (i)
compliance with any applicable requirements of the Securities Act; (ii)
compliance with any applicable requirements of the Exchange Act; (iii)
compliance with any applicable state securities laws, and (iv) filings with
Governmental Entities to occur in the ordinary course following the
consummation of the transactions contemplated hereby.
4.5 Purchase for Investment. The Buyer is acquiring the Shares for
investment for its own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof to the public.
4.6 Brokerage Fees. Neither Buyer nor any of its affiliates has
retained any financial advisor, broker, agent or finder or paid or agreed to
pay any financial advisor, broker, agent or finder on account of this Agreement
or any transaction contemplated hereby. Buyer shall indemnify and hold
harmless Seller from and against any and all losses, claims, damages and
liabilities (including legal and other expenses reasonably incurred in
connection with investigating or defending any claims or actions) with respect
to any finder's fee, brokerage commission or similar payment in connection with
any transaction contemplated hereby asserted by any person on the basis of any
act or statement made or alleged to have been made by Buyer or any of its
affiliates.
4.7 Representations and Warranties on Closing Date. The
representations and warranties made in this Article IV will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
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ARTICLE V -- CONDUCT OF THE COMPANY PENDING CLOSING
Seller and the Company hereby jointly and severally covenant and
agree with Buyer as follows:
5.1 Conduct and Preservation of Business. Except as contemplated by
this Agreement, during the period from the date hereof to the Closing, the
Company (i) shall conduct its operations according to its ordinary course of
business consistent with past practice and in compliance with all Applicable
Laws; (ii) shall use its reasonable best efforts to preserve, maintain and
protect its properties and (iii) shall use its reasonable best efforts to
preserve intact its business organization, to keep available the services of
its officers and employees, and to maintain existing relationships with
licensors, licensees, suppliers, contractors, distributors, customers and
others having business relationships with it.
5.2 Restrictions on Certain Actions. Without limiting the generality
of the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing, the Company shall not, without the prior written consent
of Buyer:
(a) amend its charter or bylaws;
(b) (i) issue, sell or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any shares of its capital stock of any class or any other
securities or equity equivalents or (ii) amend in any respect any of the terms
of any such securities outstanding as of the date hereof;
(c) (i) split, combine or reclassify any shares of its capital stock;
(ii) declare, set aside or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its capital
stock; (iii) repurchase, redeem or otherwise acquire any of its securities or
(iv) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing a liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company;
(d) (i) except in the ordinary course of business consistent with past
practice, create, incur, guarantee or assume any indebtedness for borrowed
money or otherwise become liable or responsible for the obligations of any
other person; (ii) make any loans, advances or capital contributions to, or
investments in, any other person; (iii) pledge or otherwise encumber shares of
capital stock of the Company or (iv) except in the ordinary course of business
consistent with past practice, mortgage or pledge any of its assets, tangible
or intangible, or create or suffer to exist any lien thereupon;
(e) (i) enter into, adopt or (except as may be required by law) amend
or terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right, restricted stock, performance unit,
stock equivalent, stock purchase, pension, retirement, deferred compensation,
employment, severance, or other employee benefit agreement, trust, plan, fund
or other arrangement for the benefit or welfare of any director, officer or
(ii) except for normal increases in the ordinary course of business consistent
with past practice that, in the aggregate, do
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not result in a material increase in benefits or compensation expense to the
Company, increase in any manner the compensation or fringe benefits of any
director, officer, or employee or (iii) pay to any director, officer or
employee any benefit not required by any employee benefit agreement, trust,
plan, fund or other arrangement as in effect on the date hereof;
(f) acquire, sell, lease, transfer or otherwise dispose of, directly
or indirectly, any assets outside the ordinary course of business consistent
with past practice or any assets that in the aggregate are material to the
Company;
(g) acquire (by merger, consolidation or acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof;
(h) except as set forth on Schedule 5.2, make any capital expenditure
or expenditures which, individually, is in excess of $25,000 or, in the
aggregate, are in excess of $250,000;
(i) make any Tax election or settle or compromise any federal, state,
local or foreign Tax liability;
(j) except as set forth on Schedule 5.2, pay, discharge, or satisfy
any claims, liabilities or obligations (whether accrued, absolute, contingent,
unliquidated or otherwise, and whether asserted or unasserted), other than the
payment, discharge, or satisfaction in the ordinary course of business
consistent with past practice, or in accordance with their terms, of
liabilities reflected or reserved against in the Latest Balance Sheet or
incurred since June 30, 1998 in the ordinary course of business consistent with
past practice; provided, however, that in no event shall the Company repay any
long-term indebtedness except to the extent required by the terms thereof;
(k) enter into any lease, contract, agreement, commitment,
arrangement or transaction outside the ordinary course of business consistent
with past practice;
(l) amend, modify or change any existing lease, contract or agreement
other than in the ordinary course of business consistent with past practice;
(m) waive, release, grant or transfer any rights of value, other than
in the ordinary course of business consistent with past practice;
(n) other than in the ordinary course of business, lay off any of its
employees;
(o) change any of its banking or safe deposit arrangements;
(p) change any of the accounting principles or practices used by it,
except for any change required by reason of a concurrent change in generally
accepted accounting principles and notice of which is given in writing by the
Company to Buyer;
(q) take any action which would or might make any of the
representations or warranties of Seller or the Company contained in this
Agreement untrue or inaccurate as of any time from the date
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of this Agreement to the Closing or would or might result in any of the
conditions set forth in this Agreement not being satisfied; or
(r) authorize or propose, or agree in writing or otherwise to take,
any of the actions described in this Section 5.2.
ARTICLE VI -- ADDITIONAL AGREEMENTS
6.1 Access to Information. Between the date hereof and the Closing,
Seller and the Company (i) shall give Buyer and its authorized representatives
reasonable access to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers and other
materials prepared by the Company's independent public accountants, of the
Company, (ii) shall permit Buyer and its authorized representatives to make
such inspections as they may reasonably require, and (iii) shall cause the
Company's officers to furnish Buyer and its authorized representatives with
such financial and operating data and other information with respect to the
Company as Buyer may from time to time reasonably request; provided, however,
that no investigation pursuant to this Section shall affect any representation
or warranty of Seller or the Company contained in this Agreement (except as
otherwise expressly provided in any such representation or warranty) or in any
agreement, instrument, or document delivered pursuant hereto or in connection
herewith; and provided further that Seller and the Company shall have the right
to have a representative present at all times.
6.2 Third Party Consents. Seller and the Company shall each use its
reasonable best efforts to obtain all consents, approvals, orders,
authorizations and waivers of, and to effect all declarations, filings and
registrations with, all third parties (including Governmental Entities) that
are necessary, required or deemed by Buyer to be desirable to enable Seller to
transfer the Shares to Buyer as contemplated by this Agreement and to otherwise
consummate the transactions contemplated hereby. All costs and expenses of
obtaining or effecting any and all of the consents, approvals, orders,
authorizations, waivers, declarations, filings and registrations referred to in
this Section 6.2 shall be borne by Buyer.
6.3 Employment and Noncompetition Agreements.
(a) Carlston and the Company shall enter into an employment and
noncompetition agreement (the "Carlston Employment Agreement") at (and subject
to the occurrence of) the Closing pursuant to which the Company shall agree to
employ Seller as President of the Company for the period and on the terms set
forth therein and the Seller shall agree not to compete, directly or
indirectly, with the Company for the period and in the area of interest set
forth therein. The Carlston Employment Agreement shall be in substantially the
form set forth as Exhibit 6.3(a).
(b) Donald Christl ("Christl") and the Company shall enter into an
employment agreement (the "Christl Employment Agreement") at (and subject to
the occurrence of) the Closing pursuant to which the Company shall agree to
employ Christl as a Vice President of the Company for the period and on the
terms set forth therein. The Christl Employment Agreement shall be in
substantially the form set forth as Exhibit 6.3(b).
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6.4 Schedules To Be Agreed. Notwithstanding references in this
Agreement to the contrary, the parties have entered into this Agreement without
attaching any of the Schedules referred to herein as being attached hereto
(such Schedules, the "Schedules to be Agreed"). Prior to the Closing, the
Seller will prepare proposed forms of the Schedules to be Agreed and submit
such proposed forms to Buyer for approval. Agreement by all of the parties
hereto on the form and substance of the Schedules to be Agreed shall be a
condition to each party's obligations hereunder.
6.5 Public Announcements. Except as may be required by Applicable
Law or the NASDAQ National Market System market rules here, neither Buyer, on
the one hand, nor Seller and the Company, on the other, shall issue any press
release or otherwise make any public statement with respect to this Agreement
or the transactions contemplated hereby without the prior written consent of
the other party.
6.6 Notice of Litigation. Until the Closing, (i) Buyer, upon
learning of the same, shall promptly notify Seller of any Proceeding which is
commenced or threatened against Buyer and which affects this Agreement or the
transactions contemplated hereby and (ii) Seller and the Company, upon learning
of the same, shall promptly notify Buyer of any Proceeding which is commenced
or threatened against Seller or the Company and which affects this Agreement or
the transactions contemplated hereby and any Proceeding which is commenced or
threatened against any Seller or the Company and which would have been listed
on Schedule 3.15 if such Proceeding had arisen prior to the date hereof.
6.7 Notification of Certain Matters. Seller and the Company shall
give prompt notice to Buyer of (i) the occurrence or nonoccurrence of any event
the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in Article III to be untrue or inaccurate
in any material respect at or prior to the Closing and (ii) any failure of
Seller or the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied in any material respect by such
person hereunder. Buyer shall give prompt notice to Seller of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in
Article IV to be untrue or inaccurate in any material respect at or prior to
the Closing and (ii) any failure of Buyer to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied in any
material respect by such person hereunder. The delivery of any notice pursuant
to this Section 6.7 shall not be deemed to (i) modify the representations or
warranties hereunder of the party delivering such notice, (ii) modify the
conditions set forth in Articles VII and VIII or (iii) limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
6.8 Fees and Expenses. Except as otherwise expressly provided in
this Agreement, all fees and expenses of Carlston, the Trust and the Company,
including fees and expenses of counsel, financial advisors and accountants,
incurred in connection with this Agreement and the transactions contemplated
hereby, up to a maximum aggregate amount of $50,000, shall be paid by the
Company if the Closing shall occur, and by Buyer if the Closing does not occur,
and all such fees and expenses of Carlston, the Trust and the Company over
$50,000 shall be paid by Carlston and the Trust. All fees and expenses of
Buyer, including fees and expenses of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby, shall be paid by Buyer, whether or not the Closing shall
occur.
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6.9 Transfer Taxes. All sales and transfer Taxes and fees (including
all real estate transfer and closing Taxes and recording fees, if any) incurred
in connection with this Agreement and the transactions contemplated hereby
shall be borne by Buyer, and Buyer shall file all necessary documentation with
respect to, and make all payments of, such Taxes and fees on a timely basis.
6.10 Releases of Guaranties. Within sixty (60) days after the Closing
Date, Buyer shall take all necessary steps to cause Carlston to be released
from any agreements it may have as guarantor, codebtor, cosigner or surety for
or in connection with the Company or its obligations, provided that such
obligations are reflected in the Financial Statements or Schedule 6.10 hereto,
and Buyer shall defend and indemnify Carlston against any and all claims,
demands, liabilities, costs, and damages under any such agreements. The
failure of Buyer to obtain the releases required by this Section 6.10 within
the specified sixty (60) day period shall constitute an event of default under
the Promissory Note.
6.11 Negative Covenants. Notwithstanding any provision contained
herein to the contrary, until the Promissory Note is repaid in full, the
Company and the Buyer shall not cause, or permit the Company to take, any of
the following action without first obtaining the consent of Carlston:
(a) commencing any business or line of business which is inconsistent
with the current business of the Company in any material respect or making any
fundamental changes to the nature of the business of the Company;
(b) voluntarily liquidating or dissolving the Company or filing a
voluntary petition by the Company pursuant to Chapter 7 or Chapter 11 of the
bankruptcy act;
(c) merging, consolidating or reorganizing the Company with another
entity;
(d) admitting a new shareholder or otherwise issuing or selling any
equity securities of the Company or any warrant, option or right (whether
contingent or otherwise) to purchase or acquire any equity securities in the
Company to any person or entity;
(e) engaging in any transaction or series of transactions, or taking
any action or actions, the result of which is to cause the net worth of the
Company (as determined in accordance with GAAP) to be less than $14,000,000; or
(f) amending its articles of incorporation.
6.12 Reporting. Until the Promissory Note is paid in full, the Buyer
will deliver to Carlston, promptly when available, the annual, quarterly and
monthly financial statements of the Company.
6.13 Survival of Covenants. Except for any covenant or agreement
which by its terms expressly terminates as of a specific date, the covenants
and agreements of the parties hereto contained in this Agreement shall survive
the Closing without contractual limitation.
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ARTICLE VII -- CONDITIONS TO
OBLIGATIONS OF SELLER
The obligations of the Seller to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct on and as of the
Closing Date as if made on and as of such date, except as affected by
transactions contemplated or permitted by this Agreement and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
as of such specified date.
7.2 Covenants and Agreements Performed. Buyer shall have performed
and complied with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
7.3 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
7.4 Other Documents. Seller shall have received the certificates,
instruments, and documents listed below:
(a) The Cash Portion of the Purchase Price to be delivered to the
Seller pursuant to Section 1.2.
(b) The Promissory Note to be delivered to the Seller pursuant to
Section 1.2, registered in the name of the Seller and duly executed by Buyer.
(c) The Pledge Agreement to be delivered to the Seller pursuant to
Section 1.2, together with the stock certificates representing the Shares duly
endorsed in blank, or accompanied by stock powers duly executed in blank, and
otherwise in form acceptable to Buyer for transfer on the books of the Company,
all duly executed by Buyer.
(d) Such other certificates, instruments, and documents as may be
reasonably requested by Seller prior to the Closing Date to carry out the
intent and purposes of this Agreement.
7.5 Employment Agreements. The Company shall have entered into the
Carlston Employment Agreement and the Christl Employment Agreement at the
Closing.
7.6 Certificate. Seller shall have received a certificate executed
by on behalf of the Buyer by the president or the vice president-finance of
Buyer, dated the Closing Date, representing and certifying, in such detail as
the Seller may reasonably request, that the conditions set forth in this
Article VII have been fulfilled and that Buyer is not in breach of any
provision of this Agreement.
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7.7 New Lease Agreements. At or prior to the Closing, the Company
and Carlston shall have entered into new lease agreements for the four Company
facilities owned by Carlston located at 1333 Atlantic Street, Union City,
California, 1195 East Glendale Avenue, Sparks, Nevada, 2330 East Date Avenue,
Fresno, California, and 7518 Pacific Avenue, Pleasant Grove, California, which
lease agreements shall be in form and substance reasonably acceptable to each
of Carlston, the Company and Buyer.
7.8 Schedules To Be Agreed. At or prior to the Closing, the Company,
Buyer, the Trust and Carlston shall have agreed on the Schedules to be Agreed,
which Schedules to be Agreed shall be in form and substance reasonably
acceptable to each of Carlston, the Company, the Trust and Buyer.
ARTICLE VIII -- CONDITIONS TO
OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment on or prior to the
Closing Date of each of the following conditions:
8.1 Representations and Warranties True. All the representations and
warranties of Seller and the Company contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date as if made
on and as of such date, except as affected by transactions contemplated or
permitted by this Agreement and except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such
specified date.
8.2 Covenants and Agreements Performed. Seller and the Company shall
have performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
8.3 Certificate. Buyer shall have received a certificate executed by
each Seller and on behalf of the Company by the president and the vice
president-finance of the Company, dated the Closing Date, representing and
certifying, in such detail as Buyer may reasonably request, that the conditions
set forth in this Article VIII have been fulfilled and that Seller and the
Company are not in breach of any provision of this Agreement.
8.4 [Intentionally omitted]
8.5 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
8.6 Consents. All consents and approvals of third parties (including
Governmental Entities) required to be obtained by or on the part of the parties
hereto or otherwise necessary for the consummation of the transactions
contemplated hereby shall have been obtained, and all thereof shall be in full
force and effect at the time of Closing.
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8.7 No Material Adverse Change. Since June 30, 1998, there shall not
have been any material adverse change in the business, assets, results of
operations, condition (financial or otherwise), or prospects of the Company.
8.8 Employment Agreements. Carlston shall have entered into the
Carlston Employment Agreement with the Company, and Christl shall have entered
into the Christl Employment Agreement with the Company.
8.9 Other Documents. Buyer shall have received the certificates,
instruments, and documents listed below:
(a) The stock certificates representing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, and otherwise in
form acceptable to Buyer for transfer on the books of the Company, provided,
however, stock certificates representing the Shares shall in turn be
redelivered to Seller pursuant to and in accordance with the terms of the
Pledge Agreement.
(b) The minute books, stock records, and corporate seal of the
Company.
(c) The written resignation from the Board of Directors of the
Company of each member of such Board, such resignation to be effective
concurrently with the Closing on the Closing Date.
(d) The written resignation as an officer of the Company of each
officer of the Company (other than Carlston and Christl), such resignation to
be effective concurrently with the Closing on the Closing Date.
(e) A copy of the resolutions of the Board of Directors of the
Company authorizing the execution, delivery, and performance by the Company of
this Agreement, certified by the secretary or an assistant secretary of the
Company.
(f) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the Closing Date to carry out the intent
and purposes of this Agreement.
8.10 New Lease Agreements. At or prior to the Closing, the Company
and Carlston shall have entered into new lease agreements for the four Company
facilities owned by Carlston located at 1333 Atlantic Street, Union City,
California, 1195 East Glendale Avenue, Sparks, Nevada, 2330 East Date Avenue,
Fresno, California, and 7518 Pacific Avenue, Pleasant Grove, California, which
lease agreements shall be in form and substance reasonably acceptable to each
of Carlston, the Company and Buyer.
8.11 Schedules To Be Agreed. At or prior to the Closing, the
Company, Buyer, the Trust and Carlston shall have agreed on the Schedules to be
Agreed, which Schedules to be Agreed shall be in form and substance reasonably
acceptable to each of Carlston, the Company, the Trust and Buyer.
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<PAGE> 28
ARTICLE IX -- TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Seller and Buyer; or
(b) by either Seller or Buyer, if:
(i) the Closing shall not have occurred on or before
August 31, 1998, unless such failure to close shall be due to a breach
of this Agreement by the party seeking to terminate this Agreement
pursuant to this clause (i); or
(ii) there shall be any statute, rule or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or a Governmental Entity shall have issued an
order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the consummation of
the transactions contemplated hereby, and such order, decree, ruling
or other action shall have become final and nonappealable; or
(c) by Seller, if (i) any of the representations and warranties of
Buyer contained in this Agreement shall not be true and correct in any material
respect, when made or at any time prior to the Closing as if made at and as of
such time, or (ii) Buyer shall have failed to fulfill any of its obligations
under this Agreement in any material respect, and, in the case of each of
clauses (i) and (ii), such misrepresentation, breach of warranty, or failure
(provided it can be cured) has not been cured within thirty (30) days of actual
knowledge thereof by Buyer; or
(d) by Buyer, if (i) any of the representations and warranties of
Seller or the Company contained in this Agreement shall not be true and correct
in any material respect, when made or at any time prior to the Closing as if
made at and as of such time, or (ii) Seller or the Company shall have failed to
fulfill any of their obligations under this Agreement in any material respect,
and, in the case of each of clauses (i) and (ii), such misrepresentation,
breach of warranty, or failure (provided it can be cured) has not been cured
within thirty (30) days of actual knowledge thereof by Seller.
9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1 by Seller, on the one hand, or Buyer, on the
other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section 9.2 and in Section 6.5 shall survive the termination
hereof. Nothing contained in this Section 9.2 shall relieve any party from
liability for damages as a result of any breach of this Agreement. In the
event that this Agreement is terminated pursuant to Section 9.1(a), Section
9.1(b) or Section 9.1(d), Seller shall return to Buyer the full amount of the
Deposit paid to Seller within ten (10) days of such termination. In addition,
in the event of any termination of this Agreement the Carlston Employment
Agreement and the Christl Employment Agreement shall be void and have no
effect.
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<PAGE> 29
9.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
9.4 Waiver. Each of Seller and the Company, on the one hand, and
Buyer, on the other, may (i) waive any inaccuracies in the representations and
warranties of the other contained herein or in any document, certificate, or
writing delivered pursuant hereto or (ii) waive compliance by the other with
any of the other's agreements or fulfillment of any conditions to its own
obligations contained herein. Any agreement on the part of a party hereto to
any such waiver shall be valid only if set forth in an instrument in writing
signed by or on behalf of such party. No failure or delay by a party hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
9.5 Remedies Not Exclusive. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by
law. The rights and remedies of any party based upon, arising out of, or
otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant, or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence, or other state of facts
upon which any claim of any such inaccuracy or breach is based may also be the
subject matter of any other representation, warranty, covenant, or agreement
contained in this Agreement (or in any other agreement between the parties) as
to which there is no inaccuracy or breach.
ARTICLE X -- SURVIVAL OF
REPRESENTATIONS; INDEMNIFICATION
10.1 Survival. The representations and warranties of the parties
hereto contained in this Agreement or in any certificate, instrument, or
document delivered pursuant hereto shall survive the Closing without
contractual limitation, regardless of any investigation made by or on behalf of
any party.
10.2 Indemnification by Seller.
(a) Subject to the terms and conditions of this Article X, Seller
shall indemnify, defend, and hold harmless Buyer, the subsidiaries and parent
corporations of Buyer (including, after the Closing, the Company), each
director and officer of Buyer or any of its subsidiaries or parent
corporations, and each affiliate thereof, and their respective heirs, legal
representatives, successors and assigns (collectively, the "Buyer Group"), from
and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
costs, and expenses (including reasonable attorneys' fees and expenses), of any
nature whatsoever, whether actual or consequential, including any liability
over the $2,500.00 deductible for the litigation described in Schedule 3.15
attached hereto (collectively, "Damages"), asserted against, resulting to,
imposed upon, or incurred by any member of the Buyer Group, directly or
indirectly, by reason of or resulting from any breach by Seller or the Company
of any of their representations, warranties, covenants, or agreements contained
in this Agreement or in any certificate, instrument, or document delivered
pursuant hereto.
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<PAGE> 30
(b) Except with respect to claims for which Buyer has given written
notice to Seller prior to the second anniversary date of the Closing Date, to
the greatest extent permitted by law, the parties agree that no claim under
this Section 10.2 for damages which Seller may owe Buyer shall be filed in
court or otherwise asserted after the second anniversary date of the Closing
Date, and that this shortened period for asserting claims shall operate as a
statue of limitations and as a defense, and shall not be tolled by lack of
discovery, equitable factors, or any other matters, except for active,
fraudulent concealment of material information directly relating to the claims
which are asserted against Seller. The parties agree that this limitation of
liability and shortened time period within which to bring claims is reasonable
under the circumstances and is a material part of the parties' transaction and
the consideration being provided to Seller hereunder.
(c) No indemnification shall be required to be made by Seller
pursuant to this Section 10.2 with respect to any claims unless and until the
aggregate amount of Damages incurred by members of the Buyer Group with respect
to all claims under this Section 10.2 (whether asserted, resulting, imposed, or
incurred before, on, or after the Closing Date) exceeds $100,000, it being
agreed and understood that, if such amount is exceeded, Seller shall be liable
to the full extent of such Damages, including those not in excess of $100,000.
No indemnification shall be required to be made by Seller pursuant to this
Section 10.2 with respect to any claims to the extent that the aggregate amount
of Damages incurred by members of the Buyer Group with respect to all claims
under this Section 10.2 (whether asserted, resulting, imposed, or incurred
before, on, or after the Closing Date) exceeds $3,000,000.
(d) The amount of Damages required to be paid by Seller to any other
party pursuant to this Section 10.2 shall be reduced to the extent of any
amounts actually received by such other party after the Closing Date pursuant
to the terms of the insurance policies (if any) covering such claim. Further,
to the extent any claims for Damages against Seller hereunder are or purport to
be covered by insurance policies, Buyer will first commence a claim under the
applicable insurance policies before making any claim against Seller for
Damages. In connection with the foregoing, until the second anniversary date
of the Closing Date, Buyer agrees that it will not change, or permit to be
changed, the Company's current primary insurance carrier without the prior
written consent of Carlston.
10.3 Indemnification by Buyer.
(a) Subject to the terms and conditions of this Article X, Buyer
shall indemnify, defend, and hold harmless the Seller, the subsidiaries and
parent corporations, if any, of the Seller, each director and officer, if any,
of the Seller or any of its subsidiaries or parent corporations, and each
affiliate thereof, and their respective heirs, legal representatives,
successors, and assigns (collectively, the "Seller Group"), from and against
any and all Damages asserted against, resulting to, imposed upon, or incurred
by any member of the Seller Group, directly or indirectly, by reason of or
resulting from any breach by Buyer of any of its representations, warranties,
covenants, or agreements contained in this Agreement or in any certificate,
instrument, or document delivered pursuant hereto.
(b) Except with respect to claims for which Seller has given written
notice to Buyer prior to the second anniversary date of the Closing Date, to
the greatest extent permitted by law, the parties agree that no claim under
this Section 10.3 for damages which Buyer may owe Seller shall
26
<PAGE> 31
be filed in court or otherwise asserted after the second anniversary date of the
Closing Date, and that this shortened period for asserting claims shall operate
as a statue of limitations and as a defense, and shall not be tolled by lack of
discovery, equitable factors, or any other matters, except for active,
fraudulent concealment of material information directly relating to the claims
which are asserted against Buyer. The parties agree that this limitation of
liability and shortened time period within which to bring claims is reasonable
under the circumstances and is a material part of the parties' transaction and
the consideration being provided to Buyer hereunder.
(c) No indemnification shall be required to be made by Buyer pursuant
to this Section 10.3 with respect to any claims unless and until the aggregate
amount of Damages incurred by members of the Seller Group with respect to all
claims under this Section 10.3 (whether asserted, resulting, imposed, or
incurred before, on, or after the Closing Date) exceeds $100,000, it being
agreed and understood that, if such amount is exceeded, Buyer shall be liable
to the full extent of such Damages, including those not in excess of $100,000.
No indemnification shall be required to be made by Buyer pursuant to this
Section 10.3 with respect to any claims to the extent that the aggregate amount
of Damages incurred by the members of the Seller Group with respect to all
claims under this Section 10.3 (whether asserted, resulting, imposed, or
incurred before, on, or after the Closing Date) exceeds $3,000,000. The
foregoing limitation on the amount of claims shall in no way reduce the amounts
payable on the Promissory Note.
(d) The amount of Damages required to be paid by Buyer to any other
party pursuant to this Section 10.3 shall be reduced to the extent of any
amounts actually received by such other party after the Closing Date pursuant
to the terms of the insurance policies (if any) covering such claim. Further,
to the extent any claims for Damages against Buyer hereunder are or purport to
be covered by insurance policies, Seller will first commence a claim under the
applicable insurance policies before making any claim against Buyer for
Damages.
10.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 10.2 or 10.3 of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party under such Section, give written notice
to the indemnifying party of the commencement thereof, but the failure so to
notify the indemnifying party shall not relieve it of any liability that it may
have to any indemnified party except to the extent the indemnifying party
demonstrates that the defense of such action is prejudiced thereby. In case
any such action shall be brought against an indemnified party and it shall give
written notice to the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the extent
that it may wish, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. If the indemnifying party elects to
assume the defense of such action, the indemnified party shall have the right
to employ separate counsel at its own expense and to participate in the defense
thereof. If the indemnifying party elects not to assume (or fails to assume)
the defense of such action, the indemnified party shall be entitled to assume
the defense of such action with counsel of its own choice, at the expense of
the indemnifying party. If the action is asserted against both the
indemnifying party and the indemnified party and there is a conflict of
interests which renders it inappropriate for the same counsel to represent both
the indemnifying party and the indemnified party, the indemnifying party shall
be responsible for paying for separate counsel for the indemnified party;
provided, however, that if there is more than one indemnified party, the
indemnifying party shall not be responsible for paying for
27
<PAGE> 32
more than one separate firm of attorneys to represent the indemnified parties,
regardless of the number of indemnified parties. If the indemnifying party
elects to assume the defense of such action, (a) no compromise or settlement
thereof may be effected by the indemnifying party without the indemnified
party's written consent (which shall not be unreasonably withheld) unless the
sole relief provided is monetary damages that are paid in full by the
indemnifying party and (b) the indemnifying party shall have no liability with
respect to any compromise or settlement thereof effected without its written
consent (which shall not be unreasonably withheld).
ARTICLE XI -- MISCELLANEOUS
11.1 Notices. All notices, requests, demands, and other
communications required or permitted to be given or made hereunder by any party
hereto shall be in writing and shall be deemed to have been duly given or made
if delivered personally, or transmitted by first class registered or certified
mail, postage prepaid, return receipt requested, or sent by prepaid overnight
delivery service, or sent by cable, telegram, telefax, or telex, to the parties
at the following addresses (or at such other addresses as shall be specified by
the parties by like notice):
If to Buyer: 306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey Stevens
Telefax: 817.339.1001
If to Seller: 1333 Atlantic Street
Union City, CA 94587
Attention: R.D. Carlston
Telefax: 510.475.9027
11.2 Entire Agreement. This Agreement, together with the Schedules,
Exhibits, Annexes, and other writings referred to herein or delivered pursuant
hereto, constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
11.3 Binding Effect; Assignment; No Third Party Benefit. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective heirs, legal representatives, successors, and permitted
assigns. Except as otherwise expressly provided in this Agreement, neither
this Agreement nor any of the rights, interests, or obligations hereunder shall
be assigned by any of the parties hereto without the prior written consent of
the other parties, except that Buyer may assign to any wholly owned subsidiary
of Buyer any of Buyer's rights, interests, or obligations hereunder, upon
notice to the other party or parties, provided that no such assignment shall
relieve Buyer of its obligations hereunder. Except as provided in Article X,
nothing in this Agreement, express or implied, is intended to or shall confer
upon any person other than the parties hereto, and their respective heirs,
legal representatives, successors, and permitted assigns, any rights, benefits,
or remedies of any nature whatsoever under or by reason of this Agreement. In
the event the transactions contemplated hereby are consummated, nothing in this
Section 11.3 shall render the Seller Employment Agreement and the Christl
Employment Agreement unenforceable.
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<PAGE> 33
11.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. Notwithstanding
any other provision or agreement between the parties hereto, this Agreement and
the schedules and exhibits hereto shall be deemed to have been executed,
delivered and entered into in Union City, California.
11.6 Further Assurances. From time to time following the Closing, at
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate more fully and effectively the transactions contemplated
hereby.
11.7 Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only, do not constitute a part of this
Agreement, and shall not affect in any manner the meaning or interpretation of
this Agreement.
11.8 Gender. Pronouns in masculine, feminine, and neuter genders
shall be construed to include any other gender, and words in the singular form
shall be construed to include the plural and vice versa, unless the context
otherwise requires.
11.9 References. All references in this Agreement to Articles,
Sections, and other subdivisions refer to the Articles, Sections, and other
subdivisions of this Agreement unless expressly provided otherwise. The words
"this Agreement", "herein", "hereof", "hereby", "hereunder", and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. Whenever the words "include",
"includes", and "including" are used in this Agreement, such words shall be
deemed to be followed by the words "without limitation". Each reference herein
to a Schedule, Exhibit, or Annex refers to the item identified separately in
writing by the parties hereto as the described Schedule, Exhibit, or Annex to
this Agreement. All Schedules, Exhibits, and Annexes are hereby incorporated
in and made a part of this Agreement as if set forth in full herein.
11.10 Counterparts. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same agreement. Each
counterpart may consist of a number of copies hereof each signed by less than
all, but together signed by all, the parties hereto.
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<PAGE> 34
11.11 Joint and Several Obligations. The obligations and
liabilities of the Trust and Carlston as "Seller" under this Agreement or in
any certificate, instrument, or document delivered pursuant hereto shall be
joint and several.
ARTICLE XII -- DEFINITIONS
12.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
"affiliate" has the meaning specified in Rule 12b-2
promulgated under the Exchange Act.
"affiliate" means, with respect to any person, any other
person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, such person.
"Affiliated Group" has the meaning set forth in Section 1504
of the Code.
"Applicable Law" means any statute, law, rule, or regulation
or any judgment, order, writ, injunction, or decree of any Governmental
Entity to which a specified person or property is subject.
"Code" means the Internal Revenue Code of 1986, as amended.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition, or otherwise),
easements, and other encumbrances of every type and description,
whether imposed by law, agreement, understanding, or otherwise.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or
other authority or instrumentality (domestic or foreign).
"Intellectual Property" means patents, trademarks, service
marks, trade names, copyrights, trade secrets, know-how, inventions,
and similar rights, and all registrations, applications, licenses, and
rights with respect to any of the foregoing.
"IRS" means the Internal Revenue Service.
30
<PAGE> 35
"Permits" means licenses, permits, franchises, consents,
approvals, and other authorizations of or from Governmental Entities.
"person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, claims, suits,
investigations, and inquiries by or before any arbitrator or
Governmental Entity.
"reasonable best efforts" means a party's reasonable best
efforts in accordance with reasonable commercial practice and without
the incurrence of unreasonable expense.
"Securities Act" means the Securities Act of 1933, as amended.
"Taxes" means any income Taxes or similar assessments or any
sales, excise, occupation, use, ad valorem, property, production,
severance, transportation, employment, payroll, franchise, or other Tax
imposed by any United States federal, state, or local (or any foreign
or provincial) Taxing authority, including any interest, penalties, or
additions attributable thereto.
"Tax Return" means any return or report, including any related
or supporting information, with respect to Taxes.
"to the best knowledge of Seller and the Company" (or similar
references to Seller and the Company's knowledge) means the knowledge
of or receipt of notice (oral or written) by any of Seller or the
Company's executive officers, as such knowledge has been obtained in
the normal conduct of the business of the Company or in connection with
the preparation of the Schedules to this Agreement and the furnishing
of information to Buyer as contemplated by this Agreement, after having
made a reasonable investigation of the accuracy of the representations
and warranties made by Seller and the Company in this Agreement or in
any document, certificate, or other writing furnished by Seller or the
Company to Buyer pursuant hereto or in connection herewith.
"Transaction Costs" means investment banking, legal,
accounting, and other fees or costs not deductible for federal income
Tax purposes but incurred as a result of the transactions contemplated
by this Agreement.
"Treasury Regulations" means one or more treasury regulations
promulgated under the Code by the Treasury Department of the United
States.
12.2 Certain Additional Defined Terms. In addition to such terms as
are defined in the opening paragraph of and the recitals to this Agreement and
in Section 12.1, the following terms are used in this Agreement as defined in
the Sections set forth opposite such terms:
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<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
agreements 3.22
Applicable Environmental Laws 3.24
associate 3.31
Audited Financial Statements 3.10
Benefit Arrangements 3.23
Buyer Preamble
Buyer Group 10.2
Carlston Employment Agreement 6.3
CERCLA 3.24
Christl Employment Agreement 6.3
Closing 2.1
Closing Date 2.1
Common Stock Preamble
Damages 10.2
Disposal 3.24
Disposed 3.24
Effective Date 2.2
Employee Plans 3.26
Financial Statements 3.10
Hazardous Substance 3.24
Latest Balance Sheet 3.10
Multiemployer Plan 3.23
Pledge Agreement 1.2
Promissory Note 1.2
Property 3.24
Purchase Price 1.2
RCRA 3.24
Real Property 3.18
Release 3.24
Schedules to be Agreed 6.4
Seller Preamble
Seller Group 10.3
Shares Preamble
Solid Waste 3.24
Unaudited Financial Statements 3.10
</TABLE>
[Signature page to follow]
32
<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Agreement, or
caused this Agreement to be executed by their duly authorized representatives,
all as of the day and year first above written.
WESTERN TRACTION COMPANY
By:
-----------------------------------
Ronald D. Carlston, President
By:
-----------------------------------
Donald Christl, Vice President
The Carlston Family Trust
By:
-----------------------------------
Ronald D. Carlston, co-trustee
By:
-----------------------------------
Nancy L. Carlston, co-trustee
--------------------------------------
Ronald D. Carlston
CRESCENT OPERATING, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 10.50
- - -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
BY AND AMONG
HARVEY EQUIPMENT CENTER, INC.
L AND H LEASING COMPANY
WILLIAM J. HARVEY
ROY E. HARVEY, JR.
BETTY J. HARVEY
AND
CRESCENT OPERATING, INC.
