<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 June 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.
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(Exact name of registrant as specified in its charter)
Delaware 75-2701931
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 339-1020
Indicate by check mark whether the registrant (1) has filed all reports required
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 August 10,
1998: 11,399,377
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CRESCENT OPERATING, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
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Item 1. Financial Statements:
Consolidated Balance Sheets...................................... 3
Consolidated Statements of Operations............................ 4
Consolidated Statements of Cash Flows............................ 6
Notes to Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................14
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................26
Item 2. Changes in Securities and Use of Proceeds........................26
Item 3. Defaults Upon Senior Securities..................................26
Item 4. Submission of Matters to a Vote of Security Holders..............26
Item 5. Other Information................................................26
Item 6. Exhibits and Reports on Form 8-K.................................26
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 26,835,281 $ 43,401,132
Accounts receivable, net 23,699,971 17,099,165
Inventories 12,172,563 10,125,075
Notes receivable 5,603,178 8,454,059
Real estate held for sale 41,122,941 43,200,000
Prepaid expenses and other current assets 3,833,154 4,714,827
------------- -------------
Total current assets 113,267,088 126,994,258
------------- -------------
PROPERTY AND EQUIPMENT, NET 107,173,834 90,979,033
------------- -------------
INVESTMENTS 294,366,058 219,675,214
------------- -------------
OTHER ASSETS
Real estate 67,422,103 70,827,584
Notes receivable 17,443,780 35,343,319
Goodwill, net of accumulated amortization of
$7,089,865 and $4,211,964 in 1998 and 1997, respectively 35,108,486 35,777,368
Other assets 6,959,746 4,786,559
------------- -------------
Total other assets 126,934,115 146,734,830
------------- -------------
TOTAL ASSETS $ 641,741,095 $ 584,383,335
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 42,130,610 $ 49,320,732
Accounts payable - CEI 6,868,761 6,588,606
Current portion of long-term debt - CEI 1,520,182 24,084,587
Current portion of long-term debt 7,730,201 18,759,349
Deferred revenue 5,367,057 4,712,227
------------- -------------
Total current liabilities 63,616,811 103,465,501
LONG-TERM DEBT-CEI, NET OF CURRENT PORTION 190,837,244 207,798,563
LONG-TERM DEBT, NET OF CURRENT PORTION 32,750,255 7,486,378
OTHER LIABILITIES
Deferred revenue 29,859,365 17,477,576
Other 5,892,032 2,648,879
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Total liabilities 322,955,707 338,876,897
------------- -------------
MINORITY INTERESTS 322,634,510 253,566,622
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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, 11,398,091 and
11,211,094 shares issued and outstanding in 1998 and 1997, respectively 113,980 112,111
Additional paid-in capital 17,663,544 14,255,423
Deferred compensation on restricted shares (225,312) (262,500)
Retained deficit (21,401,334) (22,165,218
------------- -------------
Total shareholders' equity (deficit) (3,849,122) (8,060,184)
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 641,741,095 $ 584,383,335
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements
3
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
-------------------------------- -------------
For the Three For the period from For the Period from
Months Ended May 9, 1997 to April 1, 1997
June 30, 1998 June 30, 1997 to May 8, 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Equipment sales & leasing $ 11,558,220 $ 1,707,580 $ 1,617,765
Hospitality 53,102,725 -- --
Land development 42,148,417 -- --
------------- ------------- -------------
Total revenues 106,809,362 1,707,580 1,617,765
------------- ------------- -------------
OPERATING EXPENSES
Equipment sales & leasing direct expenses 10,839,969 1,424,882 1,598,756
Hospitality direct expenses 39,063,189 -- --
Hospitality properties rent - CEI 12,191,351 -- --
Land development direct expenses 40,494,318 -- --
General and administrative expenses 815,361 -- --
------------- ------------- -------------
Total operating expenses 103,404,188 1,424,882 1,598,756
------------- ------------- -------------
INCOME FROM OPERATIONS 3,405,174 282,698 19,009
------------- ------------- -------------
INVESTMENT INCOME (LOSS) 8,605,677 (399,000) --
------------- ------------- -------------
OTHER (INCOME) EXPENSE
Interest expense 3,425,904 308,825 22,114
Interest income (983,393) (3,888) (3,167)
Other 24,313 (159,261) (3,517)
------------- ------------- -------------
Total other (income) expense 2,466,824 145,676 15,430
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INCOME (LOSS) BEFORE MINORITY
INTERESTS AND INCOME TAXES 9,544,027 (261,978) 3,579
MINORITY INTERESTS (3,403,659) -- --
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 6,140,368 (261,978) 3,579
INCOME TAX (PROVISION) BENEFIT (4,197,913) -- (1,254)
------------- ------------- -------------
NET INCOME (LOSS) $ 1,942,455 $ (261,978) $ 2,325
============= ============= =============
EARNINGS (LOSS) PER SHARE
Basic $ 0.17 $ (0.02)
============= =============
Diluted $ 0.16 $ (0.02)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 11,327,601 11,025,547
============= =============
Diluted 12,133,300 11,025,547
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
-------------------------------- -------------
For the Six For the period from For the Period from
Months Ended May 9, 1997 to January 1, 1997
June 30, 1998 June 30, 1997 to May 8, 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES
Equipment sales & leasing $ 19,538,876 $ 1,707,580 $ 4,657,260
Hospitality 111,367,899 -- --
Land development 73,279,739 -- --
------------- ------------- -------------
Total revenues 204,186,514 1,707,580 4,657,260
------------- ------------- -------------
OPERATING EXPENSES
Equipment sales & leasing direct expenses 18,451,255 1,424,882 4,499,145
Hospitality direct expenses 80,411,943 -- --
Hospitality properties rent - CEI 24,516,088 -- --
Land development direct expenses 72,321,625 -- --
General and administrative expenses 1,139,038 -- --
------------- ------------- -------------
Total operating expenses 196,839,949 1,424,882 4,499,145
------------- ------------- -------------
INCOME FROM OPERATIONS 7,346,565 282,698 158,115
------------- ------------- -------------
INVESTMENT INCOME (LOSS) 6,650,024 (399,000) --
------------- ------------- -------------
OTHER (INCOME) EXPENSE
Interest expense 7,251,423 308,825 135,367
Interest income (2,215,871) (3,888) (12,885)
Other 37,483 (159,261) (3,459)
------------- ------------- -------------
Total other (income) expense 5,073,035 145,676 119,023
------------- ------------- -------------
INCOME (LOSS) BEFORE MINORITY
INTERESTS AND INCOME TAXES 8,923,554 (261,978) 39,092
MINORITY INTERESTS (3,890,368) -- --
------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 5,033,186 (261,978) 39,092
INCOME TAX (PROVISION) BENEFIT (4,269,302) -- (13,682)
------------- ------------- -------------
NET INCOME (LOSS) $ 763,884 $ (261,978) $ 25,410
============= ============= =============
EARNINGS (LOSS) PER SHARE
Basic $ 0.07 $ (0.02)
============= =============
Diluted $ 0.06 $ (0.02)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 11,271,023 11,025,547
============= =============
Diluted 12,080,623 11,025,547
============= =============
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Carter-Crowley Asset
Crescent Operating, Inc. Group (Predecessor)
------------------------------ ------------
Six Months For the period from For the period from
Ended May 9, 1997 to January 1, 1997 to
June 30, 1998 June 30, 1997 May 8, 1997
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 763,884 $ (261,978) $ 25,410
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation 6,287,829 3,518 747,503
Amortization 2,877,901 -- --
Provision for deferred income taxes 1,051,095 -- --
Investment (income) loss (6,650,024) 399,000 --
Minority interests 3,890,368 -- --
Deferred compensation 37,187 -- --
Gain on sale of property and equipment (199,417) -- (133,607)
Gain on sale of partnership -- (150,000) --
Net proceeds from sale of real estate 5,482,540 -- --
Changes in assets and liabilities:
Accounts receivable (6,125,030) (62,194) 152,231
Inventories (1,878,883) (364,857) 115,403
Prepaid expenses and current assets (670,381) 208,552 (125,205)
Other assets (161,787) -- --
Accounts payable and accrued expenses (6,680,915) 112,000 197,384
Accounts payable - CEI 280,155 -- --
Deferred revenue, current and noncurrent 13,951,406 -- --
------------ ------------ ------------
Net cash provided by (used in) operating activities 12,255,928 (115,959) 979,119
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business interests, net of cash acquired (6,841,674) -- --
Acquisition of business interests by minority interests (66,615,023) -- --
Purchases of property and equipment (14,177,358) (1,857,421) --
Proceeds from sale of property and equipment 1,390,861 79,177 309,890
Net proceeds from sale and collection of notes receivable 21,155,492 -- --
Net proceeds from (investment in) Hicks-Muse 4,509,621 (689,175) (1,870,636)
Investment in CBHS -- (7,500,000) --
Purchase of Magellan warrants -- (12,500,000) --
Dividends received 4,250,000 -- --
------------ ------------ ------------
Net cash used in investing activities (56,328,081) (22,467,419) (1,560,746)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 12,464,080 -- 408,320
Payments on long-term debt (3,448,069) -- (848,310)
Proceeds of long-term debt - CEI 1,992,193 35,825,000 --
Payments on long-term debt - CEI (42,314,637) (9,920,000) --
Capital contributions by minority interests 66,425,023 -- --
Distributions to minority interests (7,632,364) -- --
Other 20,074 (2,280,000) 1,164,967
------------ ------------ ------------
Net cash provided by financing activities 27,506,300 23,625,000 724,977
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (16,565,853) 1,041,622 143,350
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 43,401,134 165,685 22,335
------------ ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 26,835,281 $ 1,207,307 $ 165,685
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION:
Crescent Operating, Inc. ("Crescent Operating" or the "Company") was formed on
April 1, 1997, by Crescent Real Estate Equities Company ("Crescent Equities" or
"CEI") and its subsidiary Crescent Real Estate Equities Limited Partnership
("Crescent Partnership") to be the lessee and operator of certain assets owned
or to be acquired by Crescent Partnership and to perform an agreement (the
"Intercompany Agreement") between Crescent Operating and Crescent Partnership,
pursuant to which each has agreed to provide the other with rights to
participate in certain transactions. The Company also engages in other business
enterprises not related to Crescent Equities or the Intercompany Agreement,
such as the equipment sales and leasing segment. Effective June 12, 1997,
Crescent Equities distributed shares of Crescent Operating common stock to
shareholders of Crescent Equities and unit holders of Crescent Partnership and
became a public company. Crescent Operating's common stock is listed on the
NASDAQ National Market under the symbol "COPI". Unless the context otherwise
requires, the terms "Crescent Operating", the "Company", "Crescent Equities",
"CEI" and "Crescent Partnership" include the subsidiaries of each and, in the
case of "CEI" and "Crescent Equities" includes "Crescent Partnership."
Crescent Operating is a diversified management company that 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.
2. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. 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"), 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") and Crescent CS Holdings II Corporation ("CS II"). The Company's 5%
interests represent 100% of the voting stock of these entities, and therefore,
these entities are consolidated into Crescent Operating and the remaining 95% is
reported as minority interests. The Company's investment in Hicks Muse Tate &
Furst Equity Fund II, L.P. ("Hicks-Muse") is shown at cost and the Company's 50%
interest in Charter Behavioral Health Systems, LLC ("CBHS") is shown 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. The
assets of the Carter-Crowley Asset Group were adjusted at May 9, 1997 to reflect
the purchase price allocation.
7
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3. RECENT DEVELOPMENTS:
HOSPITALITY
On February 4, 1998, Ventana Inn closed its operations due to a landslide that
washed out Highway 1, the major access road to the property. The Ventana Inn
re-opened on May 1, 1998. The Company has filed a claim for losses totaling $1.3
million under its business interruption insurance policy. Hospitality revenues
for the quarter ended June 30, 1998 include $450,000 in insurance proceeds
received in July 1998 relating to the claim. The Company cannot predict the
outcome of the entire claim and accordingly, has not accrued for estimated
insurance proceeds above what has been received. The Company anticipates that
the claim will be settled during the third quarter of 1998.
LAND DEVELOPMENT
Effective August 12, 1998, Crescent Operating entered into a binding letter of
intent with Gerald W. Haddock, John C. Goff, and Harry Frampton to acquire their
10% interest in Crescent Development Management Corp. ("CDMC"). The 10% interest
represents 100% of the voting common stock of CDMC. The acquisition price of $9
million will be paid in common stock of Crescent Operating valued at $13.00 per
share, unless Crescent Operating common stock's average closing sale price on
NASDAQ exceeds $17.00 per share for any period of ten consecutive trading days
prior to consummation of the transaction in which case the shares would be
valued at $15.00 per share. The remaining 90% of CDMC is currently owned by
Crescent Partnership, which owns nonvoting securities only. CDMC is principally
engaged in investing in partnerships and other entities that directly or
indirectly through other entities participate in development and management of
resort, residential and vacation home real properties and ancillary supporting
services principally in Colorado. The transaction will be dependent on
negotiation and execution of definitive acquisition documents containing
customary terms acceptable to all parties, satisfactory results of due diligence
investigations, approval by the Company's board, receipt of necessary approvals
and other conditions; in addition, Messrs. Haddock, Goff and Frampton will not
be obligated to exchange their CDMC stock if Crescent Operating common stock's
average closing sale price on NASDAQ is less than $7.00 per share for the ten
consecutive trading days immediately prior to the transaction's closing date.
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 will
be included in the Company's financial statements from the 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 will
be included in the Company's financial statements from the date of acquisition.
Effective June 8, 1998, the Company acquired all of the stock of Machinery,
Inc., a company that is engaged in equipment sales, leasing and servicing, with
locations in Tulsa and Oklahoma City, Oklahoma. The purchase price of
approximately $2.8 million was comprised of $.6 million in cash, the issuance of
38,170 shares of Crescent Operating common stock and the assumption of $1.5
million of liabilities. 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 since the date of acquisition.
Effective April 30, 1998, the Company acquired certain assets of Central Texas
Equipment Co. ("Central Texas"), a company which is engaged in equipment sales,
leasing and servicing, located in Austin, Texas. The purchase price of
approximately $9.7 million was comprised of $3.0 million in cash, the issuance
of 128,551 shares of Crescent Operating common stock and the assumption of $4.1
million of liabilities. The transaction was treated as a purchase
8
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for accounting purposes and accordingly the results of operations have been
included in the Company's financial statements since the date of acquisition.
With the completion of the Harvey, Western Traction, Machinery, Inc. and Central
Texas acquisitions, Crescent Machinery has 14 locations in Texas, California,
Nevada, Oklahoma, Ohio and Hawaii.
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 to assist CBHS in obtaining the funds required to consummate the
transactions contemplated by the Purchase Agreement and to pay a $5 million
break up 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.
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 have not been met and are unlikely to be
satisfied in the near term. Consequently, as of August 12, 1998, the Company and
Magellan currently are engaged in negotiations to restructure the transactions
which are the subject of the above-referenced agreements. No new definitive
agreements have yet been reached in respect of the purchase and sale of any
portion of the interest in CBHS currently owned by CBHS Holdings or the equity
interests and assets currently owned by Magellan and its subsidiaries. Because
conditions to the Company's obligations under the Equity Purchase Agreement and
the Support Agreement have not been met, the Company believes it is under no
obligation to pay the $5 million break up fee to Magellan.
REFRIGERATED WAREHOUSING
On June 1, 1998, Americold Logistics, a group of companies in which Crescent
Operating owns a 2% indirect interest, acquired nine refrigerated storage
properties from Freezer Services, Inc. for approximately $134 million which
required a capital contribution from Crescent Operating of $2.3 million. On July
1, 1998, Americold Logistics acquired five refrigerated storage properties from
Carmar Group for approximately $158 million which required a capital
contribution from Crescent Operating of $2.7 million. These properties contain
approximately 90 million cubic feet of refrigerated storage space.
In April 1998, Americold Logistics refinanced its $607 million secured and
unsecured debt with a weighted average rate of approximately 12% with a $550
million non-recourse, ten-year loan secured by 58 refrigerated storage
properties with an interest rate of 6.89% which required a capital contribution
from Crescent Operating of $1.5 million.
OTHER
As previously announced by Crescent Equities, Crescent Equities entered into an
Agreement and Plan of Merger, dated January 16, 1998, as amended, (the "Station
Merger Agreement"), with Station Casinos, Inc. ("Station"), pursuant to which
Station would merge with and into Crescent Equities (the "Station Merger"). As
previously announced by the Company, the Company anticipated that certain
operating assets and employees of Station would be transferred to a limited
liability company (the "Station LLC") immediately prior to the Station Merger
and that the Company would be offered the opportunity to acquire a substantial
interest in the Station LLC. As of August 11, 1998, each of Crescent Equities
and Station had filed actions against the other in connection with the proposed
Station Merger and Crescent Equities had announced that it sent a notice to
Station terminating the Station Merger Agreement. The action filed by Crescent
Equities seeks, among other things, a declaratory judgement that alleged
breaches by Station under the Station Merger Agreement excuse Crescent Equities
from any further obligations under the Station Merger Agreement. As a
consequence, the Company does not believe that it is likely that it will have an
opportunity to acquire an interest in Station LLC.
On June 26, 1998, the Company filed with the Securities and Exchange Commission
a registration statement on Form S-4 (the "Shelf Registration Statement") for
the offering, in connection with directly negotiated acquisitions of businesses,
assets or securities, from time to time, in one or more series, separately or
together, of (i) shares of the Company's common stock, par value $0.01 per
share, (ii) shares of the Company's preferred stock, par value $0.01 per share
and (iii) warrants exercisable for the Company's common stock. The Shelf
Registration Statement, which became effective on July 21, 1998, is intended to
facilitate the issuance by the Company of registered securities in connection
with future acquisitions of businesses, assets or securities where a portion of
the consideration is paid in the form of Company securities. The Company may
offer up to $30 million of securities under the Shelf Registration Statement in
amounts, at prices and on terms to be determined by the Company and the owners
or controlling persons of the businesses, assets or securities to be acquired.
As of August 13, 1998, the Company has not made any offerings of securities
under the Shelf Registration Statement.
4. LONG-TERM DEBT:
Following is a summary of the Company's debt financing:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------------- ----------------------
<S> <C> <C>
LONG-TERM DEBT - CORPORATE AND WHOLLY-OWNED SUBSIDIARIES
Note payable to Crescent Partnership due May 2002, bears interest at 12%
payable 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)......................................... $ 26,776,720 $ 25,980,000
</TABLE>
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<TABLE>
<S> <C> <C>
Equipment notes payable to finance companies due 1998 through 2003 with
monthly principal and interest payments, bear interest from 8.5% to 10.5%,
collateralized by equipment (Crescent Machinery).................................. 22,302,585 11,245,727
Line of credit in the amount of $20.4 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% payable quarterly, collateralized, to the extent not
prohibited by pre-existing arrangements, by first lien on the assets which
the Company now owns or may acquire in the future. The Company is in
negotiations to increase the amount of the line of credit
(Crescent Operating).............................................................. 15,717,193 13,725,000
Line of credit in the amount of $15.0 million payable to NationsBank due
August 1999, interest payable monthly at LIBOR plus 1% (6.66% and 6.88% at
June 30, 1998 and December 31, 1997, respectively) (Crescent Operating)......... 15,000,000 15,000,000
Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, principal and interest payable monthly, collateralized by a
deed of trust for certain property and real property (RoseStar).................. 1,914,256 2,052,482
Note payable to Crescent Partnership due September 1998, bears interest at
8.5% payable monthly, collateralized by the Houston Center Athletic Club
Venture ("HCAC") $5.0 million note receivable (COI Hotel)........................ 1,000,000 1,000,000
Note payable to Crescent Partnership maturing September 2002, bears
interest at 8.5%, principal and interest payable monthly,
collateralized by the Company's 2/3 interest in HCAC (COI Hotel)................. 712,695 789,820
Note payable to Crescent Partnership maturing August 2003, bears interest
at 10.75%, principal and interest payable monthly, collateralized by a
deed of trust in certain real property and certain personal
property (RoseStar) ............................................................. 517,532 554,850
Note payable to Crescent Partnership due November 2006, bears interest at
7.5% payable annually (RoseStar)................................................. 190,964 190,964
------------ ------------
Total debt - Corporate and Wholly-Owned Subsidiaries 84,131,945 70,538,843
------------ ------------
</TABLE>
10
<PAGE> 11
<TABLE>
LONG-TERM DEBT - NON WHOLLY-OWNED SUBSIDIARIES
<S> <C> <C>
Senior note payable to Crescent Partnership maturing December 2005, bears
interest at 10%, payments payable 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)................................................................ 85,528,066 110,000,000
Junior note payable to Crescent Partnership maturing December 2010, bears
interest at 14%, payments payable 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
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% (8.5% at
June 30, 1998) payable monthly, collateralized by certain land owned by DMPLP, deeds
of trusts on lots sold and home construction (DMPLP)......................... 3,077,871 -
Notes payable to Crescent Partnership maturing August 1998, bears interest
at the prime rate plus 1%, principal and interest payable monthly based on
lot note receipts collateralized by deeds of trust on lots owned by
DMPLP (DMPLP)................................................................ - 17,590,034
Other (DMPLP)................................................................ 100,000 -
-------------- --------------
Total debt - Non Wholly-Owned Subsidiaries.............................. 148,705,937 187,590,034
-------------- --------------
Total long term debt.................................................... $ 232,837,882 $ 258,128,877
============== ==============
Current portion of long term debt - CEI...................................... $ 1,520,182 $ 24,084,587
Current portion of long term debt............................................ 7,730,201 18,759,349
Long term debt - CEI, net of current portion................................. 190,837,244 207,798,563
Long term debt, net of current portion....................................... 32,750,255 7,486,378
-------------- --------------
$ 232,837,882 $ 258,128,877
============== ==============
</TABLE>
11
<PAGE> 12
5. INVESTMENTS:
Investments consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------------- -----------------
<S> <C> <C>
Investment in Magellan warrants..................................... $ 12,500,000 $ 12,500,000
Investment in CBHS.................................................. - 5,390,000
Investment in The Woodlands Land Development Company, L.P........... 39,775,753 31,403,893
Investment in The Woodlands Operating Company, L.P.................. 1,255,398 597,498
Investment in Refrigerated Warehousing partnerships................. 234,386,003 161,850,800
Investment in HCAC.................................................. ( 1,486,176) (1,513,923)
Investment in Hicks-Muse............................................ 7,841,102 9,446,946
Investment in Corporate Arena Associates, Inc....................... 93,978 -
--------------- --------------
$ 294,366,058 $ 219,675,214
=============== ==============
</TABLE>
Investment income (loss) net of minority interests consisted of the following:
<TABLE>
<CAPTION>
Six months Ended
June 30, 1998
------------------
<S> <C>
Equity in loss of CBHS...................................................................... $ (5,390,000)
Equity in income of The Woodlands Land Development Company, L.P............................. 10,047,000
Equity in income of The Woodlands Operating Company, L.P.................................... 657,900
Equity in loss of Refrigerated Warehousing partnerships..................................... (1,596,400)
Equity in income of HCAC.................................................................... 27,747
Hicks-Muse income........................................................................... 2,903,777
-----------------
$ 6,650,024
=================
</TABLE>
A summary of financial information for the Company's investment in CBHS has been
provided as it represents a significant unconsolidated investment.
<TABLE>
<CAPTION>
CBHS
-----------------
Six months Ended
June 30,1998
-----------------
<S> <C>
Net revenue................................................................................. $ 377,331,000
Operating expenses ......................................................................... (335,717,000)
Franchise Fees.............................................................................. (39,150,000)
Rent expense - cash......................................................................... (21,238,000)
Rent expense - non-cash..................................................................... (6,809,000)
Loss on sale of Springwood hospital......................................................... (2,019,000)
Depreciation and amortization............................................................... (2,884,000)
Interest expense, net....................................................................... (2,605,000)
--------------
Net loss............................................................................... $ (33,091,000)
==============
Equity in loss of unconsolidated subsidiary (1)............................................. $ (5,390,000)
==============
</TABLE>
(1) Losses related to CBHS have been recognized by the Company up to the
amount of the Company's investment.
<TABLE>
<CAPTION>
CBHS
----------------
June 30, 1998
----------------
<S> <C>
Current assets.............................................................................. $ 156,385,000
Property and equipment, net................................................................. 14,917,000
Other noncurrent assets..................................................................... 10,211,000
---------------
Total assets........................................................................... $ 181,513,000
===============
Current liabilities......................................................................... $ 112,681,000
Long-term debt.............................................................................. 65,000,000
Other noncurrent liabilities................................................................ 28,889,000
Members' capital............................................................................ (25,057,000)
---------------
Total liabilities and members' capital................................................. $ 181,513,000
===============
</TABLE>
12
<PAGE> 13
6. EARNINGS PER SHARE:
Effective December 1997, the Company adopted SFAS No. 128, "Earnings Per Share"
("EPS"), which supersedes APB No. 15 for periods ending after December 15, 1997.
SFAS 128 specifies the computation, presentation and disclosure requirements for
earnings per share. Primary EPS and Fully Diluted EPS are replaced by Basic EPS
and Diluted EPS, respectively. Basic EPS, unlike Primary EPS, excludes all
dilution while Diluted EPS, like Fully Diluted EPS, reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock.
<TABLE>
<CAPTION>
For the three months For the six months For the period from
ended June 30, 1998 ended June 30, 1998 May 9, 1997 to June 30, 1997
--------------------------------- -------------------------------- -------------------------------
Income Wtd. Avg. Per Share Income Wtd. Avg. Per Share Income Wtd. Avg. Per Share
(Loss) Shares Amt (Loss) Shares Amt (Loss) Shares Amt
--------------------------------- -------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS -
Net income available
to common shareholders $ 1,942,455 11,327,601 $ 0.17 $ 763,884 11,271,023 $ 0.07 $ (261,978) 11,025,547 $(0.02)
======= ====== =======
EFFECT OF
DILUTIVE SECURITIES:
Stock Options 779,481 780,095
Warrants 26,218 29,505
---------- ----------
DILUTED EPS -
Net income available
to common shareholders $ 1,942,455 12,133,300 $ 0.16 $ 763,844 12,080,623 $ 0.06 $(261,978) 11,025,547 $(0.02)
====== ====== =======
</TABLE>
The Company had 882,303 stock options and 282,508 warrants outstanding as of
June 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.
7. INCOME TAXES:
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. The table below shows the reconciliation of
the federal statutory income tax rate to the effective tax rate.
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, 1998 ended June 30, 1998
--------------------- -------------------
<S> <C> <C>
Federal statutory income tax rate................................ 35.0% 35.0%
Tax provision related to minority interests...................... 28.1 45.1
Other............................................................ 5.3 4.7
--------------------- -------------------
Effective tax rate.......................................... 68.4% 84.8%
===================== ===================
</TABLE>
13
<PAGE> 14
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 (which require 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" or the "Company"), a Delaware
corporation, was formed on April 1, 1997, by Crescent Real Estate Equities
Company ("Crescent Equities" or "CEI") and its subsidiary Crescent Real Estate
Equities Limited Partnership ("Crescent Partnership"). The Company was formed to
be the lessee and operator of certain assets to be acquired by Crescent
Partnership and to perform an agreement (the "Intercompany Agreement") between
Crescent Operating and Crescent Partnership, pursuant to which each has agreed
to provide the other with rights to participate in certain transactions. The
Company also engages in other business enterprises not related to Crescent
Equities or the Intercompany Agreement, such as the equipment sales and leasing
segment. Effective June 12, 1997, Crescent Equities distributed shares of
Crescent Operating common stock to shareholders of Crescent Equities and unit
holders of Crescent Partnership and became a public company. Crescent
Operating's common stock is listed on the NASDAQ National Market under the
symbol "COPI". Unless the context otherwise requires, the terms "Crescent
Operating", the "Company", "Crescent Equities", "CEI" and "Crescent Partnership"
include the subsidiaries of each and, in the case of "CEI" and "Crescent
Equities" includes "Crescent Partnership".
The Company's operations began on May 9, 1997 with the purchase from
Carter-Crowley Properties, Inc. ("Carter-Crowley") of 100% of the common stock
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.
As of June 30, 1998, Crescent Operating's assets and operations were composed of
five business segments: (i) Hospitality, (ii) Land Development, (iii) Equipment
Sales and Leasing, (iv) Healthcare and (v) Refrigerated Warehousing. Within
these segments, the Company, through various entities, owned the following
(collectively referred to as the "Assets" as of such date):
o THE HOSPITALITY SEGMENT consisted of (i) 100% of RoseStar Management LLC
("RoseStar"), which, directly or indirectly through its subsidiaries, is
the lessee of the Denver Marriott City Center, the Hyatt Regency Beaver
Creek, the Hyatt Regency Albuquerque, Canyon Ranch-Tucson, Canyon
Ranch-Lenox, the Ventana Inn and the Sonoma Mission Inn and Spa and (ii)
100% of the common stock of COI Hotel Group, Inc. ("COI Hotel"), which is
the lessee of the Four Seasons Hotel in Houston, Texas and the Austin Omni
Hotel (the later is subleased to an unrelated party) and has a two-thirds
interest in the Houston Center Athletic Club Venture.
14
<PAGE> 15
o THE LAND DEVELOPMENT SEGMENT consisted of (i) a 5% economic interest in
Desert Mountain Development Corporation, the general partner of a
partnership that owns a master planned, luxury residential and recreational
community in northern Scottsdale, Arizona, (ii) a 42.5% general partner
interest in The Woodlands Operating Company, L.P., which provides
management, advisory, landscaping and maintenance services to The
Woodlands, Texas and (iii) a 2.125% economic interest in The Woodlands Land
Development Company L.P., which owns approximately 9,000 acres for
commercial and residential development as well as a realty office, an
athletic center, and interests in both a title company and a mortgage
company.
o THE EQUIPMENT SALES AND LEASING SEGMENT consisted of 100% of the common
stock of Crescent Machinery, a construction equipment sales, leasing and
service company which has 14 locations in six states.
o THE HEALTHCARE SEGMENT consisted of a 50% member interest in Charter
Behavioral Health Systems, LLC ("CBHS"), a limited liability company which
operates approximately 90 behavioral healthcare facilities. See "Recent
Developments - Healthcare".
o THE REFRIGERATED WAREHOUSING SEGMENT consisted of an indirect 2% interest
in each of two corporations (collectively referred to as "Americold
Logistics"), that currently own and operate 89 refrigerated storage
properties with an aggregate storage capacity of approximately 419 million
cubic feet. On July 1, 1998, Americold Logistics acquired an additional
five refrigerated storage properties with an aggregate storage capacity of
61 million cubic feet.
STRATEGY
Crescent Operating's strategy is to increase shareholder value through the
development of an independent, diversified management company. While the Company
has obtained several of the Assets and may continue to obtain future assets
through the Intercompany Agreement with Crescent Partnership, it intends to
pursue additional and similar opportunities with Crescent Equities or others in
the future. The additional opportunities Crescent Operating may pursue may be
unrelated to a business in which Crescent Equities is then engaged or may be
acquired separately, not through the Intercompany Agreement, such as the
equipment sales and leasing business. Crescent Operating's management is
currently assessing other real estate related activities which would complement
its diverse holdings.
By utilizing professional managers with experience in the individual businesses
it owns, Crescent Operating works to improve the margins of those businesses and
thereby improve its return. In most of the transactions with Crescent
Partnership, where Crescent Operating's ownership comes through a lessee
relationship, the profit after rent paid to Crescent Partnership is Crescent
Operating's. Due to the low entry cost to Crescent Operating and the ability to
improve profit margins, the effect on the rate of return to Crescent Operating
could be substantial. Another advantage that Crescent Operating gains through
the Intercompany Agreement is the ability to have access to numerous
acquisitions without the burden of an acquisition staff, and the ability to
participate in large acquisitions that otherwise would not be available to
Crescent Operating. In these acquisitions, Crescent Partnership performs all the
research and the due diligence and, where it elects to participate, Crescent
Operating pays only its proportionate share of the acquisition costs.
Crescent Operating allows investors the opportunity to invest in the operational
side of certain Crescent Equities transactions. Crescent Operating intends to
continue to evaluate and, where beneficial to Crescent Operating, enter into
transactions offered by Crescent Partnership under the Intercompany Agreement.
All acquisitions under the Intercompany Agreement are approved by a committee of
Crescent Operating directors independent of Crescent Equities.
15
<PAGE> 16
RECENT DEVELOPMENTS
HOSPITALITY
On February 4, 1998, Ventana Inn closed its operations due to a landslide that
washed out Highway 1, the major access road to the property. The Ventana Inn
re-opened on May 1, 1998. The Company has filed a claim for losses totaling $1.3
million, under its business interruption insurance policy. Hospitality revenues
for the quarter ended June 30, 1998 include $450,000 in insurance proceeds
received in July 1998 relating to the claim. The Company cannot predict the
outcome of the entire claim and accordingly, has not accrued for estimated
insurance proceeds above what has been received. The Company anticipates that
the final claim will be settled during the third quarter of 1998.
LAND DEVELOPMENT
Effective August 12, 1998, Crescent Operating entered into a binding letter of
intent with Gerald W. Haddock, John C. Goff, and Harry Frampton to acquire their
10% interest in Crescent Development Management Corp. ("CDMC"). The 10% interest
represents 100% of the voting common stock of CDMC. The acquisition price of $9
million will be paid in common stock of Crescent Operating valued at $13.00 per
share, unless Crescent Operating common stock's average closing sale price on
NASDAQ exceeds $17.00 per share for any period of ten consecutive trading days
prior to consummation of the transaction, in which case the shares would be
valued at $15.00 per share. The remaining 90% of CDMC is currently owned by
Crescent Partnership, which owns nonvoting securities only. CDMC is principally
engaged in investing in partnerships and other entities that directly or
indirectly through other entities participate in development and management of
resort, residential and vacation home real properties and ancillary supporting
services principally in Colorado. The transaction will be dependent on
negotiation and execution of definitive acquisition documents containing
customary terms acceptable to all parties, satisfactory results of due diligence
investigations, approval by the Company's board, receipt of necessary approvals
and other conditions; in addition, Messrs. Haddock, Goff and Frampton will not
be obligated to exchange their CDMC stock if Crescent Operating common stock's
average closing sale price on NASDAQ is less than $7.00 per share for the ten
consecutive trading days immediately prior to the transaction's closing date.
EQUIPMENT SALES AND LEASING
The Company has determined that it can rapidly expand the equipment sales and
leasing business it acquired initially through Moody-Day. Historically, the
construction equipment business has been owned and operated primarily by
individuals in a localized area. Crescent Operating believes that it can
consolidate many of these businesses at attractive multiples and gain
significant improvement through purchasing and operating efficiencies. The
Company is establishing regional centers through acquisitions of dealers with
successful operations and experienced management. The Company has focused its
acquisition efforts on dealerships to allow access to equipment at the most
competitive prices, have factory trained service personnel and provide parts and
warranty service for equipment purchased directly by end users or other rental
businesses. The Company also believes that increased revenue and margins can be
achieved through the expansion of the leasing/rental component of the businesses
and through its relationship with Crescent Equities in its development of its
real estate properties.
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 will be included
in the Company's financial statements from the 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 will
be included in the Company's financial statements from the date of acquisition.
16
<PAGE> 17
Effective June 8, 1998, the Company acquired all of the stock of Machinery,
Inc., a company that is engaged in equipment sales, leasing and servicing, with
locations in Tulsa and Oklahoma City, Oklahoma. The purchase price of
approximately $2.8 million was comprised of $.6 million in cash, the issuance of
38,170 shares of Crescent Operating common stock and the assumption of $1.5
million of liabilities. 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 since the date of acquisition.
Effective April 30, 1998, the Company acquired certain assets of Central Texas
Equipment Co. ("Central Texas"), a company which is engaged in equipment sales,
leasing and servicing, located in Austin, Texas. The purchase price of
approximately $9.7 million was comprised of $3.0 million in cash, the issuance
of 128,551 shares of Crescent Operating common stock and the assumption of $4.1
million of liabilities. 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 since the date of acquisition.
With the completion of the Harvey, Western Traction, Machinery, Inc. and Central
Texas acquisitions, Crescent Machinery has 14 locations in Texas, California,
Nevada, Oklahoma, Ohio and Hawaii.
Assuming the acquisitions of Harvey, Western Traction, Machinery, Inc. and
Central Texas had been consummated on January 1, 1998, pro forma revenues and
earnings before interest expense, net, income taxes, depreciation and
amortization ("EBITDA") for Crescent Operating for the six months ended June 30,
1998 were $240,387,289 and $14,548,741, respectively.
EBITDA is calculated based on the Company's ownership percentage of the EBITDA
components. 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 earnings (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.
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 to assist CBHS in obtaining the funds required to consummate the
transactions contemplated by the Purchase Agreement and to pay a $5 million
break up 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.
17
<PAGE> 18
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 have not been met and are unlikely to be
satisfied in the near term. Consequently, as of August 12, 1998, the Company and
Magellan currently are engaged in negotiations to restructure the transactions
which are the subject of the above-referenced agreements. No new definitive
agreements have yet been reached in respect of the purchase and sale of any
portion of the interest in CBHS currently owned by CBHS Holdings or the equity
interests and assets currently owned by Magellan and its subsidiaries. Because
conditions to the Company's obligations under the Equity Purchase Agreement and
the Support Agreement have not been met, the Company believes it is under no
obligation to pay the $5 million break up fee to Magellan.
REFRIGERATED WAREHOUSING
On June 1, 1998, Americold Logistics, a group of companies in which Crescent
Operating owns a 2% indirect interest, acquired nine refrigerated storage
properties from Freezer Services, Inc. for approximately $134 million which
required a capital contribution from Crescent Operating of $2.3 million. On July
1, 1998, Americold Logistics acquired five refrigerated storage properties from
Carmar Group for approximately $158 million which required a capital
contribution from Crescent Operating of $2.7 million. These properties contain
approximately 90 million cubic feet of refrigerated storage space.