JULY 31, 1998
- - -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I -- TERMS OF THE TRANSACTION......................................1
1.1 Agreement to Sell and to Purchase Shares....................1
1.2 Purchase Price and Payment..................................1
1.3 Adjustment of Purchase Price................................2
ARTICLE II -- CLOSING, CLOSING DATE AND EFFECTIVE DATE.....................2
2.1 Closing and Closing Date....................................2
2.2 Effective Date..............................................3
ARTICLE III -- REPRESENTATIONS
AND WARRANTIES OF SELLERS AND THE COMPANIES.......................3
3.1 Corporate Organization......................................3
3.2 Qualification...............................................3
3.3 Charter and Code of Regulations.............................3
3.4 Capitalization of each Company..............................3
3.5 Authority Relative to This Agreement........................4
3.6 Noncontravention............................................4
3.7 Governmental Approvals......................................5
3.8 No Subsidiaries.............................................5
3.9 Shares ....................................................5
3.10 Financial Statements........................................5
3.11 Absence of Undisclosed Liabilities..........................6
3.12 Absence of Certain Changes..................................6
3.13 Tax Matters.................................................7
3.14 Compliance With Laws........................................7
3.15 Legal Proceedings...........................................7
3.16 Title to Properties.........................................8
3.17 Sufficiency and Condition of Properties.....................8
3.18 Real Property...............................................8
3.19 Tangible Personal Property..................................9
3.20 Leased Property............................................10
3.21 Inventory..................................................10
3.22 Receivables................................................10
3.23 Intellectual Property......................................11
3.24 Permits ...................................................11
3.25 Agreements.................................................11
3.26 ERISA ...................................................12
3.27 Environmental Matters......................................13
3.28 Labor Relations............................................14
3.29 Employees..................................................15
3.30 Insider Interests..........................................15
3.31 Insurance..................................................15
3.32 Financial Requirements.....................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.33 Bank Accounts and Powers of Attorney......................16
3.34 Books and Records.........................................16
3.35 Illegal Payments..........................................16
3.36 Offerings of Securities...................................16
3.37 Investment Intent.........................................17
3.38 Brokerage Fees............................................17
3.39 Disclosure................................................17
3.40 Representations and Warranties on Closing Date............17
ARTICLE IV -- REPRESENTATIONS
AND WARRANTIES OF BUYER.........................................17
4.1 Corporate Organization.....................................18
4.2 Authority Relative to This Agreement.......................18
4.3 Noncontravention...........................................18
4.4 Governmental Approvals.....................................18
4.5 Brokerage Fees.............................................18
4.6 Representations and Warranties on Closing Date.............19
ARTICLE V -- CONDUCT OF COMPANIES PENDING CLOSING........................19
5.1 Conduct and Preservation of Business.......................19
5.2 Restrictions on Certain Actions............................19
ARTICLE VI -- ADDITIONAL AGREEMENTS......................................21
6.1 Access to Information......................................21
6.2 Third Party Consents.......................................21
6.3 Employment and Non-competition Agreement...................21
6.4 Title Insurance and Surveys................................21
6.5 Uncollected Receivables....................................22
6.6 Public Announcements.......................................23
6.7 Notice of Litigation.......................................23
6.8 Notification of Certain Matters............................23
6.9 Fees and Expenses..........................................23
6.10 Transfer Taxes.............................................23
6.11 Survival of Covenants......................................23
ARTICLE VII -- CONDITIONS TO
OBLIGATIONS OF SELLERS..........................................24
7.1 Representations and Warranties True........................24
7.2 Covenants and Agreements Performed.........................24
7.3 Legal Proceedings..........................................24
7.4 Other Documents............................................24
ARTICLE VIII -- CONDITIONS TO
OBLIGATIONS OF BUYER............................................24
8.1 Representations and Warranties True........................25
8.2 Covenants and Agreements Performed.........................25
8.3 Certificate................................................25
8.4 Opinion of Counsel.........................................25
</TABLE>
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<TABLE>
<S> <C> <C>
8.5 Legal Proceedings...........................................25
8.6 Consents ...................................................25
8.7 No Material Adverse Change..................................25
8.8 Employment Agreement........................................25
8.9 Title Insurance.............................................25
8.10 Due Diligence...............................................25
8.11 Other Documents.............................................25
ARTICLE IX -- TERMINATION, AMENDMENT AND WAIVER............................26
9.1 Termination.................................................26
9.2 Effect of Termination.......................................27
9.3 Amendment...................................................27
9.4 Waiver ...................................................27
9.5 Remedies Not Exclusive......................................27
ARTICLE X -- SURVIVAL OF
REPRESENTATIONS; INDEMNIFICATION..................................28
10.1 Survival....................................................28
10.2 Indemnification by Sellers..................................28
10.3 Indemnification by Buyer....................................28
10.4 Procedure for Indemnification...............................28
ARTICLE XI -- MISCELLANEOUS................................................29
11.1 Notices ....................................................29
11.2 Entire Agreement............................................29
11.3 Binding Effect; Assignment; No Third Party Benefit..........29
11.4 Severability................................................30
11.5 GOVERNING LAW...............................................30
11.6 Further Assurances..........................................30
11.7 Descriptive Headings........................................30
11.8 Gender ....................................................30
11.9 References..................................................30
11.10 Counterparts................................................30
11.11 Injunctive Relief...........................................31
11.12 Jurisdiction and Venue......................................31
ARTICLE XII -- DEFINITIONS.................................................31
12.1 Certain Defined Terms.......................................31
12.2 Certain Additional Defined Terms............................33
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 31 ,
1998, is made by and among Harvey Equipment Center, Inc., an Ohio corporation
("HEC"), L and H Leasing Company, an Ohio corporation ("L&H") (L&H and HEC being
referred to herein individually as a "Company" and collectively as the
"Companies"), William J. Harvey, individually and as trustee ("Harvey"), Roy E.
Harvey, Jr., an individual ("R. Harvey"), and Betty J. Harvey, individually an
as trustee ("B. Harvey"), (Harvey, R. Harvey and B. Harvey being referred to
herein individually as a "Seller" and collectively as "Sellers"), and Crescent
Operating, Inc., a Delaware corporation ("Buyer").
WHEREAS, Sellers own in the aggregate all the issued and outstanding
shares of common stock, no par value per share, of HEC (the "HEC Shares"); and
WHEREAS, Sellers own in the aggregate all the issued and outstanding
shares of common stock, no par value per share, of L&H (the "L&H Shares," and
together with the "HEC Shares," the "Shares"); and
WHEREAS, Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, the Shares; and
WHEREAS, each Company desires to join in the execution of this
Agreement for the purpose of evidencing its consent to the consummation of the
foregoing transaction and for the purpose of making certain representations and
warranties to, and covenants and agreements with, Buyer;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Companies, Sellers, and Buyer hereby agree as follows:
ARTICLE I -- TERMS OF THE TRANSACTION
1.1 Agreement to Sell and to Purchase Shares. At the Closing, and on
the terms and subject to the conditions set forth in this Agreement, each Seller
shall sell and deliver to Buyer, and Buyer shall purchase and accept from each
Seller, the number of Shares set forth opposite the name of such Seller on Annex
I.
1.2 Purchase Price and Payment. In consideration of the sale of the
Shares to Buyer, and subject to adjustment pursuant to Section 1.3 below, Buyer
shall pay to Sellers at the Closing the aggregate purchase price of Three
Million Eight Hundred Sixty-One Thousand Nine Hundred Twenty-Seven and No/100
Dollars ($3,861,927.00) (the "Purchase Price"). Buyer shall pay the Purchase
Price (a) by paying to Sellers Two Million Seven Hundred Three Thousand Three
Hundred Forty-Nine and No/100 Dollars ($2,703,349.00) in immediately available
funds by confirmed wire transfer to a bank account to be designated by such
Seller (such designation to occur no later than the three (3) business day prior
to the Closing Date) (such cash portion of the Purchase Price, the "Cash Portion
of the Purchase Price"), and (b) the remaining amount of the Purchase Price
shall be paid by Buyer's delivery to Sellers of Buyer's promissory notes (the
"Buyer Notes") in an aggregate principal amount equal to One Million One Hundred
Fifty-Eight Thousand Five Hundred Seventy-Eight and No/100 Dollars
($1,158,578.00), which notes will be in the form of Exhibit 1.2 attached
<PAGE> 6
hereto. The Purchase Price shall be allocated and paid among Sellers in
accordance with the percentages set forth on Annex I attached hereto.
1.3 Adjustment of Purchase Price.
(a) The Purchase Price will be adjusted (either up or down) based on
the aggregate net change in the asset and liability accounts of each Company set
forth on Schedule 1.3(a) hereto (the aggregate balance of such accounts, the
"Net Worth of the Companies") as of the Effective Date, as compared to the Net
Worth of the Companies as shown on Schedule 1.3(a). If, upon completion of the
procedures set forth in Section 1.3(b) below, it is finally determined that (i)
the Net Worth of the Companies as of the Effective Date is greater than the Net
Worth of the Companies as shown on Schedule 1.3(a), then the Purchase Price
shall be increased by the amount of such difference in cash, and Buyer shall pay
to Sellers the amount of such difference within ten (10) days after such final
determination, or (ii) the Net Worth of the Companies as of the Effective Date
is less than the Net Worth of the Companies as shown on Schedule 1.3(a), then
the Purchase Price shall be decreased by the amount of such difference, and
Sellers shall pay to Buyer the amount of such difference in cash within ten (10)
days after such final determination. All payments to or by Sellers required by
this Section 1.3 shall be made on a pro rata basis, paid to or by Sellers based
on the percentages set forth on Annex I attached hereto.
(b) Within sixty (60) days after the Closing, Buyer will prepare and
deliver to Harvey a statement of the Net Worth of the Companies as of the close
of business on the Effective Date (the "Closing Statement"), which statement
shall be prepared in accordance with GAAP and the instructions provided in
Schedule 1.3(b) hereto. If, within thirty (30) days following delivery of the
Closing Statement to Harvey, Harvey has not given Buyer notice of its objection
to the Closing Statement (such notice must contain a detailed statement of the
basis of Harvey's objection), then the Net Worth of the Companies reflected in
the Closing Statement will be used in computing the adjustment to the Purchase
Price. If Harvey gives Buyer such notice of objection and the parties are unable
to resolve the subject of such objection within fifteen (15) days after such
notice, then the issues in dispute will be submitted to Coopers & Lybrand, LLP,
certified public accounts (the "Accountants"), for resolution with instructions
to the Accountants to resolve such dispute within forty-five (45) days. If
issues in dispute are submitted to the Accountants for resolution (i) each party
will furnish to the Accountants such work papers and other documents and
information relating to the disputed issues as the Accountants may request and
are available to that party; (ii) the determination by the Accountants, as set
forth in a notice delivered to both parties by the Accountants, will be binding
and conclusive on the parties; and (iii) Buyer and Harvey will each bear 50% of
the fees and expenses of the Accountants for such determination. The final
determination of the Net Worth of the Companies as of the close of business on
the Effective Date shall occur on the earliest of (A) thirty (30) days after
delivery of the Closing Statement to Harvey without objection, (B) written
agreement of Harvey and Buyer to the Closing Statement or any modification
thereof, or (C) written determination by the Accountants.
ARTICLE II -- CLOSING, CLOSING DATE AND EFFECTIVE DATE
2.1 Closing and Closing Date. The closing of the transactions
contemplated hereby (the "Closing") shall take place (i) at the offices of
Thompson & Knight, P.C., in Dallas, Texas, at 9:00 a.m., local time, on July 31,
1998, or (ii) at such other time or place or on such other date as the
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<PAGE> 7
parties hereto shall agree. The date on which the Closing is required to take
place is herein referred to as the "Closing Date."
2.2 Effective Date. Notwithstanding the date this Agreement is executed
or the formal closing referenced above, the effective date of the transfer of
the Shares shall be June 30, 1998 (the "Effective Date").
ARTICLE III -- REPRESENTATIONS
AND WARRANTIES OF SELLERS AND THE COMPANIES
Sellers and the Companies jointly and severally represent and warrant
to Buyer that:
3.1 Corporate Organization. Each Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority to own, lease, and operate its properties and to carry on
its business as now being conducted. No actions or proceedings to dissolve any
Company are pending.
3.2 Qualification. Each Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions set forth on
Schedule 3.2, which are all the jurisdictions in which it owns, leases, or
operates property or in which such qualification or licensing is required for
the conduct of its business.
3.3 Charter and Code of Regulations. Each Company has made available to
Buyer accurate and complete copies of (i) the Articles of Incorporation and Code
of Regulations of each Company (certified by the Secretary of State of such
Company's jurisdiction of incorporation and the secretary or an assistant
secretary of such Company, respectively) as currently in effect, (ii) the stock
records of each Company and (iii) the minutes of all meetings of each Company's
Board of Directors, any committees of such Board, and each Company's
shareholders (and all consents in lieu of such meetings). Such records, minutes
and consents accurately reflect the stock ownership of each Company and all
actions taken by each Company's Board, any committees of such Board, and each
Company's shareholders. No Company is in violation of any provision of its
Articles of Incorporation or Code of Regulations.
3.4 Capitalization of each Company. The authorized capital stock of the
HEC consists of 850 shares of Common Stock, no par value per share, of which 128
shares are issued and outstanding and 542 shares are held in HEC's treasury. The
authorized capital stock of the L&H consists of 500 shares of Common Stock,
$100.00 par value per share, of which 20 shares are outstanding and no shares
are held in the L&H's treasury. All outstanding shares of capital stock of each
Company have been validly issued and are fully paid and nonassessable, and no
shares of capital stock of any Company are subject to, nor have any been issued
in violation of, preemptive or similar rights. All issuances, sales, and
repurchases by each Company of shares of its capital stock have been effected in
compliance with all Applicable Laws, including without limitation applicable
federal and state securities laws. The Shares constitute (and at the Closing
will constitute) all the outstanding shares of capital stock of each Company.
Except as set forth above in this Section, there are (and as of the Closing Date
there will be) outstanding (i) no shares of capital stock or other voting
securities of any Company, (ii) no securities of any Company convertible into or
exchangeable for shares of capital stock or other voting securities of any
Company, (iii) no options or other rights to acquire from any
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<PAGE> 8
Company, and no obligation of any Company to issue or sell, any shares of
capital stock or other voting securities of any Company or any securities of any
Company convertible into or exchangeable for such capital stock or voting
securities and (iv) no equity equivalents, interests in the ownership or
earnings, or other similar rights of or with respect to any Company. There are
(and as of the Closing Date there will be) no outstanding obligations of any
Company to repurchase, redeem or otherwise acquire any of the foregoing shares,
securities, options, warrants, equity equivalents, interests or rights.
3.5 Authority Relative to This Agreement.
(a) Each Company has full corporate power and corporate authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance by each Company of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action of each
Company. This Agreement has been duly executed and delivered by each Company and
constitutes, and each other agreement, instrument or document executed or to be
executed by each Company in connection with the transactions contemplated hereby
has been, or when executed will be, duly executed and delivered by each Company
and constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of each Company, enforceable against each Company in
accordance with their respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws affecting creditors' rights generally and (ii) equitable principals
which may limit the availability of certain equitable remedies (such as specific
performance) in certain instances.
(b) Each Seller has full legal right, power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
Seller and constitutes, and each other agreement, instrument or document
executed or to be executed by a Seller in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by such Seller and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of such Seller, enforceable
against such Seller in accordance with their respective terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights
generally and (ii) equitable principals which may limit the availability of
certain equitable remedies (such as specific performance) in certain instances.
3.6 Noncontravention.
(a) Except as disclosed on Schedule 3.6, the execution, delivery and
performance by Sellers and the Companies of this Agreement and the consummation
by them of the transactions contemplated hereby do not and will not (i) conflict
with or result in a violation of any provision of the charter or code of
regulations of any Company, (ii) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default under, or give rise (with or without the giving of
notice or the passage of time or both) to any right of termination, cancellation
or acceleration under, any bond, debenture, note, mortgage, indenture, lease,
contract, agreement or other instrument or obligation to which any Company is a
party or by which any Company or any of its properties may be bound, (iii)
result in the creation or
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<PAGE> 9
imposition of any Encumbrance upon the properties of any Company or (iv)
assuming compliance with the matters referred to in Section 3.7, violate any
Applicable Law binding upon any Company.
(b) The execution, delivery and performance by each Seller of this
Agreement and the consummation by each Seller of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the passage
of time or both) a default under, or give rise (with or without the giving of
notice or the passage of time or both) to any right of termination, cancellation
or acceleration under, any contract, agreement, instrument or obligation to
which such Seller is a party or by which such Seller or any of such Seller's
properties may be bound, (ii) result in the creation or imposition of any
Encumbrance upon the properties of such Seller or (iii) assuming compliance with
the matters referred to in Section 3.7, violate any Applicable Law binding upon
such Seller.
3.7 Governmental Approvals. No consent, approval, order or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by any Seller or any Company in
connection with the execution, delivery, or performance by Sellers and the
Companies of this Agreement or the consummation by them of the transactions
contemplated hereby.
3.8 No Subsidiaries. No Company has any subsidiaries. In addition, no
Company owns, directly or indirectly, any capital stock or other securities of
any corporation or have any direct or indirect equity or ownership interest in
any other person.
3.9 Shares. Each Seller is (and at the Closing will be) the record and
beneficial owner of, and upon consummation of the transactions contemplated
hereby Buyer will acquire good, valid, and marketable title to, the number of
Shares set forth opposite the name of such Seller on Annex I, free and clear of
all Encumbrances, other than (i) those that may arise by virtue of any actions
taken by or on behalf of Buyer or its affiliates or (ii) restrictions on
transfer that may be imposed by federal or state securities laws.
3.10 Financial Statements.
(a) HEC has delivered to Buyer accurate and complete copies of (i)
HEC's audited balance sheet as of November 30, 1997 and the related audited
operating statement, statement of retained earnings and statement of cash flows
for the year then ended, and the notes and schedules thereto, together with the
unqualified report thereon of Robert W. Pollock, CPA, independent certified
public accountant (the "HEC Audited Financial Statements") and (ii) HEC's
unaudited balance sheet as of June 30, 1998 (the "HEC Latest Balance Sheet"),
and the related unaudited operating statement, statement of retained earnings
and statement of cash flows for the seven-month period then ended (the "HEC
Unaudited Financial Statements"), certified by HEC's president (collectively,
the "HEC Financial Statements"). The HEC Financial Statements (i) represent
actual bona fide transactions, (ii) have been prepared from the books and
records of HEC in conformity with generally accepted accounting principles
applied on a basis consistent with preceding years throughout the periods
involved, except that the HEC Unaudited Financial Statements are not accompanied
by notes or other textual disclosure required by generally accepted accounting
principles and (iii) accurately, completely and fairly present HEC's financial
position as of the respective dates thereof and its results of operations and
cash flows for the periods then ended. The operating statements included in the
HEC Financial Statements do not contain any items of special or nonrecurring
income, and
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<PAGE> 10
the balance sheets included in the HEC Financial Statements do not reflect any
write-up or revaluation increasing the book value of any assets, nor have there
been any transactions since November 30, 1997 giving rise to special or
nonrecurring income or any such write-up or revaluation.
(b) L&H has delivered to Buyer accurate and complete copies of (i)
L&H's audited balance sheet as of October 31, 1997 and the related audited
operating statement, statement of retained earnings and statement of cash flows
for the year then ended, and the notes and schedules thereto, together with the
unqualified report thereon of Robert W. Pollock, CPA, independent certified
public accountant (the "L&H Audited Financial Statements") and (ii) L&H's
unaudited balance sheet as of June 30, 1998 (the "L&H Latest Balance Sheet"),
and the related unaudited operating statement, statement of retained earnings
and statement of cash flows for the eight-month period then ended (the "L&H
Unaudited Financial Statements"), certified by L&H's president (collectively,
the "L&H Financial Statements"). The L&H Financial Statements (i) represent
actual bona fide transactions, (ii) have been prepared from the books and
records of L&H in conformity with generally accepted accounting principles
applied on a basis consistent with preceding years throughout the periods
involved, except that the L&H Unaudited Financial Statements are not accompanied
by notes or other textual disclosure required by generally accepted accounting
principles and (iii) accurately, completely and fairly present L&H's financial
position as of the respective dates thereof and its results of operations and
cash flows for the periods then ended. The operating statements included in the
L&H Financial Statements do not contain any items of special or nonrecurring
income, and the balance sheets included in the L&H Financial Statements do not
reflect any write-up or revaluation increasing the book value of any assets, nor
have there been any transactions since October 31, 1997 giving rise to special
or nonrecurring income or any such write-up or revaluation.
3.11 Absence of Undisclosed Liabilities. No Company has any liabilities
or obligations (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to any Company, and whether due or to become
due), except (i) liabilities reflected on each of the HEC Latest Balance Sheet
and the L&H Latest Balance Sheet, (ii) liabilities described in the notes
accompanying the HEC Audited Financial Statements and the L&H Audited Financial
Statements, (iii) liabilities which have arisen since the date of the HEC Latest
Balance Sheet and the L&H Latest Balance Sheet in the ordinary course of
business (none of which is a material liability for breach of contract, breach
of warranty, tort, or infringement), (iv) liabilities arising under executory
contracts entered into in the ordinary course of business (none of which is a
liability for breach of contract) or (v) liabilities specifically set forth on
Schedule 3.11.
3.12 Absence of Certain Changes. Except as disclosed on Schedule 3.12,
since November 30, 1997 for HEC and October 31, 1997 for L&H, (i) there has not
been any material adverse change in, or any event or condition that might
reasonably be expected to result in any material adverse change in, the
business, assets, results of operations, condition (financial or otherwise) or
prospects of such Companies; (ii) the business of each of HEC and L&H has been
conducted only in the ordinary course consistent with past practice; (iii)
neither HEC nor L&H has incurred any material liability, engaged in any material
transaction or entered into any material agreement outside the ordinary course
of business consistent with past practice; (iv) neither HEC nor L&H has suffered
any material loss, damage, destruction or other casualty to any of its assets
(whether or not covered by insurance); and (v) neither HEC nor L&H has taken any
of the actions set forth in Section 5.2 except as permitted thereunder.
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3.13 Tax Matters. Except as disclosed on Schedule 3.13:
(a) each Company has (and as of the Closing Date will have) duly filed
all federal, state, local and foreign Tax Returns required to be filed by or
with respect to it with the IRS or other applicable Taxing authority, and no
extensions with respect to such Tax Returns have (or as of the Closing Date will
have) been requested or granted;
(b) each Company has (and as of the Closing Date will have) paid, or
adequately reserved against in the Financial Statements, all Taxes due, or
claimed by any taxing authority to be due, from or with respect to it, except
Taxes that are being contested in good faith by appropriate legal proceedings
and for which adequate reserves have been set aside as disclosed on Schedule
3.13;
(c) there has been no issue raised or adjustment proposed (and none is
pending) by the IRS or any other taxing authority in connection with any of the
Tax Returns;
(d) each Company has (and as of the Closing Date will have) made all
deposits required with respect to Taxes;
(e) the federal income Tax Returns of each Company have not been
audited by the IRS during the previous ten taxable years;
(f) no waiver or extension of any statute of limitations as to any
federal, state, local or foreign Tax matter has been given by or requested from
any Company; and
(g) no Company has filed a consent under Section 341(f) of the Code.
3.14 Compliance With Laws. Each Company has complied with all
Applicable Laws (including without limitation Applicable Laws relating to
securities, properties, business products, manufacturing processes, advertising
and sales practices, employment practices terms and conditions of employment,
wages and hours, safety, occupational safety, health, environmental protection,
product safety and civil rights). Neither Sellers nor the Companies have
received any written notice, which has not been dismissed or otherwise disposed
of, that each Company has not so complied. No Company is charged or, to the best
knowledge of Sellers and each Company, threatened with, or, to the best
knowledge of Sellers and each Company, under investigation with respect to, any
violation of any Applicable Law relating to any aspect of the business of any
Company.
3.15 Legal Proceedings. Except as disclosed on Schedule 3.15, there are
no Proceedings pending or, to the best knowledge of Sellers and each Company,
threatened against or involving any Company (or any of its directors or officers
in connection with the business or affairs of any Company) or any properties or
rights of the. Except as disclosed on Schedule 3.15, any and all potential
liability of each Company under such Proceedings is adequately covered (except
for standard deductible amounts) by the existing insurance maintained by each
Company described in Section 3.33. No judgment, order, writ, injunction or
decree of any Governmental Entity has been issued or entered against any Company
which continues to be in effect. There are no Proceedings pending or, to the
best knowledge of Sellers and each Company, threatened seeking to restrain,
prohibit, or obtain damages or other relief in connection with this Agreement or
the transactions contemplated hereby.
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<PAGE> 12
3.16 Title to Properties. Each Company has good, marketable and (in the
case of real property) insurable title to all properties (real, personal and
mixed, tangible and intangible) it owns or purports to own, including without
limitation the properties reflected in its books and records and in the HEC
Latest Balance Sheet and the L&H Latest Balance Sheet, other than those disposed
of after the date of such balance sheet in the ordinary course of business
consistent with past practice, free and clear of all Encumbrances, except (a) as
disclosed on Schedule 3.16, (b) as set forth in the HEC Latest Balance Sheet and
the L&H Latest Balance Sheet as securing specific liabilities, (c) liens for
Taxes not yet due and payable or the validity of which is being contested in
good faith by appropriate legal proceedings and for which adequate reserves have
been set aside, (d) statutory liens (including materialmen's, mechanic's,
repairmen's, landlord's, and other similar liens) arising in connection with the
ordinary course of business securing payments not yet due and payable or, if due
and payable, the validity of which is being contested in good faith by
appropriate legal proceedings and for which adequate reserves have been set
aside and (e) such imperfections or irregularities of title, if any, as (A) are
not substantial in character, amount or extent and do not materially detract
from the value of the property subject thereto, (B) do not materially interfere
with either the present or intended use of such property and (C) do not,
individually or in the aggregate, materially interfere with the conduct of each
Company's normal operations.
3.17 Sufficiency and Condition of Properties. The properties owned,
leased or used by each Company are in good operating condition and repair
(ordinary wear and tear excepted), are suitable for the purposes used, and are
adequate and sufficient for the normal operation of each Company's business.
Such properties and their uses conform to all Applicable Laws, and Sellers and
the Companies have not received any notice to the contrary. All such tangible
properties are in each Company's possession or under its control.
3.18 Real Property.
(a) Set forth on Schedule 3.18 is a list, by street address and (in the
case of owned real property) deed reference, of all real property owned or
leased by any Company (for purposes of this Section, the "Real Property"), a
list of all rights-of-way, easements and other Encumbrances of any kind to which
the Real Property is subject, a brief description of the principal facilities
and structures (if any) located thereon, and, with respect to leased Real
Property, a brief description of the applicable leases and the material terms
thereof. There are no persons (other than the Companies) in possession of any
portion of the Real Property as lessees, tenants at sufferance or trespassers,
nor does any person (other than the Companies) have a lease, tenancy or other
right of occupancy or use of any portion of the Real Property. The Real Property
has full and free access to and from public highways, streets and roads, and
Sellers and the Companies have no knowledge of any pending or threatened
Proceeding or any other fact or condition which would limit or result in the
termination of such access. There exists no Proceeding or court order, or
building code provision, deed restriction, or restrictive covenant (recorded or
otherwise), or other private or public limitation, which might in any way impede
or adversely affect the continued use of the Real Property by any Company in the
manner it is currently used.
(b) All buildings, improvements, and fixtures situated on the Real
Property conform to all Applicable Laws. All the Real Property is zoned for the
various purposes for which such Real Property is being used, and there exists no
pending or, to the best knowledge of Sellers and each Company, threatened
Proceeding which might adversely affect the validity of such zoning.
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(c) The Real Property is connected to and serviced by water, sewage
disposal, gas, telephone and electric facilities which are adequate for the
current use of the Real Property and, to the best knowledge of Sellers and each
Company, are in compliance with all Applicable Laws. All public utilities
required for the operation of the Real Property enter the Real Property through
adjoining public streets or, if they pass through adjoining private land, do so
in accordance with valid public easements, and all utility lines and mains
located on the Real Property have been properly dedicated to, and are serviced
and maintained by, the appropriate public or quasi-public entity.
(d) The buildings, improvements and fixtures situated on the Real
Property are in good condition and repair (excepting ordinary wear and tear and
minor maintenance and repair problems which would normally be associated with
such assets when used in connection with the operation of each Company's
business), free of any latent or patent structural defects.
(e) Neither the whole nor any part of the Real Property is subject to
any pending Proceeding for condemnation or other taking by any Governmental
Entity, and, to the best knowledge of Sellers and each Company, no such
condemnation or other taking is contemplated or threatened.
(f) There are no unpaid charges, debts, liabilities, claims or
obligations arising from the construction, occupancy, ownership, use or
operation of the Real Property, or the buildings, improvements or fixtures
situated thereon, or the business operated thereon, which could give rise to any
mechanic's or materialmen's or other statutory lien against the Real Property,
or the buildings, improvements or fixtures situated thereon, or any part
thereof, or for which any Company will be responsible.
(g) The Real Property is not within any area determined by the
Department of Housing and Urban Development to be flood prone under the Federal
Flood Disaster Protection Act of 1973.
(h) Each Company has delivered to Buyer, accurate and complete copies
of all title insurance policies, title reports, other title documents, surveys,
certificates of occupancy and Permits in the possession of each Company relating
to the Real Property or the buildings, improvements or fixtures situated
thereon.
(i) No Seller is a "foreign person" within the meaning of Sections 1445
and 7701 of the Code.
3.19 Tangible Personal Property. Set forth on Schedule 3.19 is a list,
as of April 30, 1998, of all furniture, equipment, machinery, materials, motor
vehicles, rolling stock, apparatus, tools, implements, appliances and other
tangible personal property (other than spare parts, supplies and inventory)
owned, leased or used by each Company, except for items having a value
individually of less than $1,000 which do not, in the aggregate, have a value
exceeding $10,000. All tangible personal property owned, leased or used by each
Company is in good operating condition and repair (ordinary wear and tear
excepted), is suitable for the purposes used, and is adequate and sufficient for
the normal operation of each Company's business. The motor vehicles and rolling
stock owned or leased by each Company are utilized solely for the transportation
by each Company, for its own account and not for the account of others, of
inventories, supplies and other items relating to the operation of each
Company's business, and such activities do not require the obtainment of any
Permit.
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3.20 Leased Property. Each Company has good and valid leasehold
interests in all properties held by it under lease. The lessee under each such
lease and its predecessor under each such lease, if any, has been in peaceable
possession (or remedied any claims relating thereto) of the property covered
thereby since the commencement of the original term of such lease. No waiver,
indulgence, or postponement of the lessee's obligations under any such lease has
been granted by the lessor or of the lessor's obligations thereunder by the
lessee. The lessee under each such lease is not in breach of or in default under
such lease, nor has any event occurred which (with or without the giving of
notice or the passage of time or both) would constitute a default by the lessee
under such lease, and the lessee has not received any notice from, or given any
notice to, the lessor indicating that the lessee or the lessor is in breach of
or in default under such lease. To the best knowledge of Sellers and each
Company, none of the lessors under such leases is in breach thereof or in
default thereunder. The lessee under each such lease has full right and power to
occupy or possess, as the case may be, all the property covered by such lease.
3.21 Inventory. All inventory (including raw materials,
work-in-progress, and finished goods) and related supplies reflected on the HEC
Latest Balance Sheet and the L&H Latest Balance Sheet or thereafter acquired and
not disposed of in the ordinary course of business is in good condition and is
merchantable, or suitable and usable for the production or completion of
merchantable products, for sale in each Company's ordinary course of business as
first quality goods at normal mark-ups. None of such items is obsolete,
discontinued, returned, damaged, overage, or of below standard quality or
merchantability, except for items that have been written down to realizable
market value or for which adequate reserves have been provided in the Latest
Balance Sheet. Each item of inventory reflected on the HEC Latest Balance Sheet
and the L&H Balance Sheet or in each Company's books and records is so reflected
on the basis of a complete physical count and is valued at the lower of cost, on
a first-in, first-out basis, or market in accordance with generally accepted
accounting principles consistently applied. The present quantities of all
inventories of each Company are sufficient to serve adequately its customers in
the ordinary course. Finished goods in such inventories conform to the
applicable specifications of each Company, including all applicable warranties,
whether express or implied, given in connection with the sales of such goods and
under Applicable Laws, and are free from defects in design, workmanship, and
material. Each Company also maintains sufficient inventories of spare and
replacement parts to meet any repair and replacement obligations in the ordinary
course, under applicable warranties or otherwise.
3.22 Receivables. All receivables (including accounts and notes
receivable, employee advances, and accrued interest receivables) of each Company
as reflected on the HEC Latest Balance Sheet and the L&H Latest Balance Sheet or
arising since the date thereof are valid obligations of the respective makers
thereof, have arisen in the ordinary course of business for goods or services
delivered or rendered, are not subject to any valid defenses, counterclaims or
set offs, and are collectible in full at their recorded amounts in the ordinary
course of business without resort to litigation, net of all cash discounts and
doubtful accounts as reflected on the HEC Latest Balance Sheet and the L&H
Latest Balance Sheet (in the case of receivables so reflected) or on the books
of each Company (in the case of receivables arising since the date thereof). The
allowances for doubtful accounts reflected on the HEC Latest Balance Sheet and
the L&H Latest Balance Sheet and on the books of each Company were determined in
accordance with generally accepted accounting principles and were and are
reasonable in light of historical data and other relevant information.
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3.23 Intellectual Property.
(a) Set forth on Schedule 3.23 is a list of all Intellectual Property
owned by each Company or which it is licensed to use. Schedule 3.23 specifies,
as applicable: (i) the nature of such Intellectual Property; (ii) the owner of
such Intellectual Property; (iii) the jurisdictions by or in which such
Intellectual Property is recognized without regard to registration or has been
issued or registered or in which an application for such issuance or
registration has been filed, including the respective registration or
application numbers; and (iv) all material licenses, sublicenses, and other
agreements to which any Company is a party and pursuant to which any person is
authorized to use such Intellectual Property, including the identity of all
parties thereto, a description of the nature and subject matter thereof, the
applicable royalty, and the term thereof.
(b) The listed Intellectual Property constitutes all Intellectual
Property necessary for the conduct of each Company's business on a basis
consistent with past practice for at least the past five years. Each Company has
good and marketable title to or is validly licensed to use all such Intellectual
Property. Each item of such Intellectual Property is in full force and effect,
each Company is in compliance with all its obligations with respect thereto,
and, to the best knowledge of Sellers and each Company, no event has occurred
which permits, or upon the giving of notice or the passage of time or otherwise
would permit, revocation or termination of any thereof. There are no Proceedings
pending or, to the best knowledge of Sellers and each Company, threatened
against any Company asserting that the use by any Company of any of such
Intellectual Property infringes the rights of any other person or seeking
revocation, termination, or concurrent use of any of such Intellectual Property,
and there is, to the best knowledge of Sellers and each Company, no basis for
any such Proceeding. To the best knowledge of Sellers and each Company, none of
such Intellectual Property is being infringed upon by any other person. None of
such Intellectual Property is subject to any outstanding judgment, order, writ,
injunction, or decree of any Governmental Entity, or any agreement, arrangement,
or understanding, written or oral, restricting the scope or use thereof. To the
best knowledge of Sellers and each Company, the conduct of each Company's
business at any time prior to the Closing Date did not, and the conduct of such
business on a basis consistent with past practice as of the Closing Date will
not, infringe upon or otherwise misappropriate any Intellectual Property of any
other person.
3.24 Permits. Set forth on Schedule 3.24 is a list of all Permits held
by each Company, which are all the Permits necessary or required for the conduct
of the business of each Company as currently conducted. Each of such Permits is
in full force and effect, each Company is in compliance with all its obligations
with respect thereto, and, to the best knowledge of Sellers and each Company, no
event has occurred which permits, or with or without the giving of notice or the
passage of time or both would permit, the revocation or termination of any
thereof. Except as disclosed on Schedule 3.24, no notice has been issued by any
Governmental Entity and no Proceeding is pending or, to the best knowledge of
Sellers and each Company, threatened with respect to any alleged failure by any
Company to have any Permit.
3.25 Agreements.
(a) All agreements, arrangements and understandings of any nature
(written or oral, formal or informal) (collectively, for purposes of this
Section 3.25, "agreements") to which any Company is a party or by which any
Company or any of its properties is otherwise bound, regardless of amount
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or subject matter, that are material to the business, assets, results of
operations, condition (financial or otherwise) or prospects of any Company are
listed on Schedule 3.25.
(b) Each Company has delivered to Buyer accurate and complete copies of
the agreements listed on Schedule 3.25. Each of such agreements is a valid and
binding agreement of the parties thereto enforceable against them in accordance
with its terms. Except as set forth in Schedule 3.6, no breach or default exists
with respect to any of such agreements, and no event has occurred which, after
the giving of notice or the passage of time or otherwise, will result in any
such breach or default.