In April 1998, Americold Logistics refinanced its $607 million secured and
unsecured debt with a weighted average rate of approximately 12% with a $550
million non-recourse, ten year loan secured by 58 refrigerated storage
properties with an interest rate of 6.89% which required a capital contribution
from Crescent Operating of $1.5 million.
OTHER
As previously announced by Crescent Equities, Crescent Equities entered into an
Agreement and Plan of Merger, dated January 16, 1998, as amended, (the "Station
Merger Agreement"), with Station Casinos, Inc. ("Station"), pursuant to which
Station would merge with and into Crescent Equities (the "Station Merger"). As
previously announced by the Company, the Company anticipated that certain
operating assets and employees of Station would be transferred to a limited
liability company (the "Station LLC") immediately prior to the Station Merger
and that the Company would be offered the opportunity to acquire a substantial
interest in the Station LLC. As of August 11, 1998, each of Crescent Equities
and Station had filed actions against the other in connection with the proposed
Station Merger and Crescent Equities had announced that it sent a notice to
Station terminating the Station Merger Agreement. The action filed by Crescent
Equities seeks, among other things, a declaratory judgement that alleged
breaches by Station under the Station Merger Agreement excuse Crescent Equities
from any further obligations under the Station Merger Agreement. As a
consequence, the Company does not believe that it is likely that it will have an
opportunity to acquire an interest in Station LLC.
On June 26, 1998, the Company filed with the Securities and Exchange Commission
a registration statement on Form S-4 (the "Shelf Registration Statement") for
the offering, in connection with directly negotiated acquisitions of businesses,
assets or securities, from time to time, in one or more series, separately or
together, of (i) shares of the Company's common stock, par value $0.01 per
share, (ii) shares of the Company's preferred stock, par value $0.01 per share
and (iii) warrants exercisable for the Company's common stock. The Shelf
Registration Statement, which became effective on July 21, 1998, is intended to
facilitate the issuance by the Company of registered securities in connection
with future acquisitions of businesses, assets or securities where a portion of
the consideration is paid in the form of Company securities. The Company may
offer up to $30 million of securities under the Shelf Registration Statement in
amounts, at prices and on terms to be determined by the Company and the owners
or controlling persons of the businesses, assets or securities to be acquired.
As of August 13, 1998, the Company has not made any offerings of securities
under the Shelf Registration Statement.
18
<PAGE> 19
SEGMENT FINANCIAL INFORMATION
The following is a summary of Crescent Operating's financial information
reported by segment as of and for the three months ended June 30, 1998:
<TABLE>
<CAPTION>
EQUIPMENT
LAND SALES
HOSPITALITY DEVELOPMENT AND LEASING HEALTHCARE
--------------- -------------- ---------------- -----------
<S> <C> <C> <C> <C>
Revenues ................................... $ 53,102,725 $ 42,148,417 $ 11,558,220 $ --
Operating expenses ......................... 51,254,540 40,494,318 10,839,969 --
------------- ------------- ------------- --------
Income (loss) from operations .............. 1,848,185 1,654,099 718,251 --
------------- ------------- ------------- --------
Investment income (loss) ................... 27,747 7,081,775 -- --
Other (income) expense
------------- ------------- ------------- --------
Interest expense ................... 99,581 1,450,401 431,084 --
Interest income .................... (99,672) (853,957) (25,976) --
Other .............................. -- -- 25,613 --
------------- ------------- ------------- --------
Total other (income) expense ............... (91) 596,444 430,721 --
------------- ------------- ------------- --------
Income (loss) before minority
interest and income taxes .......... 1,876,023 8,139,430 287,530 --
Minority interest .......................... -- (4,310,092) -- --
------------- ------------- ------------- --------
Income (loss) before taxes ................. 1,876,023 3,829,338 287,530 --
Income tax (provision) ..................... (750,409) (3,234,517) (115,011) --
------------- ------------- ------------- --------
Net income (loss) .......................... $ 1,125,614 $ 594,821 $ 172,519 $ --
============= ============= ============= =========
Net income (loss) per share, basic ........ $ 0.10 $ 0.05 $ 0.02 $ --
============= ============= ============= =========
Net income (loss) per share, diluted ...... $ 0.09 $ 0.05 $ 0.01 $ --
============= ============= ============= =========
EBITDA Calculation: (1)
Net income (loss) .................. $ 1,125,614 $ 594,821 $ 172,519 $ --
Interest expense, net ............. (91) 41,874 405,108 --
Income tax provision (benefit)...... 750,409 395,614 115,011 --
Depreciation and amortization ...... 191,202 154,306 1,358,802 --
------------- ------------- ------------- --------
EBITDA ..................................... $ 2,067,134 $ 1,186,615 $ 2,051,440 $ --
============= ============= ============= =========
</TABLE>
<TABLE>
<CAPTION>
REFRIGERATED
WAREHOUSING OTHER TOTAL
--------------- ----------------- --------------
<S> <C> <C> <C>
Revenues ................................... $ -- $ -- $ 106,809,362
Operating expenses ......................... 30,940 784,421 103,404,188
------------- ------------- -------------
Income (loss) from operations .............. (30,940) (784,421) 3,405,174
------------- ------------- -------------
Investment income (loss) ................... (933,200) 2,429,355 8,605,677
------------- ------------- -------------
Other (income) expense
Interest expense ................... -- 1,444,838 3,425,904
Interest income .................... -- (3,788) (983,393)
Other .............................. -- (1,300) 24,313
------------- ------------- -------------
Total other (income) expense ............... -- 1,439,750 2,466,824
------------- ------------- -------------
Income (loss) before minority
interest and income taxes .......... (964,140) 205,184 9,544,027
Minority interest .......................... 906,433 -- (3,403,659)
Income (loss) before taxes ................. (57,707) 205,184 6,140,368
------------- ------------- -------------
Income tax (provision) ..................... -- (97,976) (4,197,913)
------------- ------------- -------------
Net income (loss) .......................... $ (57,707) $ 107,208 $ 1,942,455
============= ============= =============
Net income (loss) per share, basic ........ $ (0.01) $ 0.01 $ 0.17
============= ============= =============
Net income (loss) per share, diluted ...... $ (0.00) $ 0.01 $ 0.16
============= ============= =============
EBITDA Calculation: (1)
Net income (loss) .................. $ (57,707) $ 107,208 $ 1,942,455
Interest expense, net ............. 215,500 1,441,050 2,103,441
Income tax provision (benefit)...... (24,020) 97,976 1,334,990
Depreciation and amortization ...... 338,740 -- 2,043,050
------------- ------------- -------------
EBITDA ..................................... $ 472,513 $ 1,646,234 $ 7,423,936
============= ============= =============
</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 earnings (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.
19
<PAGE> 20
SEGMENT FINANCIAL INFORMATION
The following is a summary of Crescent Operating's financial information
reported by segment as of and for the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Equipment
Land Sales
Hospitality Development and Leasing Healthcare
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues .................................... $ 111,367,899 $ 73,279,739 $ 19,538,876 $ --
Operating expenses .......................... 104,928,031 72,321,625 18,451,255 --
------------- ------------- ------------- -------------
Income (loss) from operations ............... 6,439,868 958,114 1,087,621 --
------------- ------------- ------------- -------------
Investment income (loss) .................... 27,747 10,704,900 -- (5,390,000)
------------- ------------- ------------- -------------
Other (income) expense
Interest expense ........................ 198,353 3,457,317 700,849 --
Interest income ......................... (136,728) (2,041,021) (33,498) --
Other ................................... -- -- 38,783 --
------------- ------------- ------------- -------------
Total other (income) expense ................ 61,625 1,416,296 706,134 --
------------- ------------- ------------- -------------
Income (loss) before minority
interest and income taxes ............... 6,405,990 10,246,718 381,487 (5,390,000)
Minority interest ........................... -- (5,432,803) -- --
------------- ------------- ------------- -------------
Income (loss) before taxes .................. 6,405,990 4,813,915 381,487 (5,390,000)
Income tax (provision) ...................... (2,562,396) (4,129,220) (152,594) 2,156,000
------------- ------------- ------------- -------------
Net income (loss) ........................... $ 3,843,594 $ 684,695 $ 228,893 $ (3,234,000)
============= ============= ============= =============
Net income (loss) per share, basic .......... $ 0.34 $ 0.06 $ 0.02 $ (0.28)
============= ============= ============= =============
Net income (loss) per share, diluted ........ $ 0.32 $ 0.06 $ 0.02 $ (0.27)
============= ============= ============= =============
EBITDA Calculation: (1)
Net income (loss) ....................... $ 3,843,594 $ 684,695 $ 228,893 $ (3,234,000)
Interest expense, net ................... 61,625 107,947 667,351 431,000
Income tax provision (benefit) .......... 2,562,396 457,956 152,594 (2,156,000)
Depreciation and amortization ........... 382,404 281,046 2,467,421 475,500
------------- ------------- ------------- -------------
EBITDA ...................................... $ 6,850,019 $ 1,531,644 $ 3,516,259 $ (4,483,500)
============= ============= ============= =============
<CAPTION>
REFRIGERATED
WAREHOUSING OTHER TOTAL
------------- ------------- -------------
<S> <C> <C> <C>
Revenues ......................................... $ -- $ -- $ 204,186,514
Operating expenses ............................... 37,216 1,101,822 196,839,949
------------- ------------- -------------
Income (loss) from operations .................... (37,216) (1,101,822) 7,346,565
------------- ------------- -------------
Investment income (loss) ......................... (1,596,400) 2,903,777 6,650,024
------------- ------------- -------------
Other (income) expense
Interest expense ............................. -- 2,894,904 7,251,423
Interest income .............................. -- (4,624) (2,215,871)
Other ........................................ -- (1,300) 37,483
------------- ------------- -------------
Total other (income) expense ..................... -- 2,888,980 5,073,035
------------- ------------- -------------
Income (loss) before minority
interest and income taxes .................... (1,633,616) (1,087,025) 8,923,554
Minority interest ................................ 1,542,435 -- (3,890,368)
------------- ------------- -------------
Income (loss) before taxes ....................... (91,181) (1,087,025) 5,033,186
Income tax (provision) ........................... -- 418,908 (4,269,302)
------------- ------------- -------------
Net income (loss) ................................ $ (91,181) $ (668,117) $ 763,884
============= ============= =============
Net income (loss) per share, basic ............... $ (0.01) $ (0.06) $ 0.07
============= ============= =============
Net income (loss) per share, diluted ............. $ (0.01) $ (0.06) $ 0.06
============= ============= =============
EBITDA Calculation: (1)
Net income (loss) ............................ $ (91,181) $ (668,117) $ 763,884
Interest expense, net ........................ 462,920 2,890,280 4,621,123
Income tax provision (benefit) ............... (44,620) (418,908) 553,418
Depreciation and amortization ................ 662,400 -- $ 4,268,771
------------- ------------- -------------
EBITDA ........................................... $ 989,519 $ 1,803,255 10,207,196
============= ============= =============
</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 earnings (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.
20
<PAGE> 21
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1998, COMPARED TO THE
THREE MONTHS ENDED JUNE 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
three months ended June 30, 1997 is only with regard to the Predecessor from
April 1, 1997 to May 8, 1997 and the Company from May 9, 1997 to June 30, 1997.
EQUIPMENT SALES AND LEASING
Equipment sales and leasing revenues increased approximately $8.2 million or
247.6% to $11.6 million for the three months ended June 30, 1998, compared to
$3.3 million for the three months ended June 30, 1997. Approximately $6.8
million of this increase 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 and Machinery, Inc. which was effective
as of June 8, 1998. The remaining increase in revenues relates to growth of
equipment sales and leasing at locations owned by the Company prior to the
acquisitions. Equipment sales and leasing direct expenses increased $7.8 million
or 258.5% to $10.8 million for the three months ended June 30, 1998, compared to
$3.0 million for the three months ended June 30, 1997. Approximately $6.5
million of this increase 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
Hospitality revenues represent RoseStar and COI Hotel revenues. As the Company
was not involved in the Hospitality segment prior to July 31, 1997, hospitality
revenues of $53.1 million for the three months ended June 30, 1998 represent
100% of the increase over the three months ended June 30, 1997. 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 were also not incurred prior to July 31, 1997 and
represent 100% of the increase over the prior year. Such costs are attributable
to the acquisition and operation of RoseStar and COI Hotel.
LAND DEVELOPMENT
Land development revenues represent revenues from Desert Mountain Properties
L.P. ("Desert Mountain Properties") prior to the elimination of the 95% minority
interest. As the Company was not involved in the Land Development segment prior
to July 31, 1997, land development revenues of $42.1 million for the three
months ended June 30, 1998 represent a 100% increase over the three months ended
June 30, 1997. Land development direct expenses represent operating costs
incurred by Desert Mountain Properties prior to the elimination of the 95%
minority interest. As the Company was not involved in the Land Development
segment prior to July 31, 1997, land development direct expenses of $40.5
million for the three months ended June 30, 1998 represent a 100% increase over
the three months ended June 30, 1997.
HEALTHCARE
As of June 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 June 30, 1998 and the Company recognized no loss on its investment in CBHS
for the three months ended June 30, 1998. The Company recognized losses of $.4
million on its investment in CBHS for the same period in 1997. CBHS's operating
losses have been caused primarily by downward trends in the average length of
stay and net revenue per equivalent patient day, which management believes to be
consistent
21
<PAGE> 22
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 CBHS Holdings. See "Recent
Developments - Healthcare."
OTHER
General and administrative expenses of $.8 million for the three months ended
June 30, 1998 consisted of corporate expenses such as legal and accounting
costs, insurance costs and corporate salaries. This amount represents a $.8 or
100% increase over the three months ended June 30, 1997 reflecting the fact that
the Company was newly formed during the second quarter of 1997.
Investment income of $8.6 million for the three months ended June 30, 1998
consisted primarily of investment income from Hicks-Muse of $2.4 million and
equity in income of Landevco of $6.5 million, offset by equity in losses of the
Refrigerated Warehousing segment of $.9 million. The investment loss for the
three months ended June 30, 1997 of $.4 million represents the Company's share
of losses from CBHS for this period.
Interest expense of $3.4 million for the three months ended June 30, 1998
consisted primarily of interest expense of $1.5 million for the Land Development
segment, interest expense of $.4 million for the Equipment Sales and Leasing
segment and interest expense at the corporate level of $1.5 million. This amount
represents a $3.1 million or 935% increase over the three months ended June 30,
1997 due to acquisitions resulting in higher debt balances in the current
period.
Interest income of $1.0 million relates primarily to the Land Development
segment. Interest income for the three months ended June 30, 1997 represents
interest income attributable to Moody-Day.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998, COMPARED TO THE
SIX MONTHS ENDED JUNE 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 six
months ended June 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 June 30, 1997.
EQUIPMENT SALES AND LEASING
Equipment sales and leasing revenues increased approximately $13.2 million or
207% to $19.5 million for the six months ended June 30, 1998, compared to $6.4
million for the six months ended June 30, 1997. Approximately $11.1 million of
this increase relates to the Company's purchases of Preco, which was effective
as of December 1, 1997, Central Texas, which was effective as of April 30, 1998,
and Machinery, Inc. which was effective as of June 8, 1998. The remaining
increase in revenues relates to growth of equipment sales and leasing at
locations owned by the Company prior to the acquisitions. Equipment sales and
leasing direct expenses increased $12.5 million or 211.5% to $18.5 million for
the six months ended June 30, 1998, compared to $5.9 million for the six months
ended June 30, 1997. Approximately $10.7 million of this increase 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
Hospitality revenues represent RoseStar and COI Hotel revenues. As the Company
was not involved in the Hospitality segment prior to July 31, 1997, hospitality
revenues of $111.4 million for the six months ended June 30, 1998 represent 100%
of the increase over the six months ended June 30, 1997. 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, are new expenses for the six
22
<PAGE> 23
months ended June 30, 1998. Such costs are attributable to the acquisition and
operation of RoseStar and COI Hotel.
LAND DEVELOPMENT
Land development revenues represent revenues from Desert Mountain Properties
prior to the elimination of the 95% minority interest. As the Company was not
involved in the Land Development segment prior to July 31, 1997, land
development revenues of $73.3 million for the six months ended June 30, 1998
represent a 100% increase over the six months ended June 30, 1997. Land
development direct expenses represent operating costs incurred by Desert
Mountain Properties prior to the elimination of the 95% minority interest. As
the Company was not involved in the Land Development segment prior to July 31,
1997, land development direct expenses of $72.3 million for the three months
ended June 30, 1998 represent a 100% increase over the three months ended June
30, 1997.
HEALTHCARE
As of June 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 June 30, 1998 and the Company recognized a $5.4 million loss on its
investment in CBHS for the six months ended June 30, 1998. The Company
recognized losses of $.4 million on its investment in CBHS for the same period
in 1997. CBHS's operating losses have been caused primarily by downward trends
in the average length of stay and 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 CBHS Holdings. See "Recent Developments - Healthcare."
OTHER
General and administrative expenses of $1.1 million for the six months ended
June 30, 1998 consisted of corporate expenses such as legal and accounting
costs, insurance costs and corporate salaries. This amount represents a $1.1 or
100% increase over the six months ended June 30, 1997 reflecting the fact that
the Company was newly formed during the second quarter of 1997.
Investment income of $6.7 million for the six months ended June 30, 1998
consisted primarily of investment income from Hicks-Muse of $2.9 million and
equity in income of Landevco of $10.0 million, offset by equity in losses of
CBHS of $5.4 million (see "Healthcare" above) and equity in losses of the
Refrigerated Warehousing segment of $1.6 million. The investment loss for the
six months ended June 30, 1997 of $.4 million represents the Company's share of
losses from CBHS for this period.
Interest expense of $7.3 million for the six months ended June 30, 1998
consisted primarily of interest expense of $.2 million for the Hospitality
segment, interest expense of $3.5 million for the Land Development segment,
interest expense of $.7 million for the Equipment Sales and Leasing Segment and
interest expense at the corporate level of $2.9 million. This amount represents
a $6.8 million increase over the six months ended June 30, 1997 due to
acquisitions resulting in higher debt balances in the current period.
Interest income of $2.2 million relates primarily to the Land Development
segment. Interest income for the six months ended June 30, 1997 represents
interest income attributable to Moody-Day.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
The Company currently generates adequate cash flows to support the operations of
each of its segments although, the Company currently has pending acquisitions
and future opportunities for which it does not yet have adequate financing,
including transactions involving Crescent Machinery, CBHS (see "Recent
Developments -- Healthcare"), Hicks-Muse and the Mavericks/Stars arena
and adjacent development opportunities. Management is considering an equity
offering, various financing alternatives with Crescent Equities and Crescent
Partnership, additional bank financing, and other private equity financing
possibilities. Crescent Operating anticipates that it will be able to obtain
adequate financing to capitalize on pending and identified future business and
investment opportunities, although there can be no assurances that adequate
financing will be obtained at a cost of capital acceptable to the Company.
Net cash flows provided by operating activities for the six months ended June
30, 1998 were $12.3 million compared with the net cash provided by operating
activities of $.9 million for the six months ended June 30, 1997. Increases in
cash related to the $12.3 million of cash provided by operating activities for
the six months ended June 30, 1998 were the current year income of $.8 million,
$9.2 million of depreciation and amortization, $14.0 million of deferred
revenue, $6 million of proceeds from the sale of real estate and $3.9 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 $8.0
million, a decrease in accounts payable and accrued expenses of $6.7 million and
investment income of $6.7 million.
Net cash flows used in investing activities for the six months ended June 30,
1998 were $56.3 million compared with the net cash used in investing activities
of $24 million for the six months ended June 30, 1997. Significant components of
the $56.3 million of cash used in investing activities for the six months ended
June 30, 1998 were cash used for the acquisition of business interests of $73.5
million and purchases of property and equipment of $14.2 million offset by cash
received from the collection and sales of notes receivable of $21.2 million,
cash received from Hicks-Muse of $4.5 million and dividends received of $4.3
million.
Net cash flows provided by financing activities for the six months ended June
30, 1998 were $27.5 million compared with the net cash provided by financing
activities of $24.3 million for the six months ended June 30, 1997. Significant
components of the $27.5 million of cash provided by financing activities for the
six months ended June 30, 1998 were cash used for the payments of long-term debt
of $45.8 million, offset by net contributions by minority interests of $58.8
million and cash received of $14.4 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 $26.8 million was outstanding as
of June 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 annually, and interest that
accrues is added into the principal balance of the loan throughout the term of
the debt. The Company also obtained a $20.4 million line of credit from Crescent
Partnership in connection with its formation and capitalization. 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 June 30, 1998, $15.7 million was outstanding under the line of
credit. The Company is currently in negotiations to increase the amount
available for borrowing under this line of credit and Crescent Partnership has
approved an increase to the line of credit of at least $3 million.
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 June 30, 1998.
24
<PAGE> 25
As a part of the acquisition of a two-thirds interest in the Houston Center
Athletic Club Venture ("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 is secured by the $5.0 million note the
Company purchased as part of the transaction is payable on an interest-only
basis through its maturity on September 21, 1998. Interest on the $1.0 million
note is payable monthly. 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.
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 June 30, 1998, the outstanding balances on the Junior
Note, Senior Note, and line of credit were $60.0 million, $85.5 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 rate of prime 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 June 30, 1998, the outstanding balance on
the line of credit with National Bank of Arizona was $3.1 million.
Crescent Machinery has various equipment notes payable to finance companies
which are collateralized by the equipment financed. The notes are payable in
monthly principal and interest payments and bear interest at 8.5% to 10% per
annum. These notes mature between 1998 and 2003. As of June 30, 1998, the
outstanding balance on these equipment notes was $22.3 million.
MODIFICATION OF COMPUTER SOFTWARE FOR THE YEAR 2000
The Company is currently evaluating its equipment for use in the Year 2000. Work
plans detailing the tasks and resources required to insure that equipment is
Year 2000 compliant are currently being developed and in many cases are already
being implemented or Year 2000 compliant systems have been installed. CBHS
expects to spend $1 million in the aggregate during fiscal 1998 and fiscal 1999
to modify internal use software. The Company does not anticipate incurring any
other significant costs to make its equipment Year 2000 compliant. Costs
associated with modifying equipment to be Year 2000 compliant are charged to
expense as incurred.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
25
<PAGE> 26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGE IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its first annual meeting of stockholders on June 8, 1998.
(b) Proxies for the meeting were solicited pursuant to Section 14(a) of the
Securities and Exchange Act of 1934. There was no solicitation in opposition
to management's solicitation. All of management's nominees for director were
elected.
(c) At the annual meeting, stockholders voted for the election of Gerald W.
Haddock and Carl F. Thorne, incumbent directors, to each serve an additional
three-year term as a director:
Name For Authority Withheld
---- --- ------------------
Gerald W. Haddock 9,621,170 35,302
Carl F. Thorne 9,617,980 38,492
Stockholders also voted to approve the Company's 1997 Management Stock Incentive
Plan. 5,688,105 shares were voted for the Plan; 1,173,405 shares were voted
against the Plan; and 23,705 shares abstained from voting; and 2,771,259 shares
represent broker non-votes. Stockholders also voted to ratify the appointment of
Ernst & Young LLP as the independent auditors for the Company for the year
ending December 31, 1998. 9,644,295 shares were voted in favor of ratification;
7,937 shares were voted against ratification; and 4,240 shares abstained from
voting.
ITEM 5. OTHER INFORMATION
Not Applicable
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
4.1* Specimen stock certificate
4.2* Preferred Share Purchase Rights Plan
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
26
<PAGE> 27
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.
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)
27
<PAGE> 28
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited
Partnership and Wine Country Hotel, LLC (filed a
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
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
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
(b) Reports on Form 8-K
Not Applicable
28
<PAGE> 29
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 14th day of August, 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)
29
<PAGE> 30
EXHIBIT INDEX
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
4.1* Specimen stock certificate
4.2* Preferred Share Purchase Rights Plan
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
<PAGE> 31
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.
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)
<PAGE> 32
10.26 Lease Agreement, dated November 18, 1996 between
Crescent Real Estate Equities Limited
Partnership and Wine Country Hotel, LLC (filed a
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
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
27 Financial Data Schedule
<PAGE> 33
* 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
(b) Reports on Form 8-K
Not Applicable
<PAGE> 1
EXHIBIT 3.3
ARTICLE V
OFFICERS AND AGENTS
Section 1. Categories of Officers and Agents. 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, a Chief Operating Officer,
and one or more Executive Vice Presidents (each an "Officer" and two or more
"Officers"). In addition, the Board of Directors may from time to time elect,
and the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the President or any of them may appoint, one or more Vice
Presidents, a Chief Financial Officer, a Secretary, one or more Assistant
Secretaries, a Treasurer, one or more Assistant Treasurers, and such other
nonexecutive officers, assistant officers, agents and employees (each an
"Agent" and two or more "Agents"; when the terms "officer" or "officers"
without initial capitalization is used in these Bylaws, then such terms refer
to both an Officer and an Agent unless otherwise specified or the context
otherwise requires) 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 Vice Chairman of the Board or the Chief Executive Officer.
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 an
Executive Vice President. Each Officer 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. Each Agent shall have only such
powers and duties as are prescribed to such Agent by the Board of Directors,
any committee thereof authorized to confer powers and duties upon such Agent,
any executive officer authorized to appoint such Agent or as specifically set
forth in Article V of these Bylaws. Only Officers shall be considered
"officers" of the Corporation under the provisions of Section 142 of the
Delaware General Corporation Law; Agents shall not be considered officers but
instead shall be considered non-officerial agents of the Corporation under the
provisions of Section 142 of the Delaware General Corporation Law.
Section 2. Election and Term of Office. The elected Officers of the
Corporation shall be, and the elected Agents of the Corporation may 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 and each Agent 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 Corporation
which may be authorized by the Board of Directors. The Chairman of the Board
shall make such
<PAGE> 2
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
set forth in these Bylaws or 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 the Board of Directors, certificates, contracts and other
instruments of the Corporation as authorized by the Board of Directors.
Section 6. President/Chief Operating Officer. The President shall be
the chief operating officer of the Corporation (unless a separate Chief
Operating Officer shall have been elected or appointd, in whcih case such Chief
Operating Officer shall have the duties of a chief operating officer, as well
as such powers and duties as from time to time may be conferred by the Board of
Directors or by any committee authorized to do so), 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 and the Chief Operating Officer 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 Corporation as authorized by the Board of Directors.
Section 7. Executive Vice Presidents. The Executive Vice President or
Executive Vice Presidents, if any, 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 7A. Vice Presidents. The Vice President or Vice Presidents,
if any, shall have only such powers and duties as are prescribed to such Vice
President or Vice Presidents by the Board of Directors, any committee thereof
authorized to confer powers and duties upon such Vice President or Vice
Presidents, or any executive officer authorized to appoint such Vice President
or Vice Presidents.
<PAGE> 3
Section 8. Secretary. The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors and all other notices
required by law, by the Certificate 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, the
Chief Operating Officer, 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 and have such other
powers as from time to time may be prescribed by the Board of Directors, any
committee thereof authorized to confer powers and duties upon the Secretary, or
any executive officer authorized to appoint Secretary. 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 Vice Chairman of the Board, the Chief Executive
Officer, the President or the Chief Operating Officer, 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 Vice Chairman of the Board, the Chief Executive Officer, the
President or the Chief Operating Officer, taking proper vouchers for such
disbursements. The Treasurer shall render to the Chairman of the Board, the
Vice Chairman of the Board, the Chief Executive Officer, the President, the
Chief Operating Officer, 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.
Section 10. Removal. Any Officer or Agent 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 Corporation would be served thereby. No elected or
appointed Officer or Agent 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, the President and the Chief Operating Officer 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
<PAGE> 4
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, any committee thereof authorized to appoint an officer to fill that
office, or any executive officer authorized to appoint an officer to fill that
office, 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, Officer or Agent, whether
elected or appointed, may resign at any time by serving written notice of such
resignation on the Chairman of the Board, the Vice 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 Vice 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 10.37
- --------------------------------------------------------------------------------
STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER
BY AND AMONG
MACHINERY, INC.
ROGER D. KING
ROBERT A. GREENER
OKLAHOMA MACHINERY, INC.
CRESCENT MACHINERY COMPANY
AND
CRESCENT OPERATING, INC.
JUNE 4, 1998
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TABLE OF CONTENTS
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ARTICLE I -- THE MERGER..................................................................1
1.1 The Merger.................................................................1
1.2 Effective Time of the Merger...............................................1
1.3 Closing ..................................................................2
1.4 Effects of the Merger......................................................2
1.5 Articles of Incorporation..................................................2
1.6 Bylaws ..................................................................2
1.7 Directors..................................................................2
1.8 Officers ..................................................................2
1.9 Taking of Necessary Action.................................................2
ARTICLE II -- CONVERSION OF SECURITIES; MERGER CONSIDERATION.............................3
2.1 Conversion of Securities...................................................3
2.2 Merger Consideration.......................................................3
2.3 Adjustment of Merger Consideration.........................................3
2.4 No Dissenting Shares.......................................................5
2.5 Exchange of Certificates...................................................5
2.6 Pledge Agreement...........................................................5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF
SELLERS AND THE COMPANY.........................................................5
3.1 Corporate Organization.....................................................5
3.2 Qualification..............................................................5
3.3 Charter and Bylaws.........................................................5
3.4 Capitalization of the Company..............................................5
3.5 Authority Relative to This Agreement.......................................6
3.6 Noncontravention...........................................................7
3.7 Governmental Approvals.....................................................7
3.8 No Subsidiaries............................................................7
3.9 Shares ..................................................................7
3.10 Financial Statements......................................................7
3.11 Absence of Undisclosed Liabilities........................................8
3.12 Absence of Certain Changes................................................8
3.13 Tax Matters...............................................................8
3.14 Compliance With Laws......................................................9
3.15 Legal Proceedings.........................................................9
3.16 Title to Properties.......................................................9
3.17 Sufficiency and Condition of Properties..................................10
3.18 Real Property............................................................10
3.19 Tangible Personal Property...............................................11
3.20 Leased Property..........................................................11
3.21 Inventory................................................................12
3.22 Receivables..............................................................12
3.23 Intellectual Property....................................................12
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3.24 Permits .................................................................13
3.25 Agreements...............................................................13
3.26 ERISA .................................................................14
3.27 Environmental Matters....................................................15
3.28 Labor Relations..........................................................16
3.29 Employees................................................................17
3.30 Insider Interests........................................................17
3.31 Insurance................................................................17
3.32 Financial Requirements...................................................18
3.33 Bank Accounts and Powers of Attorney.....................................18
3.34 Books and Records........................................................18
3.35 Illegal Payments.........................................................18
3.36 Offerings of Securities..................................................18
3.37 Investment Intent........................................................18
3.38 Disclosure of Information................................................19
3.39 Investment Experience....................................................19
3.40 Restricted Securities....................................................19
3.41 Legend .................................................................19
3.42 Brokerage Fees...........................................................19
3.43 Disclosure...............................................................20
3.44 Representations and Warranties on Closing Date...........................20
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES
OF CRESCENT AND PARENT.........................................................20
4.1 Corporate Organization....................................................20
4.2 Qualification.............................................................20
4.3 Charter and Bylaws........................................................20
4.4 Capitalization of Crescent................................................21
4.5 Authority Relative to This Agreement......................................21
4.6 Noncontravention..........................................................21
4.7 Governmental Approvals....................................................21
4.8 Crescent Shares...........................................................21
4.9 Brokerage Fees............................................................22
4.10 Financial Statements.....................................................22
4.11 Representations and Warranties on Closing Date...........................22
ARTICLE V -- CONDUCT OF COMPANY PENDING CLOSING.........................................22
5.1 Conduct and Preservation of Business......................................22
5.2 Restrictions on Certain Actions...........................................22
ARTICLE VI -- ADDITIONAL AGREEMENTS.....................................................24
6.1 Access to Information.....................................................24
6.2 Third Party Consents......................................................25
6.3 Employment and Noncompetition Agreement...................................25
6.4 Employee and Employee Benefit Plan Matters................................25
6.5 Title Insurance and Surveys...............................................25
6.6 Uncollected Receivables...................................................26
6.7 Public Announcements......................................................27
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6.8 Notice of Litigation......................................................27
6.9 Notification of Certain Matters...........................................27
6.10 Fees and Expenses........................................................27
6.11 Transfer Taxes...........................................................27
6.12 Survival of Covenants....................................................28
ARTICLE VII -- CONDITIONS TO OBLIGATIONS OF SELLERS.....................................28
7.1 Representations and Warranties True.......................................28
7.2 Covenants and Agreements Performed........................................28
7.3 Legal Proceedings.........................................................28
7.4 Other Documents...........................................................28
ARTICLE VIII -- CONDITIONS TO OBLIGATIONS OF CRESCENT AND PARENT........................29
8.1 Representations and Warranties True.......................................29
8.2 Covenants and Agreements Performed........................................29
8.3 Certificate...............................................................29
8.4 Opinion of Counsel........................................................29
8.5 Legal Proceedings.........................................................29
8.6 Consents .................................................................29
8.7 No Material Adverse Change................................................29
8.8 Employment Agreement......................................................29
8.9 Unacceptable Encumbrances; Title Insurance................................30
8.10 Due Diligence............................................................30
8.11 Other Documents..........................................................30
ARTICLE IX -- TERMINATION, AMENDMENT AND WAIVER.........................................31
9.1 Termination...............................................................31
9.2 Effect of Termination.....................................................31
9.3 Amendment.................................................................31
9.4 Waiver .................................................................32
9.5 Remedies Not Exclusive....................................................32
ARTICLE X -- SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION...............................32
10.1 Survival.................................................................32
10.2 Indemnification by Sellers...............................................32
10.3 Indemnification by Crescent..............................................32
10.4 Threshold for Crescent Claims............................................33
10.5 Limitations on Crescent Claims...........................................33
10.6 Procedure for Indemnification............................................33
ARTICLE XI -- MISCELLANEOUS.............................................................34
11.1 Notices .................................................................34
11.2 Entire Agreement.........................................................34
11.3 Binding Effect; Assignment; No Third Party Benefit.......................34
11.4 Severability.............................................................34
11.5 GOVERNING LAW............................................................35
11.6 Further Assurances.......................................................35
11.7 Descriptive Headings.....................................................35
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11.8 Gender .................................................................35
11.9 References...............................................................35
11.10 Counterparts............................................................35
11.11 Injunctive Relief.......................................................35
11.12 Jurisdiction and Venue..................................................36
ARTICLE XII -- DEFINITIONS..............................................................36
12.1 Certain Defined Terms....................................................36
12.2 Certain Additional Defined Terms.........................................37
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STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER (this "Agreement"),
dated as of June 4, 1998, is made by and among Machinery, Inc., an Oklahoma
corporation (the "Company"), Roger D. King, an individual ("King"), Robert A.
Greener ("Greener"), (King and Greener being referred to herein individually as
a "Seller" and collectively as "Sellers"), Crescent Operating, Inc., a Delaware
corporation ("Crescent"), Crescent Machinery Company, a Texas corporation and a
wholly-owned subsidiary of Crescent ("Parent"), and Oklahoma Machinery, Inc., a
Texas corporation and a wholly owned subsidiary of Parent ("Sub").
WHEREAS, Sellers own in the aggregate all the outstanding shares of
common stock, par value $1.00 per share, of the Company (the "Shares"); and
WHEREAS, the respective Boards of Directors of Crescent, Parent, Sub,
and the Company have determined that the acquisition of the Company by Parent is
desirable and in the best interests of the shareholders of the respective
companies; and
WHEREAS, the respective Boards of Directors of Crescent, Parent, Sub,
and the Company, and Parent, acting as the sole shareholder of Sub, and Sellers,
acting as the sole shareholders of the Company, have approved the merger of the
Company with and into Sub upon the terms and subject to the conditions set forth
herein; and
WHEREAS, the 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 Crescent and Parent;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Sellers, and Crescent, Parent and Sub hereby agree as
follows:
ARTICLE I -- THE MERGER
1.1 The Merger. At the Effective Time, and on the terms and subject to
the conditions set forth in this Agreement, the Company shall be merged with and
into Sub (the "Merger"), Sub shall continue its corporate existence under the
Texas Business Corporation Act ("State Law") as the surviving corporation in the
Merger (the "Surviving Corporation"), and the separate corporate existence of
the Company shall cease. Articles I and II constitute a plan of merger pursuant
to Article 5.01 of State Law and an agreement of merger pursuant to Section 1082
of the Oklahoma General Corporation Act (the "OGCA").
1.2 Effective Time of the Merger. At the Closing, the parties hereto
will cause the Merger to be consummated by filing with the Secretary of State of
Texas articles of merger in such form as required by, and executed in accordance
with, the relevant provisions of State Law, as well as filing a certificate of
merger with the Secretary of State of Oklahoma in such form as required by, and
executed in accordance with, the relevant provisions of the OGCA. The Merger
shall become effective at such time as the Secretary of State of Texas and the
Secretary of State of Oklahoma each issues a certificate of merger with respect
thereto or at such later time (not to
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exceed fifteen (15) days after the date the articles of merger, or certificate
of merger, as the case may be, are filed) as is specified in the articles of
merger, or certificate of merger, as the case may be, pursuant to the mutual
agreement of Parent and the Company (the "Effective Time").
1.3 Closing. The closing of the Merger (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 June 5, 1998, as soon as practicable after the satisfaction or, if
permissible, waiver of the conditions to the obligations of the parties set
forth in Articles VII and VIII or (ii) at such other time or place or on such
other date as the parties hereto shall agree, provided that the closing
conditions set forth in Articles VII and VIII have been satisfied or waived at
or prior to such other time and date. The date on which the Closing occurs is
herein referred to as the "Closing Date." All Closing transactions shall be
deemed to have occurred simultaneously.
1.4 Effects of the Merger. At the Effective Time, the separate
existence of the Company shall cease; all rights, title, and interest to all
real estate and other property owned by the Company and Sub shall be allocated
to and vested in the Surviving Corporation without reversion or impairment,
without further act or deed, and without any transfer or assignment having
occurred, but subject to any existing liens or other encumbrances thereon; all
liabilities and obligations of the Company and Sub shall be allocated to the
Surviving Corporation, and the Surviving Corporation shall be the primary
obligor therefor; a proceeding pending by or against the Company or Sub may be
continued as if the Merger did not occur, or the Surviving Corporation may be
substituted in the proceeding; and all other effects of the Merger specified in
Article 5.06 of State Law shall result therefrom.
1.5 Articles of Incorporation. The Articles of Incorporation of Sub, as
in effect immediately prior to the Effective Time, shall, as amended and
restated at the Effective Time as set forth in Exhibit 1.5, be the Articles of
Incorporation of the Surviving Corporation, until thereafter amended in
accordance with its terms and as provided by State Law.
1.6 Bylaws. The Bylaws of Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation, until
thereafter amended in accordance with its terms and as provided by State Law.
1.7 Directors. The directors of Sub at the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation and until his or her successor is duly elected and qualified in
accordance with State Law or until his or her earlier death, resignation or
removal.
1.8 Officers. The officers of Sub at the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office in accordance
with the Articles of Incorporation and Bylaws of the Surviving Corporation and
until his or her successor is duly elected and qualified in accordance with
State Law or until his or her earlier death, resignation or removal.
1.9 Taking of Necessary Action. Each of the parties hereto shall use
its reasonable best efforts to take all such action as may be necessary or
appropriate in order to effectuate the Merger under State Law and the OGCA as
promptly as possible.
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ARTICLE II -- CONVERSION OF SECURITIES;
MERGER CONSIDERATION
2.1 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of Crescent, Parent, Sub, the Company,
or any holder of any of the following securities:
(a) Each share of common stock, par value $1.00 per share, of the
Company ("Company Stock") held in the treasury of the Company shall be canceled
and extinguished without any conversion thereof and no payment shall be made
with respect thereto.
(c) Each outstanding share of Company Stock held by Sellers shall be
converted into the right to receive a portion of the "Merger Consideration" (as
defined in Section 2.2 and as adjusted pursuant to Section 2.3 below) determined
by dividing the total of amount of all Merger Consideration by the total number
of outstanding shares of Company Stock.
(d) Each outstanding share of common stock, par value $.01 per share,
of Sub shall be and remain outstanding and no payment shall be made with respect
thereto.
2.2 Merger Consideration. The total amount of the merger consideration
payable to the Sellers as the holders of all of the Company Stock shall, subject
to adjustment pursuant to Section 2.3 below, be One Million Three Hundred
Seventy Thousand Five Hundred Seventy-Three and No/100 Dollars ($1,370,573.00)
(the "Merger Consideration"). The Merger Consideration shall be payable (a) by
paying Six Hundred Fifteen Thousand Nine Hundred Fifty-Two and No/100 Dollars
($615,952.00) in immediately available funds by confirmed wire transfer to a
bank account to be designated by each of the Sellers (such designation to occur
no later than the three (3) business day prior to the Closing Date) (such cash
portion of the Merger Consideration, the "Cash Portion of the Merger
Consideration"), and (b) the remaining Seven Hundred Fifty-Four Thousand Six
Hundred Twenty-One and No/100 Dollars ($754,621.00) of the Merger Consideration
shall be paid by Crescent's delivery to Sellers of shares of Crescent's common
stock, par value $0.01 per share ("Crescent's Common Stock"), the number of
which shares (the "Crescent Shares") shall be the quotient of 751,621 divided by
the "Current Market Price" of Crescent's Common Stock. For purposes of the
foregoing, (i) the "Current Market Price" of Crescent's Common Stock shall mean
the average of daily closing prices of Crescent's Common Stock for the ten
consecutive trading days ending on (and including) the trading day immediately
preceding the Closing Date, and (ii) the "closing price" shall mean the last
sales price, regular way, per share of Crescent's Common Stock on a trading day,
or if no sale takes place on such day, the average of the closing bid and ask
prices, regular way, for such day, all as reported by the NASDAQ National Market
System. In the event the foregoing formula would result in the issuance of a
fractional share of Crescent's Common Stock to a Seller, Parent shall pay such
Seller cash at the Closing in lieu of such fractional share.
2.3 Adjustment of Merger Consideration.
(a) The Merger Consideration will be adjusted (either up or down) based
on the aggregate net change in the asset and liability accounts of the Company
set forth on Schedule 2.3(a) hereto (the aggregate balance of such accounts, the
"Net Worth of the Company") as of the Closing Date, as
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compared to the Net Worth of the Company as of February 28, 1998 as shown on
Schedule 2.3(a). If, upon completion of the procedures set forth in Section
2.3(b) below, it is finally determined that (i) the Net Worth of the Company as
of the Closing Date is greater than the Net Worth of the Company as of February
28, 1998, then the Merger Consideration shall be increased by the amount of such
difference in cash, and Crescent shall pay to Sellers the amount of such
difference within ten (10) days after such final determination, or (ii) the Net
Worth of the Company as of the Closing Date is less than the Net Worth of the
Company as of February 28, 1998, then the Merger Consideration shall be
decreased by the amount of such difference, and Sellers shall pay to Parent 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 2.3 shall
be made by or to each of the Sellers, pro rata, based on the percentages set
forth on Annex I attached hereto. Notwithstanding the foregoing, in the event
the adjustment to be paid to Sellers under clause (i) above is in excess of five
percent (5%) of the Merger Consideration, then such adjustment shall be made in
shares of Crescent Common Stock, the number of such shares equally the quotient
of the upward adjustment divided by the "Current Market Price" as determined
under Section 2.2 above.
(b) Within sixty (60) days after the Closing, Parent will prepare and
deliver to each of Sellers a statement of the Net Worth of the Company as of the
close of business on the Closing Date (the "Closing Statement"), which statement
shall be prepared in accordance with GAAP and the instructions provided in
Schedule 2.3(b) hereto. If, within thirty (30) days following delivery of the
Closing Statement to each of the Sellers, neither of Sellers has given Parent
notice of its objection to the Closing Statement (such notice must contain a
detailed statement of the basis of such Seller's objection), then the Net Worth
of the Company reflected in the Closing Statement will be used in computing the
adjustment to the Merger Consideration. If either of Sellers gives Parent 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) Parent and Sellers will each bear 50% of the fees and expenses of the
Accountants for such determination, unless the Net Worth of the Company as
computed by the Accountant is more that ten percent (10%) greater than or less
than the vale computed by Parent, in which case such fees and expenses shall be
borne by Parent ( so long as the Accountants determine that the basis for such
erroneous calculation was not due to the failure of the Sellers' disclosure of
all reasonably necessary information to properly calculate the Net Worth of the
Company, in which case all the fees and expenses of the Accountants shall be
borne by the Sellers). The final determination of the Net Worth of the Company
as of the close of business on the Closing Date shall occur on the earliest of
(A) thirty (30) days after delivery of the Closing Statement to Sellers without
objection, (B) written agreement of the Sellers and Parent to the Closing
Statement or any modification thereof or (C) written determination by the
Accountants.
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2.4 No Dissenting Shares. Subject to the terms and conditions hereof,
Sellers and Parent each agree to vote for the Merger and hereby waive any
dissenters rights any such parties may have with respect to the Merger.
2.5 Exchange of Certificates. At the Closing, Crescent and Parent shall
effect the exchange for the Merger Consideration of certificates that,
immediately prior to the Effective Time, represented shares of Company Stock
entitled to receive the Merger Consideration pursuant to Section 2.1
("Certificates"). Upon the surrender to Parent of each Certificate, Crescent and
Parent shall pay the holder of such Certificate the applicable Merger
Consideration multiplied by the number of shares of Company Stock formerly
represented by such Certificate, in exchange therefor, and such Certificate
shall forthwith be canceled.
2.6 Pledge Agreement. In order to secure the indemnity obligations of
Sellers under Article X, Sellers shall, at the Closing, deliver or cause to be
delivered to Parent a stock pledge agreement (the "Pledge Agreement") in favor
of Parent, together with the certificates representing the Crescent Shares and
stock powers executed in blank. The Pledge Agreement shall be in substantially
the form set forth as Exhibit 2.6.
ARTICLE III -- REPRESENTATIONS
AND WARRANTIES OF SELLERS AND THE COMPANY
King and the Company, and Greener to the best of his knowledge, jointly
and severally represent and warrant to Crescent and Parent 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 Parent
accurate and complete copies of (i) the Articles of Incorporation and Bylaws of
the Company (certified by the Secretary of State of the Company's jurisdiction
of incorporation and the secretary or an assistant secretary of the Company,
respectively) as currently in effect, (ii) the stock records of the Company, and
(iii) the minutes of all meetings of the Company's Board of Directors, 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 all actions taken by the Company's Board,
any committees of such Board, and the Company's shareholders. 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 10,000 shares of common stock, par value $1.00 per share, of
which 6,522 shares are outstanding
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and 3,478 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 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, warrants 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) 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, (ii) equitable principals which may limit the availability of certain
equitable remedies (such as specific performance) in certain instances and (iii)
public policy considerations with respect to the enforceability rights of
indemnification.
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3.6 Noncontravention.
(a) Except as described in Schedule 3.6 hereto, the execution, delivery
and performance by Sellers 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) 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 the Company in
connection with the execution, delivery, or performance by Sellers and the
Company of this Agreement or the consummation by them of the transactions
contemplated hereby.
3.8 No Subsidiaries. The Company has no subsidiaries. In addition, 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. Each Seller is (and at the Closing will be) the record and
beneficial owner of, and upon consummation of the transactions contemplated
hereby Parent 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 Parent or its affiliates or (ii) restrictions on
transfer that may be imposed by federal or state securities laws.
3.10 Financial Statements. The Company has delivered to Parent accurate
and complete copies of (i) the Company's unaudited balance sheet as of October
31, 1997 and the related unaudited statements of income, stockholders' equity
and cash flows for the year then ended as compiled by Steven A. Henderson, P.C.,
an independent certified public accountant (the "Annual Financial Statements"),
and (ii) the Company's unaudited balance sheet as of March 31, 1988 (the "Latest
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Balance Sheet"), and the related unaudited statements of income, stockholders'
equity and cash flows for the five-month period then ended (the "Interim
Financial Statements"), certified by the Company's president (collectively, the
"Financial Statements"). The Financial Statements (i) represent actual bona fide
transactions, (ii) except as disclosed on Schedule 3.10 hereto, 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 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 for the periods then ended.
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 has no liabilities
or obligations (whether accrued, absolute, contingent, unliquidated, or
otherwise, whether or not known to the Company, and whether due or to become
due), except (i) liabilities reflected on the Latest Balance Sheet, (ii)
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), (iii) liabilities arising
under executory contracts entered into in the ordinary course of business (none
of which is a liability for breach of contract).
3.12 Absence of Certain Changes. Since March 31, 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, condition (financial or otherwise), or
prospects 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.
(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,
except as set forth in Schedule 3.13(a), no extensions with respect to such Tax
Returns have (or as of the Closing Date will have) been requested or granted;
(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;
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(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, except as set forth on Schedule 3.13(c);
(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, except as set forth on Schedule 3.13(e), or any other taxing
authority;
(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
the 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 Sellers nor the Company has 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 Sellers and the Company, threatened with, or, to the best knowledge
of Sellers 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 Sellers 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. 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 3.32. 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 Sellers 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, 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 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 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
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<PAGE> 15
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 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 the Company's business. Such
properties and their uses conform to all Applicable Laws, and Sellers 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"), 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 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. The Real
Property has full and free access to and from public highways, streets, and
roads, and Sellers and the Company 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 the 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 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 Sellers 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), 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 the 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 the 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) The Company has delivered to Parent, accurate and complete copies
of all title insurance policies, title reports, other title documents, surveys,
certificates of occupancy and Permits in the possession of the 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 March 31, 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 the 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 the
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 the Company's business. The motor vehicles and rolling
stock owned or leased by the Company are utilized solely for the transportation
by the Company, for its own account and not for the account of others, of
inventories, supplies and other items relating to the operation of the Company's
business, and such activities do not require the obtainment of any Permit.
3.20 Leased Property. Set forth on Schedule 3.20 is a description of
all leases under which the Company is the lessee of real or personal property
used in connection with the Company's business. The 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
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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 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.
3.21 Inventory. All inventory (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, or 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 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 Latest Balance Sheet or in the 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, except as described on
Schedule 3.21 hereto. The present quantities of all inventories of the Company
are sufficient to serve 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 any
repair and replacement obligations in the ordinary course, under applicable
warranties or otherwise.
3.22 Receivables. Except as described on Schedule 3.22, all receivables
(including accounts and notes receivable, employee advances, and accrued
interest receivables) of the Company as reflected on the 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 Latest Balance Sheet (in the case of
receivables so reflected) or on the books of the Company (in the case of
receivables arising since the date thereof). The allowances for doubtful
accounts reflected on the Latest Balance Sheet and on the books of the Company
were determined in accordance with generally accepted accounting principles and
were and are reasonable in light of historical data and other relevant
information.
3.23 Intellectual Property.
(a) Set forth on Schedule 3.23 is a list of all Intellectual Property
owned by the Company or which it is licensed to use. Schedule 3.23 specifies, as
applicable: (i) the nature of such
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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 the 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 the Company's business on a basis
consistent with past practice for at least the past five years. The 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,
the Company is in compliance with all its obligations with respect thereto, and,
to the best knowledge of Sellers and the 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 the Company, threatened against
the Company asserting that the use by the 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 the Company, no basis for any such
Proceeding. To the best knowledge of Sellers and the 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 the Company, the conduct of the 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 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 Sellers 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 3.24, no notice has been issued by any
Governmental Entity and no Proceeding is pending or, to the best knowledge of
Sellers and the Company, threatened with respect to any alleged failure by the
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 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 as
of May 15, 1998 are listed on Schedule 3.25.
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(b) The Company has delivered to Parent 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. 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(a)(1) 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. Except as otherwise disclosed on Schedule 3.26(a)(2), the Company has
delivered to Parent 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 as the "Employee Plans." For purposes of this Section 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(a)(1).
(b) Except as otherwise identified on Schedule 3.26(b), (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 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
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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 3.26(c) 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 Parent. 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(d) 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 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 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 3.26(f), 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 October 31, 1997.
3.27 Environmental Matters.
(a) Neither the Company nor any property owned or leased by the Company
(for purposes of this Section 3.27, the "Property") is in violation of, or
subject to any pending or, to the best knowledge of Sellers and the Company,
threatened Proceeding under, or subject to any remedial obligations under, any
Applicable Laws pertaining to health, safety, the environment, Hazardous
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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, 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.
(b) 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. The 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. The 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 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 Sellers 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, hours, and other terms and conditions of employment with any
recognized or certified labor organization, collective bargaining
representative, or group of employees.
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(b) The 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 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) Sellers and the Company believe that relations with the employees
of the Company are satisfactory.
3.29 Employees. Set forth on Schedule 3.29 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, agent and consultant of
the Company as of May 15, 1998, together with the total amounts of salary,
bonuses and other compensation paid or payable by the 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 the 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 the Company, nor has any Seller or any affiliate of any Seller engaged in
discussions with any such employee relating thereto.
3.30 Insider Interests. 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 Sellers 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 3.30 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 the
Company. Such policies are in full force and effect, are sufficient to satisfy
all requirements of Applicable Laws and any agreements, arrangements, or
understandings to which the Company is a party, and provide adequate insurance
coverage for the assets and operations of the 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. The
Company has given timely notice to the appropriate insurance
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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 the 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 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.
3.34 Books and Records. All the books and records of the 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 the Company.
3.35 Illegal Payments. To the best knowledge of Sellers and the
Company, none of Sellers 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.
3.36 Offerings of Securities. All securities which have been offered or
sold by the 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.
3.37 Investment Intent. Each Seller is acquiring the Crescent Shares
for his 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
Crescent
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Shares or (ii) pursuant to an applicable exemption under the Securities Act. In
acquiring the Crescent Shares, no Seller is offering or selling, and will not
offer or sell, for Crescent in connection with any distribution of Crescent, 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 Disclosure of Information. Each Seller acknowledges that he or his
representatives have been furnished with substantially the same kind of
information regarding Crescent and its business, assets, results of operation
and financial condition as would be contained in a registration statement
prepared in connection with a public sale of the Crescent Shares. Each Seller
further represents that he has had an opportunity to ask questions of and
receive answers from Crescent regarding Crescent and its business, assets,
results of operation and financial condition and the terms and conditions of the
issuance of the Crescent Shares.
3.39 Investment Experience. Each Seller acknowledges that he is able to
fend for itself, can bear the economic risk of his investment in the Crescent
Shares, and has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of an investment in the
Crescent Shares. Each Seller is an "accredited investor" as such term is defined
in Regulation D under the Securities Act.
3.40 Restricted Securities. Each Seller understands that the Crescent
Shares will not have been registered pursuant to the Securities Act or any
applicable state securities laws, that the Crescent Shares will be characterized
as "restricted securities" under federal securities laws, and that under such
laws and applicable regulations the Crescent Shares cannot be sold or otherwise
disposed of without registration under the Securities Act or an exemption
therefrom. In this connection, each Seller represents that it is familiar with
Rule 144 promulgated under the Securities Act, as currently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Stop transfer instructions may be issued to the transfer agent for securities of
Crescent (or a notation may be made in the appropriate records of Crescent) in
connection with the Crescent Shares.
3.41 Legend. It is agreed and understood by each Seller that, so long
as the Crescent Shares remain unregistered, the certificates representing the
Crescent Shares shall each conspicuously set forth on the face or back thereof,
in addition to any legends required by Applicable Law or other agreement, a
legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
PURSUANT TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS THEY ARE FIRST REGISTERED PURSUANT TO THAT ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS THE CORPORATION RECEIVES A WRITTEN
OPINION OF COUNSEL, WHICH OPINION AND COUNSEL ARE SATISFACTORY TO THE
CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
3.42 Brokerage Fees. Neither Sellers nor any of their affiliates has
retained any financial advisor, broker, agent, or finder
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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 Parent 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.
3.43 Disclosure. No representation or warranty made by Sellers or the
Company in this Agreement, and no statement of any Seller or the Company
contained in any document, certificate, or other writing furnished or to be
furnished by Sellers or the 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 Company know of no matter (other than matters of a general economic
character not relating solely to the Company in any specific manner) which has
not been disclosed to Parent 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 the Company or the ability of Sellers to consummate the transactions
contemplated hereby.
3.44 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 CRESCENT AND PARENT
Crescent and Parent represents and warrants to Sellers and the Company
that:
4.1 Corporate Organization. Crescent and Parent are corporations duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of their respective incorporation and each has all requisite
corporate power and corporate authority to own, lease, and operate their
respective properties and to carry on their respective business as now being
conducted.
4.2 Qualification. Crescent and Parent are each qualified or licensed
to do business and each are in good standing in each of the jurisdictions set
forth on Schedule 4.2, which are all the jurisdictions in which each owns,
leases or operates property or in which such qualification or licensing is
required for the conduct of their respective businesses.
4.3 Charter and Bylaws. Crescent has made available to Sellers accurate
and complete copies of the Certificate of Incorporation and Bylaws of Crescent
(certified by the secretary or an assistant secretary of Crescent, respectively)
as currently in effect and Crescent is not in violation of any provision of its
Certificate of Incorporation or Bylaws.
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4.4 Capitalization of Crescent. The authorized capital stock of
Crescent consists of (i) 22,500,000 shares of common stock, par value $.01 per
share, of which 11,231,350 shares are outstanding and no shares are held in
Crescent's treasury.
4.5 Authority Relative to This Agreement. Crescent, Parent and Sub each
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 of Crescent, Parent and Sub of
this Agreement, and the consummation by it of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action of each of
Crescent, Parent and Sub. This Agreement has been duly executed and delivered by
each of Crescent, Parent and Sub and constitutes, and each other agreement,
instrument, or document executed or to be executed by Crescent, Parent and Sub
in connection with the transactions contemplated hereby has been, or when
executed will be, duly executed and delivered by each of Crescent, Parent and
Sub and constitutes, or when executed and delivered will constitute, a valid and
legally binding obligation of each of Crescent, Parent and Sub, enforceable
against each of Crescent, Parent and Sub 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.
4.6 Noncontravention. The execution, delivery, and performance by each
of Crescent, Parent and Sub of this Agreement and the consummation by each of
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 each
of Crescent, Parent and Sub, (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 Crescent, Parent or Sub is a party or by which Crescent, Parent, Sub or
any of their respective properties may be bound, (iii) result in the creation or
imposition of any Encumbrance upon the properties of either of Crescent, Parent
or Sub, or (iv) assuming compliance with the matters referred to in Section 4.7,
violate any Applicable Law binding upon Crescent, Parent or Sub.
4.7 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 Crescent, Parent or Sub in
connection with the execution, delivery, or performance by each of Crescent,
Parent or Sub of this Agreement or the consummation by each of them 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.
4.8 Crescent Shares. The Crescent Shares to be issued by Crescent at
the Closing have been duly authorized for such issuance and, when issued and
delivered by Crescent in accordance with the provisions of this Agreement, will
be validly issued, fully paid, and nonassessable. The issuance of the Crescent
Shares under this Agreement is not subject to any preemptive or similar rights.
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4.9 Brokerage Fees. Neither Crescent, Parent, Sub nor any of their
respective 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. Crescent
and Parent 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
Crescent, Parent, Sub or any of their respective affiliates.
4.10 Financial Statements. The unaudited interim consolidated balance
sheet of Crescent and related unaudited interim statements of operations,
stockholders' equity and cash flows for the three-month period ended March 31,
1998, as set forth in the most recent Form 10-Q as filed with the Securities and
Exchange Commission, a copy of which has been provided to each of the Sellers,
(i) represent actual bona fide transactions, (ii) have been prepared from the
books and records of Crescent in conformity with generally accepted accounting
principles applied on a basis consistent with preceding years throughout the
periods involved and (iii) accurately, completely, and fairly present Crescent's
financial position as of the respective dates thereof and its results of
operations and cash flows for the period then ended.
4.11 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 COMPANY PENDING CLOSING
Sellers and the Company hereby covenant and agree with Crescent and
Parent 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 Parent:
(a) amend its charter or bylaws;
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(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
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 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) 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,
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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 March 31, 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) 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 Parent;
(q) take any action which would or might make any of the
representations or warranties of Sellers or the 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 5.2.
ARTICLE VI -- ADDITIONAL AGREEMENTS
6.1 Access to Information. Between the date hereof and the Closing,
Sellers and the Company (i) shall give Parent 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 Parent and its authorized representatives to make such inspections
as they may reasonably require, and (iii) shall cause the Company's officers to
furnish Parent and its authorized representatives with such financial and
operating data and other information with respect to the Company as Parent may
from time to time reasonably request; provided, however, that no investigation
pursuant to this Section 6.1 shall affect any representation or warranty of
Sellers or the 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 Company shall have the right to have a
representative present at all times.
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6.2 Third Party Consents. Each Seller and the 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 Parent to be desirable to enable Sellers to
transfer the Crescent Shares to Parent 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 Sellers.
6.3 Employment and Noncompetition Agreement. King and the Surviving
Corporation shall enter into an employment and noncompetition agreement (the
"Employment Agreement") at (and subject to the occurrence of) the Closing
pursuant to which the Company shall agree to employ King as a Branch Manager of
the Surviving Corporation 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 Employee and Employee Benefit Plan Matters. Prior to the Closing,
the Company shall terminate its Employee Benefit Plans including but not limited
to any 401(k) plans and cafeteria plans.
6.5 Title Insurance and Surveys.
(a) The Company shall obtain and furnish to Parent at the Closing an
owner's policy of title insurance ("Title Insurance") from First American Title
Insurance Company or one or more other title insurance companies reasonably
acceptable to Parent (the "Title Company") relating to each parcel of owned Real
Property (as defined in Section 3.19) described on Schedule 6.5, which Title
Insurance shall insure at regular rates, in an amount reasonably determined
sufficient by Parent (or as otherwise required by Applicable Laws), the
Company's title to such Real Property, free and clear of all Encumbrances except
for the Encumbrances described on Schedule 6.5 (the "Permitted Encumbrances"),
and providing by way of appropriate endorsements and supplemental coverages,
insurance which is available under the title insurance regulations of the State
of Oklahoma 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) Within one (1) day after the execution and delivery of this
Agreement, the Company shall obtain and furnish to Parent a commitment for Title
Insurance from the Title Company with respect to each parcel of owned Real
Property described on Schedule 6.5 ("Title Binders") showing fee or leasehold
title to such Real Property in the 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 Parent legible copies of all documents referred to as exceptions to
title in the Title Binders.
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(c) Within one (1) day after the execution and delivery of this
Agreement, the Company shall deliver to Parent currently dated surveys (the
"Surveys") of each parcel of owned Real Property described on Schedule 6.5, each
of which Surveys shall be prepared by a licensed professional engineer or
surveyor acceptable to Parent 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 Parent 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 the
Company shall deliver to Parent copies of the provisions of the local zoning
ordinances which govern the use of property so classified.
(d) Within two (2) days after the receipt of the Title Binders and
copies of all exceptions shown therein and of the Surveys and copies of all
applicable provisions of the local zoning ordinances, Parent shall deliver to
Sellers a notice (the "Objection Notice") if it reasonably believes that the
Company's title to any Real Property is not as represented herein or that any of
the Encumbrances reflected in the Title Binders or Surveys are not Permitted
Encumbrances and the reasons for such belief (any such Encumbrances specified in
the Objection Notice being referred to herein as "Unacceptable Encumbrances").
The Company may, but shall not be obligated to, take such steps as shall be
necessary to eliminate or modify the Unacceptable Encumbrances in a manner
reasonably acceptable to Parent. The Company shall notify Parent within one day
after their receipt of the Objection Notice whether they intend to so eliminate
or modify the Unacceptable Encumbrances. In the event Parent shall not deliver
an Objection Notice within such time period, all Encumbrances reflected in the
Title Binders and Surveys shall be deemed to be Permitted Encumbrances. Any and
all matters disclosed in the Title Binders or the Surveys as to which Parent
objects by timely delivery of the Objection Notice which are thereafter cured to
the satisfaction of Parent or waived by Parent in writing shall also be deemed
to be Permitted Encumbrances; provided, however, that no matter shall be a valid
objection to title or an Unacceptable Encumbrance except in accordance with the
"Real Estate Title Examination Standards" of the Oklahoma Bar Administration,
where applicable.
(e) Within one (1) day after the execution and delivery of this
Agreement, Sellers shall deliver or make available to Parent all maps, surveys,
drawings and plot plans in the possession of Sellers depicting the owned Real
Property or any portion thereof.
(f) The cost of obtaining Title Binders, Title Insurance, and Surveys
shall be borne by the Company.
6.6 Uncollected Receivables. If, on or prior to November 30, 1998, the
Surviving Corporation 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 Latest Balance
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Sheet, Parent shall have the option to cause the Surviving Corporation to sell
and, upon exercise of such option, Sellers, jointly and severally, 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 Latest Balance Sheet. Sellers, jointly and severally, shall
be obligated to consummate such repurchase within ten (10) days after written
notice from Parent of Parent's election to require such repurchase.
6.7 Public Announcements. Except as may be required by Applicable Law
or the NASDAQ National Market Marketplace Rules, neither Crescent, on the one
hand, nor Sellers 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.
6.8 Notice of Litigation. Until the Closing, (i) Parent, upon learning
of the same, shall promptly notify Sellers of any Proceeding which is commenced
or threatened against Parent and which affects this Agreement or the
transactions contemplated hereby and (ii) Sellers and the Company, upon learning
of the same, shall promptly notify Parent of any Proceeding which is commenced
or threatened against any 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.
6.9 Notification of Certain Matters. Sellers and the Company shall give
prompt notice to Parent 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 the Company to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such person hereunder. Crescent, Parent and Sub shall each 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 Crescent, Parent or Sub to comply with or satisfy any
covenant, condition, or agreement to be complied with or satisfied by each such
person hereunder. The delivery of any notice pursuant to this Section 6.9 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.
6.10 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.
6.11 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 the Company, and the Company shall file all
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necessary documentation with respect to, and make all payments of, such Taxes
and fees on a timely basis.
6.12 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.
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 Crescent and Parent 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. Crescent and Parent shall each
have performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by each of them 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 Merger Consideration to be delivered to
each Seller pursuant to Section 1.2.
(b) A stock certificate or certificates in definitive form representing
the Crescent Shares to be delivered to each Seller pursuant to Section 1.2,
registered in the name of such Seller and duly executed by Crescent. Sellers
agree that, in the event the certificates representing the Crescent Shares are
still being processed at time of Closing, Buyer may deliver the foregoing
certificates after the Closing, but no later than June 12, 1998.
(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.
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ARTICLE VIII -- CONDITIONS TO
OBLIGATIONS OF CRESCENT AND PARENT
The obligations of Crescent and Parent 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 Sellers and the Company 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 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. Parent shall have received a certificate executed by
each Seller and on behalf of the Company by the president of the Company, dated
the Closing Date, representing and certifying, in such detail as Parent may
reasonably request, that the conditions set forth in this Article VIII have been
fulfilled and that Sellers and the Company are not in breach of any provision of
this Agreement.
8.4 Opinion of Counsel. Parent shall have received an opinion of Barber
& Bartz, a Professional Corporation, legal counsel to Sellers and the Company,
dated the Closing Date, with respect to the matters as may be reasonably
requested by Parent.
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.
8.7 No Material Adverse Change. Since March 31, 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 Agreement. King shall have entered into the Employment
Agreement.
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8.9 Unacceptable Encumbrances; Title Insurance.
(a) Parent shall not have delivered to Sellers within the time period
specified in Section 6.5 an Objection Notice describing an Unacceptable
Encumbrance, or if it has so delivered an Objection Notice describing an
Unacceptable Encumbrance, such Unacceptable Encumbrance shall have been
eliminated or modified to the reasonable satisfaction of Parent.
(b) Parent shall have received the Title Insurance described in Section
6.6.
8.10 Due Diligence. The due diligence conducted by Parent and its
representatives in connection with the proposed transactions contemplated hereby
shall not have caused Parent or its representatives to become aware of any facts
relating to the business, assets, results of operations, condition (financial or
otherwise), or prospects of the Company which, in the good faith judgment of
Parent, make it inadvisable for Parent to proceed with the consummation of the
transactions contemplated hereby.
8.11 Other Documents. Parent 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 Parent for transfer on the books of the Company.
(b) The minute books, stock records and corporate seal of the Company,
certified as complete and correct as of the Closing Date by the secretary or an
assistant secretary of the Company.
(c) All the 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) 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.
(e) A certificate from the Secretary of State of Oklahoma dated not
more than ten (10) days prior to the Closing Date, as to the legal existence and
good standing, respectively, of the Company under the laws of such state.
(f) 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 the Company as debtor are on file in the
Uniform Commercial Code or other relevant records of the county clerk's office
of Oklahoma County.
(g) Such other certificates, instruments and documents as may be
reasonably requested by Parent prior to the Closing Date to carry out the intent
and purposes of this Agreement.
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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 Parent; or
(b) by either Sellers or Parent, if:
(i) the Closing shall not have occurred on or before June 30,
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 Sellers, if (i) any of the representations and warranties of
Crescent, Parent or Sub 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) Crescent, Parent or Sub 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 Crescent or Parent; or
(d) by Crescent or Parent, if (i) any of the representations and
warranties of Sellers or the 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 the 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 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 Crescent and
Parent, 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 6.7 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.
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9.4 Waiver. Each of Sellers and the Company, on the one hand, and
Crescent and Parent, 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 and the related indemnity provisions shall survive the
Closing and for the three (3) year period thereafter, regardless of any
investigation made by or on behalf of any party.
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 Crescent, the subsidiaries and parent corporations of Crescent, each
director and officer of Crescent or any of its subsidiaries or parent
corporations, and each affiliate thereof, and their respective heirs, legal
representatives, successors and assigns (collectively, the "Crescent 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
Crescent Group, directly or indirectly, by reason of or resulting from 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 (collectively, "Crescent Claims").
10.3 Indemnification by Crescent. Subject to the terms and conditions
of this Article X, Crescent 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
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Group, directly or indirectly, by reason of or resulting from any breach by
Crescent of any of its representations, warranties, covenants or agreements
contained in this Agreement or in any certificate, instrument or document
delivered pursuant hereto (collectively, "Seller Claims").
10.4 Threshold for Crescent Claims. No indemnification shall be
required to be made by the Sellers pursuant to this Article X with respect to
any Crescent Claims unless and until the aggregate amount of Damages incurred by
Sellers with respect to all Crescent Claims (whether asserted, resulting,
imposed or incurred before, on or after the Closing Date) exceeds ten thousand
dollars ($10,000), it being agreed and understood that, if such amount is
exceeded, Sellers shall be jointly and severally liable to the fullest extent of
such Damages, including those not in excess of ten thousand dollars ($10,000).
10.5 Limitations on Crescent Claims. No indemnification shall be
required to be made by Sellers pursuant to this Article X with respect to any
Crescent Claims to the extent that the aggregate amount of damages incurred by
the Crescent Group with respect to all Crescent Claims (whether asserted,
resulting, imposed, or incurred before, on, or after the Closing Date) exceeds
the Merger Consideration.
10.6 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 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).
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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 Crescent: 306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey Stevens
Telefax: (817) 339-1001
If to Parent or Sub: 2323 Irving Blvd.
Dallas, Texas 75207
Attention: Mark Roberson
Telefax: (214) 634-9183
If to Sellers: 4140 S. 87th East Avenue
Tulsa, Oklahoma 74145
Attention: Roger King and Robert Greener
Telefax: (918) 622-1477
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 Parent may assign to any wholly owned subsidiary of Parent
any of Parent's rights, interests, or obligations hereunder, upon notice to the
other party or parties, provided that no such assignment shall relieve Parent 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,
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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.
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.
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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.
"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.
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"IRS" means the Internal Revenue Service.
"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 the Company" (or similar
references to Sellers and the Company's knowledge) means the knowledge
of or receipt of notice (oral or written) by any of Sellers 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 Parent as contemplated by this Agreement, after
having made a reasonable investigation of the accuracy of the
representations and warranties made by Sellers and the Company in this
Agreement or in any document, certificate or other writing furnished by
Sellers or the Company to Parent 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 3.25
Applicable Environmental Laws 3.27
Annual Financial Statements 3.10
associate 3.30
Benefit Arrangements 3.26
Cash Portion of Merger Consideration 2.1
CERCLA 3.27
Closing 3.44
Closing Date 3.44
Common Stock 2.1
Crescent Claims 10.4
Crescent Group 10.2
Crescent Shares 4.8
Current Market Price 2.2
Damages 3.15
Disposal 3.18
Effective Time 1.1
Employee Plans 3.26
Employment Agreement 8.8
Financial Statements 3.10
Hazardous Substance 3.27
Latest Balance Sheet 3.10
Merger 1.1
Merger Consideration 2.2
Multiemployer Plan 3.26
Objection Notice 6.5
Permitted Encumbrances 6.2
Pledge Agreement 2.6
Property 3.1
Merger Consideration 2.2
RCRA 3.27
Real Property 3.18
Release 3.27
Rule 144 3.40
Seller Claims 10.3
Seller Group 10.3
Shares 3.9
Solid Waste 3.27
State Law 1.1
Surveys 6.5
Surviving Corporation 1.1
Title Binders 6.5
Title Company 6.5
Title Insurance 6.5
Unacceptable Encumbrances 8.9
</TABLE>
[Signature page to follow]
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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.
Machinery, Inc.
By: /s/ ROGER D. KING
-----------------------------------------
Roger D. King, President
/s/ ROGER D. KING
--------------------------------------------
Roger D. King
/s/ ROBERT A. GREENERS
--------------------------------------------
Robert A. Greener
Crescent Operating, Inc.
By: /s/ RICK KNIGHT
-----------------------------------------
Name: Rick Knight
------------------------------------
Title: CFO
-----------------------------------
Crescent Machinery Company
By: /s/ MARK ROBERSON
-----------------------------------------
Name: Mark Roberson
------------------------------------
Title: President
-----------------------------------
Oklahoma Machinery, Inc.
By: /s/ MARK ROBERSON
-----------------------------------------
Name: Mark Roberson
------------------------------------
Title: President
-----------------------------------
39
<PAGE> 1
EXHIBIT 10.38
MASTER REVOLVING LINE OF CREDIT
LOAN AGREEMENT
(BORROWING BASE AND WAREHOUSE)
By and Between
DESERT MOUNTAIN PROPERTIES LIMITED PARTNERSHIP
("BORROWER")
And
NATIONAL BANK OF ARIZONA
("LENDER")
Dated: May 14, 1998
<PAGE> 2
MASTER REVOLVING LINE OF CREDIT
LOAN AGREEMENT
(BORROWING BASE AND WAREHOUSE)
This MASTER REVOLVING LINE OF CREDIT LOAN AGREEMENT (BORROWING BASE AND
WAREHOUSE), dated as of May 14, 1998, is made and entered into by and between
DESERT MOUNTAIN PROPERTIES LIMITED PARTNERSHIP, a Delaware limited partnership
("BORROWER"), and NATIONAL BANK OF ARIZONA, a national banking association
("LENDER").
RECITALS:
Borrower has applied to Lender for (i) a revolving line of credit
(borrowing base) for the purpose of financing the development of Lots and the
construction of Spec Units and Presold Units (as such terms are hereinafter
defined) and (ii) a revolving line of credit (warehouse) for the purpose of
warehousing carry back notes and deeds of trust in favor of Borrower from the
purchasers of custom lots in an Approved Subdivision (as such term is
hereinafter defined), subject to the conditions set forth herein.
AGREEMENT:
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. In this Agreement, the following capitalized terms
have the following meanings:
"ADVANCE" means an advance of Loan proceeds, other than a
Protective Advance, by the Lender to Borrower hereunder.
"ADVANCE REQUEST", as defined in SECTION 2.2(d)(iv).