3.26 ERISA.
(a) Set forth on Schedule 3.26 is a list identifying each "employee
benefit plan," as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered or contributed to by
any Company or any affiliate of any Company and (iii) which covers any employee
or former employee of any Company or any affiliate of any Company or under which
any Company or any affiliate of any Company has any liability. Each Company has
delivered to Buyer accurate and complete copies of such plans (and, if
applicable, the related trust agreements) and all amendments thereto and written
interpretations thereof, together with (i) the three most recent annual reports
(Form 5500 including, if applicable, Schedule B thereto) prepared in connection
with any such plan and (ii) the most recent actuarial valuation report prepared
in connection with any such plan. Such plans are referred to in this Section
3.26 as the "Employee Plans." For purposes of this Section 3.26 only, an
"affiliate" of any person means any other person which, together with such
person, would be treated as a single employer under Section 414 of the Code. The
only Employee Plans which individually or collectively would constitute an
"employee pension benefit plan" as defined in Section 3(2) of ERISA are
identified as such on Schedule 3.26.
(b) Except as otherwise identified on Schedule 3.26, (i) no Employee
Plan constitutes a "multiemployer plan," as defined in Section 3(37) of ERISA
(for purposes of this Section 3.26, a "Multiemployer Plan"), (ii) no Employee
Plan is maintained in connection with any trust described in Section 501(c)(9)
of the Code, (iii) no Employee Plan is subject to Title IV of ERISA or to the
minimum funding standards of ERISA and the Code and (iv) during the past five
(5) years, neither any Company nor any of its affiliates have made or been
required to make contributions to any Multiemployer Plan. There are no
accumulated funding deficiencies as defined in Section 412 of the Code (whether
or not waived) with respect to any Employee Plan. The fair market value of the
assets held with respect to each Employee Plan which is an employee pension
benefit plan, as defined in Section 3(2) of ERISA, exceeds the actuarially
determined present value of all benefit liabilities accrued under such Employee
Plan (whether or not vested) determined using reasonable actuarial assumptions.
Neither any Company nor any affiliate of any Company has incurred any liability
under Title IV of ERISA arising in connection with the termination of, or
complete or partial withdrawal from, any plan covered or previously covered by
Title IV of ERISA. Each Company and all of the affiliates of each Company have
paid and discharged promptly when due all liabilities and obligations arising
under ERISA or the Code of a character which if unpaid or unperformed might
result in the imposition of a lien against any of the assets of any Company.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any Employee Plan has or will make any Company or
any director or officer of any Company subject to any liability under Title I of
ERISA or liable for any Tax pursuant to Section 4975 of the Code. There are no
threatened or pending claims by or on behalf of the Employee Plans, or by any
participant therein,
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alleging a breach or breaches of fiduciary duties or violations of Applicable
Laws which could result in liability on the part of any Company, its officers or
directors, or such Employee Plans, under ERISA or any other Applicable Law and
there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified since the date of
its adoption, and each trust forming a part thereof is exempt from Tax pursuant
to Section 501(a) of the Code. Set forth on Schedule 3.26 is a list of the most
recent IRS determination letters with respect to any such Plans, accurate and
complete copies of which letters have been delivered to Buyer. Each Employee
Plan has been maintained in compliance with its terms and with the requirements
prescribed by all Applicable Laws, including but not limited to ERISA and the
Code, which are applicable to such Plans.
(d) To the extent not listed on Schedule 3.25, there is set forth on
Schedule 3.26 a list of each employment, severance or other similar contract,
arrangement or policy and each plan or arrangement (written or oral) providing
for insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation rights or other forms of incentive
compensation or post-retirement insurance, compensation or benefits which (i) is
not an Employee Plan, (ii) is entered into, maintained or contributed to, as the
case may be, by any Company or any affiliate of any Company and (iii) covers any
employee or former employee of any Company or any affiliate of any Company or
under which any Company or any affiliate of any Company has any liability. Such
contracts, plans and arrangements as are described in the preceding sentence are
referred to for purposes of this Section 3.26 as the "Benefit Arrangements."
Each Benefit Arrangement has been maintained in substantial compliance with its
terms and with the requirements prescribed by Applicable Laws.
(e) Neither any Company nor any affiliate of any Company has performed
any act or failed to perform any act, and there is no contract, agreement, plan,
or arrangement covering any employee or former employee of any Company or any
affiliate of any Company, that, individually or collectively, could give rise to
the payment of any amount that would not be deductible pursuant to the terms of
Section 162(a)(1) or 280G of the Code or Section 162(i)(2) of the Code prior to
its amendment by the Technical and Miscellaneous Revenue Act of 1988, or could
give rise to any penalty or excise Tax pursuant to Section 4980B or 4999 of the
Code.
(f) Except as disclosed on Schedule 3.26, there has been no amendment,
written interpretation or announcement (whether or not written) by any Company
or any affiliate of any Company of or relating to, or change in employee
participation or coverage under, any Employee Plan or Benefit Arrangement which
would increase materially the expense of maintaining such Employee Plan or
Benefit Arrangement above the level of the expense incurred in respect thereof
(i) for HEC, for the fiscal year ended November 30, 1997 and (ii) for L&H, for
the fiscal year ended October 31, 1997.
3.27 Environmental Matters.
(a) Except as specifically disclosed in the Phase I and Phase II
Environmental Site Assessments issued by Law Engineering and Environmental
Services, Inc. dated May 14, 1998 and June 19, 1998, respectively (collectively,
the "Environmental Report"), neither any Company nor any property owned or
leased by any Company (for purposes of this Section, the "Property") is in
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violation of, or subject to any pending or, to the best knowledge of Sellers and
each Company, threatened Proceeding under, or subject to any remedial
obligations under, any Applicable Laws pertaining to health, safety, the
environment, Hazardous Substances, or Solid Wastes (such Applicable Laws as they
now exist or are hereafter enacted and/or amended are collectively, for purposes
of this Section 3.27, called "Applicable Environmental Laws"), including without
limitation the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of
1986 (as amended, for purposes of this Section, called "CERCLA"), the Resource
Conservation and Recovery Act of 1976, as amended by the Used Oil Recycling Act
of 1980, the Solid Waste Disposal Act Amendments of 1980, and the Hazardous and
Solid Waste Amendments of 1984 (as amended, for purposes of this Section 3.27,
called "RCRA"), and other applicable federal or state environmental conservation
or protection laws. Except as specifically disclosed in the Environmental
Report, no asbestos, material containing asbestos that is or may become friable,
or material containing asbestos deemed hazardous by Applicable Laws, has been
installed in any Property. Neither any Company nor any Seller has any obligation
to give notice of or disclose any of the matters, circumstances, conditions or
practices referred to in the Environmental Report, or otherwise, to any
Governmental Entity under any Applicable Environmental Laws. The representations
and warranties set forth in the preceding sentences of this Section 3.27 would
continue to be true and correct following disclosure to the applicable
Governmental Entities of all relevant facts, conditions and circumstances, if
any, pertaining to the Property.
(b) Neither Company has obtained and is not required to obtain any
Permits to construct, occupy, operate or use any buildings, improvements,
fixtures, equipment or other tangible property forming a part of the Property by
reason of any Applicable Environmental Laws. Each Company undertook, at the time
of acquisition of the Property, all appropriate inquiry into the previous
ownership and uses of the Property consistent with good commercial or customary
practice. Each Company has taken all steps necessary to determine and has
determined that no Hazardous Substances or Solid Wastes have been Disposed of or
otherwise Released on or to the Property.
(c) The terms "Hazardous Substance" and "Release" shall have the
meanings specified in CERCLA, and the terms "Solid Waste" and "Disposal" (or
"Disposed") shall have the meanings specified in RCRA; provided that in the
event either CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the effective
date of such amendment; and provided further, that to the extent the laws of the
jurisdiction in which the Property is located establish a meaning for "Hazardous
Substance," "Release," "Solid Waste" or "Disposal" (or "Disposed") which is
broader than that specified in either CERCLA or RCRA, such broader meaning shall
apply.
3.28 Labor Relations.
(a) Except as disclosed on Schedule 3.28, (i) there are no collective
bargaining agreements or other similar agreements, arrangements or
understandings, written or oral, with employees as a group to or by which any
Company is a party or is bound; (ii) no employees of any Company are represented
by any labor organization, collective bargaining representative or group of
employees; (iii) no labor organization, collective bargaining representative or
group of employees claims to represent a majority of the employees of any
Company in an appropriate unit of any Company; (iv) no Company has been involved
with any representational campaign by any union or other organization or group
seeking to become the collective bargaining representative of any of its
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employees or been subject to or, to the best knowledge of Sellers and each
Company, threatened with any strike or other concerted labor activity or
dispute; and (v) no Company is obligated to bargain collectively with respect to
wages, hours, and other terms and conditions of employment with any recognized
or certified labor organization, collective bargaining representative, or group
of employees.
(b) Each Company is in compliance with all Applicable Laws pertaining
to employment and employment practices and wages, hours, and other terms and
conditions of employment in respect of its employees and is not engaged in any
unfair labor practices or unlawful employment practices. There is no pending or,
to the best knowledge of Sellers and each Company, threatened Proceeding by or
before, and no Company is subject to any judgment, order, writ, injunction or
decree of or inquiry from, the National Labor Relations Board, the Equal
Employment Opportunity Commission, the Department of Labor, or any other
Governmental Entity in connection with any current, former or prospective
employee of any Company.
(c) Sellers and each Company believe that relations with the employees
of each Company are satisfactory.
3.29 Employees. Set forth on Schedule 3.29 is a list of (a) all
directors and officers of each Company and (b) the name, social security number,
and dates of employment by each Company of each employee, agent and consultant
of each Company as of May 30, 1998, together with the total amounts of salary,
bonuses and other compensation paid or payable by each Company to each such
person for the current fiscal year and the immediately preceding fiscal year.
The consummation of the transactions contemplated by this Agreement will not
result in the incurring of any severance pay obligations to any person employed
by any Company. No Seller and no affiliate of any Seller has entered into any
type of employment or consulting agreement, written or oral, with any employee
of any Company, nor has any Seller or any affiliate of any Seller engaged in
discussions with any such employee relating thereto.
3.30 Insider Interests. Except as disclosed on Schedule 3.30, no
shareholder, director, officer or employee of any Company or any associate of
any such shareholder, director, officer or employee is presently, directly or
indirectly, a party to any transaction with any Company, including without
limitation any agreement, arrangement or understanding, written or oral,
providing for the employment of, furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to any such shareholder,
director, officer, employee or associate. To the best knowledge of Sellers and
each Company, no shareholder, director, officer or employee of any Company, any
associate of any such shareholder, director, officer or employee owns, directly
or indirectly, any interest in, or serves as a director, officer or employee of,
any customer, supplier or competitor of any Company. For purposes of this
Section 3.30 only, an "associate" of any shareholder, director, officer or
employee means any member of the immediate family of such shareholder, director,
officer or employee or any corporation, partnership, trust or other entity in
which such shareholder, director, officer or employee has a substantial
ownership or beneficial interest (other than an interest in a public corporation
which does not exceed three percent of its outstanding securities) or is a
director, officer, partner or trustee or person holding a similar position.
3.31 Insurance. Set forth on Schedule 3.31 is a list of all policies of
fire, liability, casualty, life and other insurance owned or held by each
Company. Such policies are in full force and effect, are sufficient to satisfy
all requirements of Applicable Laws and any agreements, arrangements or
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understandings to which any Company is a party, and provide adequate insurance
coverage for the assets and operations of each Company. No event has occurred
nor does any fact or condition exist which would render any of such policies
void or voidable or subject any of such policies to cancellation or termination.
Each Company has given timely notice to the appropriate insurance carrier of all
pending or threatened claims against it that are insured. Schedule 3.31 also
lists all pending and threatened insured claims that are not listed on Schedule
3.15.
3.32 Financial Requirements. Set forth on Schedule 3.32 is a list and
brief description of all bonds, deposits, financial assurance requirements and
insurance coverage required to be submitted to Governmental Entities for the
continued ownership and operation of the business and assets of each Company.
3.33 Bank Accounts and Powers of Attorney. Set forth on Schedule 3.33
are (i) the name and address of each bank or other financial institution in
which each Company has an account or a safe deposit box, the account and safe
deposit box numbers thereof, and the names of all persons authorized to draw
thereon or to have access thereto, (ii) the names of all persons authorized to
borrow funds on behalf of each Company and the names of all entities from which
they are authorized to borrow funds and (iii) the names of all persons, if any,
holding powers of attorney from any Company.
3.34 Books and Records. All the books and records of each Company,
including all personnel files, employee data, and other materials relating to
employees, are substantially complete and correct, have been maintained in
accordance with good business practice and all Applicable Laws, and, in the case
of the books of account, have been prepared and maintained in accordance with
generally accepted accounting principles consistently applied. Such books and
records accurately and fairly reflect, in reasonable detail, all transactions,
assets and liabilities of each Company.
3.35 Illegal Payments. To the best knowledge of Sellers and each
Company, none of Sellers or any Company or any director, officer, employee or
agent of any Seller or any Company has, directly or indirectly, paid or
delivered any fee, commission or other sum of money or item of property however
characterized to any broker, finder, agent, government official or other person,
in the United States or any other country, in any manner related to the business
or operations of any Company, which such Seller or any Company or any such
director, officer, employee or agent knows or has reason to believe to have been
illegal under any Applicable Law.
3.36 Offerings of Securities. All securities which have been offered or
sold by each Company have been registered pursuant to the Securities Act and
applicable state securities laws or were offered and sold pursuant to valid
exemptions therefrom. No registration statement, prospectus, private offering
memorandum or other information furnished (whether in writing or orally) to any
offeree or purchaser of such securities, at the time such registration statement
became effective (in the case of a registered offering) or at the time of
delivery of such registration statement, prospectus, private offering
memorandum, or other information, contained any untrue statement of a material
fact or omitted to state any material fact required to be stated therein or
necessary in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading. To the extent that any
such securities were registered under the Securities Act, the applicable
registration statements and prospectuses filed with the Securities and Exchange
Commission pursuant to the Securities Act, at the time each such registration
statement became
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effective, and at all times when delivery of a prospectus was required pursuant
to the Securities Act, complied in all material respects with the requirements
of the Securities Act and the rules and regulations thereunder.
3.37 Investment Intent. Each Seller is acquiring the Buyer Notes for
its own account for investment and not with a view to, or for sale or other
disposition in connection with, any distribution of all or any part thereof,
except (i) in an offering covered by a registration statement filed with the
Securities and Exchange Commission under the Securities Act covering the Buyer
Notes or (ii) pursuant to an applicable exemption under the Securities Act. In
acquiring the Buyer Notes, no Seller is offering or selling, and will not offer
or sell, for Buyer in connection with any distribution of the Buyer, and Seller
does not have a participation and will not participate in any such undertaking
or in any underwriting of such an undertaking except in compliance with
applicable federal and state securities laws.
3.38 Brokerage Fees. Neither Sellers nor any of their affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby. Sellers jointly and severally shall
indemnify and hold harmless Buyer from and against any and all losses, claims,
damages, and liabilities (including legal and other expenses reasonably incurred
in connection with investigating or defending any claims or actions) with
respect to any finder's fee, brokerage commission, or similar payment in
connection with any transaction contemplated hereby asserted by any person on
the basis of any act or statement made or alleged to have been made by any
Seller or any of such Seller's affiliates.
3.39 Disclosure. No representation or warranty made by Sellers or any
Company in this Agreement, and no statement of any Seller or any Company
contained in any document, certificate, or other writing furnished or to be
furnished by Sellers or any Company pursuant hereto or in connection herewith,
contains or will contain, at the time of delivery, any untrue statement of a
material fact or omits or will omit, at the time of delivery, to state any
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they are made, not misleading. Sellers
and the Companies know of no matter (other than matters of a general economic
character not relating solely to any Company in any specific manner) which has
not been disclosed to Buyer pursuant to this Agreement which materially and
adversely affects, or will materially and adversely affect, the business,
assets, results of operations, condition (financial or otherwise), or prospects
of any Company or the ability of Sellers to consummate the transactions
contemplated hereby.
3.40 Representations and Warranties on Closing Date. The
representations and warranties made in this Article III will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
ARTICLE IV -- REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers and the Companies that:
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4.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and corporate authority to
own, lease, and operate its properties and to carry on its business as now being
conducted.
4.2 Authority Relative to This Agreement. Buyer has full corporate
power and corporate authority to execute, deliver, and perform this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery,
and performance by Buyer of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action of Buyer. This Agreement has been duly executed and delivered
by Buyer and constitutes, and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by Buyer and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, except that such enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors' rights generally and (ii)
equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
4.3 Noncontravention. The execution, delivery, and performance by Buyer
of this Agreement and the consummation by it of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of the charter or bylaws of Buyer, (ii) conflict with or result in a
violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Buyer is a party or by which Buyer or any of its properties
may be bound, (iii) result in the creation or imposition of any Encumbrance upon
the properties of Buyer, or (iv) assuming compliance with the matters referred
to in Section 4.4, violate any Applicable Law binding upon Buyer.
4.4 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by Buyer in connection with the
execution, delivery, or performance by Buyer of this Agreement or the
consummation by it of the transactions contemplated hereby, other than (i)
compliance with any applicable requirements of the Securities Act; (ii)
compliance with any applicable requirements of the Exchange Act; (iii)
compliance with any applicable state securities laws; and (iv) filings with
Governmental Entities to occur in the ordinary course following the consummation
of the transactions contemplated hereby.
4.5 Brokerage Fees. Neither Buyer nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby. Buyer shall indemnify and hold harmless
Sellers from and against any and all losses, claims, damages, and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission, or similar payment in connection with any transaction
contemplated hereby asserted by any person on the basis of any act or statement
made or alleged to have been made by Buyer or any of its affiliates.
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4.6 Representations and Warranties on Closing Date. The representations
and warranties made in this Article IV will be true and correct on and as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date, except that any such
representations and warranties which expressly relate only to an earlier date
shall be true and correct on the Closing Date as of such earlier date.
ARTICLE V -- CONDUCT OF COMPANIES PENDING CLOSING
Sellers and the Companies hereby jointly and severally covenant and
agree with Buyer as follows:
5.1 Conduct and Preservation of Business. Except as contemplated by
this Agreement, during the period from the date hereof to the Closing, each
Company (i) shall conduct its operations according to its ordinary course of
business consistent with past practice and in compliance with all Applicable
Laws; (ii) shall use its reasonable best efforts to preserve, maintain, and
protect its properties; and (iii) shall use its reasonable best efforts to
preserve intact its business organization, to keep available the services of its
officers and employees, and to maintain existing relationships with licensors,
licensees, suppliers, contractors, distributors, customers, and others having
business relationships with it.
5.2 Restrictions on Certain Actions. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing, no Company shall, without the prior written consent of
Buyer:
(a) amend its charter or bylaws;
(b) (i) issue, sell, or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase,
or otherwise) any shares of its capital stock of any class or any other
securities or equity equivalents; or (ii) amend in any respect any of the terms
of any such securities outstanding as of the date hereof;
(c) (i) split, combine, or reclassify any shares of its capital stock;
(ii) declare, set aside, or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its capital
stock; (iii) repurchase, redeem, or otherwise acquire any of its securities; or
(iv) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing a liquidation, dissolution, merger, consolidation,
restructuring, recapitalization, or other reorganization of any Company;
(d) (i) except in the ordinary course of business consistent with past
practice, create, incur, guarantee, or assume any indebtedness for borrowed
money or otherwise become liable or responsible for the obligations of any other
person; (ii) make any loans, advances, or capital contributions to, or
investments in, any other person; (iii) pledge or otherwise encumber shares of
capital stock of any Company; or (iv) except in the ordinary course of business
consistent with past practice, mortgage or pledge any of its assets, tangible or
intangible, or create or suffer to exist any lien thereupon;
(e) (i) enter into, adopt, or (except as may be required by law) amend
or terminate any bonus, profit sharing, compensation, severance, termination,
stock option, stock appreciation right,
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restricted stock, performance unit, stock equivalent, stock purchase, pension,
retirement, deferred compensation, employment, severance, or other employee
benefit agreement, trust, plan, fund, or other arrangement for the benefit or
welfare of any director, officer, or employee; (ii) except for normal increases
in the ordinary course of business consistent with past practice that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to any Company, increase in any manner the compensation or fringe
benefits of any director, officer, or employee; or (iii) pay to any director,
officer, or employee any benefit not required by any employee benefit agreement,
trust, plan, fund, or other arrangement as in effect on the date hereof;
(f) acquire, sell, lease, transfer, or otherwise dispose of, directly
or indirectly, any assets outside the ordinary course of business consistent
with past practice or any assets that in the aggregate are material to any
Company;
(g) acquire (by merger, consolidation, or acquisition of stock or
assets or otherwise) any corporation, partnership, or other business
organization or division thereof;
(h) make any capital expenditure or expenditures which, individually,
is in excess of $25,000 or, in the aggregate, are in excess of $250,000;
(i) make any Tax election or settle or compromise any federal, state,
local, or foreign Tax liability;
(j) pay, discharge, or satisfy any claims, liabilities or obligations
(whether accrued, absolute, contingent, unliquidated, or otherwise, and whether
asserted or unasserted), other than the payment, discharge, or satisfaction in
the ordinary course of business consistent with past practice, or in accordance
with their terms, of liabilities reflected or reserved against in the HEC Latest
Balance Sheet and the L&H Latest Balance Sheet or incurred since October 31,
1997 in the ordinary course of business consistent with past practice; provided,
however, that in no event shall any Company repay any long-term indebtedness
except to the extent required by the terms thereof;
(k) enter into any lease, contract, agreement, commitment, arrangement,
or transaction outside the ordinary course of business consistent with past
practice;
(l) amend, modify, or change any existing lease, contract, or
agreement, other than in the ordinary course of business consistent with past
practice;
(m) waive, release, grant, or transfer any rights of value, other than
in the ordinary course of business consistent with past practice;
(n) lay off any of its employees;
(o) change any of its banking or safe deposit arrangements;
(p) change any of the accounting principles or practices used by it,
except for any change required by reason of a concurrent change in generally
accepted accounting principles and notice of which is given in writing by each
Company to Buyer;
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(q) take any action which would or might make any of the
representations or warranties of Sellers or any Company contained in this
Agreement untrue or inaccurate as of any time from the date of this Agreement to
the Closing or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(r) authorize or propose, or agree in writing or otherwise to take, any
of the actions described in this Section.
ARTICLE VI -- ADDITIONAL AGREEMENTS
6.1 Access to Information. Between the date hereof and the Closing,
Sellers and the Companies (i) shall give Buyer and its authorized
representatives reasonable access to all employees, all plants, offices,
warehouses, and other facilities, and all books and records, including work
papers and other materials prepared by each Company's independent public
accountants, of each Company, (ii) shall permit Buyer and its authorized
representatives to make such inspections as they may reasonably require, and
(iii) shall cause each Company's officers to furnish Buyer and its authorized
representatives with such financial and operating data and other information
with respect to each Company as Buyer may from time to time reasonably request;
provided, however, that no investigation pursuant to this Section shall affect
any representation or warranty of Sellers or any Company contained in this
Agreement or in any agreement, instrument, or document delivered pursuant hereto
or in connection herewith; and provided further that Sellers and the Companies
shall have the right to have a representative present at all times.
6.2 Third Party Consents. Each Seller and each Company shall use its
reasonable best efforts to obtain all consents, approvals, orders,
authorizations, and waivers of, and to effect all declarations, filings, and
registrations with, all third parties (including Governmental Entities) that are
necessary, required, or deemed by Buyer to be desirable to enable Sellers to
transfer the Shares to Buyer as contemplated by this Agreement and to otherwise
consummate the transactions contemplated hereby. All costs and expenses of
obtaining or effecting any and all of the consents, approvals, orders,
authorizations, waivers, declarations, filings, and registrations referred to in
this Section shall be borne by Sellers.
6.3 Employment and Non-competition Agreement. Harvey and HEC shall
enter into an employment and non-competition agreement (the "Employment
Agreement") at (and subject to the occurrence of) the Closing pursuant to which
HEC shall agree to employ Harvey as a Branch Manager of HEC for the period and
on the terms set forth therein. The Employment Agreement shall be in
substantially the form set forth as Exhibit 6.3.
6.4 Title Insurance and Surveys.
(a) Sellers shall obtain and furnish to Buyer at the Closing an owner's
policy of title insurance ("Title Insurance") from or one or more other title
insurance companies reasonably acceptable to Buyer (the "Title Company")
relating to each parcel of owned or leased Real Property (as defined in Section
3.19) described on Schedule 6.4, which Title Insurance shall insure at regular
rates, in an amount reasonably determined sufficient by Buyer (or as otherwise
required by Applicable Laws), each Company's title to such Real Property, free
and clear of all Encumbrances except for the Encumbrances described on Schedule
6.4 (the "Permitted Encumbrances"), and providing by way of appropriate
endorsements and supplemental coverages, insurance which is
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available under the title insurance regulations of the State of Ohio for other
estates, rights, privileges, and risks which may be ancillary or appurtenant to
or affect or burden such Real Property or which may be necessary or convenient
for its use, enjoyment, or protection, including without limitation affirmative
coverage of all material rights-of-way, easements, access rights, and other
servient estates and against all restrictions, restrictive covenants, and
dominant estates, including affirmative coverage against loss of use or
reversion in the event of a violation of restrictions, restrictive covenants, or
easements if available.
(b) Sellers shall obtain and furnish to Buyer a commitment for Title
Insurance from the Title Company with respect to each parcel of owned or leased
Real Property described on Schedule 6.4 ("Title Binders") showing fee or
leasehold title to such Real Property in each Company, as appropriate, and
committing to issue the Title Insurance with respect to such Real Property, such
Title Binders to show all Encumbrances with respect to such Real Property, and
shall also deliver to Buyer legible copies of all documents referred to as
exceptions to title in the Title Binders.
(c) Sellers shall deliver to Buyer currently dated surveys (the
"Surveys") of each parcel of owned or leased Real Property described on Schedule
6.4, each of which Surveys shall be prepared by a licensed professional engineer
or surveyor acceptable to Buyer and to the Title Company. The Surveys (including
specifically the certificate of the engineer or surveyor forming a part thereof)
shall be in form and substance acceptable to Buyer and to the Title Company and
shall locate all existing improvements, easements and rights-of-way (which shall
show applicable recording data where possible), encroachments, conflicts, and
protrusions affecting the Real Property, and water, sewer, gas, and electric
lines and the size and capacity thereof, shall set forth the outside perimeters
of the Real Property, shall contain a metes and bounds description of the Real
Property, and shall set forth the acres included within the Real Property. The
Surveys shall contain a statement on the face thereof certifying that no part of
the Real Property lies within a flood plain or flood prone area or a flood way
of any body of water. The Surveys shall also show the zoning classifications of
the Real Property under local zoning ordinances, and with the Surveys Sellers
shall deliver to Buyer copies of the provisions of the local zoning ordinances
which govern the use of property so classified.
(d) Sellers shall deliver or make available to Buyer all maps, surveys,
drawings, and plot plans in the possession of Sellers depicting the Real
Property or any portion thereof.
(e) The cost of obtaining Title Binders, Title Insurance, and Surveys
shall be borne by Sellers.
6.5 Uncollected Receivables. If, on or prior to November 30, 1998, each
Company has been unable to collect the account receivables owned by it as of
Closing Date hereunder in full, subject to the allowance for doubtful accounts
as reflected on the HEC Latest Balance Sheet and the L&H Latest Balance Sheet,
Buyer shall have the option to cause each Company to sell and, upon exercise of
such option, Harvey shall have the obligation to buy, such uncollected
receivables, for cash, at the aggregate face value thereof less an amount equal
to the allowance for doubtful accounts as reflected on the HEC Latest Balance
Sheet and the L&H Latest Balance Sheet. Harvey shall be obligated to consummate
such repurchase within ten (10) days after written notice from Buyer of Buyer's
election to require such repurchase. Notwithstanding any to the contrary in the
foregoing, this provision shall only apply to open accounts as of the Closing
Date, and Harvey shall only be required to repurchase those uncollected
receivables that are not collateralized.
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6.6 Public Announcements. Except as may be required by Applicable Law
or the NASDAQ National Market System Marketplace Rules, neither Buyer, on the
one hand, nor Sellers and the Companies, on the other, shall issue any press
release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other party.
6.7 Notice of Litigation. Until the Closing, (i) Buyer, upon learning
of the same, shall promptly notify Sellers of any Proceeding which is commenced
or threatened against Buyer and which affects this Agreement or the transactions
contemplated hereby and (ii) Sellers and the Companies, upon learning of the
same, shall promptly notify Buyer of any Proceeding which is commenced or
threatened against any Seller or any Company and which affects this Agreement or
the transactions contemplated hereby and any Proceeding which is commenced or
threatened against any Seller or any Company and which would have been listed on
Schedule 3.15 if such Proceeding had arisen prior to the date hereof.
6.8 Notification of Certain Matters. Sellers and the Companies shall
give prompt notice to Buyer of (i) the occurrence or nonoccurrence of any event
the occurrence or nonoccurrence of which would be likely to cause any
representation or warranty contained in Article III to be untrue or inaccurate
at or prior to the Closing and (ii) any failure of any Seller or any Company to
comply with or satisfy any covenant, condition, or agreement to be complied with
or satisfied by such person hereunder. Buyer shall give prompt notice to Sellers
of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause any representation or warranty
contained in Article IV to be untrue or inaccurate at or prior to the Closing
and (ii) any failure of Buyer to comply with or satisfy any covenant, condition,
or agreement to be complied with or satisfied by such person hereunder. The
delivery of any notice pursuant to this Section shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, (ii) modify the conditions set forth in Articles VII and VIII, or (iii)
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
6.9 Fees and Expenses. Except as otherwise expressly provided in this
Agreement, all fees and expenses, including fees and expenses of counsel,
financial advisors, and accountants, incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such fee or expense, whether or not the Closing shall have occurred.
6.10 Transfer Taxes. All sales and transfer Taxes and fees (including
all real estate transfer and closing Taxes and recording fees, if any) incurred
in connection with this Agreement and the transactions contemplated hereby shall
be borne by Sellers, and Sellers shall file all necessary documentation with
respect to, and make all payments of, such Taxes and fees on a timely basis.
6.11 Survival of Covenants. Except for any covenant or agreement which
by its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation, subject to the provisions of Section
10.1.
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ARTICLE VII -- CONDITIONS TO
OBLIGATIONS OF SELLERS
The obligations of the Sellers to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
7.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct on and as of the Closing
Date as if made on and as of such date, except as affected by transactions
contemplated or permitted by this Agreement and except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
specified date.
7.2 Covenants and Agreements Performed. Buyer shall have performed and
complied with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
7.3 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
7.4 Other Documents. Sellers shall have received the certificates,
instruments, and documents listed below:
(a) The Cash Portion of the Purchase Price to be delivered to each
Seller pursuant to Section 1.2.
(b) The Buyer Notes to be delivered to each Seller pursuant to Section
1.2, registered in the name of such Seller and duly executed by Buyer.
(c) Such other certificates, instruments, and documents as may be
reasonably requested by Sellers prior to the Closing Date to carry out the
intent and purposes of this Agreement.
7.5 Release of Sellers and Payment of Notes. Sellers must have been
released from any personal guarantees or liability under any of the promissory
notes granted by the Companies, or any other financing arrangements entered into
by the Companies, within 30 days after the Closing Date. In connection with
certain shareholder loans to HEC and L&H currently outstanding, listed in
Schedule 7.5 attached hereto, Buyer shall pay the notes payable to Roy E.
Harvey, Jr. and Betty J.
Harvey in full within thirty (30) days after the Closing Date.
ARTICLE VIII -- CONDITIONS TO
OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
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8.1 Representations and Warranties True. All the representations and
warranties of Sellers and the Companies contained in this Agreement, and in any
agreement, instrument, or document delivered pursuant hereto or in connection
herewith on or prior to the Closing Date, shall be true and correct on and as of
the Closing Date as if made on and as of such date, except as affected by
transactions contemplated or permitted by this Agreement and except to the
extent that any such representation or warranty is made as of a specified date,
in which case such representation or warranty shall have been true and correct
as of such specified date.
8.2 Covenants and Agreements Performed. Sellers and each Company shall
have performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
8.3 Certificate. Buyer shall have received a certificate executed by
each Seller and on behalf of each Company by the president and the vice
president-finance of each Company, dated the Closing Date, representing and
certifying, in such detail as Buyer may reasonably request, that the conditions
set forth in this Article VIII have been fulfilled and that Sellers and the
Companies are not in breach of any provision of this Agreement.
8.4 Opinion of Counsel. Buyer shall have received an opinion of
Gooding, Huffman, Kelly & Becker, legal counsel to Sellers and the Companies,
dated the Closing Date, with respect to the matters as may be reasonably
requested by Buyer.
8.5 Legal Proceedings. No Proceeding shall, on the Closing Date, be
pending or threatened seeking to restrain, prohibit, or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
8.6 Consents. Except as disclosed on Schedule 3.6, all consents and
approvals of third parties (including Governmental Entities) required to be
obtained by or on the part of the parties hereto or otherwise necessary for the
consummation of the transactions contemplated hereby shall have been obtained,
and all thereof shall be in full force and effect at the time of Closing.
8.7 No Material Adverse Change. Since April 30, 1998, there shall not
have been any material adverse change in the business, assets, results of
operations, condition (financial or otherwise), or prospects of any Company.
8.8 Employment Agreement. Harvey shall have entered into the Employment
Agreement.
8.9 Title Insurance. Buyer shall have received the Title Insurance
described in Section 6.4.
8.10 Due Diligence. The due diligence conducted by Buyer and its
representatives in connection with the proposed transactions contemplated hereby
shall not have caused Buyer or its representatives to become aware of any facts
relating to the business, assets, results of operations, condition (financial or
otherwise), or prospects of any Company which, in the good faith judgment of
Buyer, make it inadvisable for Buyer to proceed with the consummation of the
transactions contemplated hereby.
8.11 Other Documents. Buyer shall have received the certificates,
instruments, and documents listed below:
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(a) The stock certificates representing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, and otherwise in
form acceptable to Buyer for transfer on the books of each Company.
(b) The minute books, stock records, and corporate seal of each
Company, certified as complete and correct as of the Closing Date by the
secretary or an assistant secretary of each Company.
(c) All of each Company's books and records, including without
limitation minute books, corporate charter, bylaws, stock records, bank account
records, accounting records, computer records, and all contracts with third
parties.
(d) The written resignation from the Board of Directors of each Company
of each member of such Board, such resignation to be effective concurrently with
the Closing on the Closing Date.
(e) The written resignation as an officer of each Company of each of
Harvey, R. Harvey and B. Harvey, such resignation to be effective concurrently
with the Closing on the Closing Date.
(f) A copy of the resolutions of the Board of Directors of each Company
authorizing the execution, delivery, and performance by each Company of this
Agreement, certified by the secretary or an assistant secretary of each Company.
(g) Certificates from the Secretary of State of Ohio, each dated not
more than ten (10) days prior to the Closing Date, as to the legal existence and
good standing, respectively, of each Company under the laws of such state.
(h) Lien search reports, each dated not more than ten (10) days prior
to the Closing Date, showing that no financing statements or other liens (or
notices with respect to liens) naming each Company as debtor are on file in the
Uniform Commercial Code or other relevant records of the office of the Secretary
of State of Ohio and or the county clerk's office of Van Wert County.
(i) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the Closing Date to carry out the intent
and purposes of this Agreement.
ARTICLE IX -- TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing in the following
manner:
(a) by mutual written consent of Sellers and Buyer; or
(b) by either Sellers or Buyer, if:
(i) the Closing shall not have occurred on or before July
31, 1998, unless such failure to close shall be due to a breach of this
Agreement by the party seeking to terminate this Agreement pursuant to
this clause (i); or
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(ii) there shall be any statute, rule, or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or a Governmental Entity shall have issued an
order, decree, or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the consummation of
the transactions contemplated hereby, and such order, decree, ruling,
or other action shall have become final and nonappealable; or
(c) by Sellers, if (i) any of the representations and warranties of
Buyer contained in this Agreement shall not be true and correct, when made or at
any time prior to the Closing as if made at and as of such time, or (ii) Buyer
shall have failed to fulfill any of its obligations under this Agreement, and,
in the case of each of clauses (i) and (ii), such misrepresentation, breach of
warranty, or failure (provided it can be cured) has not been cured within thirty
(30) days of actual knowledge thereof by Buyer; or
(d) by Buyer, if (i) any of the representations and warranties of
Sellers or any Company contained in this Agreement shall not be true and
correct, when made or at any time prior to the Closing as if made at and as of
such time, or (ii) Sellers or any Company shall have failed to fulfill any of
their obligations under this Agreement, and, in the case of each of clauses (i)
and (ii), such misrepresentation, breach of warranty, or failure (provided it
can be cured) has not been cured within thirty (30) days of actual knowledge
thereof by Sellers.