"AFFILIATE" of any Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect
common control with such Person. For the purposes of this definition,
"control", when used with respect to any Person, means the power to
direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by
contract or otherwise; and the terms "controlling" and "controlled"
have meanings correlative to the foregoing.
<PAGE> 3
"AGREEMENT" means this Master Revolving Line of Credit Loan
Agreement (Borrowing Base and Warehouse), as it may be amended,
modified, extended, renewed, restated, or supplemented from time to
time.
"APPRAISAL" means, as the context requires, a Unit Appraisal,
Eligible Lot Appraisal, or any other appraisal undertaken pursuant to
the provisions of this Agreement.
"APPROVALS AND PERMITS" means each and all approvals,
authorizations, bonds, consents, certificates, franchises, licenses,
permits, registrations, qualifications, entitlements and other actions
and rights granted by or filings with any Person necessary, or
appropriate for the state of construction of Units, for the sale of
Units and Eligible Lots, for occupancy, ownership, and use by Borrower
and other Persons of the Units, or otherwise for the conduct of, or in
connection with, the business and operations of Borrower.
"APPROVED SUBDIVISION" means a Subdivision that has been
approved as provided in SECTION 4.2.
"AVAILABLE BORROWING BASE COMMITMENT" means, at any time, the
lesser of:
(a) The Borrowing Base Commitment Amount;
(b) 50% of the total Unit Collateral Values for all
Units plus 50% of the total of the Eligible Lot Collateral
Values for all Eligible Lots; or
(c) 100% of the total Unit Collateral Values, all as reported
in the most recent Borrowing Base Reconciliation Report,
LESS in any case any remargining payment required pursuant to SECTION
2.9 but not yet paid.
"BORROWING BASE" consists of the Eligible Collateral from time
to time prior to the Maturity Date and as reflected in the most current
Borrowing Base Reconciliation Report.
"BORROWING BASE ADVANCE" means an advance of Borrowing Base
Loan proceeds by the Lender to Borrower hereunder.
"BORROWING BASE COMMITMENT" means the agreement of Lender to
make Advances on the Borrowing Base Loan pursuant to the terms and
conditions of this Agreement.
"BORROWING BASE COMMITMENT AMOUNT" means the total maximum
amount that the Lender is obligated to fund, and that is available at
any particular time under the Borrowing Base Loan, under this
Agreement. The total Borrowing Base Commitment Amount is
$25,000,000.00.
2
<PAGE> 4
"BORROWING BASE LOAN" means the borrowing base credit facility
made available to Borrower in accordance with this Agreement.
"BORROWING BASE NOTE" means the promissory note executed by
Borrower and payable to Lender in the maximum Borrowing Base Commitment
Amount, evidencing Borrower's indebtedness hereunder, as such note may
be amended, modified, extended, renewed, supplemented or restated from
time to time.
"BORROWING BASE RECONCILIATION REPORT" means a report prepared
by the Lender setting forth, inter alia, the Eligible Collateral then
constituting the Borrowing Base, the Collateral Value of the Borrowing
Base, the Cost to Complete relating to the Eligible Collateral, the
Available Borrowing Base Commitment and certain other information, in
the format prescribed by the Lender from time to time.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in Phoenix, Arizona.
"CALENDAR MONTH" means any of the 12 calendar months of the
year.
"CC&RS" means and includes restrictive covenants, conditions,
restrictions, easements, and other rights that exist or are
contemplated with respect to a Subdivision.
"CLUB" means The Desert Mountain Club, currently a fictitious
business name of Borrower, as owner and operator of the private club
facilities at Desert Mountain comprised of five golf courses (inclusive
of the course now under construction), the clubhouses and pro shops
adjoining such courses, the Sonoran Clubhouse and the swim, tennis,
fitness and other recreational facilities adjacent thereto. At such
time as such facilities are transferred to an entity other than
Borrower, the "Club," as used in this Agreement, shall refer to such
successor owner. Where the context so requires, "Club" shall also mean
the association of members enjoying use privileges with respect to such
facilities.
"CODE" means the United States Internal Revenue Code of 1986,
as amended from time to time.
"COLLATERAL" means the property, interests in property, and
rights to property securing any or all Obligations from time to time.
"COLLATERAL CERTIFICATE" means the certificate of Borrower, in
form and substance satisfactory to the Lender and containing such
certifications as the Lender may require, setting forth the information
required by SECTION 3.4.
"COLLATERAL DOCUMENTS", as defined in SECTION 2.2(d)(v).
3
<PAGE> 5
"COLLATERAL INVENTORY REPORT" means the report prepared by
Borrower as required by SECTION 3.4.
"COLLATERAL VALUE" means, from time to time, the aggregate
total of the Unit Collateral Values for all Units and the Eligible Lot
Collateral Values for all Eligible Lots included in Eligible Collateral
at the time the Collateral Value of the Borrowing Base is determined.
"COMMITMENT" shall mean collectively the Borrowing Base
Commitment and the Warehouse Commitment.
"CONVERSION FEE" means the amount payable to the Club in order
to convert a non-equity Membership to a Deferred Equity Golf
Membership, or to upgrade a Deferred Equity Club Membership to a
Deferred Equity Golf Membership, or to "attach" a Deferred Equity Golf
Membership to a Lot as to which no Membership was associated at the
time the related Lot or Mortgage Note was pledged to Lender. EXHIBIT A,
attached hereto, lists the Conversion Fee payable with respect to the
Membership associated with each Eligible Mortgage Loan covered by this
Agreement based on the Membership Contribution of $125,000 in effect as
of March, 1998 (the Conversion Fee for "Type 2" and "Type 5"
Memberships are an approximation only). Changes in the Membership
Contribution over time, at the discretion of the Club, will result in
changes in the Conversion Fee for each Membership type, as follows:
<TABLE>
<CAPTION>
Membership Type Calculation
--------------- -----------
<S> <C>
20, 25 25% of Membership Contribution
3 Membership Contribution less $50,000
2, 5 Membership Contribution less the sum of
dues actually paid on a given Membership
account through time of conversion, subject
to $50,000 cap on such dues credit
1, 8, 22 Full Membership Contribution
41, 44 68% of Membership Contribution
19 120% of Membership Contribution
</TABLE>
"COST TO COMPLETE" shall mean, as applicable, the total of all
hard costs and soft costs as reasonably determined by Lender to
complete an Eligible Lot or a Unit as provided in the Unit Budgets and
Eligible Lot Budgets provided to Lender.
4
<PAGE> 6
"CRESCENT" shall mean Crescent Real Estate Equities Limited
Partnership, a Delaware limited partnership, or as the context
requires, Crescent Operating, Inc., the general or limited partner of
Borrower or Affiliates.
"CRESCENT DEEDS OF TRUST" shall mean those certain deeds of
trust executed by Borrower as trustor, in favor of Crescent as
beneficiary, subordinated to Lender pursuant to the Subordination
Agreement.
"CRESCENT NOTES" shall mean that certain promissory note dated
August 29, 1997 in the original principal amount of $110,000,000.00 and
that certain promissory note dated August 29, 1997 in the original
principal amount of $60,000,000.00, each of which was executed by
Borrower in favor of Crescent and secured by the Crescent Deeds of
Trust.
"DEED OF TRUST" and "DEEDS OF TRUST" mean each and all deeds
of trust, mortgages, assignments of leases and rents, fixture filings,
and security agreements, securing the Note and the Obligations, granted
from time to time by Borrower, as mortgagor, trustor, or assignor, to
the Lender, as mortgagee, beneficiary and trustee (unless the Lender
consents to the transfer to another Person to act as trustee under a
deed of trust), or assignee, each being substantially in the form
required by the Lender from time to time, as the same may be amended,
modified, supplemented, extended, restated, or renewed from time to
time.
"DEFAULT INTEREST RATE" shall mean a rate of interest equal to
the aggregate of 4% per annum plus the Interest Rate. The Default
Interest Rate shall change as and when the Prime Rate changes.
"DEFERRED EQUITY MEMBERSHIP PLAN" means the Deferred Equity
Membership Plan dated July 1, 1994, as published by the Club, together
with all future amendments thereto.
"DRAW REQUEST" means a completed, written request in form and
substance satisfactory to the Lender, from Borrower to the Lender
requesting a Borrowing Base Advance under the Borrowing Base Loan,
together with such other documents and information as the Lender may
require from time to time.
"DUE DILIGENCE INFORMATION" means any and all information
regarding the Mortgage Loans that exists or was developed in connection
with Borrower's or its agent's generating, servicing or analysis of the
Mortgage Loans prior to assignment to Lender.
"EFFECTIVE DATE" means the date on which all of the conditions
precedent in SECTION 4.1 have first been satisfied.
"ELIGIBLE COLLATERAL" means the Units and the Eligible Lots
that meet the requirements of this Agreement for inclusion as Eligible
Collateral and that are included in a Borrowing Base Reconciliation
Report.
5
<PAGE> 7
"ELIGIBLE LOT" means a Lot in an Approved Subdivision that has
satisfied the requirements in SECTION 4.3 for inclusion in Eligible
Collateral as an Eligible Lot.
"ELIGIBLE LOT APPRAISAL" means a FNMA/URAR Appraisal of an
Eligible Lot.
"ELIGIBLE LOT APPRAISED VALUE" means the market value for an
Eligible Lot, as if complete, as reasonably determined by the Lender
after its review of the Eligible Lot Appraisal for an Eligible Lot.
"ELIGIBLE LOT BUDGET" means the amount allocated by Borrower
to the hard and soft costs associated with the development of each
Eligible Lot included as Eligible Collateral, as set forth in budgets
and cost breakdowns delivered to Lender. The Eligible Lot Budget will
specifically set forth the building permit fees, tap fees, impact fees,
development fees, and other municipal, county, school district, and
special district fees and assessments required for the development of
the Eligible Lot. The Eligible Lot Budget will be subject to review and
reasonable approval by the Lender.
"ELIGIBLE LOT COLLATERAL VALUE" means with respect to each
Eligible Lot, an amount equal to the difference between the Eligible
Lot Appraised Value and the Cost to Complete, if any, of the Eligible
Lot.
"ELIGIBLE LOT ELIGIBILITY DATE" means, with respect to each
Eligible Lot, the date on which the Eligible Lot is first included in
Eligible Collateral as an Eligible Lot pursuant to this Agreement, as
reflected on the Borrowing Base Reconciliation Report, and regardless
of whether periods exist during which such Eligible Lot is not included
as Eligible Collateral.
"ELIGIBLE MORTGAGE LOAN" means a Mortgage Loan which is
secured by a Mortgage constituting a first lien on a Lot located in an
Approved Subdivision and its corresponding Membership, if any, and
satisfies the conditions precedent pursuant to SECTION 4.6 of this
Agreement.
"ENVIRONMENTAL AGREEMENT" means each environmental indemnity
or similar agreement, executed by Borrower for the benefit of the
Lender, as any such agreement may be amended, modified, extended,
renewed, restated, or supplemented from time to time.
"ERISA" means the Employee Retirement Income Security Act of
1974 and the regulations and published interpretations thereunder, as
in effect from time to time.
"EVENT OF DEFAULT" means as defined in SECTION 9.1.
"FICO", as defined in SECTION 4.6.
6
<PAGE> 8
"FINANCIAL COVENANT DEFAULT" means any Event of Default that
occurs by reason of a breach by Borrower with respect to any of the
Financial Covenants.
"FINANCIAL COVENANTS" means the covenants set forth in ARTICLE 7.
"GAAP" means generally accepted accounting principles consistently
applied.
"GOVERNMENTAL AUTHORITY" or "GOVERNMENTAL AUTHORITIES" means any
and all governments or courts and/or any and all agencies, authorities,
bodies, bureaus, departments, or instrumentalities of any government.
"HARD COSTS" shall mean the hard costs for the construction of a
Unit and/or development of a Lot as provided in the Unit Budget and/or
Eligible Lot Budget.
"IMPOSITIONS" means any and all of the following:
(a) Real property taxes and assessments (general and
special) assessed against or imposed upon or in respect of any of
the Collateral or the Obligations;
(b) Personal property taxes assessed against or imposed
upon or in respect of any of the Collateral or the Obligations;
(c) Other taxes and assessments of any kind or nature that
are assessed or imposed upon or in respect of the Collateral or
the Obligations or that may result in a Lien or Encumbrance upon
any of the Collateral (including, without limitation,
non-governmental assessments, levies, maintenance and other
charges whether resulting from covenants, conditions, and
restrictions or otherwise, water and sewer rents and charges,
assessments on any water stock, utility charges and assessments,
and owner association dues, fees, and levies);
(d) Taxes or assessments on any of the Collateral in lieu
of or in addition to any of the foregoing;
(e) Taxes on income, revenues, rents, issues, and profits,
and franchise taxes;
(f) Costs, expenses, and fees arising from or related to
any of the Approvals and Permits or the Requirements; and
(g) Assessment, documentary, indebtedness, license, stamp,
and revenue charges, fees, and taxes and any other fees or taxes
imposed on the Lender and measured by or based in whole or in part
upon ownership of any Deed of Trust,
7
<PAGE> 9
interest in Collateral, or any promissory note, guaranty, or
indebtedness secured by any Deed of Trust or upon the nature
or amount of the Obligations,
EXCLUDING, HOWEVER, from all of the foregoing any estate, excess
profits, franchise, income, inheritance, or similar tax levied on the
Lender.
"INTEREST RATE" means the rate of interest as provided in the
Note.
"INVOLUNTARY LIEN" means any Lien or Encumbrance securing the
payment of money or the performance of any other obligation created
involuntarily under any law, ordinance, regulation, or rule, or
otherwise and any claim of any such Lien or Encumbrance. For purposes
of the Loan Documents and the rights and remedies thereunder, "stop
notices" or similar notices and demands from Persons performing work or
supplying materials with respect to any Collateral and who are
asserting lien rights, shall be considered as Involuntary Liens.
"LATE CHARGES" means the charges described in SECTION 2.4(e).
"LIEN OR ENCUMBRANCE" and "LIENS AND ENCUMBRANCES" mean,
respectively, each and all of the following:
(a) Any lease or other right to use;
(b) Any assignment as security, conditional sale,
grant in trust, lien, mortgage, pledge, security interest,
title retention arrangement, other encumbrance, or other
interest or right securing the payment of money or the
performance of any other liability or obligation, whether
voluntarily or involuntarily created (including, without
limitation, Involuntary Liens) and whether arising by
agreement, document, or instrument, under any law, ordinance,
regulation, or rule (federal, state, or local), or otherwise;
and
(c) Any option, right of first refusal, or other
interest or right.
"LOAN" means collectively the Borrowing Base Loan and the
Warehouse Loan.
"LOAN DOCUMENTS" means this Agreement, the Note, the Deeds of
Trust, the Pledge Agreement, the Environmental Agreements, the
Subordination Agreement and any other guaranties, agreements,
documents, or instruments now or hereafter evidencing, guarantying or
securing the Obligations and any and all Advances and Protective
Advances made hereunder, as this Agreement, the Note, the Deeds of
Trust, the Pledge Agreement, the Environmental Agreements, the
Subordination Agreement and such other agreements, documents, and
instruments may be amended, modified, extended, renewed, restated, or
supplemented from time to time.
8
<PAGE> 10
"LOAN SALE AGREEMENT" shall mean that certain Loan Sale
Agreement dated March 20, 1998, by and between Borrower as Seller and
Lender as Buyer as the same may be amended, supplemented and modified
from time to time.
"LOT" means an individual lot designated as such on a final
subdivision plat or map, subdivision filing, or condominium declaration
or plan.
"MATERIAL ADVERSE CHANGE" means any significant change in the
assets, liabilities, financial condition, or results of operations of
Borrower or any other event or condition with respect to Borrower that
materially and adversely affects the likelihood of performance by
Borrower of any of the Obligations, the ability of Borrower to perform
any of the Obligations, the legality, validity, or binding nature of
any of the Obligations, or any Lien or Encumbrance securing any of the
Obligations or the priority of any Lien or Encumbrance securing any of
the Obligations.
"MATURITY DATE" means May 14, 1999.
"MAXIMUM ALLOWED BORROWING BASE ADVANCE" means with respect to
Borrowing Base Advances, the following:
(a) With respect to each Presold Unit, the lowest of
(i) 80% of the Unit Appraised Value for that Unit, or (ii)
100% of the Hard Costs of construction of the Unit plus 50% of
the Eligible Lot Collateral Value.
(b) With respect to each Spec Unit, the lowest of (i)
65% of the Unit Appraised Value for that Unit, or (ii) 100% of
the Hard Costs of construction of the Unit plus 50% of the
Eligible Lot Collateral Value.
(c) With respect to each Eligible Lot, 50% of the
Eligible Lot Collateral Value.
"MAXIMUM ALLOWED WAREHOUSE ADVANCE" means with respect to
Warehouse Advances, an amount equal to 100% of the face amount of such
Eligible Mortgage Loan.
"MEMBERSHIP" means the particular membership associated with
each Lot and Mortgage Loan subject to this Agreement which confers upon
the Designated Member thereunder specific uses and other privileges in
the Club, pursuant to the terms of the particular Membership Agreement
related thereto, the Bylaws of The Desert Mountain Club, and, in the
case of Deferred Equity Memberships, the July 1, 1994 Deferred Equity
Membership Plan of The Desert Mountain Club. Any such membership could
be one of various versions of the non-equity "Regular Membership"
(having full golf and other use privileges), a "Deferred Equity Club
Membership" (having social, swim/tennis/fitness and limited golf
privileges) or a "Deferred Equity Golf Membership" (having full golf
and other
9
<PAGE> 11
privileges). The type of Membership associated with each Eligible
Mortgage Loan is identified by a "Mem Type" number on EXHIBIT A,
attached hereto, which numbers correlate with Borrower's membership
records.
"MEMBERSHIP CONTRIBUTION" means the Membership Contribution
for a Deferred Equity Golf Membership, as defined in the Deferred
Equity Membership Plan.
"MONETARY DEFAULT" means any Event of Default under SECTION
9.1(a).
"MORTGAGE" means a mortgage or deed of trust in the form
attached hereto as EXHIBIT B-2 securing a Mortgage Note.
"MORTGAGE BORROWER" means a borrower or collectively joint
borrowers under a Mortgage Note.
"MORTGAGE LOAN" means a loan made by Borrower to a party who
is not an Affiliate of Borrower for the purchase of a Lot in an
Approved Subdivision for the purpose of construction of a custom home
thereon, evidenced by a Mortgage Note, and secured by a Mortgage.
"MORTGAGE NOTE" means a note in the form attached hereto as
EXHIBIT B-1, which Mortgage Note is secured by a Mortgage.
"MORTGAGE NOTE AMOUNT" means the outstanding unpaid principal
amount of a Mortgage Note at the time such Mortgage Note is pledged to
Lender.
"NET WORTH", as defined in SECTION 7.1.
"NET SALES PROCEEDS" means (i) in the case of a Unit, the
gross sales price of the Unit (including, without limitation, all
options, upgrades and change orders) set forth in the Purchase Contract
for such Unit (expressed in U.S. dollars), less the down payment paid
pursuant to the Purchase Contract to a maximum of twenty percent (20%)
of the gross sales price of the Unit; customary tax and assessment
prorations; reasonable and customary real estate brokerage commissions
paid to third party brokers who are not Affiliates of Borrower (other
than Desert Mountain Associates, Inc.); reasonable and customary
closing costs; pool and landscaping funds submitted to escrow (provided
such funds are directly released to Lender upon their release from
escrow) and (ii) in the case of an Eligible Lot, the gross sales price
of the Lot set forth in the Purchase Contract for such Lot (expressed
in U.S. dollars), less customary tax and assessment prorations;
reasonable and customary real estate brokerage commissions paid to
third party brokers who are not Affiliates of Borrower (other than
Desert Mountain Associates, Inc.) and; reasonable and customary closing
costs.
10
<PAGE> 12
"NOTE" means collectively the Borrowing Base Note and the
Warehouse Note.
"OBLIGATIONS" means the obligations of Borrower under the Loan
Documents.
"OFF-SITE IMPROVEMENTS" means offsite improvements which may
exist or which are to be constructed (including, without limitation,
curbs, grading, landscape, sprinklers, storm and sanitary sewers,
paving, sidewalks, and utilities) necessary to make the land suitable
for the construction of single family homes or condominiums, and any
common area improvements which may exist or which are to be
constructed, together with the associated fixtures and other tangible
personal property located or used in or on land on which such
improvements are constructed.
"OTHER AMOUNTS" means all amounts, other than principal and
interest, payable by Borrower under any of the Loan Documents to or for
the benefit of Lender.
"OTHER DEFAULT" means any Event of Default under this
Agreement or any of the other Loan Documents, other than a Monetary
Default or a Financial Covenant Default.
"OUTSTANDING BORROWINGS", at any time, means the aggregate
amount of then outstanding Advances and Protective Advances.
"PERMITTED EXCEPTIONS" means:
(a) Involuntary Liens for Impositions that are not
delinquent;
(b) Involuntary Liens (other than for Impositions)
with respect to which Borrower satisfies each of the following
requirements: (i) Borrower contests the validity of such
Involuntary Lien in good faith by appropriate legal
proceedings; (ii) Borrower gives written notice to the Lender
of Borrower's intent to contest or object to the same; (iii)
Borrower demonstrates to the Lender's satisfaction that the
procedures will conclusively operate to prevent the sale of
any part of the property subject to the applicable Deed of
Trust to satisfy the Involuntary Lien prior to final
determination of such proceedings; (iv) the aggregate amount
of such Involuntary Liens does not exceed $50,000.00 (unless
otherwise approved by the Lender and excluding any Involuntary
Liens for which Borrower has received a bond); and (v)
Borrower takes any and all other actions (including, without
limitation, obtaining bonds, title insurance endorsements, or
other security) as the Lender may deem reasonably necessary or
appropriate in order to prevent the sale of any Collateral to
satisfy the Involuntary Lien and prevent any impairment of any
such Collateral or, if such Collateral is Eligible Collateral,
Borrower removes the affected Collateral from the Eligible
Collateral;
11
<PAGE> 13
(c) All items, except Impositions and Liens and
Encumbrances (other than Impositions and Liens and
Encumbrances referenced in and permitted by the other
subsections of this definition), in Schedule B to any Title
Policy that have been approved by the Lender; and
(d) The Crescent Deeds of Trust.
"PERSON" means a natural person, a partnership, a joint
venture, an unincorporated association, a limited liability company, a
corporation, a trust, any other legal entity, or any Governmental
Authority.
"PLEDGE AGREEMENT" shall mean that certain Pledge Agreement of
even date herewith by and between Lender and Borrower and as accepted
by the Servicing Agent.
"PRESOLD UNIT" means a Unit that is subject to a Purchase
Contract.
"PROTECTIVE ADVANCE" means amounts advanced by the Lender to
pay the following amounts:
(a) All amounts that are necessary to protect the
validity, priority and enforceability of the liens,
encumbrances and security interests in favor of the Lender
arising pursuant to the Loan Documents (such amounts to
include, without limitation, taxes, assessments and other
Liens and Encumbrances that may have a priority superior to
the priority of the Liens and Encumbrances of the Lender on
the Collateral); and
(b) All insurance premiums that are necessary to
insure the Collateral against loss, damage or destruction
pursuant to the requirements of the Loan Documents.
"PURCHASE CONTRACT" means a bona fide written agreement
between Borrower and a purchaser who is not an Affiliate of Borrower
entered into in the ordinary course of Borrower's business and pursuant
to which such purchaser has agreed to purchase a Unit, which agreement
calls for a cash earnest money deposit or down payment of at least
twenty percent (20%) of the purchase price of the Unit, which is
nonrefundable except in the event of a default by the Borrower, as
seller under the agreement.
"REGULATORY CHANGE" means any change effective after the date
of this Agreement in United States federal, state, or foreign law,
regulations, or rules or the adoption or making after such date of any
interpretation, directive, or request applying to a class of banks,
including the Lender, of or under any United States federal, state, or
foreign law, regulation, or rule (whether or not having the force of
law) by any court or governmental or monetary
12
<PAGE> 14
authority charged with the interpretation or administration thereof
which has a material effect on the rights of Lender under the Loan
Documents.
"REQUIREMENTS" means any and all obligations, other terms and
conditions, requirements, and restrictions in effect now or in the
future, of a material nature, by which Borrower or any or all of the
Collateral are bound or which are otherwise applicable to any or all of
the Collateral, construction of any Units or Off-Site Improvements, or
occupancy, operation, ownership, or use of Lots, Units, or Off-Site
Improvements, including without limitation, such obligations; other
terms and conditions, restrictions, and requirements imposed by any
law, ordinance, regulation, or rule (federal, state, or local); any
Approvals and Permits; any Permitted Exceptions; any condition,
covenant, restriction, easement, right-of-way, or reservation
applicable to such Collateral; any insurance policies; any other
agreement, document, or instrument to which Borrower is a party or by
which Borrower or any of the Collateral or the business or operations
of Borrower is bound; or any judgment, order, or decree of any
arbitrator, other private adjudicator, or Governmental Authority to
which Borrower is a party or by which Borrower or any of the Collateral
is bound.
"RICO RELATED LAW" means the Racketeer Influenced and Corrupt
Organizations Act of 1970 and any other federal or state law, for which
forfeiture of assets is a potential penalty.
"SERVICING AGENT" means First American Title Insurance
Company, as servicing agent for the Mortgage Loans.
"SERVICING AGREEMENT" shall mean that certain Servicing
Agreement by and between Borrower and the Servicing Agreement.
"SPEC UNIT" means a Unit constructed for the purpose of
addition to Borrower's inventory of Units and which is not subject to a
Purchase Contract.
"SUBDIVISION" means a group of Lots marketed and sold together
regardless of whether dwellings in such group of Lots are to be
constructed at the same time or in phases.
"SUBDIVISION DOCUMENTS" means a plat map or similar document
covering a Subdivision and dividing the Subdivision into lots in
accordance with the Requirements of the applicable Governmental
Authorities.
"SUBORDINATION AGREEMENT" shall mean that certain
subordination agreement by and among, Borrower, Lender and Crescent.
"TITLE COMPANY" means a title insurance company that issues a
Title Policy.
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"TITLE POLICY" and "TITLE POLICIES" mean, respectively, each
and all title insurance policies and endorsements thereto issued
pursuant to the requirements of this Agreement and any reinsurance or
co-insurance agreements and endorsements. Each Title Policy shall be an
extended coverage American Land Title Association loan policy of title
insurance (1992 form) with the creditor's rights exception and
arbitration provisions deleted and with a revolving credit endorsement
and such other endorsements as the Lender may require.
"UNIT" means a residential dwelling constructed or to be
constructed on a Lot, together with the associated Lot.
"UNIT APPRAISAL" means a FNMA/URAR base plan type Appraisal of
a Unit.
"UNIT APPRAISED VALUE" means the value of the Unit (including
the associated Lot) upon completion, as reasonably determined by the
Lender after its review of the applicable Unit Appraisal.
"UNIT BUDGET" means the amount allocated by Borrower to the
hard and soft costs associated with the construction of each Unit
included as Eligible Collateral, as set forth in budgets and cost
breakdowns delivered to Lender. The Unit Budget will specifically set
forth the building permit fees, tap fees, impact fees, development
fees, and other municipal, county, school district, and special
district fees and assessments required prior to the start of
construction, and the amount of each Unit Budget will be set forth in
the Borrowing Base Reconciliation Report. The Unit Budget will be
subject to review and approval by the Lender.
"UNIT COLLATERAL VALUE" means with respect to each Unit, an
amount equal to the difference between the Unit Appraised Value and the
Cost to Complete, if any, of the Unit, as reasonably determined by
Lender.
"UNIT ELIGIBILITY DATE" means, with respect to each Unit, the
date on which that Unit is first included in Eligible Collateral as a
Unit pursuant to this Agreement, as reflected on the Borrowing Base
Reconciliation Report, and regardless of whether periods exist during
which such Unit is not included as Eligible Collateral.
"UNMATURED EVENT OF DEFAULT" means any failure by Borrower to
observe or perform any of Borrower's obligations under any of the Loan
Documents or any other violation by Borrower of any of the terms and
conditions of any of the Loan Documents that with notice, passage of
time, or both would be an Event of Default.
"WAREHOUSE ADVANCE" means an advance of Warehouse Loan
proceeds by the Lender to Borrower hereunder.
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"WAREHOUSE ADVANCE" means the agreement of Lender to make
Advances on the Warehouse Loan pursuant to the terms and conditions of
this Agreement.
"WAREHOUSE COMMITMENT AMOUNT" means the total maximum amount
that the Lender is obligated to fund, and that is available at any
particular time under the Warehouse Loan, under this Agreement. The
total Warehouse Commitment Amount is $10,000,000.00.
"WAREHOUSE LOAN" means the warehousing credit facility made
available to Borrower in accordance with this Agreement.
"WAREHOUSE NOTE" means the promissory note executed by
Borrower and payable to Lender in the maximum Warehouse Commitment
Amount, evidencing Borrower's indebtedness hereunder, as such note may
be amended, modified, extended, renewed, supplemented or restated from
time to time.
ARTICLE 2
LOAN FACILITIES
2.1 Borrowing Base Loan Facility.
(a) Commitment to Make Borrowing Base Advances. Subject to the
terms and conditions of this Agreement and from time to time prior to
the Maturity Date, the Lender agrees to make Borrowing Base Advances to
Borrower up to the current Available Borrowing Base Commitment as
determined pursuant to the most current Borrowing Base Reconciliation
Report.
(b) Revolving Nature of Loan Facility. Borrowing Base Advances
repaid may be re-borrowed on a revolving basis through the Maturity
Date. Although the outstanding principal of the Borrowing Base Note may
be zero from time to time, the Loan Documents will remain in full force
and effect until the Borrowing Base Commitment terminates and all
Obligations are paid and performed in full. Upon the occurrence of an
Event of Default, the Lender may suspend or terminate the Borrowing
Base Commitment. The obligation of Borrower to repay Borrowing Base
Advances will be evidenced by the Borrowing Base Note.
(c) Method for Borrowing Base Advances. Borrowing Base
Advances may be made by the Lender at the written request of the Person
or Persons designated by Borrower from time to time on the Lender's
form of signature authorization; PROVIDED, HOWEVER, that the Lender
shall have acknowledged receipt of any changes in the Person or Persons
designated by Borrower, and such Person or Persons designated by
Borrower will have executed a new signature authorization form. Subject
to this SECTION 2.1 and the other terms and conditions of this
Agreement (including those hereinafter set forth), such Person or
Persons are hereby authorized by Borrower to request Borrowing Base
Advances up to the
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amount of the Available Borrowing Base Commitment less Outstanding
Borrowings at the time the Borrowing Base Advance is requested
(determined pursuant to the most recent Borrowing Base Reconciliation
Report) not more frequently than 2 times per Calendar Month, and to
direct the disposition of the proceeds of Borrowing Base Advances until
written notice of the revocation of such authority is received from
Borrower by the Lender and the Lender has had a reasonable time to act
upon such notice. The Lender has no duty to monitor for Borrower or to
report to Borrower the use of proceeds of Borrowing Base Advances.
Subject to the satisfaction of all applicable terms and conditions,
including the timely giving by Borrower of a Draw Request, the Lender
will make the requested advance on or before noon on the borrowing date
specified in the Draw Request.
(d) Use of Borrowing Base Advances. Borrowing Base Advances
may be used for any general working capital purposes of Borrower,
PROVIDED, HOWEVER, that the provisions of this SECTION 2.1(b) do not
restrict the Lender from making Protective Advances as otherwise
permitted by this Agreement (such as pursuant to SECTION 2.6(d)).
2.2 Warehouse Advances.
(a) Commitment to Make Warehouse Advances. Subject to the
terms and conditions of this Agreement and from time to time prior to
the Maturity Date, the Lender agrees to make Warehouse Advances to
Borrower up to the current Warehouse Commitment. Warehouse Advances
shall be used by Borrower for general working capital purposes.
Warehouse Advances shall be made at the request of Borrower, in the
manner hereinafter provided in this SECTION 2.2, against the pledge of
such Eligible Mortgage Loans as Collateral therefor. No Warehouse
Advance shall exceed the Maximum Allowed Warehouse Advance.
(b) Revolving Nature of Loan Facility. Warehouse Advances
repaid may be re-borrowed on a revolving basis through the Maturity
Date. Although the outstanding principal of the Warehouse Note may be
zero from time to time, the Loan Documents will remain in full force
and effect until the Warehouse Commitment terminates and all
Obligations are paid and performed in full. Upon the occurrence of an
Event of Default, the Lender may suspend or terminate the Warehouse
Commitment. The obligation of Borrower to repay Warehouse Advances will
be evidenced by the Warehouse Note.
(c) Use of Warehouse Advances. Subject to the terms and
conditions of this Agreement and provided no Unmatured Event of Default
has occurred and is continuing, Lender agrees, from time to time during
the period from the Effective Date to and including the Maturity Date,
to make Warehouse Advances to Borrower for the purpose of warehousing
carry back Mortgage Notes and Mortgages in favor of Borrower until such
time as the Mortgage Notes and Mortgages meet eligibility requirements
for purchase by Lender under the Loan Sale Agreement, provided the
total aggregate principal amount outstanding at any one time of all
such Warehouse Advances shall not exceed the
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Warehouse Commitment Amount. Notwithstanding the foregoing, the amount
of the Warehouse Commitment and individual Warehouse Advances
thereunder is subject to SECTION 2.2(d) and SECTION 4.6 hereof. Within
the Warehouse Commitment, Borrower may borrow, repay and reborrow.
(d) Conditions Precedent. The obligation of Lender to make any
Warehouse Advances is subject to the satisfaction, in the sole
discretion of Lender, on or before the date of funding of each
Warehouse Advance, of the following conditions precedent:
(i) Effective Date. All of the conditions precedent
set forth in SECTIONS 4.1 and 4.6 shall have been satisfied.
(ii) No Defaults. No Unmatured Event of Default or
Event of Default shall have occurred and be continuing.
(iii) Accuracy of Representations and Warranties. All
representations and warranties made herein or in any other Loan Document shall
be true and correct as of the date of each such Warehouse Advance as if made on
and as of such date.
(iv) Advance Request. Borrower shall have executed
and delivered to Lender a properly completed and duly executed request for
Warehouse Advance in such form as Lender may require from time to time (an
"Advance Request"). Each Advance Request shall constitute a representation and
warranty by Borrower that (A) each of the conditions precedent to the requested
Warehouse Advance set forth in this SECTION 2.2(d) have been satisfied, (B) all
the Eligible Mortgage Loans included in such Advance Request have closed and
been funded or will be closed and funded simultaneously with the making of the
requested Warehouse Advance and (C) Borrower is in possession of the originals
of all items listed in EXHIBIT C hereto.
(v) Collateral Documents. Borrower shall have
delivered to Lender the documents required in EXHIBIT C hereto under the heading
"Required Deliveries" and, to the extent requested by Lender, those documents
listed in EXHIBIT C under the heading "Other Deliveries" (collectively, the
"Collateral Documents"). Lender shall have the right, on not less than three (3)
Business Days' prior notice to Borrower, as reasonably required to include
different or additional items than those which are listed on EXHIBIT C hereto to
conform to current legal requirements or Lender's practices and/or to require
that items listed under "Other Deliveries" on EXHIBIT C be made "Required
Deliveries".
(e) Timing of Warehouse Advance. So long as all conditions
precedent to a Warehouse Advance have been satisfied prior to (i) 10:00
a.m. Phoenix, Arizona time, on any Business Day, if Lender will be
wiring the Warehouse Advances, or (ii) 1:00 p.m. Phoenix, Arizona time,
on any Business Day that Warehouse Advances are made by any method
other than wiring, Lender shall use reasonable efforts to make the
Warehouse Advance prior to 5:00 p.m., Phoenix, Arizona time, on the
same Business Day, and in any event not later than 5:00 p.m.
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Phoenix, Arizona time on the second Business Day thereafter. If the
conditions precedent to an Warehouse Advance are satisfied after 10:00
a.m. or 1:00 p.m., as applicable, Phoenix, Arizona time, on any
Business Day, Lender will use reasonable efforts to make the Warehouse
Advance by 5:00 p.m. Phoenix, Arizona time on the next Business Day,
and in any event not later than 5:00 p.m. Phoenix, Arizona time on the
second (2nd) Business Day thereafter.
(f) Single Indebtedness. All Warehouse Advances under this
Agreement shall constitute a single indebtedness and all of the
Collateral Documents shall be security for the Warehouse Note and for
the performance of all obligations of Borrower to Lender.
2.3 Interest Rate Provisions.
(a) Pricing . All Advances will bear interest from the date
advanced at a per annum interest rate determined in accordance with the
terms of the Note.
(b) Default Interest Rate. Principal will bear interest at the
Interest Rate from the date of disbursement until the due date thereof,
whether due by acceleration or otherwise. Principal, interest, and
Other Amounts not paid when due and any judgment therefor will bear
interest from the due date or the judgment date, as applicable, until
paid at the Default Interest Rate, and such interest will be
immediately due and payable. In addition, from and after the occurrence
and during the continuance of an Event of Default, all principal,
interest and Other Amounts shall bear interest at the Default Interest
Rate.
(c) Effective Rate. Borrower agrees to pay an effective rate
of interest that is the sum of (i) the interest rate provided in this
Agreement and (ii) any additional rate of interest resulting from any
other charges or fees paid or to be paid in connection herewith that
are determined to be interest or in the nature of interest.
2.4 Payments.
(a) Required Payments. Accrued and unpaid interest shall be
due and payable in accordance with the terms of the Note.
(b) Making Payments.
(i) With respect to the Borrowing Base Loan, Borrower
will make each payment hereunder and under the Borrowing Base
Note, whether on account of principal, interest, fees or
otherwise, without set-off or counterclaim, not later than
1:00 p.m. (Phoenix, Arizona time) on the day when due, and in
each case such payments will be in U.S. dollars to the Lender
and will be at Lender's main office in Phoenix, Arizona or at
such other place as Lender may request from time to time.