9.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 9.1 by Sellers, on the one hand, or Buyer, on the
other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section 9.2 and in Section 6.6 shall survive the termination
hereof. Nothing contained in this Section 9.2 shall relieve any party from
liability for damages as a result of any breach of this Agreement.
9.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
9.4 Waiver. Each of Sellers and the Companies, on the one hand, and
Buyer, on the other, may (i) waive any inaccuracies in the representations and
warranties of the other contained herein or in any document, certificate, or
writing delivered pursuant hereto or (ii) waive compliance by the other with any
of the other's agreements or fulfillment of any conditions to its own
obligations contained herein. Any agreement on the part of a party hereto to any
such waiver shall be valid only if set forth in an instrument in writing signed
by or on behalf of such party. No failure or delay by a party hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power, or
privilege.
9.5 Remedies Not Exclusive. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
The rights and remedies of any party based upon, arising out of, or otherwise in
respect of any inaccuracy in or breach of any representation, warranty,
covenant, or agreement contained in this Agreement shall in no way be limited by
the fact that the act, omission, occurrence, or other state of facts upon which
any claim of any such inaccuracy or breach is based may also be the subject
matter of any other representation,
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warranty, covenant, or agreement contained in this Agreement (or in any other
agreement between the parties) as to which there is no inaccuracy or breach.
ARTICLE X -- SURVIVAL OF
REPRESENTATIONS; INDEMNIFICATION
10.1 Survival. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto and the related indemnification provisions shall
survive the Closing and for the four (4) year period thereafter, regardless of
any investigation made by or on behalf of any party Date; provided, however,
that (i) the representations and warranties of the Sellers and the Companies in
Section 3.27 and the related indemnification agreements of Sellers contained in
Section 10.2(i) below, and (ii) the indemnification agreements of Sellers
contained in Section 10.2(ii) below shall survive the Closing and for the ten
(10) year period thereafter.
10.2 Indemnification by Sellers. Subject to the terms and conditions of
this Article X, Sellers jointly and severally shall indemnify, defend, and hold
harmless Buyer, the subsidiaries and parent corporations of Buyer (including,
after the Closing, the Companies), each director and officer of Buyer or any of
its subsidiaries or parent corporations, and each affiliate thereof, and their
respective heirs, legal representatives, successors and assigns (collectively,
the "Buyer Group"), from and against any and all claims, actions, causes of
action, demands, assessments, losses, damages, liabilities, judgments,
settlements, penalties, costs, and expenses (including reasonable attorneys'
fees and expenses), of any nature whatsoever, whether actual or consequential
(collectively, "Damages"), asserted against, resulting to, imposed upon, or
incurred by any member of the Buyer Group, directly or indirectly, by reason of
or resulting from (i) any breach by Sellers of any of their representations,
warranties, covenants, or agreements contained in this Agreement or in any
certificate, instrument, or document delivered pursuant hereto, and (ii) any of
the matters, circumstances, conditions or practices set forth in the
Environmental Report.
10.3 Indemnification by Buyer. Subject to the terms and conditions of
this Article X, Buyer shall indemnify, defend, and hold harmless each Seller,
the subsidiaries and parent corporations, if any, of such Seller, each director
and officer, if any, of such Seller or any of its subsidiaries or parent
corporations, and each affiliate thereof, and their respective heirs, legal
representatives, successors, and assigns (collectively, the "Seller Group"),
from and against any and all Damages asserted against, resulting to, imposed
upon, or incurred by any member of the Seller Group, directly or indirectly, by
reason of or resulting from any breach by Buyer of any of its representations,
warranties, covenants, or agreements contained in this Agreement or in any
certificate, instrument, or document delivered pursuant hereto.
10.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 10.2 or 10.3 of notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party under such Section, give written notice to
the indemnifying party of the commencement thereof, but the failure so to notify
the indemnifying party shall not relieve it of any liability that it may have to
any indemnified party except to the extent the indemnifying party demonstrates
that the defense of such action is prejudiced thereby. In case any such action
shall be brought against an indemnified party and it shall give written notice
to the indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof
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<PAGE> 33
with counsel reasonably satisfactory to such indemnified party. If the
indemnifying party elects to assume the defense of such action, the indemnified
party shall have the right to employ separate counsel at its own expense and to
participate in the defense thereof. If the indemnifying party elects not to
assume (or fails to assume) the defense of such action, the indemnified party
shall be entitled to assume the defense of such action with counsel of its own
choice, at the expense of the indemnifying party. If the action is asserted
against both the indemnifying party and the indemnified party and there is a
conflict of interests which renders it inappropriate for the same counsel to
represent both the indemnifying party and the indemnified party, the
indemnifying party shall be responsible for paying for separate counsel for the
indemnified party; provided, however, that if there is more than one indemnified
party, the indemnifying party shall not be responsible for paying for more than
one separate firm of attorneys to represent the indemnified parties, regardless
of the number of indemnified parties. If the indemnifying party elects to assume
the defense of such action, (a) no compromise or settlement thereof may be
effected by the indemnifying party without the indemnified party's written
consent (which shall not be unreasonably withheld) unless the sole relief
provided is monetary damages that are paid in full by the indemnifying party and
(b) the indemnifying party shall have no liability with respect to any
compromise or settlement thereof effected without its written consent (which
shall not be unreasonably withheld).
ARTICLE XI -- MISCELLANEOUS
11.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, or sent by cable, telegram, telefax, or telex, to the parties at the
following addresses (or at such other addresses as shall be specified by the
parties by like notice):
If to Buyer: 306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey Stevens
Telefax: 817.339.1001
If to Sellers: 1234 West Main Street
Van Wert, Ohio 45891
Attention: William J. Harvey
Telefax: 419.238.3040
11.2 Entire Agreement. This Agreement, together with the Schedules,
Exhibits, Annexes, and other writings referred to herein or delivered pursuant
hereto, constitutes the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
11.3 Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Except as otherwise expressly provided in this Agreement, neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties, except that Buyer may
29
<PAGE> 34
assign to any wholly-owned subsidiary of Buyer any of Buyer's rights, interests,
or obligations hereunder, upon notice to the other party or parties, provided
that no such assignment shall relieve Buyer of its obligations hereunder. Except
as provided in Article X, nothing in this Agreement, express or implied, is
intended to or shall confer upon any person other than the parties hereto, and
their respective heirs, legal representatives, successors, and permitted
assigns, any rights, benefits, or remedies of any nature whatsoever under or by
reason of this Agreement.
11.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by Applicable Law.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
11.6 Further Assurances. From time to time following the Closing, at
the request of any party hereto and without further consideration, the other
party or parties hereto shall execute and deliver to such requesting party such
instruments and documents and take such other action (but without incurring any
material financial obligation) as such requesting party may reasonably request
in order to consummate more fully and effectively the transactions contemplated
hereby.
11.7 Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only, do not constitute a part of this Agreement,
and shall not affect in any manner the meaning or interpretation of this
Agreement.
11.8 Gender. Pronouns in masculine, feminine, and neuter genders shall
be construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context otherwise
requires.
11.9 References. All references in this Agreement to Articles,
Sections, and other subdivisions refer to the Articles, Sections, and other
subdivisions of this Agreement unless expressly provided otherwise. The words
"this Agreement", "herein", "hereof", "hereby", "hereunder", and words of
similar import refer to this Agreement as a whole and not to any particular
subdivision unless expressly so limited. Whenever the words "include",
"includes", and "including" are used in this Agreement, such words shall be
deemed to be followed by the words "without limitation". Each reference herein
to a Schedule, Exhibit, or Annex refers to the item identified separately in
writing by the parties hereto as the described Schedule, Exhibit, or Annex to
this Agreement. All Schedules, Exhibits, and Annexes are hereby incorporated in
and made a part of this Agreement as if set forth in full herein.
11.10 Counterparts. This Agreement may be executed by the parties
hereto in any number of counterparts, each of which shall be deemed an original,
but all of which shall constitute one and the same agreement. Each counterpart
may consist of a number of copies hereof each signed by less than all, but
together signed by all, the parties hereto.
30
<PAGE> 35
11.11 Injunctive Relief. The parties hereto acknowledge and agree that
irreparable damage would occur in the event any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement, and shall be entitled to enforce specifically the provisions of this
Agreement, in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which the parties may be
entitled under this Agreement or at law or in equity.
11.12 Jurisdiction and Venue. In respect of any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby, each of the parties hereto consents to the jurisdiction and venue of any
federal or state court located within Tarrant County, Texas, waives personal
service of any and all process upon it, consents that all such service of
process may be made by first class registered or certified mail, postage
prepaid, return receipt requested, directed to it at the address specified in
Section 11.1, agrees that service so made shall be deemed to be completed upon
actual receipt thereof, and waives any objection to jurisdiction or venue of,
and waives any motion to transfer venue from, any of the aforesaid courts.
ARTICLE XII -- DEFINITIONS
12.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
"affiliate" has the meaning specified in Rule 12b-2
promulgated under the Exchange Act.
"affiliate" means, with respect to any person, any other
person that, directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control
with, such person.
"Affiliated Group" has the meaning set forth in Section
1504 of the Code.
"Applicable Law" means any statute, law, rule, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Entity to which a specified person or property is subject.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition, or otherwise),
easements, and other encumbrances of every type and description,
whether imposed by law, agreement, understanding, or otherwise.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
31
<PAGE> 36
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or
other authority or instrumentality (domestic or foreign).
"Intellectual Property" means patents, trademarks,
service marks, trade names, copyrights, trade secrets, know-how,
inventions, and similar rights, and all registrations, applications,
licenses, and rights with respect to any of the foregoing.
"IRS" means the Internal Revenue Service.
"Partnership Subsidiary" means any Subsidiary that is a
general or limited partnership or joint venture.
"Permits" means licenses, permits, franchises, consents,
approvals, and other authorizations of or from Governmental Entities.
"person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, enterprise,
unincorporated organization, or Governmental Entity.
"Proceedings" means all proceedings, actions, claims,
suits, investigations, and inquiries by or before any arbitrator or
Governmental Entity.
"reasonable best efforts" means a party's reasonable best
efforts in accordance with reasonable commercial practice and without
the incurrence of unreasonable expense.
"Securities Act" means the Securities Act of 1933, as
amended.
"Taxes" means any income Taxes or similar assessments or
any sales, excise, occupation, use, ad valorem, property, production,
severance, transportation, employment, payroll, franchise, or other Tax
imposed by any United States federal, state, or local (or any foreign
or provincial) Taxing authority, including any interest, penalties, or
additions attributable thereto.
"Tax Return" means any return or report, including any
related or supporting information, with respect to Taxes.
"to the best knowledge of Sellers and each Company" (or
similar references to Sellers and each Company's knowledge) means the
knowledge of or receipt of notice (oral or written) by any of Sellers
or each Company's executive officers, as such knowledge has been
obtained in the normal conduct of the business of each Company or in
connection with the preparation of the Schedules to this Agreement and
the furnishing of information to Buyer as contemplated by this
Agreement, after having made a reasonable investigation of the accuracy
of the representations and warranties made by Sellers and any Company
in this Agreement or in any document, certificate, or other writing
furnished by Sellers or any Company to Buyer pursuant hereto or in
connection herewith.
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<PAGE> 37
"Transaction Costs" means investment banking, legal,
accounting, and other fees or costs not deductible for federal income
Tax purposes but incurred as a result of the transactions contemplated
by this Agreement.
"Treasury Regulations" means one or more treasury
regulations promulgated under the Code by the Treasury Department of
the United States.
12.2 Certain Additional Defined Terms. In addition to such terms as are
defined in the opening paragraph of and the recitals to this Agreement and in
Section 12.1, the following terms are used in this Agreement as defined in the
Sections set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Accountants 1.3(b)
agreements 3.25(a)
Applicable Environmental Laws 3.27(a)
associate 3.30
Audited Financial Statements 3.10(a)
Benefit Arrangements 3.26(d)
Buyer Group 10.2
Buyer Notes 1.2
CERCLA 3.27(a)
Closing 2.1
Closing Date 2.1
Closing Statement 1.3(b)
Damages 10.2
Disposal 3.27(c)
Employee Plans 3.26(a)
Employment Agreement 6.3
Environmental Report 3.27
Hazardous Substance 3.27(c)
HEC Audited Financial Statements 3.10
HEC Financial Statements 3.10
HEC Latest Balance Sheet 3.10
HEC Unaudited Financial Statements 3.10
L&H Audited Financial Statements 3.10
L&H Financial Statements 3.10
L&H Latest Balance Sheet 3.10
L&H Unaudited Financial Statements 3.10
Multiemployer Plan 3.26(b)
Net Worth of the Companies 1.3(a)
Permitted Encumbrances 6.4(a)
Property 3.27(a)
Purchase Price 1.2
RCRA 3.27(a)
Real Property 3.18(a)
Release 3.27(c)
Seller Group 10.3
</TABLE>
33
<PAGE> 38
<TABLE>
<S> <C>
Shares Page 1, Para. 3
Solid Waste 3.27(c)
Surveys 6.4(c)
Title Binders 6.4(b)
Title Company 6.4(a)
Title Insurance 6.4(a)
</TABLE>
[Signature page to follow]
34
<PAGE> 39
IN WITNESS WHEREOF, the parties have executed this Agreement, or caused
this Agreement to be executed by their duly authorized representatives, all as
of the day and year first above written.
L and H Leasing Company
By: -------------------------------------------
William J. Harvey, President
Harvey Equipment Center, Inc.
By: -------------------------------------------
William J. Harvey, President
------------------------------------------------
William J. Harvey
-----------------------------------------------
Betty J. Harvey, individually and as trustee
-----------------------------------------------
Roy E. Harvey, Jr., individually and as trustee
CRESCENT OPERATING, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
-----------------------------------------
35
<PAGE> 40
SCHEDULE 1.3(b)
None.
1
<PAGE> 1
EXHIBIT 10.51
$7,000,000
CREDIT AGREEMENT,
dated as of July 28, 1998
between
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
a Delaware limited partnership
as the Lender
and
CRL INVESTMENTS, INC.
a Texas corporation
as the Borrower
<PAGE> 2
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of July 28, 1998,
between CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Lender"), and CRL INVESTMENTS, INC., a Texas corporation (the
"Borrower").
ARTICLE I
WHEREAS, the Borrower has applied for and Lender is willing, on the
terms and subject to the conditions hereinafter set forth, to extend to the
Borrower a line of credit loan (the "Loan"), in a maximum aggregate principal
amount at any one time outstanding not to exceed $7,000,000, from time to time
prior to the Commitment Termination Date; and
WHEREAS, the proceeds of the Loan will be used from time to time for
working capital purposes of the Borrower in order to provide funds for making
equity investments, as provided for in this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE II
COMMITMENTS, ADVANCE PROCEDURES AND NOTES
SECTION 2.1 Commitment. On the terms and subject to the conditions of
this Agreement (including Article V), Lender agrees to make advances under the
Loan to the Borrower up to an aggregate amount of Seven Million Dollars
($7,000,000) (the "Commitment Amount") pursuant to Section 2.2. Lender shall
not be required to make any advance under this Loan if, after giving effect
thereto, (a) the aggregate principal amount of all Advances made would exceed
the Commitment Amount or (b) with respect to a particular Project or an Option
Exercise, the aggregate Equity Advance then outstanding with respect to such
Project or Option Exercise would exceed the Advance Limit for such Project or
Option Exercise. Notwithstanding anything in this Agreement to the contrary,
(i) Lender shall not be obligated to advance additional funds with respect to
the Venetian Project if a default (after notice and expiration of cure periods)
occurs by CR Las Vegas under the Venetian Lease or a default occurs and is
continuing under the CR Las Vegas Operating Agreement and (ii) Lender shall not
be obligated to advance additional funds if a default occurs and is continuing
under the CR License Operating Agreement.
SECTION 2.2 Advance Procedure. Borrower may from time to time request
that an Advance be made. Each Advance shall be in an amount that is equal to
the lesser of (a) the unused amount of the Commitment Amount, or (b) the
allowable Equity Advance for the applicable Project or Option Exercise (which
amount shall not exceed the Advance Limit for such Project or Option Exercise).
The request shall be made by delivering an Application for Advance to the
Lender not less than three (3) Business Days prior to the date upon which such
Advance is to be made and, if all such conditions precedent to such Advance
have been satisfied, Lender shall make such Advance directly to the Borrower by
wire transfer to the account the Borrower specifies in its Application for
Advance.
<PAGE> 3
SECTION 2.3 Note. The Loan shall be evidenced by a single promissory
note (the "Note") payable to the order of Lender in the maximum principal
amount of Seven Million Dollars ($7,000,000).
ARTICLE III
PAYMENTS AND INTEREST
SECTION 3.1 Payments. Payments of the Loan shall be made as set
forth in this Section 3.1 and shall be without premium or penalty.
SECTION 3.1.1 Final Maturity. On the Stated Maturity Date,
the Borrower shall repay in full all accrued but unpaid interest and the entire
unpaid principal amount of the Loan.
SECTION 3.1.2 Mandatory Payments. The Borrower shall, within
one (1) Business Day following receipt by Borrower of any Distribution, make a
mandatory payment of the Loan in an amount equal to such Distribution less an
amount approved by Lender in its reasonable discretion for unpaid expenses and
payables incurred by Borrower in the ordinary course of business and a
reasonable reserve for future expenses. All mandatory payments made under this
Section shall be applied first to accrued but unpaid interest and thereafter to
the outstanding principal balance of the Loan. Borrower acknowledges to Lender
that (i) each Subpartnership is generally obligated to distribute all net cash
flow (other than tax distributions) to its members (including CR License) and
(ii) CR License is generally obligated to distribute all net cash flow (other
than tax distributions and amounts established as reserves) to its partners
(including the Borrower). Notwithstanding anything in this Agreement to the
contrary, Lender shall not be obligated to make any additional Advance to
Borrower pursuant to this Agreement if, based on a determination by Lender in
its reasonable discretion, CR License or any Subpartnership has failed to
satisfy its obligation to make the distributions described in the preceding
sentence and such failure is continuing.
SECTION 3.1.3 Acceleration of Stated Maturity Date.
Immediately upon any acceleration of the Stated Maturity Date of the Loan
pursuant to Section 8.2 or Section 8.3, the Borrower shall repay the Loan to
the full extent of such acceleration.
SECTION 3.2 Interest Provisions. Interest on the outstanding
principal amount of the Loan shall accrue and be payable in accordance with
this Section 3.2.
SECTION 3.2.1 Rate. Prior to an Event of Default, the
outstanding principal balance of the Loan shall accrue interest at the rate
(the "Interest Rate") of 12.0%, compounded annually.
SECTION 3.2.2 Post-Maturity Rates. 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
-2-
<PAGE> 4
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
in no event shall the Default Rate exceed the maximum rate of interest
permitted by applicable law.
SECTION 3.2.3 Accrual. At the end of each calendar year
during the term hereof, all interest that has accrued but has not been paid
during such calendar year shall be added to the outstanding principal balance
of the Loan and shall, thereafter, bear interest, prior to an Event of Default,
at the Interest Rate.
ARTICLE IV
CERTAIN OTHER PROVISIONS
SECTION 4.1 Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Note or
any other Loan Document shall be made, without setoff, deduction or
counterclaim, not later than 12:00 noon, Fort Worth, Texas time, on the date
due, in same day or immediately available funds, to such account as the Lender
shall specify from time to time by written notice delivered to the Borrower.
Whenever any payment to be made shall otherwise be due on a day that is not a
Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall be included in computing interest and fees, if
any, in connection with such payment.
SECTION 4.2 Setoff. Lender shall, upon the occurrence of any Default
have the right to appropriate and apply to the payment of the Note (whether or
not then due) all amounts then held by such Lender of the Borrower. The rights
of Lender under this Section are in addition to other rights and remedies
(including other rights of setoff under applicable law or otherwise) that
Lender may have. The Borrower hereby waives all rights of setoff,
appropriation and application it may have pursuant to applicable law or
otherwise.
SECTION 4.3 Use of Proceeds. The proceeds of each Advance under the
Loan shall be used by Borrower solely to acquire interests in, or make capital
contributions to, CR License or a Subpartnership.
ARTICLE V
CONDITIONS TO BORROWING
SECTION 5.1 Initial Advance. The obligations of the Lender to fund
the Initial Advance shall be subject to the prior or concurrent satisfaction of
each of the conditions precedent set forth in this Section 5.1.
SECTION 5.1.1 Application for Advance. The Lender shall have
received an Application for Advance.
-3-
<PAGE> 5
SECTION 5.1.2 Resolutions, etc. The Lender shall have
received from Borrower a certificate of resolutions and incumbency as to
resolutions of its Board of Directors then in full force and effect authorizing
the execution, delivery and performance of this Agreement, the Note and each
other Loan Document to be executed by it.
SECTION 5.1.3 Delivery of Note. The Lender shall have
received the Note duly executed and delivered by the Borrower.
SECTION 5.1.4 Borrower Security Agreement. The Lender shall
have received executed counterparts of the Borrower's Security Agreement
together with such UCC-1 financing statements and UCC search reports as Lender
may require.
SECTION 5.1.5 Financial Information, etc. The Lender shall
have received, in form and scope reasonably satisfactory to Lender, the
financial statements referred to in Section 6.5.
SECTION 5.1.6 Closing Fees, Expenses, etc. The Lender shall
have received all fees, costs and expenses due and payable pursuant to this
Agreement.
SECTION 5.1.7 Contribution Event. The Lender shall have
received evidence of the occurrence of a Contribution Event.
SECTION 5.2 All Advances. The obligation of Lender to fund any
Advance shall be subject to the satisfaction of each of the conditions
precedent set forth in this Section 5.2.
SECTION 5.2.1 Application for Advance. The delivery of an
Application for Advance.
SECTION 5.2.2 Compliance with Warranties, No Default, etc.
Both before and after giving effect to any Advance the following statements
shall be true and correct to the satisfaction of the Lender:
(a) the representations and warranties set forth
in this Agreement shall be true and correct with the same
effect as if then made;
(b) no Default shall have then occurred and be
continuing.
SECTION 5.2.3 Organic Documents. If applicable, the Lender
shall have received a copy of the Organic Documents for the Subpartnership that
will be capitalized with the proceeds of the requested Advance.
SECTION 5.2.4 Resolutions, Etc.. If applicable, the Lender
shall have received from CR License (in its individual capacity and in its
capacity as manager of the applicable Subpartnership) a certificate of
resolutions and incumbency authorizing the organization of the Subpartnership.
-4-
<PAGE> 6
SECTION 5.2.5 Evidence of Insurance. If applicable, the
Lender shall have received adequate evidence that all insurance required by
this Agreement is in effect with respect to the contemplated Project.
SECTION 5.2.6 Fees and Expenses. The Lender shall have
received all fees, costs and expenses due and payable pursuant to this
Agreement.
SECTION 5.2.7 Satisfactory Legal Form. All documents
executed or submitted pursuant hereto shall be reasonably satisfactory in form
and substance to the Lender and its counsel; the Lender shall have received all
other information, approvals, opinions, documents or instruments as the Lender
or its counsel may reasonably request.
SECTION 5.2.8 Contribution Event. The Lender shall have
received evidence of the occurrence of a Contribution Event.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loan
hereunder and to make each Advance pursuant to the Loan, the Borrower
represents and warrants unto the Lender as of the day and year first written
above and on the date of each Advance as set forth in this Article VI.
SECTION 6.1 Organization, etc. The Borrower is a duly formed
corporation under the laws of Texas, is duly qualified to do business and has
full power and authority and holds all requisite governmental licenses, permits
and other approvals to enter into and perform its obligations under this
Agreement, the Note and each other Loan Document to which it is a party, and to
own and hold its property and to conduct its business substantially as
currently conducted by it.
SECTION 6.2 Due Authorization, Non-Contravention, etc. The
execution, delivery and performance by the Borrower of this Agreement, the Note
and each other Loan Document executed or to be executed by it, are within the
Borrower's corporate powers, have been duly authorized by all necessary action
(including but not limited to any consent of stockholders required by law or
its Organic Documents) and do not (a) contravene the Borrower's Organic
Documents; or (b) contravene any contractual restriction, law or governmental
regulation or court decree or order binding on or affecting the Borrower except
for such contraventions that 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 or any Loan Document.
SECTION 6.3 Government Approval, Regulation, etc. No authorization,
consent or approval or other action by, and no notice to, filing with or
license from, any governmental authority or regulatory body or other Person is
required for the due execution or delivery by the Borrower of this Agreement,
the Note or any other Loan Document to which it is a party, or for the
consummation and performance of the transactions contemplated hereby or
thereby.
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<PAGE> 7
SECTION 6.4 Validity, etc. Each of this Agreement and, upon the due
execution and delivery thereof, the Note and each other Loan Document executed
by the Borrower, CR License or a Subpartnership, constitutes the legal, valid
and binding obligation of such parties enforceable in accordance with its
respective terms, except as such enforceability may be limited by applicable
bankruptcy, reorganization, insolvency and other similar laws affecting
creditors rights generally.
SECTION 6.5 Financial Information. All financial information that
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 6.6 No Material Adverse Change. There has been no material
adverse change in the business, financial condition, operations, assets,
revenues, or properties, of the Borrower taken as a whole from the financial
information previously provided to Lender.
SECTION 6.7 No Default Under Indebtedness. No event of default has
occurred and is continuing, and no event has occurred that with the giving of
notice, passage of time or both would become a material event of default under
any of the indebtedness permitted to be incurred pursuant to Section 7.2.2
hereof.
SECTION 6.8 Litigation, Labor Controversies, etc. There is no
pending or, to the knowledge of the Borrower, threatened litigation, action,
proceeding or labor controversy affecting the Borrower, CR License or any
Subpartnership that, if adversely determined, could reasonably be expected to
have a material adverse effect on Borrower, CR License, any Subpartnership, any
Project or Lender.
SECTION 6.9 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 6.10 ERISA. Neither Borrower, nor, to the best knowledge of
Borrower, any other person has taken any action or failed to take any action
that would subject Borrower, CR License or any Subpartnership to any potential
liability under ERISA.
SECTION 6.11 Accuracy of Information. All factual information, as
amended, supplemented or modified, furnished by or on behalf of the Borrower in
writing to (or as directed by) the Lender for purposes of or in connection with
this Agreement, any other Loan Document or any transaction contemplated hereby
is true and accurate in all material respects as of the date of execution and
delivery of this Agreement and all other such factual information thereafter
furnished by or on behalf of the Borrower to (or as directed by) the Lender
pursuant to the terms of this Agreement or any other Loan Document is true and
accurate in every material respect on the date as of which such information is
dated or certified, and does not omit any material fact necessary to make such
information not misleading.
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<PAGE> 8
ARTICLE VII
COVENANTS
SECTION 7.1 Affirmative Covenants. Borrower will perform the
obligations set forth in this Section 7.1.
SECTION 7.1.1 Financial Information, Reports, Notices, etc.
Borrower will furnish, or will cause to be furnished, to Lender copies of the
following financial statements, reports, notices and information:
(a) As soon as available and in any event within
45 days after the end of each fiscal quarter of each fiscal
year of Borrower (including the final fiscal quarter of each
fiscal year), Borrower will deliver, or cause to be delivered,
balance sheets of Borrower as of the end of such fiscal
quarter and statements of income, cash flow and Borrower's
equity for such fiscal quarter and for the period commencing
at the end of the previous fiscal year and ending with the end
of such fiscal quarter, setting forth in each case in
comparative form the figures for the corresponding fiscal
quarter of the previous fiscal year, certified by the chief
financial officer of Borrower in a manner acceptable to the
Lender.
(b) if requested by Lender for any fiscal year,
Borrower will have prepared at Borrower's expense and Borrower
will deliver, or cause to be delivered, to Lender a copy of an
annual audit report for Borrower including therein balance
sheets of Borrower as of the end of such fiscal year and
statements of cash flow, income and Borrower's equity for such
fiscal year, in each case certified (without qualification) by
independent public accountants reasonably acceptable to the
Lender.
(c) a copy of all financial accounting and
reports that are provided to the members of CR License.
(d) As soon as possible and in any event within
three Business Days after becoming aware of
(i) the occurrence of any material
adverse development with respect to any Borrower, CR
License, a Subpartnership, or a Project, or
Borrower's or CR License's investment in any
Subpartnership, or
(ii) copies of any material notices or
communications from a Governmental Authority with
respect to Borrower, CR License, a Subpartnership or
a Project; or
(iii) copies of any material notices or
communications from Borrower, CR License or a
Subpartnership to a Governmental Authority with
respect to a Project.
-7-
<PAGE> 9
Borrower will deliver, or will cause to be delivered, notice
thereof and copies of all documentation relating thereto.
(e) Borrower will deliver, or will cause to be
delivered, such other information respecting the condition or
operations, financial or otherwise, of the Borrower, CR
License, or any Subpartnerships as the Lender may from time to
time reasonably request.
SECTION 7.1.2 Compliance with Laws, etc. Borrower will, and,
consistent with Borrower's rights and obligations under the CR License
Operating Agreement, will cause CR License and each Subpartnership to, comply
in all material respects with all applicable Governmental Requirements such
compliance to include, but not be limited to:
(a) the maintenance and preservation of its
existence and qualification in all foreign jurisdictions where
it is required to do so except where the failure to do so
would not be material; and
(b) the payment, before the same become
delinquent, of all taxes, assessments and governmental charges
imposed upon it or upon its property except to the extent they
are being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
SECTION 7.1.3 Maintenance of Properties. Borrower will, and,
consistent with Borrower's rights and obligations under the CR License
Operating Agreement, will cause CR License and each Subpartnership to,
maintain, preserve, protect and keep its properties (specifically including but
not limited to, the Projects) in good repair, working order and condition,
normal wear and tear excepted, and make necessary and proper repairs, renewals
and replacements so that its business carried on in connection therewith may be
properly conducted at all times.
SECTION 7.1.4 Books and Records. Borrower will, and,
consistent with Borrower's rights and obligations under the CR License
Operating Agreement, will cause CR License and each of the Subpartnerships to,
keep books and records that accurately reflect all of its business affairs and
transactions in all material respects. Borrower will, and will cause CR
License and each Subpartnership to, 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. The Borrower shall pay any fees
of its independent public accountant incurred in connection with the Lender's
exercise of its rights pursuant to this Section.
SECTION 7.1.5 Environmental Covenant. Borrower will, and,
consistent with Borrower's rights and obligations under the CR License
Operating Agreement, will cause CR License and each of its Subpartnerships to,
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<PAGE> 10
(a) use and operate all of its assets in
compliance in all material respects with all Environmental
Laws, keep all necessary and material permits, approvals,
certificates, licenses and other authorizations required under
Environmental Laws in effect and remain in compliance
therewith, and handle all Hazardous Materials in compliance in
all material respects with all Environmental Laws; and
(b) immediately notify the Lender and provide
copies upon receipt of all potentially material written
claims, complaints or notices (excluding routine fee or
schedule notices) relating to non-compliance with, or
liabilities or obligations arising under or relating in any
way to, Environmental Laws with respect to its assets.
SECTION 7.1.6 ERISA Compliance. Borrower will, and will
cause each of its ERISA affiliates to, maintain all employee benefit plans in
compliance in all material respects with all applicable law, including any
reporting requirements, and make all contributions due under the terms of each
employee benefit plan or as required by law.
SECTION 7.1.7 Additional Funding Instruments. Borrower
acknowledges to Lender that the Subscribers have contributed, in the aggregate,
One Million Dollars ($1,000,000) in cash to the capital of Borrower. Prior to
requesting an Advance, Borrower will, through its Board of Directors, make an
Assessment Determination whereby the Board of Directors of Borrower shall make
written demand upon each Subscriber to contribute to Borrower cash in an amount
equal to the product realized by multiplying (i) the amount of the requested
Advance by (ii) a fraction, the numerator of which is the number of shares of
common stock of Borrower owned by Subscriber as of the date of the Assessment
Determination and the denominator of which is the number of outstanding shares
of common stock of Borrower as of the date of the Assessment Determination
(each an "Additional Equity Contribution"). Notwithstanding anything to the
contrary contained in this Agreement, no additional Advance will be made to
Borrower pursuant to this Agreement unless and until each Subscriber has
contributed cash to Borrower in an amount equal to such Subscriber's Additional
Equity Contribution (each a "Contribution Event").
SECTION 7.2 Negative Covenants. Borrower will comply with the
obligations set forth in this Section 7.2.
SECTION 7.2.1 Business Activities. Borrower will not, and,
consistent with Borrower's rights and obligations under the CR License
Operating Agreement, will not permit CR License or any of the Subpartnerships
to, engage in any business activity other than those activities set forth in
the Organic Documents for each such entity.
SECTION 7.2.2 Indebtedness. The Borrower will not, and,
consistent with Borrower's rights and obligations under the CR License
Operating Agreement, will not permit CR License or any of the Subpartnerships
to, create, incur, assume or suffer to exist or otherwise become or be liable
in respect of any indebtedness, other than, without duplication, the following:
(a) indebtedness in respect of the Loan and other
obligations;
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<PAGE> 11
(b) unsecured indebtedness incurred in the
ordinary course of its business in the nature of open accounts
extended by suppliers and other vendors on normal trade terms
in connection with purchases of goods and services, accrued
liabilities, deferred income and deferred taxes; and
(c) other unsecured indebtedness of the Borrower,
CR License and the Subpartnerships in an aggregate amount not
to exceed $50,000 for the Borrower, $50,000 for CR License and
$10,000 for any Subpartnership.
SECTION 7.2.3 Asset Dispositions, etc. The Borrower will
not, and, consistent with Borrower's rights and obligations under the CR
License Operating Agreement, will not permit CR License or any of the
Subpartnerships to, sell, transfer, lease, contribute, convey or otherwise
dispose of all or any part of its assets to any Person, unless
(a) no Default has occurred and is continuing or
would occur after giving effect thereto; or
(b) such sale, transfer, lease or other
disposition is approved by Lender.
SECTION 7.2.4 Restriction on Distributions. Borrower will
not make dividend distributions to its shareholders at any time when there
exists an outstanding balance on the Loan.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1 Listing of Events of Default. Each of the following
events or occurrences described in this Section 8.1 shall constitute an "Event
of Default." Upon the occurrence of an Event of Default (or any event or state
of facts that, with the giving of notice or the passage of time or both, would
constitute an Event of Default), the Borrower shall give notice thereof to the
Lender.
SECTION 8.1.1 Non-Payment of Obligations. The Borrower shall
default in the payment when due of any principal of the Loan or of any interest
in respect of the Loan.
SECTION 8.1.2 Breach of Warranty. Any representation or
warranty made or deemed to be made hereunder or in any other Loan Document or
any other writing or certificate furnished by or on behalf of the Borrower to
the Lender for the purposes of or in connection with this Agreement or any such
other Loan Document is or shall be incorrect when made in any material respect.
SECTION 8.1.3 Non-Performance of Other Covenants and
Obligations. There shall be a default in the due performance and observance of
any other agreement contained herein or in any other Loan Document executed by
Borrower, and such default shall continue unremedied for a period of 30 days
after notice thereof shall have been given to the Borrower by the Lender.
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<PAGE> 12
SECTION 8.1.4 Bankruptcy, Insolvency, etc. The Borrower, CR
License or any of the Subpartnerships shall
(a) become insolvent or generally fail to pay, or
admit in writing its inability or unwillingness to pay, debts
as they become due;
(b) apply for, consent to, or acquiesce in, the
appointment of a trustee, receiver, sequestrator or other
custodian for the Borrower, CR License or any Subpartnership
or any property of any thereof, or make a general assignment
for the benefit of creditors;
(c) absent such application, consent or
acquiescence permit or suffer to exist the appointment of a
trustee, receiver, sequestrator or other custodian for the
Borrower, CR License or any Subpartnership or for a
substantial part of the property of any thereof, and such
trustee, receiver, sequestrator or other custodian shall not
be discharged within 60 days, provided that the Borrower, CR
License and each Subpartnership hereby expressly authorize the
Lender and each Lender to appear in any court conducting any
relevant proceeding during such 60-day period to preserve,
protect and defend their rights under the Loan Documents;
(d) permit or suffer to exist the commencement of
any (x) bankruptcy, reorganization, debt arrangement or other
case or proceeding under any bankruptcy or insolvency law, or
(y) any dissolution, winding up or liquidation proceeding, in
respect of the Borrower, CR License or any Subpartnership,
and, if any such case or proceeding is not commenced by the
Borrower, CR License or any Subpartnership, such case or
proceeding shall be consented to or acquiesced in by the
Borrower, CR License or such Subpartnership or shall result in
the entry of an order for relief or, in the event of any case
or proceeding described in clause (x), shall remain for 120
days undismissed, provided that the Borrower, CR License, and
each Subpartnership hereby expressly authorizes the Lender to
appear in any court conducting any such case or proceeding
during such 120-day period to preserve, protect and defend its
rights under the Loan Documents; or
(e) take any partnership or corporate action
authorizing, or with intent to further any of the foregoing.