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Payments received after the required time on a Business Day
will be deemed to have been received on the next succeeding
Business Day and will bear interest accordingly.
(ii) With respect to the Warehouse Loan, Servicing
Agent will make each payment hereunder and under the Warehouse
Note, whether on account of principal, interest, fees or
otherwise, without set-off or counterclaim, not later than
1:00 p.m. (Phoenix, Arizona time) on the day when due, and in
each case such payments will be in U.S. dollars to the Lender
and will be at Lender's main office in Phoenix., Arizona or at
such other place as Lender may request from time to time. If
payments for a month collected by the Servicing Agent are
insufficient to pay the payment due under the Warehouse Note,
Borrower shall remit the difference between the amount
remitted by the Servicing Agent and the amount due under the
Warehouse Note within ten (10) days after the due date.
Payments received after the required time on a Business Day
will be deemed to have been received on the next succeeding
Business Day and will bear interest accordingly.
(c) Payment of Net Sales Proceeds. Within 1 Business Day
following the closing of a sale of a Unit or an Eligible Lot, or within
1 Business Day following the closing of any other transaction in which
Borrower is required to pay a release price to the Lender pursuant to
SECTION 2.8, Borrower will pay or cause to be paid to the Lender, the
amount required pursuant to SECTION 2.8. If any Net Sales Proceeds or
other amounts payable to the Lender pursuant to SECTION 2.8 are held by
any Title Company, escrow agent, or any other Person, Borrower will
direct such Title Company, escrow agent and other Persons to pay all
such amounts directly to the Lender and to take all other action
required by the Lender to cause such amounts to be paid to the Lender.
If Borrower collects or receives any such amounts, Borrower will
forthwith, upon receipt, transmit and deliver to the Lender, in the
form received, all cash, checks, drafts, chattel paper, and other
instruments or writings for the payment of money (endorsed without
recourse, where required, so that such items may be collected by the
Lender). Any such items which may be so received by Borrower will not
be commingled with any other of Borrower's funds or property, but will
be held separate and apart from Borrower's own funds or property and
upon express trust for the Lender until delivery is made to the Lender.
(d) Business Days. Whenever any payment hereunder or under the
Note is due on a day other than a Business Day, such payment will be
made on the next succeeding Business Day, and such extension of time
will in such case be included in the computation of interest or fees,
as the case may be.
(e) Late Charges. If any payment of interest, principal, or
Other Amount required pursuant to any provision of this Agreement is
not received by the Lender within 10 days after its due date, then, in
addition to the other rights and remedies of Lender, a late charge of
5% of the amount due and unpaid, will be charged to Borrower without
notice to
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Borrower. Such late charge will be immediately due and payable and is
in addition to any other costs, fees, and expenses that Borrower may
owe as a result of such late payment.
(f) Payment at Maturity. On the Maturity Date, Borrower will
pay to the Lender the unpaid principal, all accrued and unpaid
interest, and all Other Amounts that are due and unpaid.
2.5 Prepayments.
(a) Prepayments. Borrower may prepay the outstanding principal
balance hereof in whole or in part at any time prior to the Maturity
Date without penalty or premium.
2.6 Fees. As additional consideration for the Borrowing Base Commitment
and the Warehouse Commitment, Borrower agrees to pay the following fees to the
Lender, which fees are earned by the Lender on the date due under the Loan
Documents, are non-refundable to Borrower, and, in the case of payments with
respect to the fees described in SUBSECTION (b), shall be calculated on a pro
rata basis for the period to which such payment relates, for actual days elapsed
(or to elapse) during such period on the basis of a 360-day year and shall be
paid by Borrower to the Lender within 5 days after the Lender gives notice to
Borrower of the amount of fees due (which notice may be given telephonically to
the chief financial officer or treasurer of Borrower, by facsimile or in
writing):
(a) Borrowing Base Commitment Fee. A "commitment fee", payable
on the Closing Date, in the amount of one-quarter of one percent (.25%)
per annum of the Borrowing Base Commitment Amount.
(b) Unused Borrowing Base Commitment Fee. An "unused
commitment fee" based on an annual rate of one-quarter of one percent
(.25%), but calculated on a quarterly basis in arrears as of the first
day of each January, April, July, and October and on the Maturity Date
or the date upon which the Borrowing Base Commitment is terminated or
expires, such unused commitment fee to be payable quarterly. For each
quarter (or portion thereof), the unused commitment fee is equal to (i)
the Borrowing Base Commitment Amount as in effect at the beginning of
such quarter; MINUS (ii) the Average Quarterly Outstanding for such
quarter (or portion thereof) with respect to which the unused
commitment fee is being computed; with (iii) the resulting number being
MULTIPLIED BY 0.000625 (that is, one-quarter of the annual unused
commitment fee rate). As used herein, "AVERAGE QUARTERLY OUTSTANDING"
means the sum of the Outstanding Borrowings on each day during the
quarter (or portion thereof) with respect to which the unused
commitment fee is being computed, divided by the number of days in that
quarter (or portion thereof). If the unused commitment fee is being
computed for less than a full quarter, the percentage used in CLAUSE
(c) above will be computed on a daily basis for the number of days for
which the fee is being computed.
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(c) Warehouse Commitment Fee. A "commitment fee", payable on
the Closing Date, in the amount of one-quarter of one percent (.25%)
per annum of the Warehouse Commitment Amount.
(d) Costs and Expenses.
(i) Costs and Expenses--Generally. Borrower agrees to
pay on demand all reasonable costs, expenses, and fees of the
Lender (including, without limitation, reasonable fees and
expenses for outside attorneys, consultants and other
professional advisers, paralegals, document clerks and
specialists, and costs and expenses of appraisals, appraisal
review, title review, title insurance, surveys, environmental
assessments, environmental testing, environmental cleanup,
other inspection, processing, title, filing, and recording
costs, expenses, and fees):
(A) In the negotiation, execution, delivery,
administration and modification of the Loan
Documents, including this Agreement;
(B) In inspecting the Eligible Collateral;
and
(C) Otherwise in relation to the Loan
Documents.
(ii) Costs and Expenses--After Default. In addition,
after the occurrence and during the continuation of an Event
of Default, Borrower agrees to pay on demand all reasonable
costs, expenses, and fees of the Lender (including, without
limitation, fees and expenses for attorneys, consultants and
other professional advisors, paralegals, documents clerks and
specialists, the allocated costs of in-house legal counsel and
other staff, and costs and expenses of market studies,
absorption studies, appraisals, appraisal review, title
review, title insurance, surveys, environmental assessments,
environmental testing, environmental clean-up, and other
inspection, processing, title, filing and recording costs,
expenses, and fees):
(A) In enforcement of the Loan Documents and
exercise of the rights and remedies of the Lender;
(B) In defense of the legality, validity,
binding nature, and enforceability of the Loan
Documents and the perfection and priority of the
Liens and Encumbrances granted in the Loan Documents;
(C) In gaining possession of, holding,
repairing, maintaining, preserving, and protecting
any Collateral prior to foreclosure;
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(D) In selling or otherwise disposing of the
Collateral prior to foreclosure;
(E) Otherwise in relation to the Loan
Documents, the Collateral, or the rights and remedies
of the Lender under the Loan Documents or relating to
the Collateral after the occurrence and during the
continuation of an Event of Default; and
(F) In preparing for the foregoing, whether
or not any legal proceeding is brought or other
action is taken.
Such costs, expenses, and fees will include, without
limitation, all such costs, expenses, and fees incurred in
connection with any court proceedings (whether at the trial or
appellate level).
(e) Failure to Pay. If any reasonable costs, expenses and fees
from time to time due under the Loan Documents are not paid when due
(or if no time is specified, then within 10 days after written demand
by the Lender), Borrower agrees to pay interest on such costs,
expenses, and fees at the Default Interest Rate from the date incurred
until paid in full. In addition, if such costs, expenses and fees are
not paid when due (or within such 10-day period, if applicable), the
Lender shall, to the extent that such Advance will not cause the
Available Borrowing Base Commitment or the Available Warehouse
Commitment to be exceeded, as applicable, cause an Advance to be made
to pay such costs, expenses and fees, whether or not such Advance has
been requested by Borrower and whether or not the conditions precedent
to an Advance have been satisfied. If an Advance is made pursuant to
the immediately preceding sentence, such costs, expenses and fees shall
be included in such Advance and shall accrue interest at the rates from
time to time applicable pursuant to this Agreement.
2.7 Security. Payment of the Note, all indebtedness and liabilities of
Borrower to the Lender, and performance of all Obligations, due or to become
due, under this Agreement and the other Loan Documents shall be secured by the
following:
(a) The Deeds of Trust;
(b) such other assignments and security interests as may be
required or granted pursuant to the terms of the Loan Documents
including but not limited to a security interest in the following:
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(i) the Mortgages, the Mortgage Notes and the Servicing
Agreement;
(ii) All cash, payments and prepayments of principal,
interest, penalties and other income due or to become due in respect of
the Mortgages and the Mortgage Notes;
(iii) All of the right, title and interest of every nature
whatsoever of Borrower in and to the following:
(1) All rights, liens and security interests existing
with respect to, or as security for, the Mortgages or any part
thereof;
(2) All hazard and liability insurance policies,
title insurance policies, (or any binders or commitments to
issue any of such policies) and all condemnation proceeds with
respect to or relating to any of the Mortgages;
(3) All other rights and interests of Borrower in
respect of the Mortgages.
(iv) All files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards, accounting records,
and other records, information, and data of Borrower relating to the
Mortgages, including all information, records, data, programs, tapes,
discs and cards necessary to administer and service such Collateral
(provided that Borrower may retain or subsequently make copies of the
foregoing for its use);
(v) All personal property, contract rights, accounts and
general intangibles of whatsoever kind relating to the Mortgages and
all other documents or instruments delivered to Lender in respect of
the Mortgages, including, without limitation, the right to receive all
insurance proceeds and condemnation awards which may be payable in
respect of the premises encumbered by any Mortgage; and
(vi) All proceeds of any of the foregoing.
Lender shall have no duty to Borrower or any other Person as to the
collection or protection of Collateral held hereunder or any income thereon, nor
as to the preservation of any rights pertaining thereto, beyond the reasonable
care thereof. Such care as Lender gives to the safekeeping of its own property
of like kind shall constitute reasonable care of Collateral when in Lender's
possession; but Lender is not required to make presentment, demand or protest,
or give notice, and need not take action to preserve any rights against prior
parties, obligors, account debtors, or others, in connection with any obligation
or evidence of indebtedness held as Collateral or in connection with Borrower's
obligations. Notwithstanding any provision hereof to the contrary, the
transmittal and delivery of any Mortgage Notes, Mortgages, Collateral Documents
and other documents or instruments shall be at the sole risk and expense of
Borrower, and Lender shall not be liable or obligated in any respect in the
event of the loss, damage or destruction of any Collateral Documents, Mortgage
Notes, Mortgages, and other documents or instruments, or any
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delay in the transmission or delivery thereof, except for Lender's gross
negligence or intentional misconduct with respect thereto.
2.8 Releases of Collateral.
(a) Releases of Units and Eligible Lots. Borrower may request
releases of Eligible Lots and Units from the lien and encumbrance of a
Deed of Trust from time to time; PROVIDED, HOWEVER, the Lender has no
obligation to release any Eligible Lot or Unit unless each of the
following conditions precedent is satisfied:
(i) Generally.
(A) Notification to the Lender. Borrower or
the closing agent handling the sale will have
notified the Lender in writing of the requested
release;
(B) Remargining Payments Required. Borrower
will have made all payments required to be made
pursuant to SECTION 2.9 after giving effect to such
Release;
(C) No Default. No Event of Default and no
Unmatured Event of Default shall have occurred and be
continuing;
(D) Endorsements. Borrower shall provide the
Lender with such endorsements to the Title Policy as
the Lender may reasonably request in connection with
each release;
(E) Processing/Release Fees. If required by
Lender, Borrower shall pay the standard
processing/release fees of the Lender and the trustee
under the Deed of Trust, in connection with such
release; and
(F) Escrow Arrangements. Each release shall
be made by the Lender by delivery of the release
documents to a title company or other escrow agent
satisfactory to the Lender on such conditions as
shall assure the Lender that all conditions precedent
to such release have been satisfied and that the
applicable transaction will be completed.
(ii) Releases of Units.
(A) Releases in the Ordinary Course of
Business. With respect to any release of Units, the
requested release is for the purpose of sale in the
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ordinary course of Borrower's business to a
non-related third party purchaser; and
(B) Payment of Release Price. In connection
with the sale of the Unit, Borrower will have paid to
the Lender a release price equal to the Net Sales
Proceeds.
(iii) Releases of Eligible Lots.
(A) Releases for Custom Lot Sale. With
respect to any release of Eligible Lots, the
requested release is for the sale to a party who is
not an Affiliate of Borrower; and
(B) Payment of Release Price. In connection
with the sale of the Eligible Lot, Borrower will have
paid to the Lender a release price equal to the Net
Sales Proceeds.
(b) Releases for Dedications and Similar Purposes. Upon
written request of Borrower and so long as no Event of Default or
Unmatured Event of Default has occurred and is continuing and provided
the Lender shall have approved the request, in the Lender's reasonable
discretion, Borrower may release from the lien and encumbrance of a
Deed of Trust such portions of the Collateral as Borrower (i) is
required to convey to a Governmental Authority or a bona fide public
utility in connection with the development of an Approved Subdivision
(such as roads, drainage easements, and utility easements) and for
which Borrower receives no monetary compensation; or (ii) proposes to
convey to a homeowners' association or similar Person in connection
with the development of an Approved Subdivision (such as common areas)
and for which Borrower receives no monetary compensation. Releases that
satisfy the requirements of this Section do not require the payment of
any release price.
(c) Adjustment to Borrowing Base. Any Collateral released
shall no longer be Eligible Collateral and the Collateral Value of
Eligible Collateral shall be immediately and automatically adjusted to
reflect such release. An item of Collateral not included as Eligible
Collateral shall be released by Lender subject to any remargining
payments required of Borrower as set forth in SECTION 2.9.
(d) Return of Collateral at End of Warehouse Commitment. If
(i) the Warehouse Commitment shall have expired or been terminated and
(ii) no Warehouse Advances, interest or other amounts evidenced by the
Note or due under this Agreement shall be outstanding and unpaid,
Lender shall deliver or release all Collateral Documents in its
possession. The receipt by Borrower of any Collateral released or
delivered to Borrower pursuant to any provision of this Agreement shall
he a complete and full acquittance for the Collateral so returned, and
Lender shall thereafter be discharged from any liability or
responsibility therefor.
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2.9 Remargining; Principal Payments; Borrowing Base. Anything in the
Loan Documents to the contrary notwithstanding, the total of Outstanding
Borrowings under the Borrowing Base Loan may not at any time exceed the
Available Borrowing Base Commitment, and Borrower shall not be entitled to any
Borrowing Base Advances if the effect thereof would be to cause the Outstanding
Borrowings to exceed the Available Borrowing Base Commitment. If for any reason
at any time the total of Outstanding Borrowings under the Borrowing Base Loan
exceeds the Available Borrowing Base Commitment (including, without limitation,
by reason of Borrowing Base Commitment Amount reductions, changes in Unit
Appraised Values or Eligible Lot Appraised Values, adjustments to the Borrowing
Base or Collateral Value, or otherwise), Borrower will make a principal payment
to the Lender in an amount equal to such excess amount. Each payment pursuant to
this SECTION 2.9 will be due no later than 11:00 a.m. (Phoenix, Arizona time) on
the 5th Business Day after the day upon which the Lender notifies Borrower in
writing that such payment is required.
2.10 Repayment of Warehouse Loan. Borrower shall be obligated to pay to
Lender, without the necessity of prior demand or notice from Lender, the amount
of any outstanding Warehouse Advance against a specific Eligible Mortgage Loan
as shown on Lender's records, upon the occurrence of any of the following
events:
(a) The Collateral Documents, upon examination by Lender, are
found not to be in compliance with the requirements of this Agreement;
(b) If any of the items required to be delivered pursuant to
EXHIBIT C after a Warehouse Advance are not delivered as and when
required or if delivered are not in compliance with this Agreement;
(c) Five (5) Business Days have elapsed from the date a
Collateral Document was delivered to Borrower for correction or
completion, without being returned to Lender;
(d) Such Eligible Mortgage Loan is defaulted and remains in
default for a period of sixty (60) days;
(e) If any of the representations and warranties set forth in
SECTION 5.1(t) with respect to an Eligible Mortgage Loan are untrue or
incorrect in any material respect; or
(f) Upon the sale of such Eligible Mortgage Loan.
2.11 Remargining; Principal Payments; Warehouse. Anything in the Loan
Documents to the contrary notwithstanding, Borrower shall, upon demand by
Lender, pay to Lender an amount equal to the amount by which total outstanding
Warehouse Advances exceed the lesser (i) the Warehouse Commitment Amount or (ii)
the aggregate outstanding principal balance of all Eligible Mortgage Loans. Each
payment pursuant to this SECTION 2.11 will be due no later than 11:00 a.m.
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(Phoenix, Arizona time) on the 5th Business Day after the day upon which the
Lender notifies Borrower in writing that such payment is required.
ARTICLE 3
BORROWING BASE
3.1 Determination of Eligible Collateral/Borrowing Base. Eligible
Collateral in the Borrowing Base will be determined by the Lender from time to
time as set forth in this ARTICLE 3.
3.2 Additional Limitations on Eligible Collateral.
(a) Limitation on Spec Units. Borrower may not include in
Eligible Collateral more than thirty (30) Spec Units financed under the
Borrowing Base Commitment.
(b) Classification and Reclassification of Units; Adjustment
of Borrowing Base. The Lender may classify or reclassify Units as to
type from time to time, or change Borrower's proposed classification of
any and all Units, PROVIDED that such reclassified Unit meets the
requirements set forth herein for that type of Unit.
(c) Events Affecting Units and Eligible Lots; Exclusions from
Eligible Collateral. If any Unit or Eligible Lot included in Eligible
Collateral is materially damaged, destroyed, or becomes subject to any
condemnation proceeding, such item may be declared by the Lender to no
longer be Eligible Collateral. In addition, if any such item does not
continue to meet all the requirements applicable to Eligible
Collateral, such item will no longer constitute Eligible Collateral.
Any determination by the Lender, in the reasonable judgment of the
Lender, as to whether Units or any Eligible Lot constitutes Eligible
Collateral will be final, conclusive, binding and effective
immediately.
3.3 Limitations on Collateral Values. Once the Maximum Allowed
Borrowing Base Advance is initially established for a particular Eligible Lot,
that Maximum Allowed Borrowing Base Advance is subject to either increase or
decrease based on subsequent events, such as updated Appraisals or change
orders. If any of the limitations on Eligible Collateral, Collateral Value,
Outstanding Borrowings, or outstanding Borrowing Base Advances set forth in this
SECTION 3.3 or elsewhere in this Agreement are exceeded, the Lender may at its
option either delete Units and Eligible Lots from Eligible Collateral until such
requirements are met or require Borrower to make a remargining payment pursuant
to SECTION 2.9.
3.4 Collateral Inventory Report, Collateral Certificate, and Borrowing
Base Reconciliation Report.
(a) Collateral Inventory Report. On or before the day that is
the 15th day of each Calendar Month, Borrower will prepare and submit
to the Lender a Collateral Inventory Report for all of the Collateral,
including for each Unit and Lot in Eligible Collateral, among
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other things that Lender may require from time to time, the following:
(i) the total number, and a description of, the Presold Units, Spec
Units and Eligible Lots that constitute Eligible Collateral; (ii) the
name of the Approved Subdivision; (iii) the Lot number as indicated on
the recorded plat of the Approved Subdivision; (iv) whether the Unit is
a Presold Unit, a Spec Unit or ineligible collateral; (v) the Unit
Budget for each plan; (vi) the Eligible Lot Budget, (vii) percentage of
completion up to the date of the report; (viii) the Unit Appraised
Value; (ix) the Eligible Lot Appraised Value, (xi) the listing price of
the Unit or the amount of the Purchase Contract, as applicable; (xii)
the date of the first Borrowing Base Advance against the Unit or
Eligible Lot, as applicable, in Eligible Collateral and the applicable
Unit Eligibility Date or Eligible Lot Eligibility Date for each Unit or
Eligible Lot; (xiii) the Unit Collateral Value and the Maximum Allowed
Borrowing Base Advance for the Unit; (xiv) the Eligible Lot Collateral
Value and the Maximum Allowed Borrowing Base Advance for the Eligible
Lot, (xv) the amount of Loan proceeds that are available for Borrowing
Base Advances against each item of Eligible Collateral based on the
terms of this Agreement; and (xvi) a list of all Collateral that is not
Eligible Collateral that may be in the Collateral pool. Borrower shall
not prepare and submit more than one (1) Collateral Inventory Reports
per Calendar Month.
(b) Collateral Certificate. Each Collateral Inventory Report
will be accompanied by a Collateral Certificate signed by an executive
officer of Borrower. As the Lender may from time to time request, each
Collateral Inventory Report shall also be accompanied by such
certificates and other evidence as the Lender may require to assist the
Lender in verifying the information therein. Units and Eligible Lots
may be added as Eligible Collateral only upon receipt of the Collateral
Inventory Report and Collateral Certificate and upon satisfaction of
all other provisions of this Agreement. Each Collateral Certificate
shall be in form and substance satisfactory to the Lender, shall
contain such certifications as the Lender may require, and shall set
forth the following:
(i) The Eligible Lot Collateral Value for each
Eligible Lot that constitutes Eligible Collateral;
(ii) The total Collateral Value for the Borrowing
Base;
(iii) The calculated amount of Collateral Value and
usage for all types of Eligible Collateral and a calculation
of all applicable limitations; and
(iv) A statement that Borrower is in compliance with
the terms and conditions of the Loan Documents.
(c) Form of Report and Certificate. The Collateral Inventory
Report and the Collateral Certificate will be in written form and on
computer disk formatted to the Lender's specifications.
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(d) Borrowing Base Reconciliation Report. The Lender will
prepare the Borrowing Base Reconciliation Report and determine the
Borrowing Base, Eligible Collateral, and the Collateral Value of the
Borrowing Base (and all other amounts and items relating thereto) based
upon (i) the Collateral Inventory Report and Collateral Certificate
most recently submitted by Borrower; (ii) the Lender's inspections made
pursuant to SECTION 6.12 (as such inspections may result in any
adjustments to reflect any variance between the Borrowing Base
Reconciliation Report and/or the Collateral Inventory Report and the
results of such inspections by the Lender); and (iii) such other
information as the Lender may reasonably require in order to verify the
Borrowing Base, Eligible Collateral, the Collateral Value of the
Borrowing Base, and all other amounts and items relating thereto. The
Borrowing Base Reconciliation Report will also take into account the
sale of Units and all other adjustments and limitations permitted or
required by this Agreement. Each determination by the Lender, in its
reasonable judgment, of the Borrowing Base, Eligible Collateral and the
Collateral Value of the Borrowing Base, and each determination by the
Lender, in its reasonable judgment, as to the amount of any Borrowing
Base Advance to which Borrower is entitled, based on the information in
the Borrowing Base Reconciliation Report (and all other amounts and
items entering into such determinations), will be final, conclusive and
binding upon Borrower. The Lender will provide a copy of each Borrowing
Base Reconciliation Report to Borrower within 5 Business Days of
receipt of the Collateral Inventory Report and accompanying Collateral
Certificate.
3.5 General. Anything in this ARTICLE 3 or the Loan Documents to the
contrary notwithstanding, Borrower agrees that no limitation on any Advances
specified herein will limit or otherwise change Borrower's obligations and
liabilities under this Agreement, that Borrower will remain obligated to pay all
costs, expenses, and fees required to be paid by Borrower pursuant to this
Agreement and the other Loan Documents, and that Borrower will remain obligated
to pay all costs, expenses, and fees now or hereafter arising in connection with
acquisition, development, maintenance, occupancy, operation, and use of the
Collateral.
3.6 Appraisals.
(a) Appraisal Requirements. The form and substance of each
Appraisal must be reasonably satisfactory to the Lender.
(b) Appraiser Engagement. Each Appraisal must be prepared by
an appraiser selected and engaged by the Lender. Borrower will notify
the Lender in writing that Borrower desires to obtain approval of a
Subdivision or include a Unit or an Eligible Lot in Eligible Collateral
for which no Appraisal then exists and will provide to the Lender all
information necessary to allow an Appraisal to be ordered by the
Lender. The Lender will engage an appraiser to perform an Appraisal
only when it receives all information deemed necessary by the Lender
and the appraiser for preparation of such Appraisal. Lender will have
no liability to Borrower or any other Person with respect to delays in
the Appraisal
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process. The Lender may employ a staff appraiser or a fee appraiser and
Borrower will reimburse the Lender at the Lender's reasonable cost
therefor.
(c) Appraisal Evaluation. Upon receipt of an Appraisal, the
Lender will review the Appraisal and establish a Unit Appraised Value
or a Eligible Lot Appraised Value, as applicable. The Lender will
notify Borrower of such Unit Appraised Value or Eligible Lot Appraised
Value and deliver to Borrower a copy of each Appraisal upon receipt.
(d) Additional Appraisals. Notwithstanding anything in this
SECTION 3.6 to the contrary, the Lender may order updated Appraisals at
the sole cost and expense of Borrower (i) if such Appraisals are
required by any laws, rules, regulations, or generally applicable
lending procedures; (ii) if the Lender determines in its reasonable
discretion that there has occurred or is occurring a general
deterioration in market conditions affecting any Approved Subdivision;
(iii) upon the failure of Borrower to meet any absorption assumptions
in an existing Appraisal; or (iv) with respect to Eligible Collateral,
annually after receipt of the original Appraisal, in the sole and
absolute discretion of the Lender. Any required adjustments to the Unit
Collateral Value or the Eligible Lot Collateral Value as a result of
such updated Appraisals will be made effective upon 30 days written
notice from the Lender to Borrower setting forth the adjusted Unit
Appraised Values or Eligible Lot Appraised Values based on the Lender's
review of such reappraisals or valuations.
(e) Expenses. Borrower will reimburse the Lender for all
reasonable costs and expenses incurred in the appraisal process and in
establishing and monitoring appraised values. All reimbursement of
Borrower to the Lender required by this SECTION 3.6 will be paid to the
Lender within 15 days after notice from the Lender to Borrower.
ARTICLE 4
CONDITIONS PRECEDENT
4.1 Conditions Precedent to Effectiveness of this Agreement. This
Agreement will become effective only upon satisfaction of the following
conditions precedent, in each case as determined by the Lender in its sole and
absolute discretion. If the conditions precedent are not satisfied (or waived by
the Lender) on or before such deadline, the Lender may cancel this Agreement
upon written notice to Borrower. The conditions precedent to be satisfied are as
follows:
(a) Representations and Warranties Accurate. The
representations and warranties by Borrower in the Loan Documents are
correct on and as of the date of this Agreement and as of the Effective
Date, as though made on and as of each such date.
(b) No Defaults. As of the date of this Agreement and as of
the Effective Date, no Event of Default or Unmatured Event of Default
will have occurred and be continuing, and Borrower will be in
compliance with the Financial Covenants set forth in this Agreement.
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(c) Borrower's Financial Condition. The Lender will be
satisfied, in its sole and absolute discretion, with its review and
analysis of the financial condition of Borrower as of the Effective
Date.
(d) Documents. The Lender will have received the following
agreements, documents, and instruments, each duly executed by the
parties thereto and in form and substance satisfactory to the Lender
and its legal counsel, in their absolute and sole discretion:
(i) Loan Documents. This Agreement and such
amendments, ratifications, and confirmations of the other Loan
Documents as the Lender may require in its sole discretion.
(ii) Partnership Documents. A partnership certificate
authorizing the general partner of Borrower to execute,
deliver, and perform its obligations under this Agreement and
the other documents to be executed and delivered by Borrower
in connection herewith and ratifying and confirming the Liens
and Encumbrances of the Lender on the Collateral.
(iii) Contracts. Copies of all construction contracts
entered into by Borrower executed in connection with the
construction of the Approved Subdivisions and the Lots and
Units therein.
(e) Other Items or Actions by Borrower. The Lender will have
received such other agreements, documents, certificates (including
bring-down certificates), and instruments, and Borrower will have
performed such other actions, as the Lender may reasonably require.
(f) Payment of Costs, Expenses and Fees. All costs, expenses
and fees to be paid by Borrower under the Loan Documents on or before
the Effective Date will have been paid in full, including, without
limitation, the applicable fees set forth or referenced in SECTION 2.6.
4.2 Approval of Subdivisions. Approved Subdivisions as of the date
hereof are listed on EXHIBIT D attached hereto and incorporated herein by
reference. Borrower may, from time to time, request Lender to approve
Subdivisions pursuant to this SECTION 4.2. Approval of new Subdivisions shall be
at the sole and absolute discretion of the Lender, and the Lender shall have no
obligation to approve such Subdivisions. In any event, the Lender will only
consider approval of Subdivisions located in "Desert Mountain". When requesting
consideration of a new Subdivision, Borrower, at Borrower's sole cost and
expense, shall deliver to the Lender each of the following items, unless
otherwise directed by Lender, and shall satisfy the following conditions
precedent, unless otherwise waived by Lender (each of which items must be
satisfactory to the Lender in its reasonable discretion
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and each of which conditions precedent must be satisfied, as determined by the
Lender in its reasonable discretion, at all times that such Subdivision is
considered an Approved Subdivision.
(a) Request. Borrower shall have submitted to the Lender a
request in form satisfactory to the Lender for approval of such
Subdivision.
(b) Representations and Warranties Accurate. The
representations and warranties by Borrower in the Loan Documents are
correct in all material respects.
(c) No Defaults. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing.
(d) Ownership. Borrower shall be the owner of the Subdivision,
subject only to Permitted Exceptions.
(e) Proposed Development. To the extent not included in the
other items to be provided pursuant to this SECTION 4.2, Borrower shall
have submitted to the Lender budgets, feasibility studies (if
available), environmental and engineering reports and studies, proforma
financial statements, income projections, development schedules and
other information as the Lender may require to establish that the
development of Lots and/or the construction and sale of Units on Lots
in the Subdivision and the estimated costs, expenses and profits
acceptable to the Lender in its sole and absolute discretion.
(f) Plat. Borrower shall have delivered to the Lender a
preliminary parcel map, preliminary plat or survey of the Subdivision.
(g) Zoning Approvals. Borrower shall have provided to the
Lender evidence that the Subdivision is subject to vested zoning
consistent with its proposed uses.
(h) Preliminary Title Commitment. Borrower shall have provided
to the Lender a preliminary title commitment for the Subdivision,
prepared by the Title Company, together with a legible copy of each
Schedule B item.
(i) Environmental Assessment. Borrower shall have delivered to
the Lender a report of an environmental assessment which includes the
Subdivision addressed to the Lender by an environmental engineer
acceptable to the Lender containing such information, results, and
certifications as are required by the Lender. Depending upon the
results of the environmental assessment, Borrower will also provide
such follow up testing, reports, and other actions as may be required
by the Lender. The contents of the environmental assessment report and
any follow up must be satisfactory to the Lender, in its sole and
absolute discretion.
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(j) Soils Tests. Borrower shall have provided the Lender a
soils compaction test report for the Subdivision prepared by a licensed
soils engineer reasonably satisfactory to the Lender showing the
locations of, and containing boring logs for, all borings in the same
form as those previously delivered to the Lender in connection with
existing Approved Subdivisions.
(k) Marketing Information. Borrower shall have provided the
Lender marketing information with respect to the Lots and Units to be
developed in the Subdivision, including, to the extent available, floor
plans, square footage, anticipated absorption, estimated Unit mix, Unit
cost breakdowns, subdivision pro formas and anticipated gross margins.
(l) Budgets. Borrower shall have provided the Lender a budget
and pro forma cash flow for the Subdivision and providing detail
regarding projected sales revenues, hard and soft costs of
construction, allocated overhead, and projected gross profit margins,
with the budget, projected sales revenues, profit margins, and other
financial and economic aspects of the proposed Project.
(m) Other. Borrower shall have provided the Lender such other
documents and information as the Lender may reasonably request.
4.3 Qualification of Eligible Lots as Eligible Collateral. Eligible
Lots as of the date hereof are listed on the EXHIBIT E attached hereto and
incorporated herein by reference. Borrower may, from time to time, request the
Lender to approve an Eligible Lot as Eligible Collateral. Lender is under no
obligation to accept into Eligible Collateral any Eligible Lot proposed by
Borrower more frequently than twice in each Calendar Month. When requesting
consideration of a new Eligible Lot, Borrower, at Borrower's sole cost and
expense, shall deliver to the Lender each of the following items. Each of the
items required by this Section must be satisfactory to the Lender in its sole
and absolute discretion and each of the conditions precedent required to be
satisfied pursuant to this Section must be satisfied, as determined by the
Lender in its sole and absolute discretion, at all times that such Eligible Lot
is included as Eligible Collateral:
(a) Eligible Lots in General.
(i) All of the conditions precedent in SECTION 4.2
have been and continue to be satisfied.
(ii) Either (A) all Off-Site Improvements in the
Subdivision are fully and finally completed, all dedications
have occurred, all governmental acceptances and approvals have
been obtained and are in full force and effect in order to
permit the immediate construction and sale of Units within the
Subdivision; or (B) to the extent that such Off-Site
Improvements have not been completed within the Subdivision
and will have received such assurances as the Lender
reasonably requests with
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respect to the completion of such offsite improvements (which
may include without limitation, payment and performance bonds
covering such completion).
(b) Limitations. After giving effect to the addition of such
Lots to Eligible Collateral as an Eligible Lot, the limitations and
restrictions on Eligible Collateral in ARTICLE 3 are not violated.
4.4 Qualification of Units as Eligible Collateral. Borrower may, from
time to time, request the Lender to approve a Unit as Eligible Collateral.
Lender is under no obligation to accept into Eligible Collateral any Units
proposed by Borrower more frequently than twice in each Calendar Month. When
requesting consideration of a new Unit, Borrower, at Borrower's sole cost and
expense, shall deliver to the Lender each of the following items. Each of the
items required by this Section must be satisfactory to the Lender in its
reasonable discretion and each of the conditions precedent required to be
satisfied pursuant to this Section must be satisfied, as determined by the
Lender in its reasonable discretion, at all times that such Unit is included in
Eligible Collateral:
(a) Inclusion in an Approved Subdivision. Such Lot is legally
described as a Lot on a final subdivision plat or map or subdivision
filing.
(b) Documents. Except to the extent already provided in the
information submitted to and approved by the Lender pursuant to
SECTIONS 4.2 or 4.3, to the extent applicable (unless there has been a
material change in such information), Lender shall have received the
following agreements, documents, and instruments, each duly executed by
the parties thereto:
(i) Approvals. If requested by the Lender, evidence
of all approvals of Governmental Authorities and other third
parties necessary to permit the construction and sale of the
Unit, including, without limitation, all applicable public
reports, architectural committee approvals, and any other
approvals required under the CC&Rs.
(ii) Contracts for Unit Construction. If requested by
the Lender, copies of all executed contracts between Borrower
and any other Person (including, without limitation, the
architect and each contractor or subcontractor for labor,
materials, or services) relating to design and construction of
Units within the Subdivision.
(iii) Final CC&Rs. Copies of the final CC&Rs for the
Approved Subdivision.
(iv) Purchase Contract . If such Unit is a Presold
Unit and if requested by the Lender, a copy of the fully
executed Purchase Contract for such Unit.
(v) Unit Appraisal. A Unit Appraisal for the Unit in
question.
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(vi) Unit Budget. A Unit Budget for the Unit in
question.
(vii) Unit Plans and Specifications. Unit Plans and
Specifications for the Unit in question.
(viii) Deed of Trust. If the Lot on which the Unit is
to be constructed has not previously been encumbered by a Deed
of Trust, a first lien Deed of Trust, subject only to
Permitted Exceptions, duly executed, acknowledged, delivered
and recorded.
(ix) Impositions, Assessments, and Charges. Borrower
shall have provided the Lender with evidence that all
Impositions and water, sewer, and other charges assessed
against the Unit which are then due and payable have been paid
in the amount required unless the Lender is able to verify
such information from other sources of information reasonably
available to the Lender.
(x) Completion of Filings and Recordings. Evidence of
the completion of all recordings and filings to establish or
maintain the perfection and priority of the Liens and
Encumbrances on such Unit granted in the Loan Documents.
(xi) Title Insurance. If the Unit has not previously
been encumbered by a Deed of Trust, (A) a new Title Policy or
(B) an endorsement to an existing Title Policy issued by a
Title Company and in form satisfactory to the Lender. Such
policy or endorsement will provide coverage (including without
limitation, mechanic's lien coverage) satisfactory to the
Lender and insure the Lender's interest under the applicable
Deed of Trust as a valid first lien on the property encumbered
by the Deed of Trust, subject only to Permitted Exceptions. If
the Unit has previously been encumbered by an insured Deed of
Trust, Borrower will have provided an endorsement to such
Title Policy, in form satisfactory to the Lender, eliminating
any Schedule B items that are not Permitted Exceptions with
respect to Units included in Eligible Collateral.
(c) Distressed Improvement Districts. Any improvement or
assessment district in which the Unit is located is not insolvent under
applicable law or subject to any bankruptcy or similar proceedings if
such situation, in the reasonable opinion of the Lender, would have a
material adverse impact on development of Units or directly or
indirectly cause the Approved Subdivision in which the Unit is to be
built to be subject to any suspension, disqualification, or disapproval
by FHA, FNMA, VA, FHLMC, or any similar governmental or
quasi-governmental agency that originates, purchases, insures or
guarantees home mortgage loans, if the Approved Subdivision has been
qualified with any such agency and Units in the Approved Subdivision
are proposed to be sold with the benefits of such qualification.
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(d) Limitations. After giving effect to the addition of such
Unit to Eligible Collateral, the limitations and restrictions on
Eligible Collateral in ARTICLE 3 are not violated.