SECTION 8.2 Action if Bankruptcy. If any Event of Default described
in clauses (a) through (d) of Section 8.1.4 shall occur with respect to the
Borrower, CR License or any of Subpartnership, the commitment (if not
theretofore terminated) to make Advances shall automatically terminate and the
outstanding principal amount of the Loan shall automatically be and become
immediately due and payable, without notice or demand.
SECTION 8.3 Action if Other Event of Default. If any Event of
Default (other than any Event of Default described in Section 8.2) shall occur
for any reason, whether voluntary or involuntary, and be continuing, the Lender
may, by notice to the Borrower, declare all or any portion
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<PAGE> 13
of the outstanding principal amount of the Loan and other obligations to be due
and payable and the commitment (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of the Loan shall be and become
immediately due and payable, without further notice, demand or presentment and
the commitment shall terminate.
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Waivers, Amendments, etc. The provisions of this
Agreement and of each other Loan Document may from time to time be amended,
modified or waived, if such amendment, modification or waiver is in writing and
consented to by the Borrower and the Lender. No failure or delay on the part
of the Lender or the holder of the Note in exercising any power or right under
this Agreement or any other Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power or right preclude
any other or further exercise thereof or the exercise of any other power or
right. No notice to or demand on the Borrower in any case shall entitle it to
any notice or demand in similar or other circumstances. No waiver or approval
by the Lender or the holder of the Note under this Agreement or any other Loan
Document shall, except as may be otherwise stated in such waiver or approval,
be applicable to subsequent transactions. No waiver or approval hereunder
shall require any similar or dissimilar waiver or approval thereafter to be
granted hereunder.
SECTION 9.2 Notices. All notices and other communications provided
to any party hereto under this Agreement or any other Loan Document shall be in
writing and addressed, delivered or transmitted to such party at its address or
facsimile number set forth below its signature hereto, or at such other address
or facsimile number as may be designated by such party in a notice to the other
parties. Any notice, if sent via United States Postal Service Express Mail or
certified mail, properly addressed with postage prepaid or if sent via
nationally recognized overnight courier service, properly addressed with
delivery fees prepaid, shall be deemed given when received; any notice, if
transmitted by facsimile, shall be deemed given one business day after receipt
of electronic confirmation of transmission.
SECTION 9.3 Payment of Costs and Expenses. The Borrower agrees to
pay on demand all reasonable expenses of the Lender (including the reasonable
fees and out-of-pocket expenses of counsel to the Lender and of local counsel,
if any, who may be retained by counsel to the Lender) in connection with this
transaction.
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<PAGE> 14
SECTION 9.4 Indemnification.
(a) In consideration of the execution and
delivery of this Agreement by Lender, the Borrower hereby
indemnifies, exonerates and holds the Lender and each of its
respective trustees, partners, stockholders, officers,
directors, employees, agents, attorneys, consultants and
experts (collectively, the "Indemnified Parties") free and
harmless from and against any and all actions, causes of
action, suits, judgments, claims, demands, losses, costs,
liabilities (including, without limitation, strict liability),
penalties, fines and damages, (including, without limitation,
punitive damages), and expenses incurred in connection
therewith (irrespective of whether any such Indemnified Party
is a party to the action for which indemnification hereunder
is sought), including reasonable attorneys, consultants and
experts fees and disbursements (collectively, the "Indemnified
Liabilities"), imposed upon or incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or
relating to
(i) any transaction financed or to be
financed in whole or in part, directly or indirectly,
with the proceeds of the Loan;
(ii) the entering into and performance of
this Agreement and any other Loan Document by any of
the Indemnified Parties;
(iii) the actual or alleged release or
presence of any Hazardous Substance at, to or from
any asset or former asset of Borrower, CR License or
any Subpartnership; or
(iv) the actual or alleged violation of
any Environmental Law by any person at or in
connection with any current asset or former asset of
Borrower, CR License or any Subpartnership.
except for any such Indemnified Liabilities arising for the
account of a particular Indemnified Party by reason of the
relevant Indemnified Party's gross negligence or wilful
misconduct, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower
hereby agrees to make the maximum contribution to the payment
and satisfaction of each of the Indemnified Liabilities that
is permissible under applicable law, except as aforesaid to
the extent not payable by reason of the Indemnified Party's
gross negligence or wilful misconduct or breach of such
obligations.
(b) LENDER SHALL NOT BE RESPONSIBLE OR LIABLE TO
ANY OTHER PARTY HEREUNDER OR ANY OTHER PERSON FOR
CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT.
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<PAGE> 15
SECTION 9.5 Severability. Any provision of this Agreement or any
other Loan Document that is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
SECTION 9.6 Headings. The various headings of this Agreement and of
each other Loan Document are inserted for convenience only and shall not affect
the meaning or interpretation of this Agreement or such other Loan Document or
any provisions hereof or thereof.
SECTION 9.7 Execution in Counterparts, Effectiveness, etc. This
Agreement may be executed by the parties hereto in several counterparts, each
of which shall be an original and all of which shall constitute together but
one and the same agreement. This Agreement, together with each other Loan
Document, shall become effective when counterparts hereof executed on behalf of
the Borrower and Lender (or notice thereof satisfactory to the Lender) shall
have been received by the Lender and notice thereof shall have been given by
the Lender to the Borrower.
SECTION 9.8 Governing Law: Entire Agreement. THIS AGREEMENT, THE
NOTES AND EACH OTHER LOAN DOCUMENT SHALL EACH BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT REGARD FOR
CONFLICT OF LAWS PRINCIPLES. Except as otherwise provided herein, this
Agreement, the Note and the other Loan Documents constitute the entire
understanding among the parties hereto with respect to the subject matter
hereof and supersede any prior agreements, written or oral, with respect
thereto.
SECTION 9.9 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Borrower may not assign or
transfer its rights or obligations hereunder without the prior written consent
of the Lender.
ARTICLE X
DEFINITIONS
SECTION 10.1 Defined Terms. In addition to the terms defined in
previous portions of this Agreement, the following terms when used in this
Agreement shall, except where the context otherwise requires, have the
following meanings (such meanings to be equally applicable to the singular and
plural forms thereof):
"Additional Funding Instruments" means the Additional Funding
Instruments executed by COI and Lender on July 28, 1998.
"Advance" means all money advances under the Loan made by Lender
pursuant to an Application for Advance in accordance with Article II.
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<PAGE> 16
"Advance Limit" means (i) with respect to the Venetian Project,
$4,500,000, (ii) with respect to the Option Exercise, $2,500,000 with an
Advance Limit of $1,000,000 attributable to the Second Option (as defined in
the Option Agreement) and an Advance Limit of $1,500,000 attributable to the
Third Option (as defined in the Option Agreement), and (iii) with respect to
any other project or investment, an amount to be agreed upon by Lender and
Borrower.
"Agreement" means this Credit Agreement, as amended from time to time.
"Application for Advance" means a loan request and certificate duly
executed by the Borrower, in the form attached hereto as Exhibit A or such
other form approved by Lender from time to time.
"Assessment Determination" is defined in the Additional Funding
Instruments.
"Borrower" means CRL Investments, Inc., a Texas corporation, and its
successors and assigns permitted hereunder.
"Borrower Security Agreement" means the Security Agreement executed
and delivered by Borrower granting Lender a security interest in Borrower's
member interests in CR License and CR Las Vegas.
"Business Day" means any day that is neither a Saturday or Sunday nor
a legal holiday that banks are authorized or required to be closed in New York,
New York.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended, reformed
or otherwise modified from time to time.
"COI" means Crescent Operating, Inc., a Delaware corporation.
"Commitment Termination Date" means the earlier of (i) the occurrence
of an Event of Default, (ii) the Stated Maturity Date, or (iii) the date on
which Lender has made Advances equal to the Commitment Amount.
"CR Las Vegas" means CR Las Vegas, LLC, an Arizona limited liability
company.
"CR Las Vegas Operating Agreement" means that certain Operating
Agreement of CR Las Vegas dated May 28, 1998, as amended from time to time.
"CR License" means CR License, LLC, an Arizona limited liability
company.
"CR License Operating Agreement" means that certain Operating
Agreement of CR License dated __________, 1997, as amended from time to time.
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<PAGE> 17
"Default" means any Event of Default or any condition, occurrence or
event that, after notice or lapse of time or both, would constitute an Event of
Default.
"Distribution" means each distribution (other than deemed
distributions) made to Borrower pursuant to the CR License Operating Agreement
or the CR Las Vegas Operating Agreement.
"Environmental Laws" means all applicable foreign, federal, state or
local statutes, laws, ordinances, codes, rules, regulations (including, without
limitation, consent decrees and orders and administrative orders) judgments and
permits or other authorizations relating to health, safety or the environment,
including, without limitation, CERCLA and RCRA.
"Equity Advance" means the amount advanced hereunder by Lender to
Borrower (in one or more Advances) to enable it to purchase an equity interest
in, or make an equity contribution to, CR License or a Subpartnership.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
"Event of Default" is defined in Section 8.1.
"Governmental Authority" means the United States, the state, county
and city or other political subdivision in which a Project is located and any
other political subdivision, agency or instrumentality exercising jurisdiction
over the Borrower, CR License, Subpartnership or a Project.
"Governmental Requirement" means all laws, ordinances, rules and
regulations of any Governmental Authority applicable to Borrower, CR License,
Subpartnership, or a Project.
"Hazardous Material" means any pollutant, hazardous substance,
radioactive substance, toxic substance, hazardous waste, medical waste,
radioactive waste, special waste, petroleum or petroleum-derived substance or
waste, asbestos, polychlorinated biphenyls, or any hazardous or toxic
constituent thereof and includes, but is not limited to, any substance defined
in or regulated under Environmental Laws.
"Initial Advance" means the first Advance made hereunder.
"Loan" is defined in the preamble.
"Loan Documents" means this Agreement, the Note, the Borrower Security
Agreement and all other documents evidencing, securing or governing the Loan,
as such documents may be amended, renewed, extended, restated or supplemented
from time to time.
"Note" means the Line of Credit Note of the Borrower delivered to
Lender pursuant to this Agreement and any note subsequently given in exchange,
substitution, modification, renewal or extension therefor.
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<PAGE> 18
"Option Agreement" means the Option Agreement dated as of July 26,
1996 between Melvin Zuckerman and Jerrold Cohen, as sellers, and Borrower, as
assignee of Lender, as amended from time to time.
"Option Exercise" means the exercise by the Borrower of either the
Second Option or the Third Option (as such terms are defined in the Option
Agreement).
"Organic Document" means, relative to Borrower, any of its
subsidiaries and any other obligor, its articles or certificate of
incorporation, as the case may be, its articles of organization, its by-laws
and all partnership agreements, operating agreements, shareholder agreements,
voting trusts and similar arrangements applicable to any partnership or limited
liability company interests issued by such person or authorized shares of
capital stock issued by such person.
"Person" means any natural person, corporation, partnership, firm,
association, trust, government, governmental agency or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Project" means a project to be acquired, developed or leased by a
Subpartnership together with the improvements related thereto.
"RCRA" means the Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et seq., as in effect from time to time.
"Stated Maturity Date" means August 1, 2003.
"Subpartnership" means each limited liability company, whether now
existing or hereafter formed, in which CR License has an equity interest,
including CR Las Vegas.
"Subscriber" is defined in the Additional Funding Instruments to
include COI and Lender.
"UCC" means the Uniform Commercial Code as in effect, from time to
time, in the State of Texas.
"United States" or "U.S." means the United States of America, its
fifty States and the District of Columbia.
"Venetian Project" means the health spa to be operated under the
Canyon Ranch name in the Venetian Casino Resort under the Venetian Lease.
"Venetian Lease" means the Lease dated ________, 1998 between CR Las
Vegas and Grand Canal Shops Mall Construction, LLC, relating to the Venetian
Project.
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<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
day and year first above written.
BORROWER: CRL INVESTMENTS, INC., a Texas corporation
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
306 West 7th Street, Suite 1025
Fort Worth, TX 76102
Facsimile: 817-339-1001
LENDER: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
sole general partner
By:
---------------------------
Name:
----------------------
Title:
---------------------
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Facsimile: 817-321-2000
<PAGE> 20
EXHIBIT A
APPLICATION FOR ADVANCE
This Application for Advance is submitted by the undersigned to
Crescent Real Estate Equities Limited Partnership ("LENDER") pursuant to that
Credit Agreement dated as of July 28, 1998 between Lender and the undersigned
(the "CREDIT AGREEMENT"). Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Credit Agreement.
<TABLE>
<S> <C>
1. The undersigned hereby requests an
Advance under the Credit Agreement in
the amount of: $
-------------
2. The Advance should be wired to the following bank account:
-------------------------------------
-------------------------------------
3. The undersigned hereby warrants and represents the following to Lender:
A. The Advance is being requested in connection with the following Project or Option Exercise (the
"APPLICABLE PROJECT"):
-------------------------------------
B. The Project Advance Limit
for the Applicable Project is: $
-------------
C. Lender has previously made Advances
with respect to the Applicable
Project in the aggregate amount of: $
-------------
D. Both before and after giving effect to the Advance that is requested hereby, the warranties and
representations set forth in Article VI of the Credit Agreement are true and correct with the same
effect as if made on the date hereof.
</TABLE>
CRL INVESTMENTS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Exhibit A - Page 1
<PAGE> 21
LINE OF CREDIT NOTE
$7,000,000.00 July 28, 1998
FOR VALUE RECEIVED, CRL INVESTMENTS, INC., a Texas 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 SEVEN MILLION DOLLARS
($7,000,000.00), or so much thereof as may be advanced, with interest on the
principal balance from time to time remaining unpaid at the rates hereinafter
provided.
Interest on the principal balance hereof from time to time remaining
unpaid prior to an Event of Default shall be payable at the Interest Rate,
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 dated of
even date herewith executed by Lender and Borrower, as amended from time to time
(the "Credit Agreement"). Terms defined in the Credit Agreement and not
otherwise defined herein are used herein with the meanings given those terms in
the Credit Agreement.
Borrower may request and receive Advances hereunder only in accordance
with the terms and provisions of the Credit Agreement. This Note shall be
payable as provided in Article 3 of 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 or may be declared to be 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 of the holder of this Note to exercise the same or any other option at
that time or at any subsequent time 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 this 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 hereof. The acceptance by the
holder hereof of any payment under this Note that is less than payment in full
of all amounts due and payable at the time of such payment 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.
<PAGE> 22
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 that 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, probate 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 excessive interest
shall be applied to the reduction of the principal hereof and not to the payment
of interest, or if such excessive 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.
This Note may be prepaid only in accordance with the terms of the
Credit Agreement.
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).
EXCEPT WHERE FEDERAL LAW IS APPLICABLE (INCLUDING, WITHOUT LIMITATION,
ANY FEDERAL USURY CEILING OR OTHER FEDERAL LAW THAT, FROM TIME TO TIME, IS
APPLICABLE TO THE INDEBTEDNESS EVIDENCED HEREIN AND THAT 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.
CRL INVESTMENTS, INC., a Texas corporation
By:
---------------------------------------
Name: Jeffrey L. Stevens
Title: President
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<PAGE> 1
EXHIBIT 10.52
SECURITY AGREEMENT
(Partnership Interests)
Date: July 28, 1998
A. PARTIES
1. Secured Party: CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP
777 Main Street, Suite 2100
Fort Worth, TX 76102
2. Debtor (whether
one or more): CRL INVESTMENTS, INC.
C/O Crescent Operating, Inc.
306 West 7th Street, Suite 1025
Fort Worth , Texas 76102
Attention: Jeffrey L. Stevens
B. AGREEMENT
1. Security Interest. Subject to the applicable terms of this Security
Agreement, Debtor grants to Secured Party a security interest in the Collateral
(hereinafter defined) to secure the payment of the Obligations (hereinafter
defined).
C. OBLIGATIONS
1. Description of Obligations. The following obligations
("Obligations") are secured by this Security Agreement:
a. The debt, obligations, liabilities and agreements of Debtor
under (i) that Line of Credit Note in the principal sum of $7,000,000.00
executed by Debtor of even date herewith, bearing interest and being
payable to the order of Secured Party as therein provided (the "Note"),
(ii) that Credit Agreement ("Credit Agreement") executed by Debtor and
Secured Party of even date herewith, (iii) all other documents evidencing,
governing, securing or otherwise pertaining to the indebtedness evidenced
by the Note (the Note, Credit Agreement and all other such documents being
called "Loan Documents"), and (iv) all renewals, extensions, modifications
or rearrangements of the foregoing.
b. All costs incurred by Secured Party to obtain, preserve,
perfect and enforce this Security Agreement and collect the Obligations,
and maintain, preserve, collect and enforce the Collateral (hereinafter
defined), including but not limited to reasonable attorneys' fees and legal
expenses and expenses of sale.
c. Interest on the above amounts at the Default Rate as defined in
the Note.
d. All debt, obligations and liabilities of Debtor to Secured
Party of the kinds described in this Item C., now existing or hereafter
arising.
<PAGE> 2
D. COLLATERAL
1. Description of the Collateral. Debtor assigns to Secured Party and
grants to Secured Party security interests in the following, whether now
existing or hereafter arising (the "Collateral"):
a. All of the rights and interests of Debtor as a member of CR
License, LLC, an Arizona limited liability company ("CR License"),
including, without limitation, Debtor's rights as a member to receive
distributions of any sale, exchange, refinancing or other disposition of
property owned by CR License under the Operating Agreement dated as of
________, 1997, as amended from time to time (the "CR License Operating
Agreement"), and all other profits, income, and distributions, whether in
cash or in kind, owing to Debtor under the CR License Operating Agreement.
b. All of the rights and interests of Debtor as a member of CR Las
Vegas, LLC, an Arizona limited liability company ("CR Las Vegas," and
together with CR License, the "Partnerships"), including, without
limitation, Debtor's rights as a member to receive distributions of any
sale, exchange, refinancing or other disposition of property owned by CR
License under the Operating Agreement dated as of May 28, 1998, as amended
from time to time (the "CR Las Vegas Operating Agreement," and together
with the CR License Operating Agreement, the "Partnership Agreements"), and
all other profits, income, and distributions, whether in cash or in kind,
owing to Debtor under the CR Las Vegas Operating Agreement.
c. All present and future rights and interests Debtor may have or
be or become entitled to in the real and personal property (the "Collateral
Property") now or hereafter owned by a Partnership.
d. All present and future proceeds, profits, combinations,
reclassification, improvements, and products of, accessions, attachments,
and other additions to, and substitutes and replacements for, all or any
part of the Collateral described herein.
e. All present and future accounts, contract rights, general
intangibles, chattel paper, documents, instruments, cash and noncash
Proceeds, and other rights arising from or by virtue of, or from the
voluntary or involuntary sale, lease, or other disposition of, or
collections with respect to, or insurance or condemnation proceeds payable
with respect to, or proceeds payable by virtue of warranty, indemnity,
guaranty, or other claims, causes and rights of action, settlements
thereof, judicial and arbitration judgments and awards against any person
with respect to, all or any part of the Collateral or the Collateral
Property described herein. As used herein, the term "Proceeds" shall have
the meaning assigned to it under the UCC and, to the extent not otherwise
included, shall include, but not be limited to, (i) all income, revenues,
fees, distributions, reimbursements and payments from whatever source
received by, or on behalf of Debtor, in respect of the Collateral, (ii) any
and all payments (in any form whatsoever) made or due and payable to Debtor
from time to time in connection with any casualty with respect to the
Collateral Property or any of the Collateral (whether or not pursuant to an
insurance policy), or any requisition, confiscation, condemnation, seizure
or forfeiture of all or any part of the Collateral by any governmental
authority, (iii) all claims of Debtor for losses or damages arising out of
or related to or for any breach of any agreements, covenants,
representations or warranties or any default under any of the Collateral
described herein, and (iv) any and all other amounts from time, to time
paid or payable to, or on behalf of, Debtor under, or in connection with,
any of the Collateral.
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<PAGE> 3
f. All present and future security for the payment to Debtor of
any of the Collateral described herein and goods which gave, or will give,
rise to any of such Collateral or are evidenced, identified, or represented
therein or thereby.
The description of Collateral contained in this paragraph shall not be
deemed to permit any action prohibited by this Security Agreement or by terms
incorporated in this Security Agreement. Portions of the Collateral constitute
accounts, contract rights, general intangibles, chattel paper, documents or
instruments, and all books and records of Debtor concerning such Collateral are,
and shall be, located at the offices of the Debtor specified above.
E. DEBTOR'S WARRANTIES
Debtor represents, warrants, and covenants to Secured Party now and so long
as any Obligations secured hereby are outstanding as follows:
1. No financing statement covering any portion of the Collateral is on file
in any public office, except the financing statements relating to this security
interest created hereunder.
2. Debtor is the sole owner of the Collateral and each item constituting
the Collateral, free and clear of all liens except for the security interest
granted to Secured Party pursuant to this Security Agreement.
3. All actions necessary or desirable to perfect the Security Interest in
the Collateral in each state in which any portion of the Collateral is or will
be located have been, or will forthwith be, duly taken.
4. Each of the Partnership Agreement is in full force and effect and, to
the knowledge of Debtor, there exists no material default thereunder, or event
or condition which, with the passage of time or the giving of notice, or both,
would constitute a material default thereunder.
5. Neither of the Partnership Agreements shall be amended or modified in
any manner that would materially affect Debtor's interest thereunder, or in any
manner which would materially impair or adversely affect the Collateral, nor
shall Debtor consent to any such amendment without the prior written consent of
Secured Party.
6. There is no condition, circumstance, event, agreement, document,
instrument, restriction, litigation or other proceeding and, to the best of
Debtor's knowledge, there is no threatened litigation or proceeding or basis
therefor, which could materially adversely affect the validity or priority of
the liens and security interests granted, or intended to be granted, hereunder
when executed, delivered, recorded and filed as required hereunder, or that
could materially adversely affect the ability of Debtor to perform its
obligations hereunder and under the other Loan Documents to which Debtor is a
party, or which would constitute an Event of Default.
7. The Partnerships and Debtor have fully complied with all requirements
imposed on them in connection with (a) the organization and formation of the
Partnerships, and (b) the sale, distribution and offer of interests in the
Partnerships.
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<PAGE> 4
F. DEBTOR'S COVENANTS
Debtor covenants to Secured Party and agrees with Secured Party as follows:
1. Debtor shall promptly perform all of Debtor's agreements herein, and any
other agreements between Debtor and Secured Party.
2. Debtor shall defend the Collateral against all claims and demands of all
persons at any time claiming the same or any interest therein adverse to Secured
Party.
3. Debtor shall keep the Collateral free from liens and other security
interests (except liens for taxes not yet due), and shall not create or suffer
to exist any lien or security interest in the Collateral hereafter acquired
except for the security interests hereby granted. Debtor shall not file, or
permit to be filed, any financing statements or other security instruments,
covering the Collateral, unless by, or on behalf of, Secured Party in connection
with this Security Agreement or to effectuate the assignment to Debtor of the
financing statements currently of record against the Collateral.
4. Debtor shall pay all costs necessary to obtain, preserve, perfect,
defend and enforce the security interests hereby granted, collect the sums owing
under the Collateral Loan Documents, and preserve, defend, enforce, service and
collect the Collateral, including specifically, but without limitation, the
payment of taxes, assessments, reasonable attorneys' fees and legal expenses,
and expenses of sales. If Debtor shall have failed to pay such costs and
expenses within five (5) days after request by Secured Party, Secured Party may,
at its option, pay any such costs and expenses, and discharge encumbrances on
the Collateral. Debtor agrees to reimburse the Secured Party on demand for any
costs so incurred, and, until such reimbursement, the amount of any such payment
shall be a part of the Obligation.
5. Prior to or immediately following the occurrence thereof, Debtor will
notify the Secured Party of (i) any material adverse change occurring in or to
any of the Collateral, (ii) any change in Debtor's office address or mailing
address, (iii) any material change in any fact or circumstance warranted or
represented by Debtor in this Security Agreement or furnished to the Secured
Party by Debtor, (iv) any Event of Default or (v) any notices, communications,
or correspondence to be or which have been delivered to Debtor under the
Partnership Agreements and deliver to Secured Party copies thereof.
6. Debtor shall execute and deliver to Secured Party a financing statement
for filing to perfect the security interests hereunder and any other papers
furnished by Secured Party which are necessary in the judgment of Secured Party
to obtain, maintain and perfect the security interest hereunder and to enable
Secured Party to comply with any applicable federal or state law in order to
obtain or perfect Secured Party's interest in the Collateral. Debtor shall have
each Partnership make appropriate entries in its partnership records to reflect
the existence of the security interest granted hereby in the Collateral.
7. Debtor shall cause each Partnership to comply with all of the
representations, warranties, covenants, agreements, indemnities and terms
contained in Partnership's Organizational Documents and all other material
agreements to which it is bound and enforce each Partnership's rights under all
material agreements by which it is bound, in a timely manner, consistent with
prudent practices and all applicable laws, and also as required by Secured
Party.
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<PAGE> 5
8. Debtor shall fully perform all of Debtor's duties under and in
connection with each transaction to which the Collateral, or any part thereof,
relates, so that the amounts thereof shall actually become payable in their
entirety to Secured Party.
9. Debtor shall promptly notify Secured Party of any claim, action, or
proceeding affecting title to all or any of the Collateral or the security
interest and, at the request of Secured Party, appear in and defend, at Debtor's
expense, any such claim, action, demand or proceeding.
10. At Debtor's expense and upon Secured Party's request, after an Event of
Default, Debtor shall file or cause to be filed such applications and take such
other actions as Secured Party may request to obtain the consent or approval of
any governmental authority to Secured Party's rights hereunder, including,
without limitation, the right to sell all of the Collateral upon an Event of
Default without additional consent or approval from such governmental authority
(and, because Debtor agrees that Secured Party's remedies at law for failure of
Debtor to comply with this provision would be inadequate and that such failure
would not be adequately compensable in damages, Debtor agrees that its covenants
in this provision may be specifically enforced).
11. Upon demand by Secured Party, Debtor will deposit upon receipt all
checks, drafts, cash or other remittances on account or accounts or contracts or
received as proceeds of any other Collateral in a special bank account in a bank
of Secured Party's choice over which Secured Party alone shall have power of
withdrawal. The funds in said account shall be held by Secured Party as security
for the Obligation. Said proceeds shall be deposited in the form received,
except for the endorsement of Debtor where necessary to permit collection of
items, which endorsements Debtor agrees to make, but which Secured Party is
authorized to make on Debtor's behalf. Secured Party may from time to time apply
the whole or any part of the funds in such special account against the
Obligations. Any portion of said funds on deposit which Secured Party elects not
to apply to the Obligations may be paid by Secured Party to Debtor.
12. Debtor shall give Secured Party written notice of each office of Debtor
in which records of Debtor pertaining to accounts in the Collateral are kept,
and of any change of any office or location. Except as such notice is given, all
records of Debtor pertaining to the Collateral and to accounts are and shall be
kept in the location shown at the beginning hereof.
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<PAGE> 6
G. RIGHTS AND POWERS OF SECURED PARTY
1. Secured Party may in its discretion after an Event of Default but only
after prior written notice to Debtor, without liability to Debtor, obtain from
any person information regarding Debtor or Debtor's business, which information
any such person also may furnish without liability to Debtor; endorse as
Debtor's agent any instruments, documents or chattel paper in the Collateral or
representing proceeds of the Collateral; contact any account debtors directly to
verify information furnished by Debtor; take control of proceeds; release the
Collateral in its possession to any Debtor, temporarily or otherwise; after
default, take control of funds generated by the Collateral, such as cash
dividends, interest and proceeds or refunds from insurance, and use same to
reduce any part of the Obligations and exercise all other rights which an owner
of such collateral may exercise; after default, at any time transfer any of the
Collateral or evidence thereof into its own name or that of its nominee; demand,
collect, convert, redeem, receipt for, settle, compromise, adjust, sue for,
foreclose or realize upon the Collateral, in its own name or in the name of
Debtor, as Secured Party may determine. The foregoing rights and powers of
Secured Party will be in addition to, and not a limitation upon, any rights and
powers of Secured Party given by law, elsewhere in this agreement, or otherwise.
2. Secured Party may while any Event of Default continues hereunder present
for conversion any instrument (including any investment security) in the
Collateral which is convertible into any other instrument or investment security
or a combination thereof with cash. But Secured Party shall not have any duty to
present for conversion any instrument in the Collateral unless it shall have
received from Debtor written instructions to that effect at a time reasonably
far in advance of the final conversion date to make such conversion possible.
H. DEFAULT
1. Events of Default. The occurrence of a default under the Note, the
Credit Agreement or any document evidencing, governing, securing, guaranteeing,
indemnifying or otherwise pertaining to the Loan shall constitute an event of
default ("Event of Default") hereunder.
2. Remedies of Secured Party Upon Default. Should an Event of Default occur
and be continuing, Secured Party may, at its election, exercise any and all
rights and remedies available to a secured party under the UCC, in addition to
any and all other rights and remedies afforded by the Loan Documents, at law, in
equity, or otherwise, including, without limitation, such rights and remedies as
(a) selling the Collateral or any part thereof at public or private sale, at
such price or prices and on such other terms as Secured Party may deem
commercially reasonable, (b) applying by appropriate judicial proceedings for
appointment of a receiver for all or part of the Collateral (and Debtor hereby
consents to any such appointment), and (c) applying to the Obligation any cash
held by Secured Party under this Security Agreement. The exercise of one or more
rights or remedies by Secured Party hereunder shall not prejudice or impair the
concurrent or subsequent exercise of any other rights or remedies by Secured
Party. If, in the opinion of Secured Party, there is any question that a public
or semipublic sale or distribution of any Collateral will violate any state or
federal securities law, Secured Party in its discretion (a) may offer and sell
securities privately to purchasers who will agree to take them for investment
purposes and not with a view to distribution and who will agree to imposition of
restrictive legends on the certificates representing the security, or (b) may
sell such securities in an intrastate offering under Section 3(a)(11) of the
Securities Act of 1933, and no sale so made in good faith by Secured Party shall
be deemed to be not "commercially reasonable" because so made.
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<PAGE> 7
a. Notice. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is
to be made, shall be sent to Debtor and to any other Person entitled to
notice under the UCC. It is agreed that notice sent or given not less than
twenty (20) business days prior to the taking of the action to which the
notice relates is reasonable notification and notice for the purposes of
this subparagraph.
b. Application of Proceeds. Secured Party shall apply the proceeds
of any sale or other disposition of the Collateral under this paragraph in
the following order: first, to the payment of all its expenses incurred in
retaking, holding, and preparing any of the Collateral for sale(s) or other
disposition, in arranging for such sale(s) or other disposition, and in
actually selling or disposing of the same (all of which are part of the
Obligation); second, toward repayment of amounts expended by Secured Party
under Paragraph H.3; and third, toward payment of the balance of the
Obligation in accordance with the Credit Agreement. If the proceeds are
insufficient to pay the Obligation in full, Debtor shall remain liable for
any deficiency to the extent provided in the Credit Agreement.
3. Other Rights of Secured Party.
a. Performance. If Debtor fails to pay when due all taxes, subject
to contest rights permitted by the Credit Agreement, on any of the
Collateral, or to preserve the priority of the Security Interest in any of
the Collateral, or otherwise fails to perform any of its obligations under
the Loan Documents with respect to the Collateral, then Secured Party may,
at its option, but without being required to do so, pay such taxes,
prosecute or defend any suits in relation to the Collateral, or insure and
keep insured the Collateral in any amount deemed appropriate by Secured
Party, or take all other action which Debtor is required, but has failed or
refused, to take under the Loan Documents. Any sum which may be expended or
paid by Secured Party under this subparagraph (including, without
limitation, court costs and attorneys' fees) shall bear interest from the
dates of expenditure or payment at the Default Rate (as defined in the
Note) until paid and, together with such interest, shall be payable by
Debtor to Secured Party upon demand and shall be part of the Obligation.
b. Collection. After the occurrence of an Event of Default and
during the continuation thereof, upon notice from Secured Party, Maker and
each other obligor with respect to any payments on any of the Collateral
(including without limitation condemnation proceeds, dividends and other
distributions with respect to securities, and insurance proceeds payable by
reason of loss or damage to any of the Collateral Property) is hereby
authorized and directed by Debtor to make payment directly to Secured
Party, regardless of whether Debtor was previously making collections
thereon. Subject to subparagraph H.3(d) hereof, until such notice is given,
Debtor is authorized to retain and expend all payments made on the
Collateral. After the occurrence of an Event of Default and during the
continuation thereof, Secured Party shall have the right in its own name or
in the name of Debtor to compromise or extend the time of payment with
respect to all or any portion of the Collateral for such amounts and upon
such terms as Secured Party may determine; to demand, collect, receive,
receipt for, sue for, compound, settle, compromise, adjust, realize upon
and give acquittances for any and all amounts due or to become due with
respect to Collateral; to file any claims or take any action or initiate
any proceedings which Secured Party may deem necessary or desirable for the
collection of any of the
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Collateral or to otherwise enforce the rights or remedies of Debtor with
respect to any Collateral; to take control of cash and other Proceeds of
any Collateral; to endorse the name of Debtor on any notes, acceptances,
checks, drafts, money orders, or other evidences of payment on Collateral
that may come into the possession of Secured Party; to sign the name of
Debtor on any drafts against obligors or other Persons making payment with
respect to Collateral, on assignments and verifications of accounts or
other Collateral and on notices to obligors making payment with respect to
Collateral; to send requests for verification of obligations to any such
obligor; to take any action Debtor is required to take or any other
necessary action to obtain, preserve, and enforce this Security Agreement,
and maintain, preserve and collect the Collateral, without notice to
Debtor, and add the costs of same to the Obligation; to release Collateral
in Secured Party's possession to any Person, temporarily or otherwise; to
set standards from time to time to govern what may be deemed after-acquired
Collateral; to transfer any of the Collateral, or evidence thereof, into
its own name or that of its nominee and receive the Proceeds therefrom and
hold the same as security for the Obligation, or apply the same thereon; to
exercise as to the Collateral all the rights of the owner thereof; and to
do all other acts and things necessary to carry out the intent of this
Security Agreement. If Maker or any other obligor fails or refuses to make
payment on any Collateral when due, Secured Party is authorized, in its
sole discretion, either in its own name or in the name of Debtor, to take
such action as Secured Party shall deem appropriate for the collection of
any amounts owed with respect to the Collateral or upon which a delinquency
exists. Regardless of any other provision hereof, however, Secured Party
shall never be liable for its failure to collect, or for its failure to
exercise diligence in the collection of, any amounts owed with respect to
Collateral, nor shall it be under any duty whatever to anyone except Debtor
to account for funds that it shall actually receive hereunder. Without
limiting the generality of the foregoing, Secured Party shall have no
responsibility for ascertaining any maturities, calls, conversions,
exchanges, offers, tenders, or similar matters relating to any Collateral,
or for informing Debtor with respect to any of such matters (irrespective
of whether Secured Party actually has, or may be deemed to have, knowledge
thereof). The receipt of Secured Party to Maker or any other obligor shall
be a full and complete release, discharge, and acquittance to such obligor,
to the extent of any amount so paid to Secured Party.
c. Certain Proceeds. After the occurrence and during the
continuance of an Event of Default, any cash Proceeds of Collateral which
come into the possession of Secured Party (including, without limitation,
insurance and condemnation proceeds) may, at Secured Party's option, be
applied in whole or in part to the Obligation, be released in whole or in
part to or on the written instructions of Debtor for any general or
specific purpose, or be retained in whole or in part by Secured Party as
additional Collateral. Any cash Collateral in the possession of Secured
Party may be invested by Secured Party but Secured Party shall never be
obligated to make any such investment and shall never have any liability to
Debtor for any loss which may result therefrom. All interest and other
amounts earned from any investment of Collateral may be dealt with by
Secured Party in the same manner as other cash Collateral.
d. Use and Operation of Collateral. Should any Collateral come
into the possession of Secured Party, Secured Party may use or operate such
Collateral for the purpose of preserving it or its value pursuant to the
order of a court of appropriate jurisdiction or in accordance with any
other rights held by Secured Party with respect to such Collateral. Debtor
covenants promptly to reimburse and pay to Secured Party, at Secured
Party's request, the amount of all reasonable expenses (including, without
limitation, the cost of any insurance and payment of taxes or other
charges) incurred by Secured Party in connection with its custody and
preservation of Collateral, and all such expenses, costs, taxes, and
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<PAGE> 9
other charges shall bear interest at the Maximum Rate (as defined in the
Note) until repaid and, together with such interest, shall be payable by
Debtor to Secured Party upon demand and shall become part of the
Obligation. However, the risk of accidental loss or damage to, or
diminution in value of, Collateral is on Debtor, and Secured Party shall
have no liability whatever for failure to obtain or maintain insurance, nor
to determine whether any insurance ever in force is adequate as to amount
or as to the risks insured. With respect to Collateral that is in the
possession of Secured Party, Secured Party shall have no duty to fix or
preserve rights against prior parties to such Collateral and shall never be
liable for any failure to use diligence to collect any amount payable in
respect of such Collateral, but shall be liable only to account to Debtor
for what it may actually collect or receive thereon. The provisions of this
subparagraph shall be applicable whether or not an Event of Default has
occurred and is continuing.
e. Diminution in Value of Collateral. Secured Party shall have no
liability or responsibility whatsoever for any diminution in or loss of
value of any Collateral.
I. MULTIPLE COUNTERPARTS
This Security Agreement may be executed in counterparts, each of which
shall be deemed an original, and all of which shall be deemed but one and the
same instrument.
J. GENERAL
1. Waiver. No delay on the part of Secured Party in exercising any power or
right shall operate as a waiver thereof; nor shall any single or partial
exercise of any power or right preclude other or further exercise thereof or the
exercise of any other power or right. No waiver by Secured Party of any right
hereunder or of any default by Debtor shall be binding upon Secured Party unless
in writing, and no failure by Secured Party to exercise any power or right
hereunder or waiver of any default by Debtor shall operate as a waiver of any
other or further exercise of such right or power or of any further default.
2. Parties Bound. The rights of Secured Party hereunder shall inure to the
benefit of its successors and assigns. The terms of this Security Agreement
shall be binding upon the successors and assigns of the parties. All
representations, warranties and agreements of Debtor are joint and several if
Debtor is more than one and shall bind Debtor's personal representatives, heirs,
successors and assigns.
3. Definitions. Unless the context indicates otherwise, definitions in the
UCC apply to words and phrases in this Security Agreement; if UCC definitions
conflict, Chapter 9 definitions apply.
4. Notice. Notice shall be deemed reasonable if mailed postage prepaid at
least ten (10) days before the related action (or if the UCC elsewhere specifies
a longer period, such longer period) to Debtor's address given above.
5. Expenses. Debtor agrees to reimburse Secured Party's out-of-pocket
expenses, including reasonable attorney's fees, incurred in negotiating,
administering or enforcing any part of the Obligations, and in preparation,
execution, delivery and recording of any documents in connection with any part
of the Obligations, when not contrary to law.
6. Limitation on Interest. All agreements between Debtor and Secured Party,
whether now
9
<PAGE> 10
existing or hereafter arising and whether written or oral, are hereby expressly
limited so that in no contingency, whether by reason of demand or acceleration
of the indebtedness secured hereby or otherwise, shall the interest contracted
for, charged, received, paid or agreed to be paid to Secured Party exceed the
maximum amount permissible under applicable law. If, from any circumstance
whatsoever, interest would otherwise be payable to the holder hereof in excess
of the maximum lawful amount, the interest payable to Secured Party shall be
reduced to the maximum amount permitted under applicable law; and if from any
such circumstance Secured Party shall ever receive anything of value deemed
interest by applicable law in excess of the maximum lawful amount, an amount
equal to any excessive interest shall be applied to the reduction of the
principal amount owing on the indebtedness secured hereby and not to the payment
of interest, or if such excessive interest exceeds such unpaid balance of the
principal, such excess shall be refunded to the undersigned. All interest paid
or agreed to be paid to Secured Party on the indebtedness secured hereby shall,
to the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness (including the period of
any renewal or extension thereof) until payment in full so that the interest on
account of such indebtedness shall not exceed the maximum amount permitted by
applicable law. The terms and provisions of this paragraph shall control all
agreements between Debtor and Secured Party.
7. Modifications. No provision hereof shall be modified or limited except
by a written agreement expressly referring hereto and to the provision so
modified or limited and signed by the Debtor and Secured Party, nor by course of
conduct, usage of trade, or by the law merchant.
8. Severability. The unenforceability of any provision of this Security
Agreement shall not affect the enforceability or validity of any other
provision.
9. Gender and Number. Where appropriate, the use of one gender shall be
construed to include the others or any of them; and the singular number shall be
construed to include the plural, and vice versa.
10. Applicable Law and Venue. THIS SECURITY AGREEMENT SHALL BE CONSTRUED
ACCORDING TO THE LAWS OF THE STATE OF TEXAS.
11. Financing Statement. A carbon, photographic or other reproduction of
this Security Agreement or any financing statement covering the Collateral shall
be sufficient as a financing statement.
EXECUTED as of the date and year first above written.
DEBTOR: CRL INVESTMENTS, INC., a Texas corporation
By:
----------------------------------------------
Name: Jeffrey L. Stevens
Title: President
SECURED PARTY: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd., sole
general partner
By:
-------------------------------------
Name:
-----------------------------------
Title
-----------------------------------
10
<PAGE> 1
EXHIBIT 10.53
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "First Amendment") is
entered into effective as of August 27, 1998, by and among CRESCENT OPERATING,
INC., a Delaware corporation ("Borrower") and NATIONSBANK, N.A., a national
banking association (successor in interest by merger to NationsBank of Texas,
N.A.) ("Lender"), with the acknowledgment, confirmation, approval and agreement
of the "Support Parties" (herein so called) as set forth hereinbelow. The
Support Parties are signing this First Amendment solely for the purposes set
forth in Section 11 of this First Amendment.
W I T N E S S E T H:
WHEREAS, Borrower and Lender are parties to that certain Credit
Agreement dated as of August 27, 1997 (the "Credit Agreement") and Borrower,
Lender and Support Parties are parties to that certain Support Agreement of even
date therewith (the "Support Agreement");
WHEREAS, Borrower and Support Parties have requested that Lender agree
to a modification and extension of the "Termination Date" as currently defined
in the Credit Agreement and the "Successful Rights Offering" as contemplated in
the Credit Agreement and the Support Agreement, and Bank is willing to do so
upon the terms and conditions set forth herein; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement by
this First Amendment, with the acknowledgment, confirmation, approval and
agreement of the Support Parties with respect to the Support Agreement, all as
set forth hereinbelow, and the parties desire to enter into the agreements,
modifications and amendments as set forth below;
NOW, THEREFORE, for and in consideration of the above premises and for
other good and valuable consideration, the parties hereto agree as follows:
1. Definitions. All capitalized terms defined in the Credit Agreement,
as amended hereby, and not otherwise defined in this First Amendment shall have
the same meanings as assigned to them in the Credit Agreement when used in this
First Amendment, unless the context hereof shall otherwise require or provide.
2. Representations and Warranties. In order to induce Lender to enter
into this First Amendment, Borrower represents and warrants to Lender that:
A. This First Amendment, the Credit Agreement, as amended
hereby, and the Loan Papers are the legal and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights;
B. No event has occurred and is continuing which
constitutes a Default or a Potential Default; and
C. All of the representations and warranties contained in
Paragraph 5 of the Credit Agreement, as amended by this First Amendment, are
true and correct as of the date hereof.
Page 1 of 5
<PAGE> 2
3. Amendments to Credit Agreement.
A. The definition of the term "Successful Rights Offering", on
page 3 of the Credit Agreement, is hereby amended and restated in its entirety
to read as follows:
Successful Rights Offering means the offer and sale by
Borrower to its shareholders or to any other parties, through public
offering(s) and/ or private placement(s) (in any 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.
B. The definition of the term "Termination Date", on page 4 of
the Credit Agreement, is hereby amended and restated in its entirety to read as
follows:
Termination Date means the earlier to occur of the following
dates: (a) August 27, 1999; and (b) the effective date that Lender's
commitment to extend credit under this agreement is otherwise canceled
or terminated in accordance with this agreement.
C. Paragraph 5 of the Credit Agreement is hereby amended to
replace clause (k) on pages 7 and 8 of the Credit Agreement with the following
clause (k):
(k) use its best efforts to complete offerings(s) and/ or
private placement(s) of securities of Borrower comprising a
Successful Rights Offering prior to August 27, 1999; provided
that Borrower will utilize the Support Agreement dated August
27, 1997, executed by Richard E. Rainwater, John Goff and
Gerald Haddock in connection herewith, as it may be modified,
amended, confirmed or restated, 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;
D. Paragraph 7 of the Credit Agreement is hereby amended to
replace clause (i) on page 9 of the Credit Agreement with the following clause
(i):
; (i) pay on the Termination Date the Obligation outstanding
as of such date and, in connection therewith, use its best
efforts to complete a Successful Rights Offering prior to the
Termination Date and take any other necessary or appropriate
lawful action, as may be requested by Lender or otherwise, in
order to assure that the Obligation is paid in full when due.
4. Conditions Precedent. This First Amendment and the obligations of
Lender hereunder are subject to the conditions precedent that Lender shall have
received from Borrower, together with this First Amendment duly executed by
Borrower and Richard E. Rainwater, John Goff and Gerald Haddock, any other
documents requested by Lender prior to closing in connection herewith, all in
form and substance satisfactory to Lender, together with payment of Lender's
costs and expenses incurred in connection herewith as contemplated in the Credit
Agreement including, without limitation, the reasonable attorney's fees of the
Lender's legal counsel and any other costs, expenses and disbursements incurred
by Lender through the date of execution of this First Amendment.
5. Further Assurances. Borrower shall make, execute or endorse, and
acknowledge and deliver or file or cause same to be done, all such documents,
notices or other assurances, and take all such other action, as Lender may, from
time to time, deem reasonably necessary or proper in connection with this First
Amendment and the Credit Agreement, as amended hereby.
Page 2 of 5
<PAGE> 3
6. Scope of Amendments. Any and all other provisions of the Credit
Agreement and any other Loan Papers are hereby amended and modified wherever
necessary and even though not specifically addressed herein, so as to conform to
the amendments and modifications set forth in this First Amendment.
7. Limitation on Agreements. The amendments set forth herein are
limited in scope as described herein and shall not be deemed (a) to be a consent
under or waiver of any other term or condition of the Credit Agreement or any of
the Loan Papers, or (b) to prejudice any right or rights which Lender now has or
may have in the future under, or in connection with the Credit Agreement as
amended by this First Amendment, the Note, the Loan Papers or any of the
documents referred to herein or therein.
8. Governing Law. This First Amendment has been prepared, in being
executed and delivered and is intended to be performed in the State of Texas,
and the substantive laws of such state and the applicable federal laws of the
United States of America shall govern the validity, construction, enforcement
and interpretation of this First Amendment.
9. 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.
10. Multiple Counterparts. This First Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this First Amendment
by signing any such counterpart.
Page 3 of 5
<PAGE> 4
11. Signatures of Support Parties. By signing below where indicated,
the undersigned Support Parties each (a) acknowledge this First Amendment and
the Credit Agreement as amended hereby; (b) agree with the terms, conditions and
amendments contained in this First Amendment and the Credit Agreement as amended
hereby as they relate to the Support Agreement, including without limitation,
the amended definitions of "Termination Date" and "Successful Rights Offering"
as set forth in this First Amendment; (c) agree that the Support Agreement shall
be amended as follows: (i) the term "Target Date" as used in the Support
Agreement shall be amended to be August 27, 1999, (ii) the word "extended,"
shall be inserted after the comma between the words "increased" and "reduced"
contained on the first line of clause c of Section 1 of the Support Agreement,
(iii) the word "maturity" shall be inserted between the words "to" and "shall"
contained on the second line of such clause c, (iv) the phrase "Suite 2700"
shall be replaced with "Suite 2250" under the address for Richard E. Rainwater
or John Goff contained in Section 5 of the Support Agreement, (v) the name of
the "Bank" shall be changed to "NationsBank, N.A. (successor in interest by
merger to NationsBank of Texas, N.A.)" and (vi) the Support Agreement shall be
deemed to be further amended wherever necessary in order to continue the
obligations of Support Parties contained in the Support Agreement and conform to
the changes reflected in this First Amendment; and (d) confirm their continuing
obligations under the Support Agreement, as amended hereby, which shall continue
in full force and effect as contemplated therein and herein, until the
Obligation has been paid in full and Lender shall have no further commitment to
make Advances.
[remainder of page intentionally left blank]
Page 4 of 5
<PAGE> 5
THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST AMENDMENT, AND THE 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.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed to be effective as of the date and year first above written.
LENDER:
NATIONSBANK, N.A.
By:
-------------------------------------------------
Cary C. Conwell, Senior Vice President
BORROWER:
CRESCENT OPERATING, INC., a Delaware corporation
By:
-------------------------------------------
Jeff Stevens, Vice President and Secretary
SUPPORT PARTIES:
----------------------------------------------
RICHARD E. RAINWATER
----------------------------------------------
JOHN GOFF
----------------------------------------------
GERALD HADDOCK
Page 5 of 5
<PAGE> 1
EXHIBIT 10.54
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
LEASE AGREEMENT
BETWEEN
CRESCENT REAL ESTATE EQUITIES LIMITED PARTNERSHIP,
a Delaware limited partnership
("Lessor")
AND
WINE COUNTRY GOLF CLUB, INC.,
a Texas corporation
("Lessee")
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I.....................................................................1
Demise. .................................................................1
ARTICLE II....................................................................1
2.1 Leased Property..................................................1
2.2 Assignment and Assumption of Contracts; Initial Transaction......2
2.3 License of Intellectual Property Rights..........................3
ARTICLE III...................................................................4
Term. .................................................................4
ARTICLE IV....................................................................4
4.1 Base Rent........................................................4
4.2 Percentage Rent..................................................5
4.3 Additional Charges...............................................7
4.4 Net Lease Provisions.............................................8
4.5 Place and Manner of Payment......................................8
4.6 Late Charge......................................................8
ARTICLE V.....................................................................8
Quiet Enjoyment...........................................................8
ARTICLE VI....................................................................9
6.1 Payment of Impositions...........................................9
6.2 Notice of Impositions............................................9
6.3 Adjustment of Imposition.........................................9
6.4 Utility Charges.................................................10
6.5 Insurance Premiums..............................................10
6.6 Definition of Impositions.......................................10
ARTICLE VII..................................................................11
7.1 Condition of the Leased Property................................11
7.2 Use of the Leased Property......................................11
7.3 Lessor to Grant Easements, Etc..................................12
7.4 Operating Supplies..............................................13
7.5 Additional Capital..............................................13
7.6 FF&E............................................................14
7.7 Lessee's Obligation to Manage...................................14
7.8 Working Capital.................................................14
7.9 Use of Facilities by Lessor.....................................15
7.10 Guaranty........................................................15
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VIII.................................................................15
8.1 Compliance with Legal and Insurance Requirements. Etc...........15
8.2 Legal Requirement Covenants.....................................15
8.3 Environmental Matters and Indemnities...........................16
ARTICLE IX...................................................................17
9.1 Maintenance and Repair..........................................17
9.2 Encroachments, Restrictions, Etc................................19
ARTICLE X....................................................................19
Alterations..............................................................19
ARTICLE XI...................................................................20
Liens ................................................................20
ARTICLE XII..................................................................20
Permitted Contests.......................................................20
ARTICLE XIII.................................................................21
13.1 General Insurance Requirements..................................21
13.2 Waiver of Subrogation...........................................23
13.3 Form Satisfactory, Etc..........................................23
13.4 Increase in Limits..............................................23
13.5 Reports On Insurance Claims.....................................23
ARTICLE XIV..................................................................24
14.1 Insurance Proceeds..............................................24
14.2 No Abatement of Rent............................................24
14.3 Damage During Term..............................................24
ARTICLE XV...................................................................25
15.1 Definitions.....................................................25
15.2 Parties' Rights and Obligations.................................25
15.3 Total Taking....................................................25
15.4 Allocation of Award.............................................25
15.5 Partial Taking..................................................26
15.6 Temporary Taking................................................26
ARTICLE XVI..................................................................26
16.1 Events of Default...............................................26
16.2 Surrender.......................................................27
16.3 Damages.........................................................27
16.4 Application of Funds............................................28
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE XVII.................................................................28
Lessor's Right to Cure Lessee's Default..................................28
ARTICLE XVIII................................................................29
Holding Over.............................................................29
ARTICLE XIX..................................................................29
Risk of Loss.............................................................29
ARTICLE XX...................................................................30
Indemnification..........................................................30
ARTICLE XXI..................................................................31
Subletting and Assignment................................................31
ARTICLE XXII.................................................................31
Officer's Certificates; Lessor's Estoppel Certificates and Covenants.....31
ARTICLE XXIII................................................................32
Lessor's Right to Inspect................................................32
ARTICLE XXIV.................................................................32
No Waiver................................................................32
ARTICLE XXV..................................................................32
Remedies Cumulative......................................................32
ARTICLE XXVI.................................................................32
Acceptance of Surrender..................................................32
ARTICLE XXVII................................................................33
No Merger of Title.......................................................33
ARTICLE XXVIII...............................................................33
Conveyance by Lessor.....................................................33
ARTICLE XXIX.................................................................33
Notices ................................................................33
ARTICLE XXX..................................................................34
Appraisers...............................................................34
ARTICLE XXXI.................................................................35
31.1 Lessor May Grant Liens..........................................35
31.2 Breach by Lessor................................................35
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C>
ARTICLE XXXII................................................................35
32.1 Miscellaneous...................................................35
32.2 Transfer of Licenses............................................36
32.3 Waiver of Presentment, Etc......................................36
ARTICLE XXXIII...............................................................36
Financial Statements.....................................................36
ARTICLE XXXIV................................................................37
34.1 REIT Compliance.................................................37
34.2 Personal Property Limitation....................................37
34.3 Sublease Rent Limitation........................................37
34.4 Sublease Tenant Limitation......................................37
34.5 Lessee Ownership Limitation.....................................38
ARTICLE XXXV.................................................................38
35.1 Lessor's Option to Terminate Lease..............................38
35.2 Fair Market Value of Leasehold Estate...........................38
35.3 Termination Upon Default Under Sonoma Mission Inn Lease.........38
ARTICLE XXXVI................................................................39
Mutual Option to Terminate...............................................39
</TABLE>
<PAGE> 6
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
13th day of October, 1998, by and between CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership ("Lessor"), and WINE COUNTRY GOLF
CLUB, INC., a Texas corporation ("Lessee").
W I T N E S S E T H:
WHEREAS, Lessor is the owner of certain "Leased Property" (as
hereinafter defined); and
WHEREAS, Lessee desires to lease the Leased Property for a term of
approximately one hundred twenty (120) months; and
WHEREAS, Lessee has committed its capital and credit to the extent
described herein to allow Lessee to operate the Leased Property pursuant to the
terms of this Lease.
ARTICLE I
Demise. In consideration of the obligation of Lessee to pay rent as
herein provided and in consideration of the other terms, covenants, and
conditions of this Lease, Lessor does hereby LEASE, DEMISE, and LET unto Lessee,
and Lessee does hereby take and lease from Lessor, the Leased Property, TO HAVE
AND TO HOLD the Leased Property, together with all rights, privileges, easements
and appurtenances belonging to or in any way appertaining to the Leased
Property, for the Term hereinafter provided, upon and subject to the terms,
conditions and agreements hereinafter contained.
ARTICLE II
2.1 Leased Property. The "Leased Property" (herein so called) is
comprised of the following:
(a) All of that certain tract of land situated in Sonoma County,
California, and described more particularly in Exhibit "A", together with all of
Lessor's right, title and interest in all easements, privileges, hereditaments,
rights-of-way, licenses, appurtenances and other rights and benefits belonging
to Lessor running with, or in any way related to the land, including but not
limited to all of Lessor's water rights (collectively, "Land").
-1-
<PAGE> 7
(b) All amenities situated on the Land associated with the golf
course ("Golf Course").
(c) All improvements situated on the Land, together with all
replacements, modifications, alterations and additions thereto (collectively,
"Improvements"). Improvements include, but are not limited to, (i) the
maintenance facilities, landscaping, man-made lakes, irrigation system, water
wells, buildings, tee boxes, greens, barns, cart and other storage facilities
and other structures used in connection with the maintenance, operation or use
of the Golf Facility, and (ii) all improvements constituting the club house,
including the pro shop and the restaurant situated in the club house. The Land,
together with the foregoing Golf Course and Improvements, is hereinafter
referred to as the "Golf Facility."
(d) All mechanical systems, fixtures, equipment and appliances
comprising a part of or attached to or located upon the Improvements and the
Golf Facility; maintenance equipment, repair parts and tools used in connection
with the Improvements or the Golf Facility; site plans, surveys, plans and
specifications, marketing materials and floor plans in Seller's possession which
relate to the Golf Facility; pylons and other signs; all china, glassware,
linens, silverware, uniforms, kitchen equipment, uniforms, and similar items,
whether in use or held in reserve storage for future use, which are on hand as
of the Commencement Date; tables, linens, televisions, clocks, drapes and other
furniture and furnishings; art work, paintings, posters and other graphics;
keys, stoves, refrigerators, ice makers, telephones, switchboards,
communications equipment, telex and fax machines, computers, and other machinery
or appliances; golf carts and other motor vehicles; and all replacements,
modifications, alterations and additions to any and all of the foregoing.
(e) all oral or written agreements or leases pursuant to which any
portion of the Land or Golf Facility is used or occupied by anyone other than
Lessor.
2.2 Assignment and Assumption of Contracts; Initial Transaction.
(a) Effective upon the Commencement Date, Lessor hereby transfers
and assigns to Lessee, and Lessee assumes and covenants to perform all of
Lessor's obligations under, the following agreements and contracts to which the
Leased Property remains subject on the Commencement Date (the "Assigned
Agreements"):
(i) Seller's interest in all contract rights related to the
Golf Facility, including Seller's interest in the following: maintenance,
construction, commission, architectural, parking, supply or service contracts,
trade agreements, warranties, guarantees and bonds and other agreements related
to the Improvements, personal property or bookings that will remain in existence
after the Commencement Date;
(ii) All licenses and permits (to the extent assignable) used
in or relating to the ownership, occupancy or operation of any part of the Golf
Facility; and
-2-
<PAGE> 8
(iii) Any developer's, declarant's, or owner's interests
under any operating agreements or reciprocal easement agreements or other
similar agreements affecting and/or benefiting the Golf Facility.
This Lease is executed by Lessor and accepted by Lessee on the
understanding that Lessee will and does hereby assume and agree to perform all
of Lessor's obligations under all the Assigned Agreements.
(b) As between Lessor and Lessee, Lessor shall be entitled to all
income and shall be responsible for the payment or settlement of all expenses of
the Leased Property accruing prior to the Commencement Date. Lessee shall act as
Lessor's agent for the collection of all such income and shall remit the same to
Lessor promptly upon Lessee's receipt thereof. Lessee shall notify Lessor of all
such expenses and shall act as Lessor's payment agent for such expenses using
funds provided by Lessor from time to time.
2.3 License of Intellectual Property Rights.
(a) Lessor grants to Lessee a non-exclusive license to use (and to
allow Wine Country Hotel, LLC to use) during the Term and only in connection
with the operation of the Golf Facility all trade names or trademarks used in
connection with the Leased Property, including without limitation, the trade
name "Sonoma Golf Club" (collectively, the "Marks"), including any statutory and
common law rights related thereto. Lessee agrees that the quality of the
services furnished in connection with Lessee's use of the Marks shall be of a
first class nature. When using the Marks, Lessee shall comply with all
applicable laws pertaining to servicemarks and trademarks, including marking
requirements. Lessor shall have the right, at all reasonable times, to inspect
the premises of Lessee and all goods, literature, brochures, signs, advertising
materials and other items used by Lessee bearing the Marks, to determine
compliance of use of the Marks as provided for herein. Lessee acknowledges
Lessor's right, title and interest in and to the Marks and any registrations
that have issued or may issue thereon, and Lessee agrees that it will not at any
time do or cause to be done any act or thing contesting or in any way impairing
or tending to impair any part of such right, title and interest. In connection
with the use of the Marks, Lessee shall not in any manner represent that it has
any ownership in the Marks or registrations thereof, and Lessee acknowledges
that any use of the Marks, including all goodwill associated therewith, shall
inure solely to the benefit of Lessor. Upon the expiration or earlier
termination of this Lease, Lessee will cease and desist from all use of the
Marks in any way, and it will deliver to Lessor, or its duly authorized
representatives, all items upon which the Marks appear. Lessee will not at any
time adopt or use without Lessor's prior written consent, any word, logo or mark
which is likely to be similar to or confusing with the Marks. Lessee
acknowledges and agrees that Lessor is retaining the right to use the Marks in
connection with its marketing, literature, brochures, signs, and advertising
materials for the Leased Property; provided, however, Lessor shall not license
any Mark to any third party without Lessee's written consent, which consent may
be reasonably withheld.
-3-
<PAGE> 9
(b) Lessor and Lessee acknowledge that Lessee intends to change the
name under which the Leased Property is operated to "Sonoma Mission Inn Golf and
Country Club" (the "New Name"). Lessee agrees that Lessor shall own all rights,
title and interests in and to the New Name subject to the license thereof
provided for in this Section 2.3. Lessor agrees that at such time that the name
under which the Leased Property is operated is changed to the New Name, the New
Name shall be a Mark for all purposes hereunder, including without limitation
the non-exclusive license granted by Lessor to Lessee to use such Mark during
the Term and only in connection with the operation of the Golf Facility.
ARTICLE III
Term. The term ("Term") of this Lease shall commence on the effective
date of execution of this Lease (the "Commencement Date") and shall end on
October 31, 2008, unless sooner terminated in accordance with the provisions
hereof.
ARTICLE IV
So long as this Lease remains in force and effect, Lessee promises to
pay to Lessor, in lawful money of the United States of America which shall be
legal tender for the payment of public and private debts, in immediately
available funds, rents, in the manner, at the time, and in the amounts specified
below:
4.1 Base Rent. The base rent (the "Base Rent") payable during the Term
of this Lease shall be as follows:
<TABLE>
<CAPTION>
Lease Annual Base Rent
Year Base Rent Calculated Monthly
---- --------- ------------------
<S> <C> <C>
1 $1,500,000 $125,000
2 $2,000,000 $166,667
3-4 $2,500,000 $208,333
5-6 $2,600,000 $216,667
7-8 $2,700,000 $225,000
9-10 $2,800,000 $233,333
</TABLE>
Base Rent shall be payable in equal monthly installments in arrears with the
first monthly installment due and payable on or before the last day of November,
1998, and a monthly installment to be due and payable on the last day of each
and every month thereafter (with a final payment due thirty (30) days after the
expiration of the Term of this Lease). Base Rent for any period during the Term
of this Lease which is less than one (1) month shall be a pro-rata portion of
the applicable monthly installment. As used in this Lease, a "Lease Year" is the
twelve (12)
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<PAGE> 10
months beginning on January 1 and ending the following December 31 (or upon the
earlier expiration or termination of the Lease), except the first Lease Year
(i.e., Lease Year 1) shall include the period from the Commencement Date of this
Lease through December 31, 1999, with the Base Rent for the period prior to
January 1, 1999 being $125,000.00 per month.
4.2 Percentage Rent.
(a) Pursuant to the terms and conditions of this Section 4.2,
Lessee shall also pay Lessor Percentage Rent for each Lease Year. The term
"Percentage Rent," as used herein, shall mean and be determined by multiplying
(i) the amount, if any, by which the aggregate amount of Gross Receipts
(hereafter defined) for the calendar month to which such Percentage Rent is
attributable exceeds the Gross Receipts Floor (hereafter defined) for the
applicable month by (ii) seventy-five percent (75%).
(b) Percentage Rent shall be paid to Lessor by Lessee on a
quarterly basis on the last day of the month immediately following the end of
any quarter with the first such quarterly installment being due and payable on
or before the last day of January, 1999. The final payment of Percentage Rent
for October, 2008 shall be due and payable on November 30, 2008.
(c) (i) The term "Gross Receipts Floor" shall mean the amount set
forth opposite the applicable Lease Year in the table below, divided by 12:
<TABLE>
<CAPTION>
Lease Annual Gross
Year Receipts Floor
---- --------------
<S> <C>
1 $4,200,000.00
2 $4,860,000.00
3 $5,520,000.00
4 $5,643,000.00
5 $5,766,000.00
6 $5,889,000.00
7 $6,012,000.00
8 $6,135,000.00
9 $6,258,000.00
10 $6,381,000.00
</TABLE>
(ii) The term "Gross Receipts" shall mean during any period
all gross revenues and gross income of any kind derived by Lessee from operating
the Golf Facility and all departments and parts thereof, including, without
limitation, gross income from both cash and credit transactions; golf course
fees (including golf cart and driving range fees), gross income from the rental
of meeting, banquet or conference rooms; gross income from rental of stores,
offices or sales of space of every kind; license, lease and concession fees and
rentals (not including gross receipts of licensees, lessees and concessionaires
and rebates to guests); vending machines,
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<PAGE> 11
telephones, membership fees and dues; food and beverage sales; wholesale and
retail sales of merchandise; fees from personal and sports services, fees for
professional consultations, and gross proceeds, if any, from business
interruption or other loss of income insurance; provided however, the foregoing
shall not include gross revenues or gross income derived by Lessee from (i) the
sublease or rental by Lessee of the existing multi-unit structure located on the
east side of the club house on the Land (the "Residential Structure") to a
full-time employee of Lessee, or to an independent contractor engaged by Lessee
to perform services at the Leased Property, for the personal use and occupancy
thereof by such employee or independent contractor during his or her term of
employment or engagement by Lessee ("Employee Housing"), and (ii) charitable
golf tournaments and professional consultations conducted at the Golf Facility
which tournaments and consultations are approved by Lessor. There shall be
excluded in determining Gross Receipts for any period any sales or other excise
taxes required by law to be collected from customers of the Golf Facility and
remitted to the appropriate taxing authorities.
(d) Lessee shall submit to Lessor by the last day of each month a
written statement signed and certified by Lessee to be correct, showing Gross
Receipts during the preceding month. Lessee shall submit to Lessor by the
sixtieth (60th) day after the end of each Lease Year a written statement signed
and certified by Lessee to be correct, showing Gross Receipts during the
preceding Lease Year and the calculation of Percentage Rent for such Lease Year
(the "Annual Gross Receipts Report"). In addition, within ninety (90) days after
the end of each Lease Year, Lessee shall provide to Lessor, at Lessee's expense,
a Statement of Gross Receipts for the preceding Lease Year (the "Annual Audited
Gross Receipts Statement") prepared in accordance with generally accepted
accounting principles and audited by a nationally recognized public accounting
firm of independent certified public accountants approved by Lessor. Lessee's
monthly and annual written statement of Gross Receipts shall contain such detail
and breakdown as Lessor may reasonably require. If, after notice from Lessor and
the expiration of the cure period provided for herein, Lessee fails to submit
the aforesaid report and statement to Lessor when due, Lessor, in addition to
any other remedies Lessor has, shall have the right to retain a certified public
accountant, at Lessee's sole expense, to prepare such statements and to perform
all inspections and audits related thereto. In the event the Annual Audited
Gross Receipts Statement discloses that the actual Percentage Rent exceeds the
payments of Percentage Rent to Lessor with respect to such Lease Year, Lessee
shall within fifteen (15) days of notice from Lessor remit the difference to
Lessor. In the event the payments of Percentage Rent paid to Lessor with respect
to a calendar year exceed the actual Percentage Rent based upon the Annual
Audited Gross Receipts Statement, Lessor shall within fifteen (15) days of
notice from Lessee remit the difference to Lessee. The adjustments set forth in
the preceding two grammatical sentences shall be subject to any further
adjustments that may be made pursuant to the provisions of Section 4.2(f) below.
Notwithstanding anything in this Lease to the contrary, the following amounts
are shall be called "Guaranteed Percentage Rent" and shall not be subject to
adjustment under this Section 4.2(d): (i) fifty percent (50%) of the Percentage
Rent payable with respect to the first quarter of any Lease Year; (ii) sixty
percent (60%) of the Percentage Rent payable with respect to the second quarter
of any Lease Year; (iii) eighty percent (80%) of the Percentage Rent payable
with respect to the
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<PAGE> 12
third quarter of any Lease Year; and (iv) one hundred percent (100%) of the
Percentage Rent payable with respect to the fourth quarter of any Lease Year.
(e) Lessee shall maintain in a manner and form satisfactory to
Lessor, during the Term of this Lease, and for a period of three (3) consecutive
years thereafter, complete and accurate general books of account, which shall
reflect Gross Receipts, and which shall include, if used by Lessee, without
limitation, original invoices, sales records, sales slips, sales checks, sales
reports, cash register tapes, records of bank deposits, inventory records
prepared as of the close of the Lessee's accounting period, sales and occupation
tax returns and all other original records and other pertinent papers which will
enable Lessor to determine the Gross Receipts derived by Lessee during the Term
of this Lease. Such records for the three (3) most recent years shall be
maintained at the Leased Property or Lessee's corporate headquarters.
(f) The acceptance by Lessor of the payments of Percentage Rent
(pursuant to paragraph (c) above) or any additional payment of Percentage Rent
(pursuant to paragraph (f) above) shall not prejudice Lessor's right to an
examination of Lessee's records of Gross Receipts for any period for which
Lessee is required to maintain records to verify Gross Receipts. Lessor shall
have the right to examine Lessee's records during all regular business hours
upon reasonable prior notice. Lessee, upon reasonable prior notice, shall make
available to Lessor for examination any other records required to be maintained
hereunder. If the audit of the books and records by Lessor (the "Lessor's Gross
Receipts Audit") discloses that Gross Receipts were underreported by Lessee for
any period covered by such Audit, Lessee shall promptly pay to Lessor, the cost
of the Lessor's Gross Revenues Audit, as Additional Rent, in addition to any
deficiency in Percentage Rent that may be due. If the Lessor's Gross Receipts
Audit discloses that Gross Receipts were underreported by Lessee by five percent
(5%) or more for such period, Lessor shall have the option, exercisable within
sixty (60) days of its discovery of the discrepancy, to consider such event as
an Event of Default. The provisions of this Section shall survive the expiration
of the Term or the earlier termination of this Lease for a period of one (1)
year thereafter.
4.3 Additional Charges. In addition to the Base Rent and the Percentage
Rent, (a) Lessee also will pay and discharge as and when due and payable all
other amounts, liabilities, obligations and Impositions (as defined hereinbelow)
that Lessee assumes or agrees to pay under this Lease, and (b) in the event of
any failure on the part of Lessee to pay any of those items referred to in
clause (a) of this Section 4.3, Lessee also will promptly pay and discharge
every fine, penalty, interest and cost that may be added for non-payment or late
payment of such items (the items referred to in clauses (a) and (b) of this
Section 4.3 being additional rent hereunder and being referred to herein
collectively as the "Additional Charges") and Lessor shall have all legal,
equitable and contractual rights, powers and remedies provided either in this
Lease or by statute or otherwise in the case of non-payment of the Additional
Charges as are available in the case of non-payment of the Base Rent or the
Percentage Rent. To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease, Lessee shall be relieved
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<PAGE> 13
of its obligation to pay such Additional Charges to the entity to which they
would otherwise be due and Lessor shall pay same from monies received from
Lessee.
4.4 Net Lease Provisions. The rent shall be paid absolutely net to
Lessor so that this Lease shall yield to Lessor the full amount of the
installments of Base Rent, Percentage Rent, and all Additional Charges
throughout the Term of this Lease, all as more fully set forth in Article IV but
subject to any other provisions of this Lease that expressly provide for
adjustment or abatement of rent or other charges or expressly provide that
certain expenses or maintenance shall be paid or performed by Lessor.
4.5 Place and Manner of Payment. Subject to the further provisions
hereof, the rent hereunder shall be payable to Lessor at the original or changed
address of Lessor set forth in Article XXIX hereof or to such other address or
to such other person at such address as Lessor may designate from time to time
in writing.
4.6 Late Charge. If Lessee fails to pay any regular monthly installment
of Base Rent, Percentage Rent, or any Additional Charges within fifteen (15)
days after Lessor has notified Lessee in writing that such installment or charge
is overdue, then in addition to the past due amount Lessee shall pay to Lessor a
late charge of five percent (5%) of the installment or amount due in order to
compensate Lessor for the extra administrative expenses incurred.