(e) Other Items. Borrower shall have provided to the Lender
such other agreements, documents, and instruments as the Lender may
reasonably request.
(f) Other Actions. Borrower shall have performed such other
actions as the Lender may reasonably request.
4.5 Additional Conditions Precedent to All Borrowing Base Borrowing
Base Advances Against Eligible Collateral. Notwithstanding the other provisions
of this ARTICLE 4, the Lender will only be obligated to make Borrowing Base
Advances against Eligible Collateral if Borrower, at Borrower's sole cost and
expense, shall have delivered to the Lender each of the following items. Each of
the items required by this Section must be satisfactory to the Lender in its
reasonable discretion and each of the conditions precedent required to be
satisfied pursuant to this Section must be satisfied, as determined by the
Lender in its reasonable discretion:
(a) Representations and Warranties Accurate. The
representations and warranties by Borrower to Lender shall be correct
in all material respects on and as of the date of such Borrowing Base
Advance, both before and after giving effect to such Borrowing Base
Advance, other than matters disclosed by Borrower to the Lender and
approved by all the Lender in its absolute and sole discretion.
(b) Defaults. No Event of Default or Unmatured Event of
Default shall have occurred and be continuing on the date of such
Borrowing Base Advance, both before and after giving effect thereto.
(c) Subordination Agreement. Borrower shall have delivered the
executed Subordination Agreement in form and substance satisfactory to
Lender.
(d) Other Conditions Precedent. Borrower shall have satisfied
all conditions precedent in SECTIONS 4.1, 4.2, 4.3, and 4.4, as
applicable.
(e) Inspection Report. The Lender shall not have received
written evidence from the Lender's inspectors or from the Lender's
employees performing inspections for the Lender (i) that construction
of any Unit constituting Eligible Collateral does not comply with the
respective Unit Plans and Specifications in all material respects; and
(ii) that Borrower has not completed each such Unit to the stage
reported on the most recent Borrowing Base Reconciliation Report
received by the Lender.
(f) Lien Waivers. If requested by the Lender, Borrower shall
have provided the Lender with invoices and vouchers for the work for
which the Borrowing Base Advance is requested and lien waivers for all
work covered by prior Borrowing Base Advances. Such
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lien waivers may be conditional, so long as the only condition is
receipt of payment for the work and Borrower includes with the
conditional lien waiver a copy of the canceled check for payment or
other evidence of payment.
(g) Approvals and Inspections by Governmental Authorities. If
requested by the Lender, all inspections and approvals by Governmental
Authorities required for the stage of completion of each Unit shall
have been obtained and the Lender shall have received satisfactory
evidence thereof or will have been provided access thereto satisfactory
to the Lender, or shall have obtained such evidence upon inspection of
the Approved Subdivision.
(h) Payment of Costs, Expenses, and Fees. All costs, expenses,
and fees due to be paid by Borrower on or before the date of the
Borrowing Base Advance under the Loan Documents shall have been paid in
full.
(i) Draw Request. Borrower shall have delivered to the Lender
a Draw Request for such Borrowing Base Advance.
(j) Limit on Total Outstanding. After giving effect to the
requested Borrowing Base Advance, the Outstanding Borrowings shall not
exceed the Available Borrowing Base Commitment and no remargining
payment shall be required under SECTION 2.9.
4.6 Additional Conditions Precedent to All Warehouse Advances Against
Eligible Mortgages. Notwithstanding the other provisions of this ARTICLE 4 and
in addition to the Requirements of SECTION 2.2(d), the Lender will only be
obligated to make Warehouse Advances against Eligible Mortgages if Borrower, at
Borrower's sole cost and expense, shall have delivered to the Lender each of the
following items. Each of the items required by this Section must be satisfactory
to the Lender in its sole and absolute discretion and each of the conditions
precedent required to be satisfied pursuant to this Section must be satisfied,
as determined by the Lender in its sole and absolute discretion:
(a) Mortgage Loan Criteria. Each Mortgage Loan must be (i) for
not more than a ten (10) year term, (ii) with not less than a twenty
percent (20%) downpayment and(iii) with principal and interest payments
due not less frequently than quarterly.
(b) Credit Application. For each Eligible Mortgage Loan
applied for after January 1, 1998, Lender must have received a
substantially completed HUD 1003 application form in all material
respects, acceptable to Lender.
(c) Default under Sale Agreement. There shall be no breach or
default of a material nature by Borrower under the terms and conditions
of the Loan Sale Agreement, nor the existence of any event which with
the giving of notice or the passage of time would give rise to a breach
and default thereunder.
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(d) Other Conditions Precedent. Borrower shall have satisfied
all conditions precedent in SECTIONS 4.1, 4.2, 4.3, 4.4 and 4.5, as
applicable.
(e) Lender's Right to Lend. Notwithstanding anything contained
herein to the contrary, Lender, in its sole and absolute discretion,
may decide to accept Mortgage Loans as Collateral which do not satisfy
any of the foregoing conditions precedent set forth in this Article, on
a case by case basis, and make Warehouse Advances against such Mortgage
Loans.
4.7 Verification and Other Matters Relating to Conditions Precedent.
Borrower authorizes the Lender and the Lender reserves the right, in its
absolute and sole discretion, to verify any documents and information submitted
to it in connection with this Agreement. Delay or failure by the Lender to
insist on satisfaction of any condition precedent will not be a waiver of such
condition precedent or any other condition precedent. The making of an Advance
by the Lender will not be deemed a waiver by the Lender of the occurrence of an
Event of Default or an Unmatured Event of Default.
ARTICLE 5
BORROWER REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties. Borrower represents and warrants to
the Lender as of the Effective Date and as of the various other dates specified
in this Agreement on which such representations and warranties are to be
accurate, complete, and correct the following:
(a) Partnership Authorization. Borrower is a Delaware limited
partnership validly existing and in good standing under the laws of
Delaware and qualified to do business in the state of Arizona and each
other state in which Borrower conducts business, and Borrower has the
requisite power and authority to execute, deliver, and perform the Loan
Documents. The execution, delivery, and performance by Borrower of the
Loan Documents have been duly authorized by all requisite action by
Borrower and do not conflict with, or result in a violation of or a
default under the certificate partnership or Partnership Agreement of
Borrower. Borrower's headquarters and principal place of business is
presently located in Scottsdale, Arizona. Borrower has all requisite
power and authority to own its assets and to carry on its business.
(b) No Approvals, etc. No approval, authorization, bond,
consent, certificate, franchise, license, permit, registration,
qualification, or other action or grant by or filing with any
Governmental Authority or other Person is required (which has not been
obtained) in connection with the execution, delivery, or performance
(other than performance which is not yet due) by Borrower of the Loan
Documents.
(c) No Conflicts. The execution, delivery, and performance by
Borrower of the Loan Documents will not conflict with, or result in a
violation of or a default under, (i) any
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applicable law, ordinance, regulation, or rule (federal, state, or
local); (ii) any judgment, order, or decree of any arbitrator, other
private adjudicator, or Governmental Authority to which Borrower is a
party or by which Borrower or any of the assets of Borrower is bound;
(iii) any of the Approvals and Permits; or (iv) any agreement,
document, or instrument to which Borrower is a party or by which
Borrower or any of the assets of Borrower is bound.
(d) Execution and Delivery and Binding Nature of Borrower Loan
Documents. The Loan Documents have been duly executed and delivered by
or on behalf of Borrower. The Loan Documents are legal, valid, and
binding obligations of Borrower, enforceable in accordance with their
terms against Borrower, except as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization, or similar laws and
by equitable principles of general application.
(e) Accurate Information. To the best of Borrower's knowledge,
all information in any loan application, financial statement (other
than financial projections), certificate, or other document, and all
other information delivered by or on behalf of Borrower to the Lender
in connection with this transaction is correct and complete in all
material respects as of the date thereof, and there are no omissions
from any such information that result in any such information being
materially incomplete, incorrect, or misleading as of the date thereof.
Borrower has no knowledge of any material change in any such
information. All financial statements (other than financial
projections) heretofore delivered to the Lender by Borrower were
prepared in accordance with the requirements in SECTION 6.4 and
accurately present the financial conditions and results of operations
as at the dates thereof and for the periods covered thereby in all
material respects. All financial projections have been and will be
prepared in accordance with the requirements of this Agreement, will be
complete in all material respects as of the date thereof, and will be
based on Borrower's best good faith estimates, compiled and prepared
with due diligence, of the matters set forth therein. Since the
Effective Date, no Material Adverse Change has occurred.
(f) Purpose of Advances. The purpose of each Advance is as set
forth in SECTIONS 2.1(d) and 2.2(c). The purpose of Advances is a
business purpose and not a personal, family, or household purpose.
(g) Legal Proceedings, Hearings, Inquiries, and
Investigations. Except as disclosed to the Lender in writing:
(i) No legal proceeding, individually or in the
aggregate with related proceedings, involving a sum of
$250,000 or more, is pending or, to best knowledge of
Borrower, threatened before any arbitrator, other private
adjudicator, or Governmental Authority to which Borrower is a
party or by which Borrower or any assets of Borrower may be
bound or affected that if resolved adversely to Borrower could
result in a Material Adverse Change;
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(ii) No hearing, inquiry, or investigation relating
to Borrower or any assets of Borrower is pending or, to the
best knowledge of Borrower, threatened by any Governmental
Authority that if resolved adversely to Borrower could result
in a Material Adverse Change; and
(iii) There are no suits, actions or proceedings
pending or threatened against Borrower or Affiliates of
Borrower under any RICO Related Law that would have a material
adverse effect on Borrower.
(h) No Event of Default or Unmatured Event of Default;
Financial Covenant Compliance. No Event of Default and no Unmatured
Event of Default has occurred and is continuing. Borrower is in
compliance with each of the Financial Covenants as set forth in this
Agreement.
(i) Approvals and Permits; Assets and Property. Borrower has
obtained and there are in full force and effect all Approvals and
Permits presently necessary for the conduct of the business of
Borrower, and Borrower owns, leases, licenses or otherwise has rights
to all assets necessary for conduct of the business and operations of
Borrower, except as otherwise permitted pursuant to this Agreement,
except for any failure to obtain and maintain in full force and effect
any Approval or Permit or any failure to own, lease or license such
assets that would not, individually or in the aggregate, (i) be
materially adverse to the business, properties, assets, operations or
condition (financial or otherwise) of Borrower or (ii) materially and
adversely affect any Units, Lots or other property that is at any time
included as Eligible Collateral. The assets of Borrower are not subject
to any Liens and Encumbrances, other than (A) the Liens and
Encumbrances created pursuant to this Agreement; (B) the Permitted
Exceptions with respect to property encumbered by a Deed of Trust; and
(C) with respect to other assets of Borrower that are not encumbered by
a Deed of Trust, Liens and Encumbrances that have been taken into
account in the preparation of financial statements and reports of
Borrower delivered to the Lender. To the extent Borrower makes or
intends to make sales of Units prior to the issuance of any applicable
public reports, Borrower has, and will at all times maintain, all
special exemption orders and other approvals and permits that are
necessary or appropriate.
(j) Impositions. Except as otherwise permitted pursuant to
SECTION 6.6, Borrower has filed or caused to be filed all tax returns
(federal, state, and local) required to be filed by Borrower and has
paid all Impositions and other amounts shown thereon to be due
(including, without limitation, any interest or penalties) except for
any failure to so file or to so pay that would not, individually or in
the aggregate, be materially adverse to the business properties,
assets, operations or condition (financial or otherwise) of Borrower.
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(k) ERISA.
(i) Neither the execution and delivery of this
Agreement by Borrower, the borrowings hereunder, the
performance by Borrower of the Obligations nor the
consummation of any of the other transactions contemplated by
this Agreement constitutes or will constitute a "prohibited
transaction" within the meaning of Section 4975 of the Code or
Section 406 of ERISA. Borrower has delivered to the Lender a
complete and correct list of any "employee benefit plan"
(within the meaning of Section 3(3) of ERISA) (a "PLAN").
(ii) Each Plan is in compliance in all material
respects with applicable provisions of ERISA, the Code and
applicable foreign law. The Borrower has made all
contributions to the Plans required to be made by it.
(iii) Except for liabilities to make contributions
and to pay Pension Benefit Guaranty Corporation (or any
successor thereto) ("PBGC") premiums and administrative costs,
Borrower has not incurred any material liability to or on
account of any Plan under applicable provisions of ERISA, the
Code or applicable foreign law, and no condition exists which
presents a material risk to Borrower of incurring any such
liability. No domestic Plan has an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code),
whether or not waived, and no foreign Plan is in violation of
any funding requirements imposed by applicable foreign law.
None of Borrower, the PBGC or any other Person has instituted
any proceedings or taken any other action to terminate any
Plan.
(iv) The actuarial present value of all accrued
benefit liabilities under each domestic Plan and under each
foreign Plan (based on the assumptions used in the funding of
such Plan, which assumptions are reasonable, and determined as
of the last day of the most recent plan year of such domestic
Plan for which an annual report has been filed with the
Internal Revenue Service or of such foreign Plan for which
year-end actuarial information is available) did not exceed
the current fair market value of the assets of such Plan as of
such last day.
(v) None of the Plans is a "Multiemployer Plan" (as
defined in ERISA), and Borrower has not contributed or been
obligated to contribute to any Multiemployer Plan at any time
within the preceding six years.
(vi) Borrower qualifies as an "operating company"
within the meaning of United States Department of Labor
Regulations Section 2510.3-101(c). Pursuant to such
regulations, the assets of Borrower are not "plan assets" of
any employee benefit plan subject to the fiduciary
responsibility requirements of ERISA. The Loans represented by
this Agreement are not prohibited loans or transactions under
Section 406 of ERISA.
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(l) Compliance with Law. Other than noncompliance with
applicable building codes which is not material, is not unusual in the
ordinary course of business, and is correctable (and is in the process
of being corrected) by Borrower, none of Borrower, the Approved
Subdivisions, the Units, the Off-Site Improvements, or the Eligible
Lots are in material violation of any law, ordinance, regulation, or
rule (federal, state, or local).
(m) Unit Budgets, Unit Plans and Specifications, and
Construction Contracts. Each Unit Budget (as updated from time to time)
contains all costs, expenses, and fees anticipated to be incurred by
Borrower in connection with the respective type of Unit. The Unit Plans
and Specifications and related working drawings are a substantially
accurate and complete description of the Unit. The construction
contracts relating to the construction of the Unit provide for all work
and materials anticipated to be necessary to construct and all payments
necessary to pay for the construction of the Unit.
(n) Environmental Matters. To the best of Borrower's knowledge
and except for matters disclosed to the Lender in writing pursuant to
the questionnaires, information, reports, and certificates delivered
pursuant to this Agreement, neither Borrower nor any of the Collateral
is in violation of any Environmental Laws (as defined in the
Environmental Agreement), or subject to any existing, pending, or to
Borrower's knowledge, any threatened investigation by any Governmental
Agency under any Environmental Laws. Borrower hereby acknowledges that
the Lender has made a written request of Borrower for information
concerning the environmental condition of the Collateral, including,
without limitation, (A) the presence, alleged presence or threatened
presence of Hazardous Substances (as defined in the Environmental
Agreement) on, under, in, or about any of the Collateral or property
adjacent to the Collateral other than naturally occurring radon; (B)
the release, alleged release or threatened release of Hazardous
Substances on, under, in, from, or about any of the Collateral or
property adjacent to the Collateral; or (C) the presence of any
underground storage tank on any real property constituting Collateral.
Borrower has no actual knowledge or notice of the presence, alleged
presence, threatened presence, release, alleged release, or threatened
release of Hazardous Substances on, under, in, from, or about the
Collateral or property adjacent to any of the Collateral, except as has
been disclosed to the Lender in writing. As used herein, the term
"release" means any release (including, without limitation, any
discharge, disposal, dumping, emitting, emptying, escape, injection,
leaching, leaking, pouring, pumping, or spilling) in violation of any
applicable laws, rules, regulations or ordinances of any Governmental
Authority.
(o) Special Representations and Agreements Relating to
Collateral.
(i) Ownership. Except as permitted pursuant to
SECTION 6.3(b), Borrower is and will at all times be the legal
and equitable owner of the Collateral, free and clear of all
Liens and Encumbrances, except for Deeds of Trust encumbering
such Collateral and the Permitted Exceptions.
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(ii) Authority to Encumber. Borrower has, and will
continue to have, the full right and authority to encumber all
of the Collateral, including each of the Units and Eligible
Lots included or to be included in Eligible Collateral.
(iii) Validity of the Lien and Encumbrance Created by
each Deed of Trust. The Lien and Encumbrance created by each
Deed of Trust is (A) legal, valid, binding and enforceable
subject to any bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance or transfer or
other similar laws relating to or affecting the rights of
creditors generally and (B) is first priority except for
Permitted Exceptions.
(p) Full Disclosure. There is no material fact that Borrower
has not disclosed to the Lender which could cause a Material Adverse
Change with respect to Borrower or any subsidiaries of Borrower.
Neither the financial statements nor any other certificate or document
delivered herewith or heretofore by Borrower to the Lender in
connection with negotiations of this Agreement and the Loan Documents
contains any untrue statement of material fact or omits to state any
material fact necessary to keep the statements contained herein and
therein from being untrue or misleading.
(q) Use of Proceeds; Margin Stock. The proceeds of the
Advances will be used by Borrower solely for the purposes specified in
this Agreement. None of such proceeds will be used for the purpose of
purchasing or carrying any "margin stock" as defined in Regulation U or
G of the Board of Governors of the Federal Reserve System (12 C.F.R.
Part 221 and 207), or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or carry margin
stock or for any other purpose which might constitute this transaction
a "purpose credit" within the meaning of such Regulation U or G.
Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock. Neither Borrower nor
any Person acting on behalf of Borrower has taken or will take any
action which might cause any Loan Documents to violate Regulation U or
G or any other regulations of the Board of Governors of the Federal
Reserve System or to violate Section 7 of the Securities Exchange Act
of 1934, or any rule or regulation thereunder, in each case as now in
effect or as the same may hereafter be in effect. Borrower and
Borrower's subsidiaries own no "margin stock".
(r) Governmental Regulation. Borrower is not subject to
regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Investment Company Act of 1940, the Interstate
Commerce Act (as any of the preceding have been amended), or any other
law which regulates the incurring by Borrower of indebtedness,
including but not limited to laws relating to common or contract
carriers or the sale of electricity, gas, steam, water, or other public
utility services.
(s) Memberships.
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(i) Membership Availability Following Foreclosure.
Borrower acknowledges and agrees that Lender would not enter
into this Agreement without the express written agreement of
Borrower that, in the event of a foreclosure or trustee's sale
of a Lot instituted by Lender, or deed in lieu thereof in
favor of Lender, Borrower would make adequate arrangements to
ensure that a Deferred Equity Golf Membership would be
available for the ultimate purchaser of such Lot following
such foreclosure, trustee's sale, or deed in lieu thereof.
Accordingly, Borrower covenants and agrees that, in the event
a Mortgage Borrower defaults on a Mortgage Note subject to
this Agreement, resulting in the foreclosure, trustee's sale
or deed "in lieu" of the Lot encumbered by the Mortgage
securing such Mortgage Note, Borrower shall permit the
substitute buyer (i.e., the third-party buyer who takes title
through such foreclosure or trustee's sale or upon resale
following Lender coming into title to the Lot through such
foreclosure, trustee's sale or deed "in lieu") to receive a
Deferred Equity Golf Membership, upon payment by Lender or
such substitute buyer of (a) any unpaid charges against the
defaulting Borrower's terminated Club membership account, (b)
any Surrender Value (as hereinafter defined) that the Club
actually may have paid to the defaulting Borrower, (c) an
amount equal to the then-applicable Conversion Fee, if the
affected Membership is a non-equity Membership, plus (d) an
amount equal to twenty percent (20%) of the Membership
Contribution in its full then-applicable amount. By way of
example, but not limitation, if a Mortgage Borrower were in
default under a Mortgage Note and Mortgage relating to a Lot
with respect to which a 1992 non-equity Regular Membership
(having a 75% Surrender Payment Benefit) was associated, and
such default ultimately resulted in Lender acquiring title
thereto pursuant to a foreclosure, trustee's sale, or deed "in
lieu," and, thereafter, Lender sold the Lot to a third-party
purchaser desirous of enjoying membership privileges in the
Club, then Borrower would cause a Deferred Equity Golf
Membership to be issued to such third-party purchaser upon the
payment of any sums required under (a) and (b) above, if
applicable, together with an amount equal to the
then-applicable Conversion Fee (e.g., $31,250 if the
Membership Contribution were then $125,000 and the defaulting
Borrower held a "Type 20" Membership), plus an amount equal to
twenty percent (20%) of the then-applicable Membership
Contribution for a Deferred Equity Golf Membership (i.e.,
$25,000 if the Membership Contribution in effect at the time
of such resale were $125,000).
(ii) Payment of Surrender Value. By way of continuing
covenant and agreement, when a Membership is surrendered,
whether voluntarily or otherwise, and should Borrower
determine the Dues Repayment Benefits or Surrender Payment
Benefit (as those terms are defined in the governing documents
of the Club, collectively herein, the
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"Surrender Value") associated with such Membership is payable,
and such Membership is associated with Lots encumbered by
Mortgages subject to this Agreement, Borrower shall cause the
Club to retain and/or pay, with respect to all such
Memberships, the Surrender Value to the following recipients
in the following order and priority, and, to the extent the
amount of the Surrender Value is sufficient to cover such
retentions and payments: first, the Club would deduct
therefrom, for its own retention, an amount equal to all
accrued and unpaid dues, fees, food and beverage charges,
merchandise charges, late charges, and all other charges
against the terminated Membership account and any outstanding
principal and interest on any promissory notes payable to
Borrower hereunder in connection with Borrower-financed
Membership conversions, reservations or pre-purchased
Memberships; second, the Club would pay Lender, or Lender's
assignee as successor holder in due course of the related
Mortgage Note, a sum equal to the amount of all accrued and
unpaid principal, interest, and charges under such Mortgage
Note; and third, the Club would pay the individual or entity
designated in the applicable Membership Agreement the
remaining balance, if any, of such Surrender Value.
(t) Representations and Warranties as to the Eligible Mortgage
Loans. Borrower hereby represents and warrants to Lender that, as of
the Closing Date:
As to each Eligible Mortgage Loan, except as otherwise
disclosed in writing:
(i) Borrower is the sole owner and holder of such
Mortgage Loan;
(ii) Borrower has full right and authority to assign
such Mortgage Loan;
(iii) Such Mortgage Loan meets, or is exempt from,
applicable state or federal laws, regulations and other
requirements, pertaining to usury; and any and all other
requirements of any federal, state or local law including,
without limitation, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit
opportunity or disclosure laws applicable to such Mortgage
Loan have been materially complied with;
(iv) The Mortgage Note, the Mortgage, and other
agreements executed in connection therewith, are genuine, and
each is the legal, valid and binding obligation of the maker
thereto, enforceable in accordance with its terms, except as
such enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement
of creditors' rights generally and by general equity
principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
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(v) Borrower is assigning such Mortgage Loan free
and clear of any and all liens, pledges, charges or security
interests of any nature encumbering such Mortgage Loan;
(vi) To the best of Borrower's knowledge and
belief, all Due Diligence Information requested by Lender was
provided to Lender and was true and correct in all material
respects, excluding Due Diligence information prepared by a
party other than Borrower;
(vii) Each Mortgage is a valid and enforceable first
lien on the related real property, which real property is free
and clear of any loan having priority over the lien of the
Mortgage, except for (i) liens for real estate taxes and
special assessments not yet due and payable, (ii) covenants,
conditions and restrictions, rights of way, easements and
other matters of public record of the date of recording of
such Mortgage, such exceptions appearing of record being
acceptable to mortgage lending institutions generally or
specifically reflected in the appraisal made in connection
with the origination of the related Mortgage Loan, and (iii)
other matters to which like properties are commonly subject
which do not, individually or in the aggregate, materially
interfere with the benefits of the security intended to be
provided by such Mortgage;
(viii) Neither Borrower nor any prior holder of the
Mortgage has modified the Mortgage Note or Mortgage in any
material respect, or satisfied, canceled or subordinated any
Mortgage Note or Mortgage in whole or in part or released all
or any material portion of the real property from the lien of
any Mortgage, or executed any instrument of release,
cancellation or satisfaction;
(ix) All Mortgage Loans are covered by a generally
acceptable insurance policy issued by, and is the valid and
binding obligation of, First American Title Insurance Company,
insuring Borrower, its successors and assigns, as to the first
priority lien of any Mortgage in the original principal amount
of the Mortgage Loan and subject only to (A) the lien of
current real property taxes and assessments not yet due and
payable, (B) covenants, conditions and restrictions,
rights-of-way, easements and other matters of public record as
of the date of recording of such Mortgage acceptable to
mortgage lending institutions in the area in which the real
property is located or specifically referred to in the
Appraisal performed in connection with the origination of the
related Mortgage Loan and (C) such other matters to which like
properties are commonly subject which do not, individually or
in the aggregate, materially interfere with the benefits of
the security intended to be provided by the Mortgage;
(x) There is no default, breach, violation or
event of acceleration existing under any Mortgage Note or
related Mortgage and no event which, with the passage of time
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or with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of
acceleration, other than payments less than sixty (60) days
past due on any Mortgage Note;
(xi) Any Mortgage Note or related Mortgage contains
customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the
realization against the real property of the benefits of the
security, including realization by judicial or, if applicable,
non-judicial foreclosure, and there is no homestead or other
exemption available to the Mortgage Borrower which would
interfere with such right to foreclose;
(xii) Each Lot encumbered by an Eligible Mortgage
has the Membership attributed thereto, included with such Lot,
as listed on EXHIBIT A attached hereto, which membership shall
not be sold, transferred or surrendered; and
(xiii) Each Mortgage Loan is currently being serviced
by the Servicing Agent.
As to each Eligible Mortgage Loan assigned hereunder, to the best of
Borrower's knowledge and belief:
(i) Unless previously disclosed to Lender, all
taxes and governmental assessments which, having priority over
the lien of any Eligible Mortgage Loan is not more than sixty
(60) days delinquent or an escrow of funds in an amount
sufficient to cover such payments has been established; and
(ii) There is no proceeding pending or threatened
for the total or partial condemnation of any related real
property.
5.2 Representations and Warranties Upon Requests for Advances. Each
request for an Advance will be a representation and warranty by Borrower to the
Lender that the representations and warranties of Borrower in this ARTICLE 5 and
elsewhere in the Loan Documents are correct and complete as of the date of the
Advance request and as of the date that the Advance is made, except as otherwise
disclosed to the Lender and approved by Lender, in its sole and absolute
discretion, and that the conditions precedent in ARTICLE 4 are satisfied as of
the date of the Advance.
5.3 Representations and Warranties Upon Delivery of Financial
Statements, Documents, and Other Information. Each delivery by Borrower of
financial statements, other documents, or information after the date of this
Agreement (including, without limitation, documents and information delivered in
obtaining an Advance) will be a representation and warranty to the Lender that
such financial statements, other documents, or information (other than financial
projections) are correct and complete in all material respects, that there are
no material omissions therefrom that result in such financial statements, other
documents, or information being materially incomplete, incorrect, or misleading
as of the date thereof, and that such financial statements accurately present
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the financial condition and results of operations of the subject thereof as at
the dates thereof and for the periods covered thereby. Each delivery by Borrower
of financial projections is a representation and warranty to the Lender that
such financial projections have been prepared in accordance with the
requirements in this Agreement, are complete in all material respects as of the
date thereof, and are based on Borrower's best good faith estimates, compiled
and prepared with due diligence, of the matters set forth therein.
5.4 Representations and Warranties Untrue. The failure of any
representation or warranty of Borrower in this Article 5 to be true with respect
to an Eligible Mortgage Loan shall not constitute and Event of Default under the
Loan, however, any and all Mortgage Loans for which such representations and
warranties have proved to be untrue shall no longer be Eligible Mortgage Loans
and Borrower shall be required to meet the remargining requirements of
Section 2.11 based on the new Maximum Allowed Warehouse Advance after excluding
the subject Mortgage Loans.
ARTICLE 6
BORROWER AFFIRMATIVE COVENANTS
Until the Commitment terminates in full and the Obligations are
otherwise paid and performed in full, Borrower agrees to be bound by and to
perform each of the covenants in this ARTICLE 6.
6.1 Partnership Existence. Borrower will continue to be validly
existing, and in good standing as a limited partnership under the law of the
State of Delaware. Borrower will continue to be qualified to do business in the
State of Arizona and under the laws of each state in which the nature of the
activities of Borrower requires such qualification.
6.2 Books and Records; Access. Borrower will maintain a standard,
modern system of accounting (including, without limitation, a single, complete,
and accurate set of books and records of its assets, business, financial
condition, operations, prospects, and results of operations) in accordance with
GAAP. Borrower will also maintain complete and accurate records regarding the
acquisition, development and construction of Units and Eligible Lots, including,
without limitation, all construction contracts, architectural contracts,
engineering contracts, field and inspection reports, applications for payment,
estimates and analyses regarding construction costs, names and addresses of all
contractors and subcontractors performing work or providing materials or
supplies with respect to the development and construction of Units and Eligible
Lots, invoices and bills of sale for all costs and expenses incurred by
contractors and subcontractors in connection with the development and
construction of Units and Eligible Lots, payment, performance and other surety
bonds (if applicable), releases and waivers of lien for all such work performed
and materials supplied by those contracting directly with the Borrower, evidence
of completion of all inspections required by any Governmental Authority,
certificates of substantial completion, notices of completion, any surveys, any
as-built plans, Approvals and Permits, Purchase Contracts, escrow instructions,
records regarding all sales of Units and Eligible Lots, and all other documents
and instruments relating to the acquisition, development, construction and/or
sale of Units and of Eligible Lots. Books and records required to
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be maintained by Borrower pursuant to this Section shall be maintained for a
period of time following payment in full of the Obligations at least equal to
the statute of limitations period within which the Lender would be entitled to
commence an action with respect to the Obligations, except that books and
records with respect to Collateral that has been released need only be retained
for a period of 2 years following the date of release. During business hours
Borrower will give representatives of the Lender access to all assets, property,
books, records, and documents of Borrower and will permit such representatives
to inspect such assets and property and to audit, copy, examine, and make
excerpts from such books, records, and documents. Upon request by the Lender,
Borrower will provide the Lender with copies of the reports, documents,
agreements, and other instruments described in this Section.
6.3 Special Covenants Relating to Collateral.
(a) Defense of Title. Borrower will defend the Collateral, the
title and interest therein of Borrower represented and warranted in
each Deed of Trust, and the legality, validity, binding nature, and
enforceability of each Lien and Encumbrance contained in each Deed of
Trust and the first priority of each Deed of Trust against all matters,
including, without limitation, (i) any attachment, levy, or other
seizure by legal process or otherwise of any or all Collateral;
(ii) except for Permitted Exceptions, any Lien or Encumbrance or claim
thereof on any or all Collateral; (iii) any attempt to foreclose,
conduct a trustee's sale, or otherwise realize upon any or all
Collateral under any Lien or Encumbrance, regardless of whether a
Permitted Exception and regardless of whether junior or senior to the
Deed of Trust; and (iv) any claim questioning the legality, validity,
binding nature, enforceability, or priority of any Deed of Trust.
Borrower will notify the Lender promptly in writing of any of the
foregoing and will provide such information with respect thereto as the
Lender may from time to time request.
(b) No Encumbrances. Borrower will not sell, assign, transfer
or otherwise dispose of, or grant any option with respect to, or pledge
or otherwise encumber, any of the Collateral covered by the Deeds of
Trust or any interest therein or any fixtures thereof or proceeds
thereof, except for (i) the Permitted Exceptions; (ii) sales and
transfers in connection with releases permitted pursuant to
SECTION 2.8; and (iii) with respect to Units and Eligible Lots, a
transfer of legal title to such Units or Eligible Lots to a title
company pursuant to a single beneficiary trust wherein such title
company holds bare legal title and Borrower, as sole beneficiary, holds
all equitable title subject to the Lien and Encumbrance of the
applicable Deed of Trust.
(c) Further Assurances. Borrower will execute and deliver such
further instruments and will do and perform all matters and things
necessary or expedient to be done or performed for the purpose of
effectively creating, maintaining and preserving the Collateral and the
Liens and Encumbrances of the Lender on such Collateral.
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(d) Utilities. Borrower will provide or cause to be provided
all telephone service, electric power, storm sewer (if required),
sanitary sewer (if required) and water facilities for each Eligible Lot
and each Unit included in Eligible Collateral, and such utilities will
be adequate to serve such Units and Eligible Lots. No condition will
exist to affect Borrower's right to connect into and have adequate use
of such utilities, except for the payment of normal connection charges
or tap charges, development impact fees and except for the payment of
subsequent charges for such services to the utility supplier.
(e) Contracts. Borrower will perform all of Borrower's
obligations under any contracts and agreements relating to the
construction of Units and Off-Site Improvements and will pay all
amounts thereunder as and when due, except to the extent such amounts
are contested in accordance with the definition of "Permitted
Exceptions". Borrower will be the sole owner of all Unit Plans and
Specifications or, to the extent that Borrower is not the sole owner of
such Unit Plans and Specifications, Borrower will have the
unconditional right to use such Unit Plans and Specifications in
connection with the construction of Units. The Lender will not be
restricted in any way in use of such Unit Plans and Specifications in
connection with the construction of any Units, and Borrower will obtain
all consents and authorizations necessary for the use of such Unit
Plans and Specifications by the Lender.
(f) No Residential Use. Approved Subdivisions and all Units
from time to time encumbered by a Deed of Trust are held only for
construction and eventual sale to its first occupant upon or after
release from the lien of the applicable Deed of Trust. Borrower (i)
represents and warrants that Borrower has no intent to ever occupy any
Unit as a residence or to lease or otherwise permit such occupancy of a
Unit, and (ii) agrees that Borrower will never so occupy, lease or
permit occupancy of any Unit by Borrower other than for a sales office
or as a model home.
(g) Flood Insurance. Unless insurance in accordance with
SECTION 6.8(c) will first have been obtained, no Unit in an Approved
Subdivision will be located in an area that has been identified by the
Secretary of Housing and Urban Development as an area having special
flood hazards and in which flood insurance has been made available
under the National Flood Insurance Act of 1968.
(h) Compliance with Permitted Exceptions. Borrower will keep
and maintain in full force and effect all restrictive covenants,
development agreements, easements and other agreements with
Governmental Authorities and other Persons that are necessary or
desirable for the use and occupancy of each Approved Subdivision and
the sale of Units and Eligible Lots therein. Borrower will not default
in any material respect under any such covenants, development
agreements, easements and other agreements and will diligently enforce
its rights thereunder.
(i) Title Policy Endorsements. If required by the Lender in
its reasonable discretion, Borrower will have provided (i) such
continuation endorsements and date down
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endorsements to the Title Policies, in form and substance satisfactory
to the Lender in its absolute and sole discretion, as the Lender
determines necessary to insure the priority of the Deeds of Trust as
valid first liens on the Collateral; or (ii) an unconditional and
irrevocable written commitment by the Title Company to issue such
endorsements. Borrower agrees to furnish to the Title Company such
surveys and other documents and information as the Lender or the Title
Company may require for the Title Company to issue such endorsements.
(j) Improvement Districts. Without obtaining the prior written
consent of the Lender, Borrower will not consent to, or vote in favor
of, the inclusion of all or any part of the Collateral in any community
facilities district formed pursuant to the Community Facilities
District Act, ARS Section 48-701, et seq., as amended from time to
time, or any other improvement district. Borrower will give immediate
notice to the Lender of any notification or advice that Borrower may
receive from any municipality or other third party of any intent or
proposal to include all or any part of the Collateral in a community
facilities district or other improvement district. Upon prior written
notice to Borrower, the Lender shall have the right to file a written
objection to the inclusion of all or any part of the Collateral in a
community facilities district or other improvement district, either in
its own name or in the name of Borrower, and to appear at, and
participate in, any hearing with respect to the formation of any such
district.
(k) Borrower warrants and will defend the right, title and
interest of Lender in and to the Mortgages against the claims and
demands of all persons whomsoever. Borrower shall take all action
necessary to assure Lender has, and will at all times have, a valid and
perfected first priority security interest in each Mortgage.
(l) Borrower shall execute and deliver to Lender such Uniform
Commercial Code financing statements with respect to the Collateral as
Lender may request. Borrower also shall execute and deliver to Lender
such further instruments of sale, pledge or assignment or transfer, and
such powers of attorney, as required by Lender, and shall do and
perform all matters and things necessary or desirable to be done or
observed, for the purpose of effectively creating, maintaining and
preserving the security and benefits intended to be afforded Lender
under this Agreement. Lender shall have all the rights and remedies of
a secured party under the Uniform Commercial Code of the State of
Arizona, or any other applicable law, in addition to all rights
provided for herein.
(m) Borrower shall not amend or modify, or waive any of the
terms and conditions of, or settle or compromise any claim in respect
of, any Mortgages or any related rights, except upon the written
consent of Lender.
(n) Other than as otherwise provided for herein this
Agreement, Borrower shall not sell, assign, transfer or otherwise
dispose of, or grant any option with respect to, or pledge or otherwise
encumber (except pursuant to this Agreement), any of the Collateral or
any interest therein.
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(o) Borrower shall perform all of its duties and obligations
with respect to the Servicing Agreement.
6.4 Information and Statements. Borrower will furnish to the Lender:
(a) Annual Reports. Within 90 days after the close of each
fiscal year of Borrower (unless a different time is specified) the
following:
(i) Annual Statements of Borrower. (A) an
unqualified, audited financial statement, reasonably
acceptable to the Lender, prepared in accordance with GAAP on
a consolidated basis, including balance sheets as of the end
of such fiscal year and statements of income and retained
earnings and a statement of cash flows, and setting forth in
comparative form the balance sheet, income statement, retained
earnings and cash flow figures for the preceding fiscal year.
(ii) Other Reports. Such other annual reports,
documents, and schedules as the Lender may reasonably request
from time to time.
(b) Quarterly Reports. The following quarterly reports, each
within 45 days after the close of the first 3 quarterly periods of each
fiscal year, each of which shall be certified true, complete, and
materially correct to the Lender by an authorized officer of Borrower:
(i) Quarterly Financial Statements. Unaudited
financial statements for Borrower, including balance sheets as
of the end of such period, statements of income and cash flow,
in each case for the portion of the fiscal year ending with
such fiscal period.
(ii) Quarterly Cash Flow Statements. Internally
prepared cash flow statements, in form and substance
reasonably satisfactory to Lender, in each case for the
portion of the fiscal year ending with such fiscal period.
(iii) Other Reports. Such other quarterly reports,
documents, and schedules as the Lender may reasonably request
from time to time.
(c) Collateral Reports. The Collateral Inventory Report and
the Collateral Certificate when required by this Agreement.
(d) Financial Covenant Compliance Information. All annual
financial reports pursuant to SECTION 6.4(a)(i) and all quarterly
financial reports pursuant to SECTION 6.4(b)(i) will also be
accompanied by a compliance certificate signed by the chief financial
officer of Borrower. Notwithstanding anything in this Agreement to the
contrary, Borrower will be required to timely deliver such financial
information as may be necessary to promptly and
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accurately calculate any financial ratio or covenant required under
this Agreement even if such information is not specifically enumerated
herein. Any review of any financial statements provided by Borrower
used to test any financial ratio or covenant will not waive the
Lender's rights to require further review or audit of such information
or any rights if such further review or audit indicates financial
information contrary to the financial statements provided by Borrower.
6.5 Law; Judgments; Material Agreements; Approvals and Permits. Except
for normal construction corrections occasioning temporary noncompliance which
are corrected by Borrower with diligence and without substantial expense,
Borrower will comply with all laws, ordinances, regulations, and rules (federal,
state, and local) and all judgments, orders, and decrees of any arbitrator,
other private adjudicator, or Governmental Authority relating to Borrower, any
Approved Subdivisions, any Eligible Lots, or any Units or the other assets,
business, or operations of Borrower. Borrower will comply in all material
respects with all material agreements, documents, and instruments to which
Borrower is a party or by which Borrower, any Approved Subdivisions, any
Eligible Lots or any Units, or any of the other assets of Borrower are bound or
affected. Borrower will comply with all Requirements (including, without
limitation, as applicable, requirements of the Federal Housing Administration
and the Veterans Administration) and all conditions and requirements of all
Approvals and Permits. Borrower, at Borrower's expense, will obtain and maintain
in effect from time to time all Approvals and Permits required for the business
activities and operations then being conducted by Borrower and as may be
required to enable it to comply with its obligations hereunder and under the
other Loan Documents.
6.6 Impositions and Other Indebtedness. Except for amounts being
contested as provided in CLAUSE (b) of the definition of Permitted Exceptions,
Borrower will pay and discharge (a) before delinquency all Impositions; (b) when
due all lawful claims (including, without limitation, claims for labor,
materials, and supplies), which, if unpaid, might become a Lien or Encumbrance
upon any of its assets.
6.7 Assets and Property. Borrower will maintain, keep, and preserve all
of its assets (tangible and intangible) necessary or customary in the proper
conduct of its business and operations in good working order and condition,
ordinary wear and tear excepted.
6.8 Insurance. Borrower will obtain and maintain the following
insurance and will pay all related premiums as they become due:
(a) Property. Insurance of all Collateral against damage or
loss by fire, lightning, and other perils, on an all-risks basis, such
coverage to be in an amount not less than the full insurable value of
such Collateral on a replacement cost basis. Such policy will be
written on an all-risks basis, with no coinsurance requirement, and
will contain a provision granting the insured permission to complete
and/or occupy the Units or Eligible Lots, as applicable.
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(b) Liability. Commercial general liability insurance
protecting Borrower and the Lender against loss or losses from
liability imposed by law or assumed in any agreement, document, or
instrument and arising from bodily injury, death, or property damage
with a limit of liability of not less than $1,000,000.00 per occurrence
and $1,000,000.00 general aggregate. Also, "umbrella" excess liability
insurance in an amount not less than $10,000,000.00 or such greater
amount as the Lender may reasonably require. Such policies must be
written on an occurrence basis so as to provide blanket contractual
liability, broad form property damage coverage, and coverage for
products and completed operations.
(c) Flood. If required by Lender, a policy or policies of
flood insurance in the maximum amount of not less than $500,000.00 in
the aggregate with respect to each Unit in an Approved Subdivision
under the Flood Disaster Protection Act of 1973, as amended. This
requirement will be waived with respect to Units in an Approved
Subdivision upon presentation of evidence satisfactory to the Lender
that no portion of the Unit in question is or will be located within an
area identified by the U.S. Department of Housing and Urban Development
as having special flood hazards.
(d) Worker's Compensation. Worker's compensation insurance
disability benefits insurance and such other forms of insurance as
required by law covering loss resulting from injury, sickness,
disability, or death of employees of Borrower.
(e) Contractors. During the construction of any Unit or any
Off-Site Improvements, any and all contractors and subcontractors will
be required to carry liability insurance of the type and providing the
minimum limits set forth below:
(i) Worker's Compensation. Worker's compensation
insurance, disability benefits insurance and each other form
of insurance which such contractor is required by law to
provide, covering loss resulting from injury, sickness,
disability or death of employees of the contractor who are
located on or assigned to the construction of any Unit or
Off-Site Improvements.
(ii) Liability. Comprehensive general liability
insurance coverage for:
Property and Operations
Products and Completed Operations
Contractual Liability
Personal Injury Liability
Broad Form Property Damage (including completed
operations)
Explosion Hazard
Collapse Hazard
Underground Property Damage Hazard
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Such policy will have a limit of liability of not less than
$1,000,000 (combined single limit for personal injury,
including bodily injury or death, and property damage).
(f) Additional Insurance. Such other policies of insurance as
the Lender may reasonably request in writing.
All policies for required insurance will be in form and substance satisfactory
to the Lender in its reasonable discretion. Such insurance may be carried under
blanket policies, so long as such policy provides the coverage for each Unit as
provided in this SECTION 6.8 and otherwise complies with this SECTION 6.8. All
required insurance will be procured and maintained in financially sound and
generally recognized responsible insurance companies selected by Borrower and
reasonably approved by the Lender. Deductibles under insurance policies required
pursuant to this SECTION 6.8 will not exceed the amounts approved from time to
time by the Lender. Such companies must be authorized to write such insurance in
the State of Arizona. Each company will be rated "A" or better by A.M. Best Co.,
in Bests' Key Guide, or such other rating acceptable to the Lender in the
Lender's absolute and sole discretion. All property policies evidencing required
insurance will name the Lender as first mortgagee and loss payee. All liability
policies evidencing required insurance will name the Lender as additional
insured. The policies will not be cancelable as to the interests of the Lender
due to the acts of Borrower. The policies will provide for at least 30 days
prior written notice of the cancellation or modification thereof to be given to
the Lender. A certified copy of each insurance policy or, if acceptable to the
Lender in its reasonable discretion, certificates of insurance evidencing that
such insurance is in full force and effect, will be delivered to the Lender,
together with proof of the payment of the premiums thereof. Prior to the
expiration of each such policy, Borrower will furnish the Lender evidence that
such policy has been renewed or replaced in the form of the original or a
certified copy of the renewal or replacement policy or, if acceptable to the
Lender in its reasonable discretion, a certificate reciting that there is in
full force and effect, with a term covering at least the next succeeding
calendar year, insurance of the types and in the amounts required in this
SECTION 6.8.
6.9 ERISA.
(a) Borrower will take all actions and fulfill all conditions
necessary to maintain any and all Plans in substantial compliance with
applicable requirements of ERISA, the Code and applicable foreign law
until such Plans are terminated, and the liabilities thereof
discharged, in accordance with applicable law.
(b) No Plan will have any "accumulated funding deficiency"
(within the meaning of Section 412 of the Code), which deficiency could
materially adversely affect the business, earnings, prospects,
properties or condition (financial or otherwise) of Borrower.
(c) Borrower will take and fulfill all actions and conditions
necessary to maintain, and will maintain, substantial compliance of any
and all employee benefit plans established
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or maintained, or to which contributions are made, by Borrower with the
requirements of ERISA and the rules and regulations adopted thereunder,
in each case as in effect at the time.
(d) Borrower shall qualify at all times as an "operating
company" pursuant to United States Department of Labor Regulation
Section 2510.3-101(c). Borrower shall act to ensure that the assets of
Borrower are not "plan assets" of any employee benefit plan subject to
the fiduciary responsibility requirements of ERISA, or, subject to
receipt of prior notice by the Lender and the Lender's consent thereto,
Borrower shall ensure that an exemption from Section 406 of ERISA is
available to cover the loan transaction with respect to each portion
thereof.
6.10 Commencement and Completion of Units. Borrower will cause
construction of Units to be prosecuted and completed in good faith, with due
diligence and in accordance with industry standards, and without delay subject
to acts of God, labor strikes and other force majeure events beyond the
reasonable control of Borrower. Borrower will cause Units to be constructed in a
good and workmanlike manner; in substantial compliance with all applicable
Requirements; and, unless otherwise consented to by the Lender in advance in
writing in the absolute and sole discretion of the Lender, in substantial
accordance with the respective Unit Plans and Specifications. Upon demand by the
Lender, Borrower will correct any defect in its respective Units or any material
departure from any applicable Requirements or, to the extent not theretofore
approved in writing by the Lender, the respective Unit Plans and Specifications.
Borrower understands and agrees that the inspection of the Units by or on behalf
of the Lender, the review by the Lender or others acting on behalf of the Lender
of Draw Requests and related documents and information, the making of Borrowing
Base Advances by the Lender, any actions by the Lender under SECTION 6.12, and
any other actions by the Lender will not be a waiver of the right to require
compliance with this SECTION 6.10.
6.11 Title Insurance; Title Insurance Claims. The Lender may determine
from time to time the allocation of title insurance between parcels of
Collateral, and the amount of title insurance coverage that Borrower is required
to provide pursuant to all Title Policies (provided that the aggregate amount of
title insurance shall not be required to exceed the Borrowing Base Commitment
Amount) and the Lender may enter into such agreements with each Title Company as
the Lender reasonably deems appropriate including, without limitation,
aggregation agreements, which shall contain such terms and conditions as the
Lender may reasonably require. The Lender may, from time to time, in its
reasonable discretion, (a) require endorsements to Title Policies including,
without limitation, endorsements insuring against any mechanics', materialmen's,
or other Liens and Encumbrances affecting the Collateral; (b) require
co-insurance with respect to the Title Policies; and/or (c) disapprove title
insurance companies and require that Borrower obtain Title Policies from other
title insurers acceptable to the Lender. The Lender may require separate Title
Policies with respect to each Subdivision or groupings of Subdivisions. Borrower
acknowledges that pursuant to aggregation agreements, Title Policies issued by
the same Title Company may be grouped together to create a single insurance
coverage amount that applies to all collateral covered by such Title Policies.
If a Title Company pays any claims under any Title Policies and if the Lender
advises Borrower that the Lender has determined that the remaining coverage is
insufficient, in the
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reasonable discretion of the Lender, Borrower will take any and all action
necessary to cause the total liability under the Title Policies to remain at or
to be increased to the original liability notwithstanding the payment of such
claim or claims, including without limitation, providing any supplemental Title
Policies or endorsements or reinsurance agreements if requested by the Lender,
the cost of which will be paid by Borrower. Upon payment of any such claims,
Borrower will obtain and provide to the Lender any and all documentation
reasonably requested by the Lender to ensure that the maximum coverage provided
for hereunder will not have been diminished as a result of the payment of such
claims.
6.12 Rights of Inspection; Correction of Defects.
(a) Generally. The Lender and its respective agents,
employees, and representatives will have the right at any time and from
time to time to enter upon the Collateral in order to inspect the
Collateral and all aspects thereof.
(b) Inspector(s). Commencing in the first full Calender Month
of the Loan and continuing every other Calendar Month thereafter, an
officer of the Lender shall inspect the Collateral pursuant to this
SECTION 6.12. Commencing in the second full Calendar Month of the Loan
and continuing every other Calendar Month thereafter, Lender shall
employ outside inspectors to perform the inspection duties set forth in
this SECTION 6.12.
(c) Miscellaneous. Any inspections or determinations made by
the Lender or lien waivers, receipts, or other agreements, documents,
and instruments obtained by the Lender are made or obtained solely for
the Lender's own benefit and not in any way for the benefit or
protection of Borrower. The Lender may accept and rely on any
information from an architect, any other Person providing labor,
materials, or services for Units or Eligible Lots, Borrower, or any
other Person as to labor or materials furnished or incorporated in the
Units or the Eligible Lots and the cost and payment therefor and as to
all other matters relating to construction of the Units and the
Off-Site Improvements without the necessity of verifying such
information. The Lender will not have any obligation to Borrower to
ensure compliance by contractor, engineer, or any other Person in
carrying out construction of the Units or Off-Site Improvements.
6.13 Verification of Costs. The Lender will have the right at any time
and from time to time to review and verify all costs, expenses, and fees in each
Unit Budget and each Eligible Lot Budget. Based on its review and verification
of costs, expenses, and fees in each Unit Budget and each Eligible Lot Budget,
the Lender will have the right to (a) adjust any and all such budgeted amounts
and (b) reduce or increase the applicable Collateral Values; PROVIDED, HOWEVER,
that once the Maximum Allowed Borrowing Base Advance for an item of Eligible
Collateral has been determined, that Maximum Allowed Borrowing Base Advance
amount is not subject to increase, notwithstanding any subsequent Appraisal and
notwithstanding any increase in an Unit Budget; HOWEVER, the Maximum Allowed
Borrowing Base Advance amount is subject to increase or decrease based on
subsequent events, such as updated Appraisals and subsequent change orders.
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6.14 Use of Proceeds of Advances. Borrower will use proceeds of
Advances only for the purposes described in SECTION 2.1(b) and 2.2.(c).
6.15 Further Assurances. Borrower will promptly execute, acknowledge,
and deliver such additional agreements, documents, and instruments and do or
cause to be done such other acts as the Lender may reasonably request from time
to time to better assure, preserve, protect, and perfect the interest of the
Lender in the Collateral and the rights and remedies of the Lender under the
Loan Documents. Without limiting the foregoing, to the extent that the Lender
determines from time to time that additional Deeds of Trust, amendments to Deeds
of Trust, financing statements, subordinations, and other documents are required
in order to perfect all Liens and Encumbrances in favor of the Lender, and cause
all Collateral encumbered by any of the Deeds of Trust to be subject only to
Permitted Exceptions, Borrower will execute and deliver such documents,
instruments and other agreements as the Lender may request.
6.16 Costs and Expenses of Borrower's Performance of Covenants and
Satisfaction of Conditions. Borrower will perform all of its obligations and
satisfy all conditions under the Loan Documents at its sole cost and expense.
ARTICLE 7
FINANCIAL COVENANTS
7.1 Minimum Net Worth Covenant. At all times during the term of this
Commitment, Borrower shall maintain a minimum Net Worth in the amount of
$62,500,000. "NET WORTH" shall be determined in accordance with GAAP and shall
include capital, surplus, retained earnings, plus deferred revenue from Golf
Course Memberships less the sum of all intangible assets (other than intangible
membership costs). If Borrower's Net Worth ever drops below $62,500,000,
Borrower will have 15 days after prior written notice from Lender to comply with
this covenant or a Financial Covenant Default will be deemed to have occurred.
ARTICLE 8
BORROWER NEGATIVE COVENANTS
Until the Commitment terminates in full and the Obligations are
otherwise paid and performed in full, Borrower agrees to be bound by and to
comply with each of the covenants in this ARTICLE 8:
8.1 Fundamental Changes. Unless otherwise consented to by Lender in
writing, Borrower will not dissolve or liquidate, or become a party to any
merger or consolidation, or acquire by purchase, lease or otherwise all or
substantially all of the assets or capital stock of any Person; PROVIDED,
HOWEVER, that the foregoing shall not operate to prevent: (a) mergers or
consolidations of any subsidiary of Borrower into Borrower or a sale, transfer
or lease of assets by any such subsidiary to Borrower; or (b) a transaction
otherwise prohibited pursuant to this SECTION 8.1 but that results in the
Obligations being paid and performed in full and the termination of the
Commitment.
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8.2 Prohibition on Sales of Assets. Except for encumbrances permitted
pursuant to SECTION 8.9, Borrower will not convey, sell, lease, encumber,
transfer or otherwise dispose of to any Person, in one transaction or a series
of transactions, all or substantially all of Borrower's business or property. In
addition, Borrower will not convey, sell, lease, encumber, transfer or otherwise
dispose of to any Affiliate of Borrower, in one transaction or a series of
transactions, any property of Borrower which would violate any covenant of
Borrower set forth herein including, without limitation, the Financial
Covenants. However, the restrictions in this SECTION 8.2 do not preclude the
Liens and Encumbrances created pursuant to the Loan Documents or the sale of
Eligible Lots and Units in the ordinary course of Borrower's business and in
compliance with the requirements of this Agreement.
8.3 Prohibition on Amendments to Organic Agreements. Borrower will not
amend, modify, restate, supplement, or terminate its certificate of
incorporation or bylaws in any manner that would materially affect the validity
and enforceability of the Obligations or Borrower's ability to borrow hereunder,
or that would materially impair any security for the Obligations.
8.4 Lines of Business. Borrower (directly or through any subsidiaries
or other Persons) will not engage to any substantial extent in any line or lines
of business activity other than (a) the business of developing residential real
property, and constructing Units and Off-Site Improvements and selling Units and
Eligible Lots; (b) business directly related thereto; (c) the business of
originating home mortgage loans; (d) construction and management of golf courses
and other recreational developments (e) other lines of business actively engaged
in as of the date hereof; and (f) other lines of business related to
homebuilding, construction, real estate development and recreation development
and management. Borrower will not cease to engage in the business of developing
residential real property and constructing and selling Units.
8.5 No Development Projects Outside the Ordinary Course of Business.
Borrower will not undertake any development project outside the ordinary course
of business without the prior written consent of Lender in its sole and absolute
discretion.
8.6 Issuance of Additional Securities. Borrower will not issue any new
capital stock or any debt securities that are convertible into, or exchangeable
for, capital stock, except pursuant to normal and customary employee stock
options pursuant to employee stock option plans that have been approved in
advance by the Lender in its reasonable discretion.
8.7 Loans. Except for loans to Persons in Borrower's ordinary course of
business as a homebuilder, Borrower will not make or allow loans to Borrower's
Affiliates or to any other Person.
8.8 Other Financing. Borrower will not finance the housing construction
in any Approved Subdivision that contains Eligible Lots or Units that are
included in Eligible Collateral with lenders other than the Lender.
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8.9 No Further Indebtedness. Borrower will not incur any indebtedness
to any Person other than (a) indebtedness incurred pursuant to this Agreement;
(b) trade payables and accruals incurred in the ordinary course of Borrower's
business as now conducted and other indebtedness incurred in the ordinary course
of Borrower's business as now conducted; (c) indebtedness arising in connection
with payment and performance bonds obtained by Borrower in the ordinary course
of business; (d) indebtedness reasonably approved by Lender including, without
limitation, the financing of subdivisions not approved by Lender hereunder; (e)
loans from Crescent subordinated to the same extent as the Crescent Notes not to
exceed Ten Million and No/100 Dollars ($10,000,000.00) and (e) sales and options
back that, under GAAP, must be treated as indebtedness. Notwithstanding the
foregoing, Borrower may not incur any indebtedness if the effect of incurring
such indebtedness would be to cause or contribute to a breach of the Financial
Covenants set forth in ARTICLE 7 (on a pro forma basis).
8.10 Transactions with Affiliates. Borrower will not enter into, or
cause, suffer, or permit to exist, any arrangement or contract with any of its
Affiliates, including, without limitation, any management contract, except any
currently existing management contracts which are reflected in the financial
statements of Borrower and any renewals thereof, unless such transaction is on
terms that are no less favorable to Borrower than those that could have been
obtained in a comparable transaction on an arms' length basis from a Person that
is not an Affiliate.
8.11 Investments. Other than as previously disclosed to Lender and
except as expressly permitted by the Loan Documents, Borrower will not make any
investment in any Person in excess of $100,000 in the aggregate (including,
without limitation, entering into any joint venture, partnership, or similar
arrangement) without prior written approval of Lender in its reasonable
discretion.
8.12 Negative Pledge. With the exception of Liens and Encumbrances on
collateral (other than the Collateral) granted to a particular lender to secure
indebtedness from that lender permitted pursuant to SECTION 8.9, no asset of
Borrower will be pledged or otherwise become subject to any Lien or Encumbrance
to any Person without the prior written approval of the Lender in its sole and
absolute discretion.
ARTICLE 9
EVENTS OF DEFAULT
9.1 Events of Default. Each of the following will be an event of
default (an "EVENT OF DEFAULT"):
(a) Payments. Failure by Borrower (i) to pay any payment of
interest within the time period required pursuant to SECTION 2.4(a) and
the expiration of 10 Business Days after written notice from Lender
(ii) to pay, within 5 Business Days of the due date, any principal,
including without limitation pursuant to SECTION 2.9 or SECTION 2.11;
(iii) to pay and perform all of the Obligations on the Maturity Date;
(iv) to pay when due any other amount pursuant
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to the Loan Documents and the expiration of 10 Business Days after
notice of such failure is given by the Lender to Borrower without such
failure being cured; or (v) to cause Net Sales Proceeds or other
amounts payable under SECTION 2.4(c) to be paid to the Lender in
accordance with SECTION 2.4(c) by 11:00 a.m. (Phoenix, Arizona time) on
the first Business Day after the day the Lender notifies Borrower in
writing of the failure by the Lender to receive any such amounts.
(b) Specified Defaults. Failure of Borrower to comply with any
of the Financial Covenants and the expiration of 30 Business Days after
written notice from Lender.
(c) Other Defaults. Except as otherwise provided in this
SECTION 9.1, failure of Borrower to perform any other obligation not
involving the payment of money, or to comply with any other term or
condition applicable in any of the Loan Documents, and the expiration
of 30 days after written notice of such failure is given by the Lender
to Borrower without such failure being cured to Lender's reasonable
satisfaction.
(d) Representations and Warranties. Any representation or
warranty made by Borrower in any of the Loan Documents or otherwise
(other than as otherwise provided in SECTION 5.4 of this Agreement and
the last paragraph of SECTION 2 of the Pledge Agreement) with respect
to any information now or hereafter delivered by Borrower to the Lender
in obtaining the Commitment, in negotiating and entering into this
Agreement, in obtaining each Advance or otherwise in connection with
the Obligations is materially incomplete, incorrect, or misleading as
of the date made or renewed, and the expiration of 30 Business Days
after written notice from Lender of such failure.
(e) Insolvency. Borrower (i) is unable or admits in writing
Borrower's inability to pay Borrower's monetary obligations as they
become due; (ii) makes a general assignment for the benefit of
creditors; or (iii) applies for, consents to, or acquiesces in, the
appointment of a trustee (other than a trustee under a deed of trust),
receiver, or other custodian for Borrower or any material portion or
all of the property of Borrower, or in the absence of such application,
consent, or acquiescence by Borrower a trustee, receiver, or other
custodian is appointed for Borrower or any or all of the property of
Borrower.
(f) Bankruptcy. Commencement of any case under the Bankruptcy
Code (Title 11 of the United States Code) or commencement of any other
bankruptcy, arrangement, reorganization, receivership, custodianship,
or similar proceeding under any federal, state, or foreign law by or
against Borrower.
(g) Dissolution, etc. The dissolution, or liquidation of
Borrower; the consolidation or merger of Borrower with any other Person
where Borrower is not the surviving entity; or the taking of any action
by Borrower toward a dissolution, liquidation, consolidation or merger
where Borrower is not the surviving entity (other than in connection
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with a transaction that results in the Obligations being paid and
performed in full and the termination of the Commitment).
(h) Claims. Borrower or any other Person on behalf of Borrower
claims that any Loan Document to which it is a party is not legal,
valid, binding, and enforceable against Borrower, that any lien,
security interest, or other encumbrance securing any of the obligations
under the Loan Documents is not legal, valid, binding, and enforceable,
or that the priority of any lien, security interest, or other
encumbrance securing any of the obligations in the Loan Documents is
different than the priority represented and warranted in the Loan
Documents.
(i) Failure to Maintain Insurance. Any of the insurance
coverages required pursuant to SECTION 6.8 actually lapses or expires
without being replaced by other insurance policies that comply with
SECTION 6.8 prior to such lapse or expiration, and the expiration of
one (1) Business Day after notice from Lender.
(j) Default Under Other Indebtedness. A default occurs in the
payment when due (after giving effect to any applicable notice and
grace periods), whether by acceleration or otherwise, of any
indebtedness of Borrower in an aggregate amount exceeding $250,000, and
the expiration of 15 Business Days after written notice from Lender of
such default.
(k) Judgments. Any judgment or order for the payment of money
in excess of $250,000 (not covered by insurance subject to customary
deductibles) is rendered against Borrower either (i) enforcement
proceedings are commenced by any creditor upon such judgment or order
and expiration of 15 Business Days after written notice from Lender of
such commencement; or (ii) such judgment or order is not vacated,
stayed, satisfied, discharged or bonded pending appeal within 60 days
from the entry thereof.
(l) Foreclosure Proceedings. Filing of any foreclosure
proceeding, giving notice of a trustee's sale, or any other action by
any Person, other than the Lender, to realize upon any of the
Collateral under any Lien or Encumbrance on any or all of the
Collateral, regardless of whether such Lien or Encumbrance is a
Permitted Exception and regardless of whether junior or senior to the
Deed of Trust, and the expiration of 15 Business Days after written
notice from Lender.
(m) RICO. The filing of formal charges by any Governmental
Authority, including, without limitation, the issuance of any
indictment, under any RICO Related Law against Borrower or any
Affiliate of Borrower that has a material adverse effect on Borrower.
9.2 Remedies. Upon the occurrence of any Event of Default and at any
time thereafter, for so long as such Event of Default is continuing:
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(a) Suspension and Termination of Commitment. Upon the
occurrence and during the continuance of an Event of Default or an
Unmatured Event of Default, the Lender shall declare the Commitment of
the Lender to make Advances to be suspended, whereupon any obligation
to make further Advances will immediately be suspended.
(b) Acceleration. Upon the occurrence of an Event of Default,
the Lender may declare the Obligations to be immediately due and
payable in full, whereupon all of the principal, interest and other
Obligations will forthwith become due and payable in full without
presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived.
(c) Delivery of Contracts, Etc. Borrower will, upon request of
the Lender, deliver to the Lender all surveys, plans and
specifications, building permits, construction contracts and
subcontracts, plats and other maps, lien releases, subdivision reports,
annexation documents, declarant's rights, marketing material and other
documents, permits, licenses and contracts which are necessary to
complete construction and marketing of the Units and Eligible Lots, and
Borrower will, on request of the Lender, assign to the Lender such of
Borrower's rights thereunder as the Lender may request.
(d) Enforcement of Rights. The Lender may enforce any and all
rights and remedies under the Loan Documents, the Deeds of Trust and
all other documents delivered in connection therewith and against any
or all Collateral and shall pursue all rights and remedies available at
law or in equity.
(e) Receivers. Without limiting any other rights and remedies
to which it is entitled, the Lender may, at its option, without notice
to Borrower or without regard to the adequacy of the Collateral for the
payment of the Obligations, have appointed one or more receivers of the
Collateral, and Borrower does hereby irrevocably consent to such
appointment, with such receivers having all the usual powers and duties
of receivers in similar cases, including the full power to maintain,
sell, dispose and otherwise operate the Collateral upon such terms that
may be approved by a court of competent jurisdiction.
(f) Payments. The Lender may direct all escrow companies and
closing agents to pay over to the Lender directly all moneys to which
Borrower is entitled and held by such parties in pending escrows.
9.3 Protective Advances. The Lender, at any time following the
occurrence and during the continuance of an Event of Default or an Unmatured
Event of Default, may, but will not be obligated to, make Protective Advances.
All Protective Advances are an obligation of the Borrower and will be due and
payable by Borrower within 5 days of written demand. The making of a Protective
Advance by the Lender will not be deemed a waiver by the Lender of the
occurrence of an Event of Default or an Unmatured Event of Default.
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9.4 Completion of Construction. After an Event of Default, the Lender
may take all action necessary to complete the construction of any Off-Site
Improvements or Units and expend all sums necessary therefor including, without
limitation, to cause an independent contractor selected by Lender to enter into
possession of any Approved Subdivision and to perform any and all work and labor
necessary for the completion of the Units and Eligible Lots thereon and to
perform Borrower's obligations under this Agreement. The Lender may, but will
not be obligated to, make Borrowing Base Advances from time to time to pay all
costs and expenses of such completion and such amounts will be due and payable
within 5 days of written demand and will be added to the outstanding principal
amount of all Borrowing Base Advances. The Lender will not have any duty to
account to Borrower for any such expenditures. All amounts advanced by the
Lender, and all other charges, costs and expenses, including reasonable
attorneys' fees, incurred or paid by the Lender, in exercising any right, power
or remedy conferred by this Agreement, the Deeds of Trust or any other Loan
Document, or in the enforcement hereof, or in the protection of the Collateral
or the completion of the Collateral, are an obligation of Borrower and shall
bear interest at the Variable Rate, prior to the occurrence of an Event of
Default or Unmatured Event of Default, and at the Default Interest Rate
thereafter, from the date advanced, paid or incurred until repaid by Borrower.
All such amounts so advanced, incurred or paid will be secured by the Deeds of
Trust and the Collateral.
ARTICLE 10
MISCELLANEOUS
10.1 The Lender's Obligations to Borrower Only and Disclaimer by
Lender. No Person, other than Borrower or Lender, will have any rights hereunder
or be a third-party beneficiary hereof. The Lender is not a joint venturer or a
partner with Borrower.
10.2 Survival. The representations, warranties, and covenants of
Borrower in the Loan Documents will survive the execution and delivery of the
Loan Documents and the making of Advances to Borrower.
10.3 Integration. The Loan Documents contain the complete understanding
and agreement of Borrower and the Lender with respect to the transactions
contemplated by this Agreement and supersede all prior representations,
warranties, agreements, arrangements, understandings, and negotiations. If there
is any conflict between the provisions of this Agreement and the provisions of
any of the other Loan Documents, the provisions of this Agreement will control.
10.4 Effect of Certain Actions. Delay or failure by the Lender to
insist on performance of any obligation when due or compliance with any other
term or condition in the Loan Documents will not operate as a waiver thereof or
of any other obligation, term or condition or of the time of the essence
provision. Acceptance of late payments will not be a waiver of the time of the
essence provision, the right of the Lender to require that subsequent payments
be made when due, or the right of the Lender to declare an Event of Default if
subsequent payments are not made when due.
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10.5 Binding Effect. The Loan Documents will be binding upon and will
inure to the benefit of the Lender and Borrower and their respective successors
and assigns; PROVIDED, HOWEVER, that Borrower may not assign any of its rights
or delegate any of its obligations under the Loan Documents and any purported
assignment or delegation will be void.
10.6 Severability. If any provision or any part of any provision of the
Loan Documents is unenforceable, the enforceability of the other provisions and
the remainder of the subject provision, respectively, will not be affected and
they will remain in full force and effect.
10.7 CHOICE OF LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER WILL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF ARIZONA, WITHOUT GIVING EFFECT TO
THE CHOICE OF LAW RULES OF ARIZONA. EXCEPT WITH RESPECT TO ACTIONS TO REALIZE
UPON SECURITY WHICH MAY BE BROUGHT IN THE STATE IN WHICH SUCH SECURITY IS
LOCATED, ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE STATE COURTS OF ARIZONA OR IN THE
UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA AND, BY EXECUTION AND
DELIVERY OF THIS AGREEMENT, BORROWER HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE AFORESAID COURTS. BORROWER HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE SAID ACTIONS OR
PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER
IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
10.8 Time of Essence; Time for Performance. Time is of the essence with
regard to each provision of the Loan Documents as to which time is a factor.
Whenever any performance under the Loan Documents is stated to be due on a day
other than a Business Day or whenever the time for taking any action under the
Loan Documents would fall on a day other than a Business Day, then unless
otherwise specifically provided in the Loan Documents the due date for such
performance or the time for taking such action, as the case may be, will be
extended to the next succeeding Business Day, and such extension of time will be
included in the computation of interest or fees, as the case may be.
10.9 Notices and Demands. Except to the extent otherwise provided
herein, all demands or notices under the Loan Documents will be in writing and
mailed or hand-delivered to the respective party hereto at the address specified
below or such other address as will have been specified in a written notice. Any
demand or notice mailed will be mailed first-class mail, postage-prepaid,
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return-receipt-requested and will be effective upon the earlier of (a) actual
receipt by the addressee, and (b) the date shown on the return-receipt. Any
demand or notice not mailed will be effective upon actual receipt by the
addressee:
To Borrower: Desert Mountain Properties Limited Partnership
10550 E. Desert Hills Drive
Scottsdale, Arizona 85262
Attention: Jeff L. Fitzgerald and Jim Ekins
With Copies to: Fennemore Craig PC
3003 North Central Avenue, Suite 2600
Phoenix, Arizona 85012-2913
Attention: Ronald L. Ballard, Esq.
To Lender: National Bank of Arizona
3101 North Central Avenue
Phoenix, Arizona 85012
Attention: Marshall D. Wong
With Copies to: Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004-0001
Attention: Craig K. Williams
10.10 Indemnification of the Lender. Borrower agrees to indemnify, hold
harmless, and on demand defend the Lender and its respective stockholders,
directors, officers, employees, agents, and representatives for, from, and
against any and all damages, losses, liabilities, costs, and expenses
(including, without limitation, costs and expenses of litigation and reasonable
attorneys' fees) arising from any claim or demand in respect of the Loan
Documents, the Collateral, or the transactions described in the Loan Documents
and arising at any time, whether before or after payment and performance of the
Obligations in full, excepting any such matters arising solely from the gross
negligence or willful misconduct of the indemnitee. The obligations of Borrower
and the rights of the Lender under this Section will survive payment and
performance of the Obligations in full and will remain in full force and effect
without termination.
10.11 Headings; References. The headings at the beginning of each
section of the Loan Documents are solely for convenience and are not part of the
Loan Documents. References in this Agreement to "Sections", "Articles", and
"Exhibits" refer to the Sections and Articles in this Agreement and the Exhibits
to this Agreement, unless otherwise noted.
10.12 Number and Gender. In the Loan Documents the singular will
include the plural and vice versa and each gender will include the other
genders.
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10.13 Waiver of Statute of Limitations. BORROWER WAIVES, TO THE FULL
EXTENT PERMITTED BY LAW, THE RIGHT TO PLEAD ANY STATUTES OF LIMITATIONS AS A
DEFENSE TO PAYMENT OR PERFORMANCE OF ANY OR ALL OF THE OBLIGATIONS.
10.14 Waivers by Borrower. Borrower (a) waives, to the full extent
permitted by law, presentment, notice of dishonor, protest, notice of protest,
notice of intent to accelerate, notice of acceleration, and all other notices or
demand of any kind (except notices specifically provided for in the Loan
Documents); and (b) agrees that the Lender may enforce the Loan Documents
against Borrower without first having sought enforcement against any Collateral.
10.15 No Brokers. Except as disclosed by Borrower to the Lender in
writing prior to the date of this Agreement, Borrower represents and warrants
that it knows of no broker's or finder's fee due in respect of the transaction
described in this Agreement and that it has not used the services of a broker or
a finder in connection with this transaction.
10.16 Counterpart Execution. This Agreement may be executed in one or
more counterparts, each of which will be deemed an original and all of which
together will constitute one and the same document. Signature pages may be
detached from the counterparts and attached to a single copy of this Agreement
to physically form one document. Telecopied signature pages will be acceptable,
provided originally signed signature pages are provided to each of the other
parties by overnight courier.
10.17 Duty to Act in Good Faith. To the extent required by applicable
law, each of the parties to this Agreement agrees to act in good faith with
respect to all of its rights, privileges, duties, and obligations under this
Agreement.
10.18 Jury Waiver. BORROWER AND LENDER HEREBY VOLUNTARILY, KNOWINGLY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN
OR AMONG THE UNDERSIGNED AND LENDER ARISING OUT OF OR IN ANY WAY RELATED TO THIS
DOCUMENT OR ANY OTHER RELATED DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT
TO LENDER TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN
DOCUMENTS.
ARTICLE 11
LIST OF EXHIBITS AND SCHEDULES
11.1 List of Exhibits The following Exhibits are incorporated into this
Agreement as if set forth fully in the body of this Agreement:
Exhibit A Schedule of Lots and Memberships for Eligible
Mortgage Loans
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Exhibit B-1 Form of Mortgage Note
Exhibit B-2 Form of Mortgage
Exhibit C Collateral Documents
Exhibit D Approved Subdivisions
Exhibit E Eligible Lots
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written.
BORROWER: DESERT MOUNTAIN PROPERTIES LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Desert Mountain Development Corporation,
a Delaware corporation, General Partner
By: /s/ JEFF FITZGERALD
-------------------------------------
Name: Jeff Fitzgerald
-----------------------------------
Title: Vice President
----------------------------------
LENDER: NATIONAL BANK OF ARIZONA, a national banking
association
By: /s/ MARSHALL D. WANG
------------------------------------------
Name: Marshall D. Wang
----------------------------------------
Title: Vice President
---------------------------------------
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EXHIBIT A
DESCRIPTION OF MORTGAGE LOANS
<PAGE> 71
EXHIBIT B-1
FORM OF MORTGAGE NOTE
<PAGE> 72
PROMISSORY NOTE
(20% Down; Monthly Payments; 10-Year "Mortgage Style" Amortization)
$_________________ DATE: ____________, 19___
For value received, _____________________________ ("Buyer", which term
shall also include successors in interest, and, when the sense so requires,
shall be construed to include the plural as well as the singular), promises to
pay to the order of Desert Mountain Properties Limited Partnership, a Delaware
limited partnership, at 10550 E. Desert Hills Drive, Scottsdale, Arizona 85262,
or at such other address as may be designated by written notice, the sum of
$___________________ with interest from and after the Closing Date, as provided
below.