ARTICLE V
Quiet Enjoyment. Lessor has full right to make this Lease and, subject
to the terms and provisions of this Lease, Lessee shall have quiet and peaceable
enjoyment of the Leased Property during the Term hereof. Except as otherwise
specifically provided in this Lease, Lessee, to the maximum extent permitted by
law, shall remain bound by this Lease in accordance with its terms and shall
neither take any action without the written consent of Lessor to modify,
surrender or terminate the same, nor seek nor be entitled to any abatement,
deduction, deferment or reduction of the rent, or setoff against the rent, nor
shall the obligations of Lessee be otherwise affected by reason of (a) any
damage to or destruction of the Leased Property or any portion thereof from
whatever cause, (b) the lawful or unlawful prohibition of, or restriction upon
Lessee's use of the Leased Property, or any portion thereof, or the interference
with such use by any person, corporation, partnership or other entity or by
reason of eviction by paramount title, (c) any claim which Lessee has or might
have against Lessor by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee, or to which
Lessor and Lessee are parties, (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding up or other
proceedings affecting Lessor or any assignee of or transferee of Lessor, or (e)
for any other cause whether similar or dissimilar to any of the foregoing other
than a discharge of Lessee from any such obligations as a matter of law. Lessee
hereby specifically waives all rights, arising from any occurrence whatsoever,
which may now or
-8-
<PAGE> 14
hereafter be conferred upon it by law to (i) modify, surrender or terminate this
Lease or quit or surrender the Leased Property or any portion thereof, or (ii)
entitle Lessee to any abatement, reduction, suspension or deferment of the rent
or other sums payable by Lessee hereunder, except as otherwise specifically
provided in this Lease. The obligations of Lessee hereunder shall be separate
and independent covenants and agreements and the rent and all other sums payable
by Lessee hereunder shall continue to be payable in all events unless all the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason of
an Event of Default.
ARTICLE VI
6.1 Payment of Impositions. Subject to Article XII relating to
permitted contests, Lessee will pay, or cause to be paid, all Impositions (as
defined hereinbelow) before any fine, penalty, interest or cost may be added for
non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments. If any
such Imposition may, at the option of the obligor, lawfully be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Lessee may exercise the option to pay the same (and any accrued
interest on the unpaid balance of such Imposition) in installments and in such
event, shall pay such installments during the Term hereof (subject to Lessee's
right of contest pursuant to the provisions of Article XII) as the same
respectively become due and before any fine, penalty, premium, further interest
or cost may be added thereto. If any refund shall be due in respect of any
Imposition paid by Lessee, the same shall be paid over to or retained by Lessee
if no Event of Default shall have occurred hereunder and be continuing. If an
Event of Default shall have occurred and be continuing, any such refund shall be
paid over to or retained by Lessor. Any such funds retained by Lessor due to an
Event of Default shall be applied as provided in Article XVI. Lessor and Lessee
shall, upon request of the other, provide such data as is maintained by the
party to whom the request is made with respect to the Leased Property as may be
necessary to prepare any required returns and reports.
6.2 Notice of Impositions. Lessor shall give prompt notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives notice of any Imposition which it is obligated to pay.
6.3 Adjustment of Imposition. Impositions imposed in respect of the
tax-fiscal period during which the Term of this Lease terminates shall be
adjusted and prorated between Lessor and Lessee, whether or not such Imposition
is imposed before or after such termination, and Lessee's obligation to pay its
prorated share thereof after termination shall survive such termination.
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<PAGE> 15
6.4 Utility Charges. Lessee will be solely responsible for obtaining
and maintaining utility services to the Leased Property and will pay or cause to
be paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term of this Lease.
6.5 Insurance Premiums. Lessee will pay or cause to be paid all
premiums for the insurance coverages required to be maintained by it under
Article XIII.
6.6 Definition of Impositions. The term "Impositions," as used herein,
means, collectively, all taxes (including, without limitation, all ad valorem,
personal property, sales and use, single business, gross receipts, transaction
privilege, rent or similar taxes as the same relate to or are imposed upon
Lessee or its business conducted upon the Leased Property), assessments
(including, without limitation, all assessments for public improvements or
benefit, whether or not commenced or completed prior to the Commencement Date
and whether or not to be completed within the Term and also any assessments
imposed on the Leased Property by any property owners' association, condominium
association or other such private association, or otherwise as a result of
private deed restrictions affecting the Leased Property), ground rents, water,
sewer or other rents and charges, excises, tax inspection, authorization and
similar fees and all other such charges, in each case whether general or
special, ordinary or extraordinary, or foreseen or unforeseen, of every
character in respect of the Leased Property or the business conducted thereon by
Lessee (including all interest and penalties thereon caused by any failure in
payment by Lessee), which at any time prior to, during or with respect to the
Term hereof may be assessed or imposed on the Leased Property, or any part
thereof or any rent therefrom or any estate, right, title or interests therein,
or any occupancy, operation, use or possession of, or sales from, or activity
conducted on or in connection with the Leased Property, or the leasing or use of
the Leased Property or any part thereof by Lessee. Nothing contained in this
definition of Impositions shall be construed to require Lessee to pay (1) any
tax based on net income (whether denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other person, or (2) any net revenue tax of
Lessor or any other person, or (3) any tax imposed with respect to the sale,
exchange or other disposition by Lessor of any Leased Property or the proceeds
thereof, or (4) any single business, gross receipts (other than tax on any rent
received by Lessor from Lessee), transaction, privilege or similar taxes as the
same relate to or are imposed upon Lessor, except to the extent that any tax,
assessment, tax levy or charge that Lessee is obligated to pay pursuant to the
first sentence of the definition and that is in effect at any time during the
Term hereof is totally or partially repealed, and a tax, assessment, tax levy or
charge set forth in clause (1) or (2) is levied, assessed or imposed expressly
in lieu thereof.
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<PAGE> 16
ARTICLE VII
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased Property and has found the same to
be satisfactory for its purposes hereunder. Lessee is leasing the Leased
Property "as is" in its present condition. Lessee waives any claim or action
against Lessor in respect of the condition of or claims against the Leased
Property. LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN
RESPECT OF THE LEASED PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS
FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS
TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT
BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES
THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT.
Provided, however, to the extent permitted by law, Lessor hereby assigns to
Lessee all of Lessor's rights to proceed against any predecessor-in-title,
contractor, subcontractor or supplier for breaches of warranties or
representations or for latent defects in the Leased Property. Lessor shall fully
cooperate with Lessee in the prosecution of any such claim, in Lessor's or
Lessee's name, all at Lessee's sole cost and expense. Lessee hereby agrees to
indemnify, defend and hold harmless Lessor from and against any claims,
obligation and liabilities against or incurred by Lessor in connection with such
cooperation.
7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due diligence
and will exercise its best efforts to obtain and to maintain all approvals
needed to use and operate the Leased Property in the manner required under this
Lease and under applicable local, state and federal law.
(b) Lessee shall use or cause to be used the Leased Property only
for its current uses as a golf course, pro-shop, restaurant and meeting facility
available for use by the public and for such other uses as may be necessary or
incidental to such use or such other use as otherwise approved by Lessor (the
"Primary Intended Use"). Primary Intended Use does not include the use of the
Leased Property for Private Club Purposes (hereafter defined) or for Residential
Purposes (hereafter defined). Lessee shall not use the Leased Property or any
portion thereof for any use other than the Primary Intended Use, without the
prior written consent of Lessor, which consent may be granted, denied or
conditioned in Lessor's sole discretion. Lessee shall not change any names under
which the Leased Property is operated, without the prior written consent of
Lessor, which consent may be granted, denied or conditioned in Lessor's sole
discretion; provided, however, Lessor hereby consents to a change in the name by
Lessee under which the Leased Property is operated to "Sonoma Mission Inn Golf
and Country Club." Without limitation of the preceding sentence, Lessor may
condition its approval of any use of the Leased Property upon one or more
amendments to the terms of this Lease, including but not limited to financial
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<PAGE> 17
terms. No use shall be made or permitted to be made of the Leased Property, and
no acts shall be done, which will cause the cancellation or increase the premium
of any insurance policy covering the Leased Property or any part thereof (unless
another adequate policy satisfactory to Lessor is available and Lessee pays any
premium increase), nor shall Lessee sell or permit to be kept, used or sold in
or about the Leased Property any article which may be prohibited by law or fire
underwriter's regulations. Lessee shall, at its sole cost, comply with all of
the requirements pertaining to the Leased Property of any insurance board,
association, organization or company necessary for the maintenance of insurance,
as herein provided, covering the Leased Property. "Private Club Purposes" means
the operation of the Leased Property subject to any restrictions upon its usage
(in whole or in part) by Members only. "Members" means any person or entity who
is entitled to rights or privileges in connection with the use of Leased
Property which are more than the rights of the public generally and which are
created by the payment of any consideration for the rights or privileges which
is not tied to the actual usage such as dues, initiation fees, time share
payment or similar payments. "Residential Purposes" means any use of any part of
the Leased Property as a single or multi-family residence, hotel, motel,
bed-and- breakfast facility or any similar residential or lodging facility;
provided, however, Residential Purposes shall not include the sublease or rental
by Lessee of the Residential Structure for Employee Housing.
(c) Subject to the provisions of Articles XIV, XV, and XXI, Lessee
covenants and agrees that during the Term of this Lease it will (1) operate
continuously the Leased Property in accordance with the Primary Intended Use,
(2) keep in full force and effect and comply with all the provisions of all
agreements assigned to Lessee as part of the Leased Property, (3) not terminate
or amend any agreements constituting part of the Leased Property without the
consent of Lessor, and (4) maintain appropriate certifications and licenses for
such use.
(d) Lessee shall not commit or suffer to be committed any waste on
the Leased Property (normal wear and tear excepted), nor shall Lessee cause or
permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or
any portion thereof to be used in such a manner as (1) might reasonably tend to
impair Lessor's (or Lessee's, as the case may be) title thereto or to any
portion thereof, or (2) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof, except as necessary in
the ordinary and prudent operation of the Golf Facility on the Leased Property.
7.3 Lessor to Grant Easements, Etc. Lessor will, from time to time, so
long as no Event of Default has occurred and is continuing, at the request of
Lessee and, unless otherwise agreed, at Lessee's cost and expense (but subject
to the approval of Lessor), (a) grant easements and other rights in the nature
of easements with respect to the Leased Property to third parties, (b) release
existing easements or other rights in the nature of easements which are for the
benefit of the Leased Property, (c) dedicate or transfer unimproved portions of
the Leased Property for road,
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<PAGE> 18
highway or other public purposes, (d) execute petitions to have the Leased
Property annexed to any municipal corporation or utility district, (e) execute
amendments to any covenants and restrictions affecting the Leased Property and
(f) execute and deliver to any person any instrument appropriate to confirm or
effect such grants, releases, dedications, transfers, petitions and amendments
(to the extent of its interests in the Leased Property), but only upon delivery
to Lessor of a certificate from Lessee stating that such grant, release,
dedication, transfer, petition or amendment is not detrimental to the proper
conduct of the business of Lessee on the Leased Property and does not materially
reduce the value of the Leased Property. Lessor agrees to evaluate each request
made by Lessee under this Section 7.3 and thereby consider the extent to which
the requested action or event benefits Lessor, Lessee and the Leased Property,
respectively. In the event Lessor determines that the requested action or event
benefits Lessor and is otherwise in the long-term best interests of the Leased
Property, Lessor agrees to attempt to reach a mutually acceptable agreement with
Lessee as to any contribution by Lessor toward all or a portion of the costs and
expenses to be incurred in effectuating the requested action or event, taking
into account the relative benefits to Lessor and Lessee.
7.4 Operating Supplies. On the Commencement Date, all Operating
Supplies (as defined below) shall be transferred from Lessor to Lessee so that
they accompany the Leased Property. During the Term of this Lease, Lessee, at
its sole cost and expense, shall furnish and maintain at the Leased Property all
Operating Supplies necessary or desirable for the operation of the Leased
Property in accordance with the provisions of this Lease. Lessee, at its sole
cost and expense, shall maintain and replace the Operating Supplies so that upon
the expiration or early termination of this Lease, Lessee shall deliver to
Lessor the same quantity of Operating Supplies that existed on the Commencement
Date as reflected by the Supplies Inventory on Exhibit "B" attached hereto. Upon
the termination of this Lease, the Operating Supplies shall be transferred from
Lessee to Lessor so that they accompany the Leased Property. The term "Operating
Supplies," as used herein, shall mean all food, beverages (other than alcoholic
beverages) and other consumable items used in the operation of the Golf Facility
such as fuel, engineering, maintenance and housekeeping supplies, soap, cleaning
materials, matches, stationery and printing, brochures, literature, folios and
all other similar items, together with all substitutions and replacements
thereon.
7.5 Additional Capital. During the Term of the Lease, upon the request
of Lessee, Lessor shall expend up to a total of two million dollars
($2,000,000.00) (the "Additional Capital") for the acquisition of capital
improvements or capital assets for the Golf Facility ("Additional Capital
Purchases"), provided Lessor approves the Additional Capital Purchases, which
approval by Lessor shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, (i) Lessor shall not be required to approve or
otherwise fund Additional Capital for Additional Capital Purchases during the
first Lease Year in excess of one million dollars ($1,000,000.00); and (ii) of
the Additional Capital, a minimum of six hundred thousand dollars ($600,000.00)
in Additional Capital Purchases must be utilized during the first twelve (12)
months following the Commencement Date for repairs and improvements to the golf
course located on the Leased Property. By written notice to Lessor, Lessee shall
request that Lessor make an Additional Capital
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<PAGE> 19
Purchase for the Golf Facility. Such request shall describe in detail the
requested Additional Capital Purchase, including without limitation, amount, use
of funds and payee(s). In the event Lessor rejects any request by Lessee for an
Additional Capital Purchase, Lessor shall so advise Lessee in writing and shall
include the reason(s) for such rejection.
7.6 FF&E. Subject to the rights of a first lienholder of the Leased
Property, Lessor shall establish and maintain a reserve account (the "FFE
Reserve") to satisfy the reserve requirements, if any, which Lessor determines
for replacement of FFE (hereafter defined). Lessor shall not be obligated to
deposit any funds into the FFE Reserve until November 1, 2000. Beginning
November 1, 2000 and continuing for Lease Years three (3) through ten (10) of
the Term, Lessor shall deposit into the FFE Reserve an amount equal to three
percent (3%) of Gross Receipts, which amount shall be deposited by Lessor into
the FFE Reserve within fifteen (15) days following the end of each calendar
month. If at any time during the Term of the Lease, any item of FFE requires
replacement, upon a written request therefor from Lessee and approval of such
expenditures by Lessor (which approval shall not be unreasonably withheld or
delayed) if such amounts were not included in the Annual Budget (defined in
Article XXXIII), Lessor shall promptly advance sufficient funds from the FFE
Reserve to enable Lessee to purchase the required replacements. Lessee shall
make no expenditure for replacement of FFE in excess of the amounts in the FFE
Reserve without first obtaining the approval of Lessor, which approval shall not
be unreasonably withheld or delayed. Any additions to or replacements of
furniture, fixtures, and equipment located at the Leased Property shall become
part of the FFE, which is owned by Lessor. Throughout the Term of this Lease,
Lessee shall, at its sole cost and expense, cause all of the items of FFE to be
in proper working order and in good condition (ordinary wear and tear excepted).
The term "FFE" shall mean all vehicles, furniture and furnishings, restaurant,
meeting center and golf course equipment (including office equipment and
property management equipment as necessary) and any other items deemed necessary
or advisable by Lessor to operate and maintain the Golf Facility.
7.7 Lessee's Obligation to Manage. At all times during the Term hereof,
Lessee shall be responsible for the management and operation of the Leased
Property, and in no event shall Lessor have any obligation with respect to the
management or operation of the Leased Property.
7.8 Working Capital. On the Commencement Date, Lessor shall transfer to
Lessee cash and funds deposited in banks ("Cash") in the amount set forth on a
Statement of Working Capital (the "Statement") to be initialed by Lessor and
Lessee and appended to this Lease as Exhibit "B" subsequent to the execution of
this Lease. The Statement shall show the items of working capital ("Working
Capital") pertaining to the Leased Property. Upon the expiration or early
termination of this Lease, Lessee shall pay over to Lessor the same amount of
Cash that existed on the Commencement Date. Upon the expiration or early
termination of this Lease, Lessee shall return to Lessor the same amount of
Working Capital that existed on the Commencement Date after taking into account
the Cash paid by Lessee to Lessor pursuant to this Section 7.8.
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7.9 Use of Facilities by Lessor. Lessee covenants and agrees that
Lessor shall have the right to use meeting rooms, facilities, and services at
the Leased Property on a space available basis, provided, however, Lessor shall
be obligated to pay Lessee for Lessee's direct operating cost for such rooms and
services.
7.10 Guaranty. Crescent Operating, Inc. shall execute a guarantee in
favor of Lessor of all obligations of Lessee hereunder.
ARTICLE VIII
8.1 Compliance with Legal and Insurance Requirements. Etc. Subject to
Article XII relating to permitted contests, Lessee, at its expense, will
promptly (a) comply with all applicable legal requirements and insurance
requirements in respect to the use, operation, maintenance, repair and
restoration of the Leased Property, and (b) procure, maintain and comply with
all appropriate licenses and other authorizations required for any use of the
Leased Property then being made, and for the proper erection, installation,
operation and maintenance of the Leased Property or any part thereof.
8.2 Legal Requirement Covenants. Lessee covenants and agrees that the
Leased Property shall not be used for any unlawful purpose, and that Lessee
shall not permit or suffer to exist any unlawful use of the Leased Property by
others. Lessee shall acquire and maintain all appropriate licenses,
certifications, permits and other authorizations and approvals needed to operate
the Leased Property in its customary manner for the Primary Intended Use, and
any other lawful use conducted on the Leased Property as may be permitted from
time to time hereunder. Lessee further covenants and agrees that Lessee's use of
the Leased Property and maintenance, alteration, and operation of the same, and
all parts thereof, shall at all times conform to all legal requirements, unless
the same are finally determined by a court of competent jurisdiction to be
unlawful (and Lessee shall cause all sub-tenants, invitees or others to so
comply with all legal requirements). Lessee may, however, upon prior notice to
Lessor, contest the legality or applicability of any such legal requirement or
any licensure or certification decision if Lessee maintains such action in good
faith, with due diligence, without prejudice to Lessor's rights hereunder, and
at Lessee's sole expense. If by the terms of any such legal requirement
compliance therewith pending the prosecution of any such proceeding may legally
be delayed without the incurrence of any lien, charge or liability of any kind
against the Leased Property or Lessee's leasehold interest therein and without
subjecting Lessee or Lessor to any liability, civil or criminal, for failure so
to comply therewith, Lessee may delay compliance therewith until the final
determination of such proceeding. If any lien, charge or civil or criminal
liability would be incurred by reason of any such delay, Lessee, on the prior
written consent of Lessor, which consent shall not be unreasonably withheld, may
nonetheless contest as aforesaid and delay as aforesaid provided that such delay
would not subject Lessor to criminal liability and Lessee both
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(a) furnishes to Lessor security reasonably satisfactory to Lessor against any
loss or injury by reason of such contest or delay and (b) prosecutes the contest
with due diligence and in good faith.
8.3 Environmental Matters and Indemnities. Lessee must, at its sole
cost and expense, keep and maintain the Leased Property in compliance with, and
must not cause the Leased Property to be in violation of, any federal, state,
and local laws, regulations, rules, and orders including without limitation
those relating to zoning, health, safety, noise, environmental protection, water
quality, air quality, or the generation, processing, storage, or disposal of any
Hazardous Materials (hereafter defined) excluding any conditions existing on or
prior to the Commencement Date of this Lease or violations caused by Lessor.
Moreover, Lessee will not intentionally cause or permit the storage, use,
disposal, manufacture, discharge, leakage, spillage or emission of any Hazardous
Materials on, in, or about the Leased Property. Lessee must immediately notify
Lessor in writing of its actual knowledge of (a) any enforcement, cleanup,
removal or other governmental or regulatory actions instituted, completed or
threatened in connection with the Leased Property and any Hazardous Materials;
or (b) any claim made or threatened by any third party against Lessee or the
Leased Property relating to damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Materials that could cause all or
any portion of the Leased Property to be subject to any restrictions on the
ownership, occupancy, transferability or use of the Leased Property under
Hazardous Materials Law (as hereinafter defined). Notwithstanding the foregoing,
Lessee is not required by Lessor to remove any Hazardous Materials located on,
in, under or about the Leased Premises on or prior to the Commencement Date of
this Lease. Without Lessor's prior written consent, which consent must not be
unreasonably withheld or delayed, Lessee will not take any remedial action in
response to the presence of any Hazardous Materials on, in, or under or about
the Leased Property, nor enter into any settlement agreement, consent decree or
other compromise in respect to any Hazardous Materials except as may be
necessary to comply with all laws, rules, regulations or orders of any
applicable governmental authorities.
Lessee indemnifies and holds Lessor, its employees, agents, officers
and directors, harmless from and against any claim, action, suit, proceeding,
loss, cost, damage, liability, deficiency, fine, penalty, punitive damage or
expense, including, without limitation, attorneys' and consultant fees
(collectively, the "Claims"), directly or indirectly resulting from, arising out
of, or based upon (a) the presence, release, use, manufacture, generation,
discharge, storage or disposal by Lessee (or its sublessee, contractors,
licensees, concessionaires, guests, invitees, employees, agents or
representatives) of any Hazardous Material on, under, in or about, or the
transportation of any such materials to or from the Leased Property occurring
after the Commencement Date, or (b) the violation, or alleged violation by
Lessee (or its sublessee, contractors, licensees, concessionaires, guests,
invitees, employees, agents or representatives) of any Hazardous Materials Law
affecting the Leased Property, or the transportation by Lessee (or its
sublessees, contractors, licensees, concessionaires, guests, invitees,
employees, agents or representatives) of Hazardous Materials to or from the
Leased Property, save and except to the extent such Claims result directly or
indirectly from, arise out of, or are based upon violations,
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alleged violations or transportation of Hazardous Materials that occurred on or
prior to the Commencement Date of this Lease, or were not caused by Lessee (or
its sublessees, contractors, licensees, concessionaires, guests, invitees,
employees, agents or representatives).
"Hazardous Materials Law", for purposes of this Lease, means any
federal, state, or local law, ordinance or regulation or any court judgment
applicable to Lessee or to the Leased Property relating to industrial hygiene or
to environmental conditions including, but not limited to, those relating to the
release, emission or discharge of Hazardous Materials, those in connection with
the construction, fuel supply, power generation and transmission, waste disposal
or any other operations or processes relating to the Leased Property. "Hazardous
Materials Law" includes, but is not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Hazardous Materials
Transportation Act, the Resources Conservation and Recovery Act, the Solid Waste
Disposal Act, the Clean Water Act, the Clean Air Act, and any amendments to
these laws or enactments of other laws occurring after the Commencement Date.
"Hazardous Materials," for purposes of this Lease, includes flammable
explosives, radioactive materials, polychlorinated biphenyls, asbestos in any
form which is or could become friable, hazardous wastes, toxic substances or
other related material whether in the form of a chemical, element, compound,
solution, mixture or otherwise including, but not limited to, those materials
defined as "hazardous substances," "hazardous materials," "toxic substances,"
"air pollutants," "toxic pollutants," "hazardous wastes," "extremely hazardous
wastes" or "restricted hazardous wastes" by Hazardous Materials Law, other than
common cleaning compounds, solvents and other materials incidental to the use
and operation of the Leased Property and in compliance with Hazardous Materials
Law.
ARTICLE IX
9.1 Maintenance and Repair.
(a) Lessee, at its sole expense (subject to Lessor's t obligation
to fund the Additional Capital in accordance with Section 7.5), will keep the
Leased Property in good order and repair, except for ordinary wear and tear
(whether or not the need for such repairs occurred as a result of Lessee's use,
any prior use, the elements or the age of the Leased Property, or any portion
thereof), and, except as otherwise provided in Article XIV or Article XV, with
reasonable promptness, make all necessary and appropriate repairs and
replacements of every kind and nature, whether interior or exterior, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing on or prior to the commencement of the Term of this Lease (concealed or
otherwise), or required by any governmental agency having jurisdiction over the
Leased Property. Lessee, however, shall be permitted to prosecute claims against
Lessor's predecessors-in-title, contractors, subcontractors and suppliers for
breach of any representation or warranty or for any latent defects in the Leased
Property to be maintained by Lessee unless
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Lessor is already diligently pursuing such a claim. All repairs shall, to the
extent reasonably achievable, be at least equivalent in quality to the original
work. Lessee will not take or omit to take any action, the taking or omission of
which might materially impair the value or the usefulness of the Leased Property
or any part thereof for its Primary Intended Use.
(b) Notwithstanding Lessee's obligations under Section 9.1(a)
hereinabove, in the event that (i) repairs and/or replacements of the Leased
Property become necessary in order to maintain the Golf Facility in the same
quality and condition as it currently exists, (ii) such repairs and/or
replacements are under generally accepted accounting principles considered to be
capital in nature, (iii) the funds then available to Lessee in the FFE Reserve
or at the Leased Property, either in the form of reserves, insurance proceeds,
or other income generated by the Leased Property and available to Lessee are
insufficient to enable Lessee to pay the costs of making any such repairs and/or
replacements and (iv) Lessor consents, which consent shall not be unreasonably
withheld, to the repairs and/or replacements then Lessor shall be required to
bear the cost of making such repairs and/or replacements. Except as set forth in
the foregoing sentence, Lessor shall not under any circumstances be required to
build or rebuild any improvements on the Leased Property, to make any repairs,
replacements, alterations, restorations or renewals of any nature or description
to the Leased Property, whether ordinary or extraordinary, foreseen or
unforeseen, or to make any expenditure whatsoever with respect thereto, in
connection with this Lease, or to maintain the Leased Property in any way.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted. Lessor shall have the right to
give, record and post, as appropriate, notices of nonresponsibility under any
mechanic's lien laws now or hereafter existing.
(c) Nothing contained in this Lease and no action or inaction by
Lessor shall be construed as (1) constituting the request of Lessor, expressed
or implied, to any contractor, subcontractor, laborer, materialman or vendor to
or for the performance of any labor or services or the furnishing of any
materials or other property for the construction, alteration, addition, repair
or demolition of or to the Leased Property or any part thereof, or (2) giving
Lessee any right, power or permission to contract for or permit the performance
of any labor or services or the furnishing of any materials or other property in
such fashion as would permit the making of any claim against Lessor in respect
thereof or to make any agreement that may create, or in any way be the basis of
any right, title, interest, lien, claim or other encumbrance upon the estate of
Lessor in the Leased Property, or any portion thereof.
(d) Lessee will, upon the expiration or prior termination of the
Term of this Lease, vacate and surrender the Leased Property to Lessor in the
condition in which the Leased Property was originally received from Lessor,
except as repaired, rebuilt, restored, altered or added to as permitted or
required by the provisions of this Lease and except for ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property in good
order and repair,
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as would a prudent owner, during the entire Term of the Lease), or damage by
casualty or condemnation (subject to the obligations of Lessee to restore or
repair as set forth in the Lease).
9.2 Encroachments, Restrictions, Etc. If any of the improvements on the
Leased Property, at any time, materially encroach upon any property, street or
right-of-way adjacent to the Leased Property, or violate the agreements or
conditions contained in any restrictive covenant or other agreement affecting
the Leased Property, or any part thereof, or impair the rights of others under
any easement or right-of-way to which the Leased Property is subject, then
promptly upon the request of Lessor or at the behest of any person affected by
any such encroachment, violation or impairment, Lessee shall, at its expense,
subject to its right to contest the existence of any encroachment, violation or
impairment and in such case, in the event of an adverse final determination,
either (a) obtain valid and effective waivers or settlements of all claims,
liabilities and damages resulting from each such encroachment, violation or
impairment, whether the same shall affect Lessor or Lessee or (b) make such
changes in the improvements on the Leased Property and take such other actions,
as Lessee in the good faith exercise of its judgment deems reasonably
practicable to remove such encroachment, and to end such violation or
impairment, including, if necessary, the alteration of any such improvements,
and in any event take all such actions as may be necessary in order to be able
to continue the operation of the Leased Property for the Primary Intended Use
substantially in the manner and to the extent the Leased Property was operated
prior to the assertion of such violation, impairment and encroachment. Any such
alteration shall be made in conformity with the applicable requirements of
Article X. Lessee's obligations under this Section 9.2 shall be in addition to
and shall in no way discharge or diminish any obligation of any insurer under
any policy of title or other insurance held by Lessor. Notwithstanding anything
to the contrary contained in this Section 9.2, so long as any encroachment,
violation or impairment described above does not materially interfere with the
operation of the Golf Facility, Lessor shall not require Lessee to remedy or
otherwise address the same.
ARTICLE X
Alterations. Lessee shall have the right to make additions,
modifications or improvements to the Leased Property from time to time as
Lessee, in its discretion, may deem to be desirable for its permitted uses and
purposes, provided that such action will not significantly alter the character
or purposes or significantly detract from the value or operating efficiency
thereof and will not significantly impair the revenue-producing capability of
the Leased Property or adversely affect the ability of the Lessee to comply with
the provisions of this Lease. The cost of such additions, modifications or
improvements to the Leased Property shall be paid by Lessee, and all such
additions, modifications or improvements shall, without payment by Lessor at any
time, be included under the terms of this Lease and upon expiration or earlier
termination of this Lease shall pass to and become the property of Lessor. In no
event shall any alterations, additions or other improvements made by Lessee be
removed from the Leased Property unless request is made
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by Lessor to Lessee to remove such alterations, additions and other improvements
which were made without Lessor's approval where such approval was required under
this Lease.
ARTICLE XI
Liens. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property or any attachment, levy,
claim or encumbrance in respect of the rent payable hereunder, not including,
however, (a) this Lease, (b) the matters, if any, included as exceptions in the
title policy insuring Lessor's interest in the Leased Property to be issued on
or about the Commencement Date, (c) restrictions, liens and other encumbrances
which are consented to in writing by Lessor or any easements granted pursuant to
the provisions of Section 7.3 of this Lease, (d) liens for those taxes upon
Lessor which Lessee is not required to pay hereunder, (e) subleases permitted by
Article XXI hereof, (f) liens for Impositions or for sums resulting from
noncompliance with legal requirements so long as (1) the same are not yet
payable or are payable without the addition of any fine or penalty or (2) such
liens are in the process of being contested as permitted by Article XII, (g)
liens of mechanics, laborers, materialmen, suppliers or vendors for sums either
disputed or not yet due provided that: (1) the payment of such sums shall not be
postponed under any related contract for more than sixty (60) days after the
completion of the action giving rise to such lien and such reserve or other
appropriate provisions as shall be required by law or generally accepted
accounting principles shall have been made therefor, or (2) any such liens are
in the process of being contested as permitted by Article XII hereof, and (h)
any liens which are the responsibility of Lessor pursuant to the provisions of
Article XXXI of this Lease.
ARTICLE XII
Permitted Contests. Lessee shall have the right to contest the amount
or validity of any Imposition to be paid by Lessee or any legal requirement or
insurance requirement or any lien, attachment, levy, encumbrance, charge or
claim ("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence (but this shall not be deemed
or construed in any way to relieve, modify or extend Lessee's covenants to pay
or its covenants to cause to be paid any such charges at the time and in the
manner as in this Article provided), on condition, however, that such legal
proceedings shall not operate to relieve Lessee from its obligations hereunder
and shall not cause the sale or risk the loss of the Leased Property, or any
part thereof, or cause Lessor or Lessee to be in default under any mortgage,
deed of trust or security deed encumbering the Leased Property or any interest
therein. Upon the request of Lessor, Lessee shall either (a) provide a bond or
other assurance reasonably satisfactory to Lessor that all Claims which may be
assessed against the Leased Property together with interest and penalties, if
any, thereon will be paid, or (b) deposit within the time otherwise required for
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payment with a bank or trust company as trustee upon terms reasonably
satisfactory to Lessor, as security for the payment of such Claims, money in an
amount sufficient to pay the same, together with interest and penalties in
connection therewith, as to all Claims which may be assessed against or become a
Claim on the Leased Property, or any part thereof, in said legal proceedings.
Lessee shall furnish Lessor and any lender of Lessor with reasonable evidence of
such deposit within five (5) days of the same. Lessor agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or expenses. Lessee shall
be entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for which
Lessor has been fully reimbursed. In the event that Lessee fails to pay any
Claims when due or to provide the security therefor as provided in this
paragraph and to diligently prosecute any contest of the same, Lessor may, upon
ten (10) days advance written notice to Lessee, pay such charges together with
any interest and penalties and the same shall be repayable by Lessee to Lessor
at the next rent payment date provided for in this Lease. Provided, however,
that should Lessor reasonably determine that the giving of such notice would
risk loss to the Leased Property or cause damage to Lessor, then Lessor shall
give such notice as is practical under the circumstances. Lessor reserves the
right to contest at its expense any of the Claims not pursued by Lessee. Lessor
and Lessee agree to cooperate in coordinating the contest of any Claims.
ARTICLE XIII
13.1 General Insurance Requirements. During the Term, Lessee shall at
all times keep the Leased Property insured with the kinds and amounts of
insurance described below. This insurance shall be written by companies
authorized to issue insurance in the State of California. The policies must name
Lessor as an additional named insured or an additional insured, as the case may
be. Losses shall be payable to Lessor or Lessee as provided in this Lease. Any
loss adjustment shall require the written consent of Lessor and Lessee, each
acting reasonably, promptly and in good faith. Evidence of insurance shall be
deposited with Lessor. The policies on the Leased Property shall at all times
satisfy the terms of any ground lease, mortgage and/or franchise agreement and
shall include the following:
(a) Personal property insurance on the "Special Form" (formerly
"All Risk" form) in the full amount of the replacement cost thereof;
(b) Loss of income insurance on an "All Risk" form, in the amount
of one year of Base Rent and Percentage Rent (based on the last Lease Year of
operation or, to the extent the Leased Property has not been operated for an
entire 12-month Lease Year, based on prorated
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Percentage Rent) for the benefit of Lessor, and business interruption insurance
on an "All Risk" form in the amount of one year of Base Rent and Percentage
Rent, for the benefit of Lessee;
(c) Commercial general liability insurance, with contractual
indemnity endorsement, with amounts not less than $1,000,000 combined single
limit for each occurrence and $2,000,000 for the aggregate of all occurrences
within each policy year, as well as excess liability (umbrella) insurance with
limits of at least $50,000,000 per occurrence, covering each of the following:
bodily injury, death, or property damage liability per occurrence, personal and
advertising injury, products and completed operations, with respect to Lessee,
and "all risk legal liability" (including liquor law or "dram shop" liability,
if liquor or alcoholic beverages are served on the Leased Property) with respect
to Lessor and Lessee;
(d) Fidelity bonds or blanket crime policies with limits and
deductibles as may be reasonably determined by Lessee and approved by Lessor
(such approval not to be unreasonably withheld), covering Lessee's employees in
job classifications normally bonded under prudent golf facility management
practices in the United States or otherwise required by law;
(e) Comprehensive form automobile liability insurance for owned,
non-owned and hired vehicles, in the amount of $1,000,000;
(f) Garagekeeper's legal liability insurance covering both
comprehensive and collision-type losses with a limit of liability of $2,000,000
for any one occurrence, of which coverage in excess of $1,000,000 may be
provided by way of an excess liability policy;
(g) Innkeeper's legal liability insurance covering property of
guests while on the Leased Property for which Lessor is legally responsible with
a limit of not less than $5,000 in any one occurrence or $25,000 annual
aggregate;
(h) Employers liability insurance with limits of not less than
$500,000 per occurrence;
(i) Workers' compensation insurance to the extent necessary to
protect Lessor, Lessee and the Leased Property against Lessee's worker's
compensation claims to the extent required by applicable state laws; and
(j) Insurance covering such other hazards (such as plate glass or
other common risks) and in such amounts as may be (A) required by a holder of a
lien on the Leased Property, or (B) customary for comparable properties in the
area of the Leased Property and is available from insurance companies, insurance
pools or other appropriate companies authorized to do business in the State of
California at rates which are economically practicable in relation to the risks
covered as may be reasonably determined by Lessor or Lessee.
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Lessee shall keep in force the foregoing insurance coverages at its
expense.
13.2 Waiver of Subrogation. All insurance policies carried by Lessor or
Lessee covering the Leased Property including, without limitation, contents,
fire and casualty insurance, shall expressly waive any right of subrogation on
the part of the insurer against the other party. The parties hereto agree that
their policies will include such waiver clause or endorsement so long as the
same are obtainable without extra cost, and in the event of such an extra charge
the other party, at its election, may pay the same, but shall not be obligated
to do so.
13.3 Form Satisfactory, Etc. All of the policies of insurance referred
to in this Article XIII shall be written in a form, with deductibles and by
insurance companies reasonably satisfactory to Lessor. Lessee shall pay all of
the premiums therefor, and deliver such policies or certificates thereof to
Lessor prior to their effective date (and, with respect to any renewal policy,
thirty (30) days prior to the expiration of the existing policy), and in the
event of the failure of Lessee either to effect such insurance as herein called
for or to pay the premiums therefor, or to deliver such policies or certificates
thereof to Lessor at the times required, Lessor shall be entitled, but shall
have no obligation, to effect such insurance and pay the premiums therefor, and
Lessee shall reimburse Lessor for any premium or premiums paid by Lessor for the
coverages required under Section 13.1 upon written demand therefor, and Lessee's
failure to repay the same within thirty (30) days after notice of such failure
from Lessor shall constitute an Event of Default within the meaning of Section
16.1(b). Each insurer mentioned in this Article XIII shall agree, by endorsement
to the policy or policies issued by it, or by independent instrument furnished
to Lessor, that it will give to Lessor thirty (30) days written notice before
the policy or policies in question shall be materially altered, allowed to
expire or canceled.
13.4 Increase in Limits. If either Lessor or Lessee at any time deems
the limits of the personal injury or property damage under the comprehensive
public liability insurance then carried to be either excessive or insufficient,
Lessor or Lessee shall endeavor in good faith to agree on the proper and
reasonable limits for such insurance to be carried and such insurance shall
thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Article.
13.5 Reports On Insurance Claims. Lessee shall promptly investigate and
make a complete and timely written report to the appropriate insurance company
as to all accidents, all claims for damage relating to the ownership, operation,
and maintenance of the Golf Facility, and any damage or destruction to the Golf
Facility and the estimated cost of repair thereof and shall prepare any and all
reports required by any insurance company in connection therewith. All such
reports shall be timely filed with the insurance company as required under the
terms of the insurance policy involved. Lessee shall cause its insurance company
or insurance broker to provide to Lessor, on or before the first day of each
calendar quarter, a claims summary reflecting all claims filed or otherwise made
against any and all insurance coverage that Lessee is required
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to maintain under this Lease ("Claims Summary"); provided, however, a Claims
Summary shall be provided more frequently at Lessor's request, but not more
frequently than once per month.
ARTICLE XIV
14.1 Insurance Proceeds. If during the Term, the Leased Property is
partially destroyed by a risk covered by the insurance described in Article
XIII, but the Leased Property is not thereby rendered Unsuitable for its Primary
Intended Use (hereafter defined) or Uneconomic for its Primary Intended Use
(hereafter defined), Lessor or, at the election of Lessor, Lessee shall, if
insurance proceeds are made available by the first lienholder, if any, of the
Leased Property, restore the Leased Property at Lessor's cost to substantially
the same condition as existed immediately before the damage or destruction and
otherwise in accordance with the terms of the Lease, and this Lease shall not
terminate as a result of such damage or destruction. If Lessee restores the
Leased Property, the insurance proceeds shall be paid out by Lessor from time to
time for the reasonable costs of such restoration upon satisfaction of terms and
conditions specified by Lessor, and any excess proceeds remaining after such
restoration shall be paid to Lessor except for any amount thereof paid with
respect to Lessee's personal property. If the insurance proceeds are not
adequate to complete such restoration, Lessor shall fund all such excess costs.
As used herein, "Uneconomic for its Primary Intended Use" means a state or
condition of the Leased Property such that in the judgment of Lessor the Leased
Property cannot be operated on a commercially practicable basis for its Primary
Intended Use, such that Lessor intends to, and shall, cease operations from the
Leased Property; and "Unsuitable for its Primary Intended Use" means a state or
condition of the Leased Property such that in the judgment of Lessor the Leased
Property cannot function as a public golf facility consistent with standards
applicable to a well maintained and operated golf facility in quality and
function to that of the Leased Property prior to the damage or loss.
14.2 No Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect, and Lessee's
obligation to make rental payments and to pay all other charges required by this
Lease shall remain unabated.
14.3 Damage During Term. Notwithstanding any provisions of Section 14.1
appearing to the contrary, if damage to or destruction of the Leased Property
occurring during the Term of this Lease renders the Leased Property Unsuitable
for its Primary Intended Use, then either Lessor or Lessee (but in Lessee's case
only if the Leased Property is rendered Unsuitable for its Primary Intended Use
for a period in excess of twelve (12) months), shall have the right to terminate
this Lease by giving written notice to the other party, in Lessor's case at any
time after the occurrence of such damage or destruction, or in Lessee's case
within thirty (30) days after the expiration of such period, whereupon all
accrued Base Rent, Percentage Rent and Additional Charges shall be paid
immediately, and this Lease shall automatically terminate.
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ARTICLE XV
15.1 Definitions.
(a) "Condemnation" means a transfer of and/or compensation for the
diminished value of all or portion of the Leased Property resulting from (1) the
exercise of any governmental power, whether by legal proceedings or otherwise,
by a Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.
(b) "Date of Taking" means the date the Condemnor has the right to
possession of the property being condemned.
(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
15.2 Parties' Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
15.3 Total Taking. If title to the fee of the whole of the Leased
Property is condemned by any Condemnor, this Lease shall cease and terminate as
of the Date of Taking by the Condemnor. If title to the fee of less than the
whole of or substantially all of the Leased Property is so taken or condemned,
which nevertheless renders the Leased Property Unsuitable for its Primary
Intended Use or Uneconomic for its Primary Intended Use, Lessee and Lessor shall
each have the option, by notice to the other, at any time prior to the Date of
Taking, to terminate this Lease as of the Date of Taking. Upon such date, if
such notice has been given, this Lease shall thereupon cease and terminate. All
Base Rent, Percentage Rent and Additional Charges paid or payable by Lessee
hereunder shall be apportioned as of the Date of Taking, and Lessee shall
promptly pay Lessor such amounts.
15.4 Allocation of Award. The total Award made with respect to the
Leased Property or for loss of rent, or for Lessor's loss of business beyond the
Term, shall be solely the property of and payable to Lessor. Any Award made for
loss of business during the remaining Term, if any, or for removal and
relocation expenses of Lessee in any such proceedings shall be the sole property
of and payable to Lessee. In any Condemnation proceedings Lessor and Lessee
shall each seek its Award in conformity herewith, at its respective expense;
provided, however, Lessee shall not initiate, prosecute or acquiesce in any
proceedings that may result in a diminution of any Award payable to Lessor.
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15.5 Partial Taking. If title to less than the whole of or
substantially all of the Leased Property is condemned, and the Leased Property
is still suitable for its Primary Intended Use, and not Uneconomic for its
Primary Intended Use, or if Lessee or Lessor is entitled but neither elects to
terminate this Lease as provided in Section 15.3, Lessee at its cost shall with
all reasonable dispatch restore the untaken portion of the Leased Property so
that such Leased Property contains the same architectural units of the same
general character and condition (as nearly as may be possible under the
circumstances) as the Leased Property existing immediately prior to the
Condemnation. Lessor shall contribute to the cost of restoration that part of
its Award specifically allocated to such restoration, if any, together with
severance and other damages awarded for the taken Leased Property; provided,
however, that the amount of such contributions shall not exceed such cost.
15.6 Temporary Taking. If the whole or any part of the Leased Property
or of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the terms herein
specified, the full amount of all Base Rent, Percentage Rent, and Additional
Charges. Except only to the extent that Lessee may be prevented from so doing
pursuant to the terms of the order of the Condemnor, Lessee shall continue to
perform and observe all of the other terms, covenants, conditions and
obligations hereof on the part of the Lessee to be performed and observed, as
though such Condemnation had not occurred. In the event of any Condemnation as
is in this Section 15.6 described, the entire amount of any Award made for such
Condemnation allocable to the Term of this Lease, whether paid by way of
damages, rent or otherwise, shall be paid to Lessee. Lessee covenants that upon
the termination of any such period of temporary use or occupancy it will, at its
sole cost and expense (subject to Lessor's contribution as set forth below),
restore the Leased Property as nearly as may be reasonably possible to the
condition in which the same was immediately prior to such Condemnation, unless
such period of temporary use or occupancy extends beyond the expiration of the
Term, in which case Lessee shall not be required to make such restoration. If
restoration is required hereunder, Lessor shall contribute to the cost of such
restoration that portion of its entire Award that is specifically allocated to
such restoration in the judgment or order of the court, if any, and Lessee shall
fund the balance of such costs in advance of restoration in a manner reasonably
satisfactory to Lessor.
ARTICLE XVI
16.1 Events of Default. If any one or more of the following events
(individually, an "Event of Default") occurs:
(a) if Lessee fails to pay any Base Rent, Percentage Rent,
Additional Charges Impositions or any other monies required to be paid by Lessee
under this Lease, and such failure continues for a period of fifteen (15) days
after written notice specifying such failure has been provided Lessee by Lessor;
or
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(b) if Lessee fails to observe or perform any other term, covenant
or condition of this Lease and such failure is not cured by Lessee within a
period of thirty (30) days after receipt by the Lessee of notice thereof from
Lessor, unless such failure cannot with due diligence be cured within a period
of thirty (30) days, in which case it shall not be deemed an Event of Default if
Lessee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof provided, however, in no event shall
such cure period extend beyond ninety (90) days after notice of such failure has
been provided to Lessee by Lessor;
then, and in any such event, Lessor may exercise one or more remedies available
to it herein or at law or in equity, including but not limited to its right to
terminate this Lease by giving Lessee not less than ten (10) days' notice of
such termination.
If litigation is commenced with respect to any alleged default under
this Lease, the prevailing party in such litigation shall receive, in addition
to its damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
16.2 Surrender. If an Event of Default occurs (and the event giving
rise to such Event of Default has not been cured within the curative period
relating thereto as set forth in Section 16.1) and is continuing, whether or not
this Lease has been terminated pursuant to Section 16.1, Lessee shall, if
requested by Lessor so to do, immediately surrender to Lessor the Leased
Property including, without limitation, any and all books, records, files,
licenses, permits and keys relating thereto, and quit the same and Lessor may
enter upon and repossess the Leased Property by reasonable force, summary
proceedings, ejectment or otherwise, and may remove Lessee and all other persons
and any and all personal property from the Leased Property, subject to the
rights of any Golf Facility guests and tenants or subtenants and to any
requirement of law. Lessee hereby waives any and all requirements of applicable
laws for service of notice to re-enter the Leased Property. Lessor shall be
under no obligation to, but may if it so chooses, relet the Leased Property or
otherwise mitigate Lessor's damages.
16.3 Damages. Neither (a) the termination of this Lease, (b) the
repossession of the Leased Property, (c) the failure of Lessor to relet the
Leased Property, nor (d) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting. In the event of any
such termination, Lessee shall forthwith pay to Lessor all rent due and payable
with respect to the Leased Property to and including the date of such
termination.
Lessee shall forthwith pay to Lessor, at Lessor's option, as and for
liquidated and agreed current damages for Lessee's default, either:
(1) Without termination of Lessee's right to possession of the
Leased Property, each installment of rent and other sums payable by Lessee to
Lessor under the Lease as the same
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becomes due and payable, which rent and other sums shall bear interest at the
rate of twelve percent (12%) per annum until paid, and Lessor may enforce, by
action or otherwise, any other term or covenant of this Lease; or
(2) the sum of:
(A) the unpaid rent which had been earned at the time of
termination, repossession or reletting, and
(B) the worth at the time of termination, repossession or
reletting of the amount by which the unpaid rent for the balance of the Term of
this Lease after the time of termination, repossession or reletting, exceeds the
amount of such rental loss that Lessee proves could be reasonably avoided, and
(C) any other amount necessary to compensate Lessor for all
the detriment proximately caused by Lessee's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom. The worth at the time of termination, repossession or
reletting of the amount referred to in subparagraph (B) is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of New
York at the time of award plus one percent (1%).
Percentage Rent for the purposes of this Section 16.3 shall be a sum equal to
(i) the average of the annual amounts of Percentage Rent for the three calendar
years immediately preceding the calendar year in which the termination, re-entry
or repossession takes place, or (ii) if three calendar years shall not have
elapsed, the Percentage Rent during the preceding calendar year during which
this Lease was in effect, or (iii) if one calendar year has not elapsed, the
amount derived by annualizing the Percentage Rent from the Commencement Date of
this Lease.
16.4 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's obligations in the order that Lessor may
determine or as may be prescribed by the laws of the State of California.
ARTICLE XVII
Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of the
agreements wherein Lessor's interest has been assigned to Lessee hereunder, and
fails to cure the same within the relevant time periods provided in Section
16.1, Lessor, without waiving or releasing any obligation of Lessee, and without
waiving or releasing any obligation or default, may (but shall be under no
obligation to) at any
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time thereafter make such payment or perform such act for the account and at the
expense of Lessee, and may, to the extent permitted by law, enter upon the
Leased Property for such purpose and take all such action thereon as, in
Lessor's opinion, may be necessary or appropriate therefor. No such entry shall
be deemed an eviction of Lessee. All sums so paid by Lessor and all costs and
expense (including, without limitation, reasonable attorneys' fees and expenses,
in each case to the extent permitted by law) so incurred, together with a late
charge thereon (to the extent permitted by law) at a rate equal to the prime
rate (or base rate) reported in the Money Rates column or comparable section of
the Wall Street Journal as the rate then in effect for corporate loans at large
U.S. money center commercial banks plus five percent ( 5%) per annum from the
date on which such sums or expenses are paid or incurred by Lessor, shall be
paid by Lessee to Lessor on demand. The obligations of Lessee and rights of
Lessor contained in this Article shall survive the expiration or earlier
termination of this Lease.
ARTICLE XVIII
Holding Over. If Lessee for any reason remains in possession of the
Leased Property after the expiration or earlier termination of the Term of this
Lease, such possession shall be as a tenant at sufferance during which time
Lessee shall pay as rental each month two times the aggregate of (a) one-twelfth
of the aggregate Base Rent and Percentage Rent payable with respect to the last
year of the Term of this Lease, (b) all additional charges accruing during the
applicable month and (c) all other sums, if any, payable by Lessee under this
Lease with respect to the Leased Property. During such period, Lessee shall be
obligated to perform and observe all of the terms, covenants and conditions of
this Lease, but shall have no rights hereunder other than the right, to the
extent given by law to tenancies at sufferance, to continue its occupancy and
use of the Leased Property. Nothing contained herein shall constitute the
consent, express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE XIX
Risk of Loss. During the Term of this Lease, the risk of loss or of
decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than those caused by Lessor and those
claiming from, through or under Lessor) is assumed by Lessee, and, in the
absence of gross negligence, willful misconduct or breach of this Lease by
Lessor pursuant to Section 31.2, Lessor shall in no event be answerable or
accountable therefor, nor shall any of the events mentioned in this Section
entitle Lessee to any abatement of rent except as specifically provided in this
Lease. Lessor and Lessee agree that if there is a Water Shortage (hereafter
defined), Lessor will in good faith negotiate with Lessee an equitable abatement
of Base Rent for periods of time during the Term that such Water Shortage
exists. "Water Shortage" means there has been a material increase
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in the cost (net of all insurance proceeds, subsidies and other payments
received by Lessee as a result of the fact, circumstance or event directly or
indirectly causing the cost increase) in obtaining a supply of water to the
Leased Property and such increase has a materially adverse effect on the
profitability of the operations of the Golf Facility.
ARTICLE XX
Indemnification. Notwithstanding the existence of any insurance, and
without regard to the policy limits of any such insurance or self-insurance,
Lessee will protect, indemnify, hold harmless, and defend Lessor from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses (including, without limitation, reasonable attorneys'
fees and expenses), to the extent permitted by law, imposed upon or incurred by
or asserted against Lessor by reason of (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks during the Term of this Lease, including without
limitation any claims under liquor liability, "dram shop" or similar laws, (b)
any past, present or future use, misuse, non-use, condition, management,
maintenance or repair by Lessee or any of its agents, employees or invitees of
the Leased Property or any litigation, proceeding or claim by governmental
entities or other third parties to which Lessor is made a party or participant
related to such use, misuse, non-use, condition, management, maintenance, or
repair thereof by Lessee or any of its agents, employees or invitees, including
any failure of Lessee or any of its agents, employees or invitees to perform any
obligations under this Lease or imposed by applicable law (other than arising
out of condemnation proceedings), (c) any Impositions that are the obligations
of Lessee pursuant to the applicable provisions of this Lease, (d) any failure
on the part of Lessee to perform or comply with any of the terms of this Lease,
(e) the non-performance of any of the terms and provisions of any and all
existing and future subleases of the Leased Property to be performed by the
landlord thereunder and (f) any use of the Marks in breach of this Lease.
Lessor shall indemnify, save harmless and defend Lessee from and
against all liabilities, obligations, claims, damages, penalties, causes of
action, costs and expenses imposed upon or incurred by or asserted against
Lessee as a result of (a) the gross negligence or willful misconduct of Lessor
arising in connection with this Lease or (b) any failure on the part of Lessor
to perform or comply with any of the terms of this Lease.
Any amounts that become payable by an indemnifying party under this
Section shall be paid within ten (10) days after liability therefor on the part
of the indemnifying party is determined by litigation or otherwise, and if not
timely paid, shall bear a late charge (to the extent permitted by law) at the
rate of twelve percent (12%) per annum from the date of such determination to
the date of payment. An indemnifying party, at its expense, shall contest,
resist and defend any such claim, action or proceeding asserted or instituted
against the indemnified party. The indemnified party, at its expense, shall be
entitled to participate in any such claim, action, or proceeding, and
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the indemnifying party may not compromise or otherwise dispose of the same
without the consent of the indemnified party, which may not be unreasonably
withheld. Nothing herein shall be construed as indemnifying Lessor against its
own grossly negligent acts or omissions or willful misconduct.
Lessee's or Lessor's liability for a breach of the provisions of this
Article shall survive any termination of this Lease.
ARTICLE XXI
Subletting and Assignment. Except for subleases to concessionaires made
in the ordinary course of operating the Golf Facility, Lessee shall not sell,
assign or transfer all or any portion of its leasehold estate or sublet all or
any portion of the Leased Property, nor license the use of the Marks, without
first obtaining the prior written consent of Lessor. In the event of an
assignment or subletting by Lessee which is approved by Lessor, Lessee shall
nevertheless remain fully liable for the due performance of all obligations on
Lessee's part to be performed under this Lease. No permitted assignment, sale or
transfer shall be effective until there shall have been delivered to Lessor an
undertaking in recordable form, executed by the proposed assignee or sublessee,
wherein such assignee or sublessee assumes the due performance of all
obligations on Lessee's part to be performed under this Lease. Notwithstanding
the other provisions of this Article XXI to the contrary, Lessee shall be
entitled to sublease the Residential Structure for Employee Housing.
ARTICLE XXII
Officer's Certificates; Lessor's Estoppel Certificates and Covenants.
(a) At any time and from time to time upon not less than twenty (20)
days notice by Lessor, Lessee will furnish to Lessor a statement certifying that
this Lease is unmodified and in full force and effect (or that this Lease is in
full force and effect as modified and setting forth the modifications), the date
to which the rent has been paid, whether to the knowledge of Lessee there is any
existing default or Event of Default exists thereunder by Lessor or Lessee, and
such other information as may be reasonably requested by Lessor. Any such
certificate furnished pursuant to this Section may be relied upon by Lessor, any
lender and any prospective purchaser of the Leased Property.
(b) At any time and from time to time upon not less than thirty (30)
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel certificate certifying that this Lease is unmodified and
in full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which rent has been
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paid, whether to the knowledge of Lessor there is any existing default or Event
of Default on Lessee's part hereunder, and such other information as may be
reasonably requested by Lessee.
ARTICLE XXIII
Lessor's Right to Inspect. Lessee shall permit Lessor and its
authorized representatives as frequently as reasonably requested by Lessor to
inspect the Leased Property and Lessee's accounts and records pertaining thereto
and make copies thereof, during usual business hours upon reasonable advance
notice, subject only to any business confidentiality requirements reasonably
requested by Lessee.
ARTICLE XXIV
No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
ARTICLE XXV
Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Lessor or Lessee now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor or Lessee of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor or Lessee of any or all of such
other rights, powers and remedies.
ARTICLE XXVI
Acceptance of Surrender. No surrender to Lessor of this Lease or of the
Leased Property or any part thereof, or of any interest therein, shall be valid
or effective unless agreed to and accepted in writing by Lessor and no act by
Lessor or any representative or agent of Lessor, other than such a written
acceptance by Lessor, shall constitute an acceptance of any such surrender.
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ARTICLE XXVII
No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXVIII
Conveyance by Lessor. If Lessor or any successor owner of the Leased
Property conveys the Leased Property in accordance with the terms hereof other
than as security for a debt, and the grantee or transferee of the Leased
Property expressly assumes all obligations of Lessor hereunder arising or
accruing from and after the date of such conveyance or transfer, Lessor or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Lessor under this Lease arising or accruing from
and after the date of such conveyance or other transfer as to the Leased
Property and all such future liabilities and obligations shall thereupon be
binding upon the new owners.
ARTICLE XXIX
Notices. All notices, demands, or other communications of any type
given by the Lessor to the Lessee, or by the Lessee to the Lessor, whether
required by this Lease or in any way related to the transaction contracted for
herein, shall be void and of no effect unless given in accordance with the
provisions of this paragraph. All notices shall be in writing and delivered to
the person to whom the notice is directed, either in person, by facsimile
transmission, or by United States Mail, as a registered or certified item,
return receipt requested. Notices delivered by mail shall be deemed given when
deposited in a post office or other depository under the care or custody of the
United States Postal Service, enclosed in a wrapper with proper postage affixed,
addressed as follows:
<TABLE>
<S> <C>
Lessor: Crescent Real Estate Equities Limited Partnership
777 Main Street, Suite 2100
Fort Worth, Texas 76102
Attn: David M. Dean
Telephone No.: (817) 321-1442
Facsimile No.: (817) 321-2000
</TABLE>
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<TABLE>
<S> <C>
with a copy to: Brown McCarroll & Oaks Hartline, L.L.P.
300 Crescent Court, Suite 1400
Dallas, Texas 75201
Attn: Robert W. Dupuy
Telephone No.: (214) 999-6102
Facsimile No.: (214) 999-6170
Lessee: Wine Country Golf Club, Inc.
306 W. 7th Street, Suite 1025
Fort Worth, Texas 76102
Attn: Jeffrey L. Stevens
Telephone No.: (817) 339-2200
Facsimile No.: (817) 339-1001
</TABLE>
ARTICLE XXX
Appraisers. If it becomes necessary to determine the fair market value
of the Leased Property for any purpose of this Lease, the party required or
permitted to give notice of such required determination shall include in the
notice the name of a person selected to act as appraiser on its behalf. Within
ten (10) days after notice, Lessor (or Lessee, as the case may be) shall by
notice to Lessee (or Lessor, as the case may be) appoint a second person as
appraiser on its behalf. The appraisers thus appointed, each of whom must be a
member of the American Institute of Real Estate Appraisers (or any successor
organization thereto) with at least five years experience in the State of
California appraising property similar to the Leased Property, shall, within
forty-five (45) days after the date of the notice appointing the first
appraiser, proceed to appraise the Leased Property to determine the fair market
value thereof as of the relevant date (giving effect to the impact, if any, of
inflation from the date of their decision to the relevant date); provided,
however, that if only one appraiser shall have been so appointed, then the
determination of such appraiser shall be final and binding upon the parties. If
two appraisers are appointed and if the difference between the amounts so
determined does not exceed five percent (5%) of the lesser of such amounts, then
the fair market value shall be an amount equal to fifty percent (50%) of the sum
of the amounts so determined. If the difference between the amounts so
determined exceeds five percent (5%) of the lesser of such amounts, then such
two appraisers shall have twenty (20) days to appoint a third appraiser. If no
such appraiser shall have been appointed within such twenty (20) days or within
ninety (90) days of the original request for a determination of fair market
value, whichever is earlier, either Lessor or Lessee may apply to any court
having jurisdiction to have such appointment made by such court. Any appraiser
appointed by the original appraisers or by such court shall be instructed to
determine the fair market value or fair market rental within forty-five (45)
days after appointment of such appraiser. The determination of the appraiser
which differs most in the terms of dollar amount from the determinations of the
other two appraisers shall be excluded, and fifty percent (50%) of the sum of
the remaining two determinations shall be final
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and binding upon Lessor and Lessee as the fair market value or fair market
rental of the Leased Property, as the case may be. This provision for
determining by appraisal shall be specifically enforceable to the extent such
remedy is available under applicable law, and any determination hereunder shall
be final and binding upon the parties except as otherwise provided by applicable
law. Lessor and Lessee shall each pay the fees and expenses of the appraiser
appointed by it and each shall pay one-half of the fees and expenses of the
third appraiser and one-half of all other costs and expenses incurred in
connection with each appraisal.
ARTICLE XXXI
31.1 Lessor May Grant Liens. Upon notice to but without the consent of
Lessee, Lessor may, from time to time, directly or indirectly, create or
otherwise cause to exist any lien, encumbrance or title retention agreement
("Encumbrance") upon the Leased Property, or any portion thereon or interest
therein, whether to secure any borrowing or other means of financing or
refinancing. This Lease shall be subject and subordinate to the lien of any
Encumbrance that Lessor, its successors or assigns, has placed or may hereafter
place on or against all or any part of the Leased Property, and Lessee hereby
agrees to attorn to any such lienholder and any other purchaser at the
foreclosure of such lien (including obtaining of title by lender by deed in lieu
of foreclosure), upon demand. It is expressly provided and agreed that any such
lienholder shall not be required to agree not to disturb Lessee in the event of
a foreclosure or deed in lieu thereof and that, at the option of any such
lienholder or any other purchaser at foreclosure of such lien, this Lease may be
terminated and, upon such termination, Lessee shall have no further rights
hereunder.
31.2 Breach by Lessor. It shall be a breach of this Lease if Lessor
fails to observe or perform any term, covenant or condition of this Lease on its
part to be performed and such failure continues for a period of thirty (30) days
after notice thereof from Lessee, unless such failure cannot with due diligence
be cured within a period of thirty (30) days, in which case such failure shall
not be deemed to continue if Lessor, within such 30-day period, proceeds
promptly and with due diligence to cure the failure and diligently completes the
curing thereof.
ARTICLE XXXII
32.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this Lease or any application thereof
is invalid or unenforceable, the remainder of this Lease and any other
application of such term or provisions shall not be affected thereby. If any
late charges or any interest rate provided for in any provision of this Lease
are based upon a rate in excess of the maximum rate permitted by applicable law,
the parties agree that such charges shall be fixed at the maximum permissible
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rate. Neither this Lease nor any provision hereof may be changed, waived,
discharged or terminated except by a written instrument in recordable form
signed by Lessor and Lessee. All the terms and provisions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns. The headings in this Lease are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof. This
Lease shall be governed by and construed in accordance with the laws of the
State of California, but not including its conflicts of laws rules.
32.2 Transfer of Licenses. Upon the expiration or earlier termination
of the Term of this Lease, Lessee shall use its best efforts (i) to transfer to
Lessor or Lessor's nominee all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities, that may be necessary for the
operation of the Golf Facility (collectively, "Licenses"), or (ii) if such
transfer is prohibited by law or Lessor otherwise elects, to cooperate with
Lessor or Lessor's nominee in connection with the processing by Lessor or
Lessor's nominee of any applications for, all Licenses; provided, in either
case, that the costs and expenses of any such transfer or the processing of any
such application shall be paid by Lessor or Lessor's nominee.
32.3 Waiver of Presentment, Etc. Lessee waives all presentments,
demands for payment and for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance and waives
all notices of the existence, creation, or incurring of new or additional
obligations, except as expressly granted herein.
ARTICLE XXXIII
Financial Statements. Lessee shall deliver to Lessor (a) within sixty
(60) days after the end of each calendar year annual operating statements for
Lessee's business at the Leased Property (including a detailed profit and loss
statement and a detailed accounting of revenues) and a copy of the balance sheet
of Lessee as of the end of such year, and related statements of income and
retained earnings and changes in financial position for such year, (b) within
thirty (30) days after the end of each month monthly operating statements for
Lessee's business at the Leased Property (including a detailed profit and loss
statement and a detailed accounting of revenues) and a copy of the balance sheet
of Lessee as of the end of such month, (c) at least thirty (30) days before
commencement of each new Lease Year, an Annual Budget (hereafter defined) for
the upcoming Lease Year, (d) at least sixty (60) days before commencement of
each new Lease Year, a report of projected Gross Receipts for the upcoming Lease
Year and (e) such other information as Lessor may from time to time reasonably
request. As used in this Lease, "Annual Budget" means an estimate of income,
revenue, operating expenses and capital expenditures Lessee anticipates for the
operation and maintenance of the Golf Facility in a manner consistent with this
Lease. The foregoing financial statements shall be certified by a member or an
authorized officer (as the case may be) of Lessee. All financial statements of
Lessee delivered to Lessor shall be true and correct
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<PAGE> 42
in all respects, shall be prepared in accordance with generally accepted
accounting principles, consistently applied, and fairly present the financial
condition of the subject thereof as of the dates thereof. Any materially adverse
change that occurs in the financial condition reflected therein after the date
thereof shall be reported to Lessor promptly. None of the aforesaid financial
statements, or any certificate or statement furnished to Lessor by or on behalf
of Lessee in connection with the transactions contemplated hereby, shall contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein or herein not
misleading.
ARTICLE XXXIV
34.1 REIT Compliance. Lessee acknowledges that Lessor is a subsidiary
of Crescent Real Estate Equities Company, a Texas trust ("Crescent"), and
Crescent intends to qualify as a real estate investment trust under the Internal
Revenue Code of 1986, as amended. Lessee agrees that it will not knowingly or
intentionally take or omit any action, or permit any status to exist at the
Leased Property, which Lessee knows would or could result in Crescent being
disqualified from treatment as a real estate investment trust under the Internal
Revenue Code of 1986 as the provisions exist on the date hereof.
34.2 Personal Property Limitation. Anything contained in this Lease to
the contrary notwithstanding, the average of the adjusted tax bases of the items
of personal property that are leased to the Lessee under this Lease at the
beginning and at the end of any calendar year shall not exceed fifteen percent
(15%) of the average of the aggregate adjusted tax bases of the Leased Property
at the beginning and at the end of each such calendar year. This Section 34.2 is
intended to insure that the rent payable hereunder qualifies as "rents from real
property," within the meaning of Section 856(d) of the Internal Revenue Code of
1986, or any similar or successor provisions thereto, and shall be interpreted
in a manner consistent with such intent.
34.3 Sublease Rent Limitation. Anything contained in this Lease to the
contrary notwithstanding, without Lessor's prior written consent, Lessee shall
not sublet the Leased Property on any basis such that the rental to be paid by
the sublessee thereunder would be based, in whole or in part, on either (a) the
income of profits derived by the business activities of the sublessee, or (b)
any other formula such that any portion of the rent payable hereunder would fail
to qualify as "rents from real property" within the meaning of Section 856(d) of
the Internal Revenue Code of 1986, or any similar or successor provisions
thereto.
34.4 Sublease Tenant Limitation. Anything contained in this Lease to
the contrary notwithstanding, without Lessor's prior written consent, Lessee
shall not sublease the Leased Property to any person or entity which Crescent
has certified to Lessee in writing that owns, directly or indirectly, a ten
percent (10%) or more interest in Crescent, within the meaning of
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<PAGE> 43
Section 856(d)(2)(B) of the Internal Revenue Code of 1986, or any similar or
successor provisions thereto.
34.5 Lessee Ownership Limitation. Anything contained in this Lease to
the contrary notwithstanding, neither Lessee nor any affiliate of the Lessee
shall acquire, directly or indirectly, a ten percent (10%) or more interest in
Crescent, within the meaning of Section 856(d)(2)(B) of the Internal Revenue
Code of 1986, or any similar or successor provisions thereto.
ARTICLE XXXV
35.1 Lessor's Option to Terminate Lease. In the event Lessor enters
into a bona fide contract to sell the Leased Property to a non-affiliated party,
Lessor may terminate the Lease by giving not less than thirty (30) days prior
notice to Lessee of Lessor's election to terminate the Lease effective upon the
closing of such contract. Effective upon such closing date, this Lease shall
terminate and be of no further force and effect, except as to any obligations of
the parties existing as of such date that survive termination of this Lease. As
compensation for the early termination of its leasehold estate under this
Article XXXV, Lessor shall within ninety (90) days of such closing pay to Lessee
the fair market value of Lessee's leasehold estate hereunder as of the closing
of the sale of the Leased Property. In the event Lessor and Lessee are unable to
agree upon the fair market value of an original or replacement leasehold estate,
it shall be determined by appraisal using the appraisal procedures set forth in
Article XXX. Lessor shall not sell less than all of the Leased Property to an
unaffiliated third party during the Term of this Lease.
35.2 Fair Market Value of Leasehold Estate. For the purposes of Section
35.1, fair market value of the leasehold estate means an amount equal to the
present value (using a 13% discount rate) of the net cash flow to be derived
from this Lease during the remaining Term of this Lease based on current
projections made by Lessee with respect to future occupancy of, and future cash
flow to be generated by the Leased Property.
35.3 Termination Upon Default Under Sonoma Mission Inn Lease. In the
event the Sonoma Mission Inn Lease (hereafter defined) is terminated due to a
default thereunder by Wine Country Hotel, LLC, an affiliate of Lessee ("Wine
Country Hotel"), then Lessor may, at its option, but is not required to,
terminate this Lease without payment or other obligation to Lessee by providing
written notice thereof to Lessee, which termination shall be effective as of the
date set forth in such termination notice. "Sonoma Mission Inn Lease" means that
certain Lease Agreement between Lessor and Wine Country Hotel dated November ,
1996.
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<PAGE> 44
ARTICLE XXXVI
Mutual Option to Terminate. In the event the Sonoma Mission Inn Lease
is not extended beyond the expiration date that exists thereunder as of the
Commencement Date of this Lease, then either Lessee or Lessor may terminate this
Lease without further liability hereunder, other than Lessee's obligations for
accrued but unpaid amounts due Lessor hereunder, including without limitation
Base Rent, Percentage Rent and Additional Charges and obligations which
otherwise survive termination of this Lease. In the event Lessor or Lessee
terminate this Lease under this Article XXXVI, such termination shall be
coterminous with the termination of the Sonoma Mission Inn Lease.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 45
IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized officers as of the date first above written.
LESSOR: CRESCENT REAL ESTATE EQUITIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Crescent Real Estate Equities, Ltd.,
a Delaware corporation, its general
partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
LESSEE: WINE COUNTRY GOLF CLUB, INC.
a Texas corporation
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE> 46
EXHIBIT "A"
DESCRIPTION OF LAND
-1-
<PAGE> 47
EXHIBIT "B"
PRELIMINARY STATEMENT OF CASH AND WORKING CAPITAL
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Petty Cash $ 0.00
Operating Cash 50,000.00
Guest Ledger 0.00
City Ledger 0.00
Credit Card Accounts Receivable 0.00
Non Credit Card Accounts Receivable 0.00
Food Inventory 3,033.13
Beverage Inventory 9,247.83
Supplies Inventory 90,313.73
Prepaids 0.00
Other Assets 0.00
-----------
Total Current Assets $152,594.69
===========
LIABILITIES
Trade Payables $ 0.00
Sales/Occupancy Tax 4,575.36
Payroll Accruals 0.00
Operating Expense Accruals 0.00
Insurance Accrual 0.00
Property Tax Accrual 26,249.38
Personal Property Tax Accrual 0.00
Credit Card Discount Accrual 0.00
Misc. Accruals/Payables 2,335.38
Advance Deposits 59,491.62
Gift Certificates 37,547.08
-----------
Total Current Liabilities $130,198.82
===========
NET WORKING CAPITAL ASSET (DEFICIT) $22,395.87
==========
</TABLE>
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 39,182,841
<SECURITIES> 0
<RECEIVABLES> 34,763,151
<ALLOWANCES> 226,787
<INVENTORY> 32,283,412
<CURRENT-ASSETS> 163,215,743
<PP&E> 159,685,190
<DEPRECIATION> 8,862,238
<TOTAL-ASSETS> 924,438,629
<CURRENT-LIABILITIES> 152,186,522
<BONDS> 0
0
0
<COMMON> 114,015
<OTHER-SE> (9,916,595)
<TOTAL-LIABILITY-AND-EQUITY> 924,438,629
<SALES> 316,012,161
<TOTAL-REVENUES> 316,012,161
<CGS> 311,360,195
<TOTAL-COSTS> 311,360,195
<OTHER-EXPENSES> 8,327,061
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,638,808
<INCOME-PRETAX> 3,801,740
<INCOME-TAX> (2,948,500)
<INCOME-CONTINUING> 853,240
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 853,240
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