Principal and interest shall be paid (in the absence of acceleration
upon default) in 120 consecutive monthly installments, with the first
installment due on the date ("First Installment Due Date") which is one month
following _____________________ , 19____ [insert the Closing Date] and with
subsequent monthly installments payable on the same date of each succeeding
month until this Note is paid in full. Should the Closing Date or the First
Installment Due Date fall on a date not included in any following calendar month
(e.g., the 29th, 30th or 31st), then the resulting due date shall be the
immediately preceding date that is so included. Interest shall be charged on
unpaid principal under this Note until the full amount of the principal has been
paid. The initial interest rate hereunder shall be ___% (being 1% over the Prime
Rate, as defined below). The interest rate hereunder shall change in accordance
with the terms of this Note. Monthly installments shall be applied first to
interest and then to principal. If, on the 10th anniversary of the Closing Date,
any amounts are still owing under this Note, those amounts shall be paid in full
on that date (the "Maturity Date"). The amount of the initial monthly
installment under this Note is $_______________.
The interest rate under this Note may change on the first anniversary
of the Closing Date, and on that day every 12th month thereafter. Each date on
which the interest rate could change shall be called the "Change Date" (if the
Closing Date is February 29, the Change Date shall be February 28 where
applicable). The interest rate hereunder shall be based on the prime rate of
interest announced in Phoenix, Arizona by Bank of America, or its successors
(the "Prime Rate"). Immediately following each Change Date, the holder of this
Note, or its servicing agent, will calculate the new interest rate hereunder by
adding 1% to the Prime Rate; provided, however, that in no event shall the
interest payable for any 12-month period be in excess of 16%. The holder of this
Note, or its servicing agent, will then determine the amount of the monthly
installment that would be sufficient to repay the unpaid principal that is owed
at the Change Date in full on the Maturity Date at the new rate of interest in
substantially equal payments. The result of this calculation shall be the new
amount of the monthly installment due under this Note. The new interest rate
shall become effective on each Change Date. The amount of the new monthly
installment shall be due beginning with the first monthly installment due after
the Change Date until the amount of the monthly installment changes again in
accordance with the terms of this Note.
The holder of this Note, or its servicing agent, shall deliver to Buyer
notice of any changes in the interest rate and the amount of the new monthly
installment before the due date of any installment affected by such change.
The entire unpaid principal of this Note, or any number of increments
of $1,000, together with accrued interest at the prevailing rate, may be prepaid
at any time without notice or penalty.
If any installment due hereunder is not received within 20 days of its
due date, Buyer shall pay a delinquency charge equal to 5% of the amount of such
payment to cover the extra expense involved in handling delinquent payments.
Acceptance of a late payment not accompanied by such delinquency charge shall
not preclude holder from thereafter collecting such charge.
If any installment due hereunder is not received within 20 days of its
due date, or any default occurs under the deed of trust securing this Note which
is not cured within 20 days, all amounts due hereunder (including the whole of
the principal amount) shall thereafter bear interest at the rate of 18% per
annum and the whole of the principal, interest and other charges evidenced by
this Note may at once, at the option of the holder, be declared immediately due
and payable; provided, however, that interest on the unpaid balance shall revert
to the normal rate provided for herein at the inception of the monthly
installment payment period following the curing of all delinquencies, including
payment of delinquency charges and increased interest.
In the event it becomes necessary, or advisable, to place this Note in
the hands of an attorney for collection, or to enforce the deed of trust
securing this Note by proceedings in court or by Trustee's sale, Buyer agrees to
pay all reasonable attorneys' fees incurred by the holder and other costs
occasioned by such action.
Buyer, the endorsers, sureties and guarantors of this Note severally
waive presentment, protest and demand, notice of protest, of demand and of
dishonor and nonpayment of this Note, and expressly agree that this Note, or any
payment hereunder, may be extended from time to time without in any way
affecting the liability of Buyer, the endorsers, sureties and guarantors hereof.
If this Note is executed by more than one person or entity, the obligations
hereunder shall be joint and several.
All amounts due hereunder are payable in lawful money of the United
States of America.
This Note is secured by a deed of trust of even date which contains,
among other things, a due on sale clause, encumbering the following described
real property situated in Maricopa County, Arizona:
LOT ________, DESERT MOUNTAIN PHASE _________, UNIT _______ , ACCORDING TO THE
PLAT OF RECORD IN THE MARICOPA COUNTY RECORDER'S OFFICE.
BUYER: ___________________________
BUYER: ___________________________
ADDRESS: _________________________
_________________________
- --------------------------------------------------------------------------------
NOTE: THIS FORM OF NOTE IS BEING PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
SELLER'S OFFERED FINANCING DESCRIBED HEREIN IS SUBJECT TO APPROVED CREDIT. SUCH
CREDIT APPROVAL MAY BE CONDITIONED UPON AN INCREASE IN THE DOWN PAYMENT REQUIRED
AT CLOSE OF ESCROW.
- --------------------------------------------------------------------------------
FORM OF "A" NOTE
<PAGE> 73
PROMISSORY NOTE
(25% Down; Monthly Payments; 20-Year "Mortgage Style" Amortization
with 7-Year "Balloon")
$______________________ DATE: __________, 19____
For value received, __________________ ("Buyer", which term shall also
include successors in interest, and, when the sense so requires, shall be
construed to include the plural as well as the singular), promises to pay to the
order of Desert Mountain Properties Limited Partnership, a Delaware limited
partnership, at 10550 E. Desert Hills Drive, Scottsdale, Arizona 85262, or at
such other address as may be designated by written notice, the sum of
$__________, with interest from and after the Closing Date, as provided below.
Principal and interest shall be paid (in the absence of acceleration
upon default) as follows:
(1) 83 monthly installments, with the first installment due on the date
("First Installment Due Date") which is one month following __________________,
19____ [insert the Closing Date] and with subsequent monthly installments
payable on the same date of each succeeding month thereafter. Should the Closing
Date or the First Installment Due Date fall on a date not included in any
following calendar month (e.g., the 29th, 30th or 31st), then the resulting due
date for any such affected month shall be the immediately preceding date that is
so included. The initial interest rate hereunder shall be ____% (being 1% over
the Prime Rate, as defined below). The interest rate hereunder shall change in
accordance with the terms of this Note. Monthly installments shall be applied
first to interest and then to principal. The amount of the initial monthly
installment under this Note is $______________.
(2) one final payment of all outstanding principal and accrued interest
then remaining unpaid, together with all other amounts payable hereunder, such
final payment to be made on the seventh anniversary of the Closing Date (the
"Maturity Date").
Interest shall be charged on unpaid principal under this Note until the
full amount of the principal has been paid.
The interest rate under this Note may change on each anniversary of the
Closing Date during the term of this Note. Each date on which the interest rate
could change shall be called the "Change Date" (if the Closing Date is February
29, the Change Date shall be February 28 where applicable). The interest rate
hereunder shall be based on the prime rate of interest announced in Phoenix,
Arizona by Bank of America, or its successors (the "Prime Rate"). Immediately
following each Change Date, the holder of this Note, or its servicing agent,
will calculate the new interest rate hereunder by adding 1% to the Prime Rate
which was in effect on each such Change Date; provided, however, that in no
event shall the interest payable for any 12-month period be in excess of 16%.
The holder of this Note, or its servicing agent, will then determine the amount
of the monthly installment that would be sufficient to repay the unpaid
principal that is owed at the Change Date in full 240 months following the
Closing Date at the new rate of interest in substantially equal payments. The
result of this calculation shall be the new amount of the monthly installment
due under this Note. The new interest rate shall become effective on each Change
Date. The amount of the new monthly installment shall be due beginning with the
first monthly installment due after the Change Date until the amount of the
monthly installment changes again in accordance with the terms of this Note.
The holder of this Note, or its servicing agent, shall deliver to Buyer
notice of any changes in the interest rate and the amount of the new monthly
installment before the due date of any installment affected by such change.
The entire unpaid principal of this Note, or any number of increments
of $1,000, together with accrued interest at the prevailing rate, may be prepaid
at any time without notice or penalty.
If any installment due hereunder is not received within 20 days of its
due date, Buyer shall pay a delinquency charge equal to 5% of the amount of
such payment to cover the extra expense involved in handling delinquent
payments. Acceptance of a late payment not accompanied by such delinquency
charge shall not preclude holder from thereafter collecting such charge.
If any installment due hereunder is not received within 20 days of its
due date, or any default occurs under the deed of trust securing this Note which
is not cured within 20 days, all amounts due hereunder (including the whole of
the principal amount) shall thereafter bear interest at the rate of 18% per
annum and the whole of the principal, interest and other charges evidenced by
this Note may at once, at the option of the holder, be declared immediately due
and payable; provided, however, that interest on the unpaid balance shall revert
to the normal rate provided for herein at the inception of the monthly
installment payment period following the curing of all delinquencies, including
payment of delinquency charges and increased interest.
In the event it becomes necessary, or advisable, to place this Note in
the hands of an attorney for collection, or to enforce the deed of trust
securing this Note by proceedings in court or by Trustee's sale, Buyer agrees to
pay all reasonable attorneys' fees incurred by the holder and other costs
occasioned by such action.
Buyer, the endorsers, sureties and guarantors of this Note severally
waive presentment, protest and demand, notice of protest, of demand and of
dishonor and nonpayment of this Note, and expressly agree that this Note, or any
payment hereunder, may be extended from time to time without in any way
affecting the liability of Buyer, the endorsers, sureties and guarantors hereof.
If this Note is executed by more than one person or entity, the obligations
hereunder shall be joint and several.
All amounts due hereunder are payable in lawful money of the United
States of America.
This Note is secured by a deed of trust of even date which contains,
among other things, a due on sale clause, encumbering the following described
real property situated in Maricopa County, Arizona:
LOT ______, DESERT MOUNTAIN PHASE _______, UNIT ______, ACCORDING TO THE PLAT OF
RECORD IN THE MARICOPA COUNTY RECORDER'S OFFICE.
BUYER: ___________________________
BUYER: ___________________________
ADDRESS: _________________________
_________________________
- --------------------------------------------------------------------------------
NOTE: THIS FORM OF NOTE IS BEING PROVIDED FOR INFORMATIONAL PURPOSES ONLY.
SELLER'S OFFERED FINANCING DESCRIBED HEREIN IS SUBJECT TO APPROVED CREDIT. SUCH
CREDIT APPROVAL MAY BE CONDITIONED UPON AN INCREASE IN THE DOWN PAYMENT REQUIRED
AT CLOSE OF ESCROW.
- --------------------------------------------------------------------------------
FORM OF "B" NOTE
<PAGE> 74
EXHIBIT B-2
FORM OF MORTGAGE
<PAGE> 75
Recording Requested by:
FIRST AMERICAN TITLE
When recorded mail to:
- --------------------------------------------------------------------------------
DEED OF TRUST
ESCROW NO.
DATE:
TRUSTOR:
ADDRESS:
BENEFICIARY: DESERT MOUNTAIN PROPERTIES LIMITED PARTNERSHIP, a Delaware
limited partnership 10550 E. Desert Hills Drive, Scottsdale,
AZ 85262
TRUSTEE: FIRST AMERICAN TITLE INSURANCE COMPANY, a California
corporation, formerly known as First American Title Insurance
Company of Arizona
111 W. Monroe, Phoenix, AZ 85003 (602) 252-5941
Property in Maricopa County, State of Arizona, described as:
Lot _____, of DESERT MOUNTAIN PHASE __________, UNIT according to the plat of
record in the office of the County Recorder of Maricopa County, Arizona,
recorded in Book _____ of Maps, Page _____ .
Together with any buildings, improvements and fixtures thereon.
This Deed of Trust is made on the above date between the Trustor, Trustee and
Beneficiary above named.
WITNESSETH: That Trustor irrevocably grants and conveys to Trustee in Trust,
with Power of Sale, the above described real property together with leases,
rents, issues, profits, or income thereof; SUBJECT TO existing taxes,
assessments, liens, encumbrances, covenants, conditions, restrictions, rights of
way, and easements of record.
FOR THE PURPOSE OF SECURING:
A. Performance of each agreement of Trustor herein contained.
B. Payment of the indebtedness evidenced by a promissory note of even date
herewith, and any modifications, replacement, extension or renewal thereof, in
the principal sum of $___________executed by Trustor in favor of Beneficiary or
order.
C. Payment of all sums advanced hereunder with interest thereon.
TO PROTECT THE SECURITY OF THIS DEED OF TRUST. TRUSTOR AGREES:
1. To keep said property in good condition; to comply with all covenants,
conditions and restrictions affecting said property; not to commit or permit
waste thereof; and not to commit, suffer, or permit any act upon said property
in violation of law.
2. To appear in and defend any action or proceeding purporting to affect the
security hereof or the rights or powers of Beneficiary or Trustee; and to pay
all costs and expenses of Beneficiary and Trustee, including costs of evidence
of title and attorneys' fees in a reasonable sum, in any such action or
proceeding in which Beneficiary or Trustee may appear or be named, and in any
suit brought by Beneficiary or Trustee to foreclose this Deed of Trust.
3. To pay before delinquent, all taxes and assessments affecting said property;
when due, all encumbrances, charges, and liens, with interest, on said property
or any part thereof, which appear to be prior or superior hereto, to pay all
costs, fees, and expenses of this Trust, including, without limiting the
generality of the foregoing, the fees of Trustee for issuance of the Deed of
Release and Full Reconveyance, and all lawful charges, costs, and expenses in
the event of reinstatement of, following default in, this Deed of Trust or the
obligations secured hereby.
Should Trustor fail to make any payment or to do any act as herein
provided, the Beneficiary or Trustee, without obligation hereof, may: (a) make
or do the same in such manner and to such extent as either may deem necessary to
protect the security hereof, Beneficiary or Trustee being authorized to enter
upon said property for such purposes; appear in and defend any action or
proceeding purporting to affect the security hereof or the rights or powers of
Beneficiary or Trustee, (b) pay, contest, or compromise any encumbrance. charge,
or lien which in the judgment of either appears to be prior or superior hereto;
and, (c) in exercising any such powers, pay necessary expenses, employ counsel,
and pay his reasonable fees.
Page 1 of 3
<PAGE> 76
4. To pay immediately and without demand all sums expended by Beneficiary or
Trustee pursuant to the provisions hereof, together with interest from date of
expenditure at the default rate as is provided for in the note secured by this
Deed of Trust (18% per annum). Any amounts so paid by Beneficiary or Trustee and
such interest thereon shall become a part of the debt secured by this Deed of
trust and a lien on said property or immediately due and payable at option of
Beneficiary or Trustee.
IT IS MUTUALLY AGREED:
5. That any award of damages in connection with any condemnation or any taking
for public use, or for injury to the property by reason of public use, or for
damages for private trespass or injury thereto, is assigned and shall be paid to
Beneficiary as further security for all obligations secured hereby (reserving
unto the Trustor, however, the right to sue therefor and the ownership thereof
subject to this Deed of Trust), and upon receipt of such monies Beneficiary may,
at its option, hold the same as such further security, or apply the same to
obligations secured hereby or release the same to Trustor.
6. That time is of the essence of this Deed of Trust and that by accepting
payment of any sum secured hereby after its due date, Beneficiary does not waive
his right either to require prompt payment when due of all other sums so secured
or to declare default for failure so to pay.
7. That at any time or from time to time, and without notice, upon written
request of Beneficiary and presentation of this Deed of Trust and said note for
endorsement, and without liability therefor, and without affecting the personal
liability of any person for payment of the indebtedness secured hereby, and
without affecting the security hereof for the full amount secured hereby on all
property remaining subject hereto, and without the necessity that any sum
representing the value or any portion thereof of the property affected by the
Trustee's action be credited on the indebtedness, the Trustee may: (a) release
and reconvey all or any part of said property; (b) consent to the making and
recording, or either, of any map or plat of the property or any part thereof;
(c) join in granting an easement thereon; (d) join in or consent to any
extension agreement or any agreement subordinating the lien, encumbrance, or
charge hereof.
8. That upon written request of Beneficiary stating that all sums secured hereby
have been paid, and upon the surrender of this Deed of Trust and said note to
Trustee for cancellation and retention and upon payment of its fees. Trustee
shall release and reconvey, without covenant or warranty, expressed or implied,
the property then held hereunder. The recitals in such reconveyance of any
matters or fact shall be conclusive proof of the truthfulness thereof. The
grantee in such reconveyance may be described as "the person or persons legally
entitled thereto".
9. That as additional security, Trustor hereby gives to and confers upon
Beneficiary the right, power, and authority, during the continuance of this
Trust, to collect the property income, reserving to Trustor the right, prior to
any default by Trustor in payment of any indebtedness secured hereby or in
performance of any agreement hereunder, to collect and retain such property
income as it becomes due and payable. Upon any such default, Beneficiary may at
any time, without notice, either in person, by agent, or by a receiver to be
appointed by a court, and without regard to the adequacy of any security for the
indebtedness hereby secured, enter upon and take possession of said property or
any part thereof, in his own name sue for or otherwise collect such property
income, including the past due and unpaid, and apply the same, less costs and
expenses of operation and collection, including reasonable attorneys' fees, upon
any indebtedness secured hereby, and in such order as Beneficiary may determine.
The entering upon and taking possession of said property, the collection of such
property income, and the application thereof as aforesaid, shall not cure or
waive any default or notice of trustee's sale hereunder or invalidate any act
done pursuant to such notice.
10. Beneficiary may, at its option, declare immediately due and payable all sums
secured by this Deed of Trust if Trustor (a) executes or delivers any pledge,
security agreement, mortgage, deed of trust, assignment or other instrument of
hypothecation, covering all or any portion of the Property or any interest
therein; or (b) sells or transfers all or any portion of the Property or any
interest therein without obtaining Beneficiary's prior written consent which
consent may be given or withheld in Beneficiary's sole discretion. Consent to
one sale or transfer will not be deemed to be a waiver by the Beneficiary of the
right to require consent to any other or further sale or transfer. As used
herein, the words "sale" and "transfer" include any sale or conveyance of any of
Trustor's right, title or interest in the Property, whether legal or equitable,
whether voluntary or involuntary, whether by outright sale, deed, installment
sale contract, land contract, contract for deed, lease with option to purchase,
lease for a term in excess of three (3) years, creation of any lien or other
encumbrance subordinate to the lien of this Deed of Trust, or the dissolution of
Trustor or any change in the control of Trustor.
11. That upon default by Trustor in the payment of any indebtedness secured
hereby or in performance of any agreement hereunder which is not cured within 20
days, Beneficiary may declare all sums secured hereby immediately due and
payable without notice to Trustor. Upon such default Beneficiary may deliver to
Trustee a written notice thereof, setting forth the nature thereof, and of
election to cause to be sold said property under this Deed of Trust. In such
event Beneficiary shall also deposit with Trustee this Deed of trust, said Note,
and all documents evidencing expenditures secured hereby.
In such event Trustee shall record and give notice of trustee's sale in
the mariner required by law, and after the lapse of such time as may then be
required by law, Trustee shall sell, in the manner required by law, said
property at public auction at the time and place fixed by it in said notice of
Trustee's sale to the highest bidder for cash in lawful money of the United
States, payable at time of sale. Trustee may postpone or continue the sale by
giving notice of postponement or continuance by public declaration at the time
and place last appointed for the sale. Trustee shall deliver to such purchaser
its Deed conveying the property so sold, but without any covenant or warranty,
expressed or implied. Any persons, including Trustor, Trustee, or Beneficiary,
may purchase at such sale.
After deducting all costs, fees and expenses of Trustee and of this
Trust, including cost of evidence of title in connection with sale and
reasonable attorneys' fees. Trustee shall apply the proceeds of sale to payment
of: All sums then secured hereby and all other sums due under the terms hereof,
with accrued interest; and the remainder, if any, to the person or persons
legally entitled thereto, or as provided in A.R.S. Section 33-812. To the extent
permitted by law, an
Page 2 of 3
<PAGE> 77
an action may be maintained by Beneficiary to recover a deficiency judgement for
any balance due hereunder. Beneficiary may also foreclose this Deed of Trust as
a realty mortgage.
12. That Beneficiary may appoint a successor Trustee in the manner prescribed by
law. A successor Trustee herein shall, without conveyance from the predecessor
Trustee, succeed to all the predecessor's title, estate, rights, powers, and
duties. Trustee may resign by mailing or delivering notice thereof to
Beneficiary and Trustor.
13. That this Deed of Trust applies to, inures to the benefit of, and binds all
parties hereto, their heirs, legatees, devisees, administrators, executors,
successors, and assigns. The term Beneficiary shall mean the owner and holder of
the note secured hereby, whether or not named as Beneficiary herein. In this
Deed of Trust, whenever the context so requires, the masculine gender includes
the feminine and neuter, and the singular number includes the plural. If this
Deed of Trust is executed by more than one person or entity they shall be
jointly and severally liable hereunder.
14. That Trustee accepts this Trust when this Deed of Trust, duly executed and
acknowledged, is made a public record as provided by law. Trustee is not
obligated to notify any party hereto of pending sale under any other Deed of
Trust or of any action or proceeding in which Trustor, Beneficiary or Trustee
shall be a party unless brought by Trustee.
The undersigned Trustor requests that a copy of any notice of Trustee's
sale hereunder be mailed to him at this address hereinbefore set forth.
--------------------------------------
--------------------------------------
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged and executed before me this _____ day of
_______________, 19____ by _____________________________________.
My Commission Expires:
--------------------------------------
Notary Public
Page 3 of 3
<PAGE> 78
EXHIBIT C
COLLATERAL DOCUMENTS
1. REQUIRED DELIVERIES: Each Warehouse Advance Request shall include the
following:
A. Mortgage Note. Unless otherwise approved by Lender in its absolute
and sole discretion, Borrower shall deliver to Lender the original Mortgage Note
evidencing the indebtedness secured by the applicable Eligible Mortgage Loan,
duly executed by the mortgagor to Borrower as payee.
B. Endorsement. A blank endorsement by Borrower of the Mortgage Note,
duly executed by Borrower.
C. Mortgage. A copy of the Mortgage securing the Mortgage Note
certified by Borrower and by the closing attorney or title company presiding at
the closing to be a true and complete copy of the original which is being
recorded. The certified copy of the Mortgage must be a photocopy which shows due
execution by the individual(s) who has (have) executed the corresponding
Mortgage Note. The Mortgage must accurately describe the Mortgage Note which it
is intended to secure, and the Mortgage must be prepared in accordance with the
local recording requirements.
D. Assignment. A duly executed assignment to Lender of each Mortgage,
of the indebtedness secured thereby, and of all documents and rights related to
each Mortgage Loan, including the right to any casualty insurance proceeds or
condemnation awards. This instrument must accurately describe the Mortgage which
it is intended to assign, must be in recordable form, and be otherwise
satisfactory to Lender.
2. OTHER DELIVERIES: If requested by Lender, each Advance Request shall also
include the following:
A. Commitment for Title Insurance. A commitment for the issuance of an
ALTA title insurance loan policy in favor of Borrower and its successors and
assigns, in the amount of the original principal balance of the Mortgage Loan.
The interim title binder or commitment must obligate the title insurance company
to issue a policy insuring that the Mortgage is a valid first lien on the
premises described in the Mortgage, with only exceptions permitted by Lender.
The title binder or commitment must be countersigned by an authorized
representative or agent of the applicable title insurance company.
B. Appraisal. With respect to each Mortgage Loan, a copy of the
Appraisal.
<PAGE> 79
C. Insurance. Originals or certified copies of all fire and casualty
insurance policies, in form and issued by companies reasonably satisfactory to
Lender, covering the premises covered by each Mortgage, including, if
applicable, insurance against flood hazards, or a certificate of the insurance
underwriter evidencing the same, certifying that such insurance is in full force
and effect. The policy must stipulate that losses are payable in favor of
Borrower and its assigns.
D. Disclosure and Settlement Statements. Certified copies of all
settlement statements (including, without limitation, the HUD-1) and any
disclosure statements required under the Federal Truth-in-Lending Act and the
provisions of Regulation Z of the Federal Reserve Board, and any applicable
disclosure statements required under the Real Estate Settlement Procedures Act.
All disclosure statements must include all the necessary signatures of the
involved parties.
<PAGE> 80
EXHIBITS "D" and "E" (COMBINED)
SCHEDULE OF APPROVED SUBDIVISONS AND ELIGIBLE LOTS
<TABLE>
<CAPTION>
Approved Subdivisions Eligible Lots (as of 5/13/98*)
--------------------- ------------------------------
<S> <C>
Desert Mountain Phase 11, Unit Nine 32,35,38
(Cochise Ridge) Part Four
(Plat recorded in Book 382 of Maps,
Page 13, Maricopa County, Arizona)
Desert Mountain Phase 11, Unit Nineteen 2, 3, 4, 8, 10, 11, 12, 13, 14, 16, 17, 18, 22, 26, 27,
(The Village of Desert Horizons) 28, 29, 30, 33, 34, 35, 36, 37, 40, 41, 43
(Plat recorded in Book 404 of Maps,
Page 15, Maricopa County, Arizona).
Desert Mountain Phase 11, Unit Twenty-One 52,54,61
(The Village of Desert Greens)
(Plat recorded in Book 420 of Maps,
Page 19, Maricopa County, Arizona).
Desert Mountain Phase 11, Unit Twenty-Two 1 through 38, inclusive, and 42, through 47,
(The Village of Desert Hills) inclusive
(Plat recorded in Book 431 of Maps,
Page 24, Maricopa County, Arizona)
Desert Mountain Phase 11, Unit Twenty-Three 6,13,22,24,25,30,31
(The Apache Cottages)
(Plat recorded in Book 429 of Maps,
Page 40, Maricopa County, Arizona)
Desert Mountain Phase 11, Unit Twenty-Five 1 through 18, inclusive
(The Village of Renegade Trail)
(Plat recorded in Book 450 of Maps,
Page 32, Maricopa County, Arizona)
Desert Mountain Phase 11, Unit Twenty-Six 35 through 61, inclusive
(The Apache Cottages, Part 2)
(Plat recorded in Book 460 of Maps,
Page 4 1, Maricopa County, Arizona)
*NOTE: Lots with homes closing escrow after 5/13/98 shall no longer be
considered "Eligible Lots."
</TABLE>
<PAGE> 1
EXHIBIT 10.39
1997 CRESCENT OPERATING, INC.
MANAGEMENT STOCK INCENTIVE PLAN
ARTICLE I
THE PLAN
1.1 NAME. This plan will be known as the "1997 Crescent Operating, Inc.
Management Stock Incentive Plan." Capitalized terms used herein are defined in
Article X hereof.
1.2 PURPOSE. The purpose of the Plan is to promote the growth and general
prosperity of the Company by permitting the Company and its Subsidiaries to
grant Options to their Employees, Outside Directors and Advisors and Restricted
Stock to their Employees and Advisors. The Plan is designed to help the Company
and its Subsidiaries attract and retain superior personnel for positions of
substantial responsibility and to provide Employees (including officers),
Outside Directors and Advisors with an additional incentive to contribute to the
success of the Company and its Subsidiaries. The Company intends that Incentive
Stock Options granted pursuant to Article IV will qualify as "incentive stock
options" within the meaning of Section 422 of the Code. Subject to Article VII,
Outside Directors of the Company may elect to receive Common Stock in lieu of
Director's Fees. With respect to Reporting Participants, transactions under the
Plan are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent that any provision of the Plan
or action by the Board or the Committee fails to so comply, it will be deemed
null and void to the extent permitted by law and deemed advisable by the
Committee.
1.3 EFFECTIVE DATE. The Plan will become effective upon the Effective Date.
1.4 ELIGIBILITY TO PARTICIPATE. Any Employee, Outside Director or Advisor
will be eligible to participate in the Plan; provided that Incentive Stock
Options may be granted only to persons who are Employees of the Company and its
Subsidiaries. The Board or the Committee may grant Options to Employees, Outside
Directors and Advisors in accordance with such determinations as the Board or
the Committee from time to time in its sole discretion may make.
1.5 MAXIMUM NUMBER OF SHARES OF COMMON STOCK SUBJECT TO AWARDS. The shares
of Common Stock subject to Awards pursuant to the Plan may be either authorized
and unissued shares or shares issued and thereafter acquired by the Company.
Subject to adjustment pursuant to the provisions of Section 8.2, and subject to
any additional restrictions elsewhere in the Plan, the maximum aggregate number
of shares of Common Stock that may be issued from time to time pursuant to the
Plan shall be one million (1,000,000) shares. The maximum number of shares of
Common Stock with respect to which Awards may be granted to any Reporting
Participant during any calendar year shall be five hundred thousand (500,000)
shares. The maximum number of shares of Common Stock which may be subject to
Incentive Stock Options during the life of the Plan shall be fifty thousand
(50,000) shares. If shares of Restricted
1
<PAGE> 2
Stock are reacquired by the Company pursuant to the provisions of Section 6.1 of
the Plan or if an Option expires or terminates for any reason without having
been exercised in full, the reacquired shares and/or the shares not purchased or
distributed will again be available for issuance under the Plan.
1.6 CONDITIONS PRECEDENT. The Company will not issue or deliver any
certificate for Plan Shares pursuant to the Plan prior to fulfillment of all of
the following conditions:
(a) The admission of the Plan Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the Board or
the Committee determines in its sole discretion that such listing is
neither necessary nor advisable;
(b) The completion of any registration or other qualification
of the sale of the Plan Shares under any federal or state law or under
the rulings or regulations of the Securities and Exchange Commission or
any other governmental regulatory body that the Board or the Committee
in its sole discretion deems necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Board or the Committee in
its sole discretion determines to be necessary or advisable.
1.7 RESERVATION OF SHARES OF COMMON STOCK. During the term of the Plan, the
Company will at all times reserve and keep available such number of shares of
Common Stock as may be necessary to satisfy the requirements of the Plan as to
the number of Plan Shares. In addition, the Company will from time to time, as
is necessary to accomplish the purposes of the Plan, use its best efforts to
obtain from any regulatory agency having jurisdiction any requisite authority
necessary to issue Plan Shares hereunder. The inability of the Company to obtain
from any regulatory agency having jurisdiction the authority deemed by the
Company's counsel to be necessary for the lawful issuance of any Plan Shares
will relieve the Company of any liability in respect of the nonissuance of Plan
Shares as to which the requisite authority has not been obtained.
1.8 TAX WITHHOLDING.
(a) Condition Precedent. The issuances of Plan Shares
pursuant to Awards under the Plan are subject to the condition that if
at any time the Board or the Committee determines, in its discretion,
that the satisfaction of withholding tax or other withholding
liabilities under any federal, state or local law is necessary or
desirable as a condition of, or in connection with such issuances, then
the issuances will not be effective unless the withholding has been
effected or obtained in a manner acceptable to the Board or the
Committee. Each Option granted to a Reporting Participant shall contain
a provision in the related Option Agreement making any required
withholding tax or other withholding liability mandatory, and
specifying that the Company withhold a portion of the Plan Shares as
specified in clause (iv) of paragraph (b) below.
2
<PAGE> 3
(b) Manner of Satisfying Withholding Obligation. When a
Participant is required to pay to the Company an amount required to be
withheld under applicable income tax laws in connection with an Award,
such payment may be made (i) in cash, (ii) by check, (iii) by delivery
to the Company of shares of Common Stock already owned by the
Participant having a Fair Market Value on the date the amount of tax to
be withheld is to be determined (the "Tax Date") equal to the amount
required to be withheld, (iv) with respect to Options, through the
withholding by the Company ("Company Withholding") of a portion of the
Plan Shares acquired upon the exercise of the Options (provided that,
with respect to any Option held by a Reporting Participant, at least
six months has elapsed between the grant of such Option and the
exercise involving tax withholding) having a Fair Market Value on the
Tax Date equal to the amount required to be withheld or (v) in any
other form of valid consideration, as permitted by the Committee in its
discretion.
(c) Notice of Disposition of Stock Acquired Pursuant to
Incentive Stock Options. The Company may require as a condition to the
issuance of Plan Shares covered by any Incentive Stock Option that the
party exercising such Option give a written representation to the
Company, which is satisfactory in form and substance to its counsel and
upon which the Company may reasonably rely, that he will report to the
Company any disposition of such shares prior to the expiration of the
holding periods specified by Section 422(a)(1) of the Code. If and to
the extent that the realization of income in such a disposition imposes
upon the Company federal, state or local withholding tax requirements,
or any such withholding is required to secure for the Company an
otherwise available tax deduction, the Company will have the right to
require that the recipient remit to the Company an amount sufficient to
satisfy those requirements; and the Company may require as a condition
to the issuance of Plan Shares covered by an Incentive Stock Option
that the party exercising such Option give a satisfactory written
representation promising to make such a remittance.
1.9 ACCELERATION IN CERTAIN EVENTS. The Board or the Committee may
accelerate the exercisability of any Option or waive any restrictions with
respect to shares of Restricted Stock in whole or in part at any time.
Notwithstanding the provisions of any Option Agreement or Restricted Stock
Agreement, the following provisions will apply:
(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially
all of the assets of the Company by means of a sale, merger or other
reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, any Option will become
immediately exercisable with respect to the full number of shares
subject to that Option and all restrictions will lapse with respect to
an Award of Restricted Stock during the period commencing as of the
date of the agreement to dispose of all or substantially all of the
assets of the Company and ending when the disposition of assets
contemplated by that agreement is consummated or the Award is otherwise
terminated in accordance with its provisions or the provisions of the
Plan, whichever occurs first; provided that no Reporting Participant
may exercise an Option and no restrictions will lapse with respect to
an
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Award of Restricted Stock to a Reporting Participant unless at least
six months have elapsed since the grant of such Option or Award;
provided, further, that no Option will be immediately exercisable and
no restrictions will lapse with respect to an Award of Restricted Stock
under this Section on account of any agreement of merger or other
reorganization when the shareholders of the Company immediately before
the consummation of the transaction will own at least fifty percent of
the total combined voting power of all classes of stock entitled to
vote of the surviving entity immediately after the consummation of the
transaction. An Option will not become immediately exercisable and no
restrictions will lapse with respect to an Award of Restricted Stock if
the transaction contemplated in the agreement is a merger or
reorganization in which the Company will survive.
(b) Change in Control. In the event of a change in control or
threatened change in control of the Company, all Options granted prior
to the change in control or threatened change in control will become
immediately exercisable, and all restrictions will lapse with respect
to awards of Restricted Stock granted prior to the change in control or
threatened change in control, provided that no Reporting Participant
may exercise an Option and no restriction will lapse with respect to an
Award of Restricted Stock to a Reporting Participant unless at least
six months have elapsed since the grant of such Option or Award. The
term "change in control" for purposes of this Section refers to the
acquisition of 15% or more of the voting securities of the Company by
any person or by persons acting as a group within the meaning of
Section 13(d)(3) of the Exchange Act (other than an acquisition by (i)
a person or group meeting the requirements of clauses (i) and (ii) of
Rule 13d-l(b)(1) promulgated under the Exchange Act, (ii) or any
employee pension benefit plan (within the meaning of Section 3(2) of
ERISA) of the Company or of its Subsidiaries, including a trust
established pursuant to such plan); provided that no change in control
or threatened change in control will be deemed to have occurred (i) if
prior to the acquisition of, or offer to acquire, 15% or more of the
voting securities of the Company, the full Board has adopted by not
less than two-thirds vote a resolution specifically approving such
acquisition or offer or (ii) from (A) a transfer of the Company's
voting securities by Richard E. Rainwater ("Rainwater") to (i) a member
of Rainwater's immediate family (within the meaning of Rule 16a-1(e) of
the Exchange Act) either during Rainwater's lifetime or by will or the
laws of descent and distribution; (ii) any trust as to which Rainwater
or a member (or members) of his immediate family (within the meaning of
Rule 16a-1(e) of the Exchange Act) is the beneficiary; (iii) any trust
as to which Rainwater is the settlor with sole power to revoke; (iv)
any entity over which Rainwater has the power, directly or indirectly,
to direct or cause the direction of the management and policies of the
entity, whether through the ownership of voting securities, by contract
or otherwise; or (v) any charitable trust, foundation or corporation
under Section 501(c)(3) of the Code that is funded by Rainwater; or (B)
the acquisition of voting securities of the Corporation by either (i)
Rainwater or (ii) a person, trust or other entity described in the
foregoing clauses (A)(i)-(v) of this subsection. The term "person" for
purposes of this Section refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization
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or any other form of entity not specifically listed herein. Whether a
change in control is threatened will be determined solely by the
Committee.
1.10 COMPLIANCE WITH SECURITIES LAWS. Plan Shares will not be issued with
respect to any Award unless the issuance and delivery of the Plan Shares (and
the exercise of an Option, if applicable) complies with all relevant provisions
of federal and state law, including without limitation the Securities Act, the
rules and regulations promulgated thereunder and the requirements of any stock
exchange upon which the Plan Shares may then be listed, and will be further
subject to the approval of counsel for the Company with respect to such
compliance. The Board or the Committee may also require a Participant to furnish
evidence satisfactory to the Company, including, without limitation, a written
and signed representation letter and consent to be bound by any transfer
restrictions imposed by law, legend, condition or otherwise, and a
representation that the Plan Shares are being acquired only for investment and
without any present intention to sell or distribute the shares in violation of
any federal or state law, rule or regulation. Further, each Participant will
consent to the imposition of a legend on the certificate representing the Plan
Shares issued pursuant to an Award restricting their transferability as required
by law or by this Section.
1.11 EMPLOYMENT OF PARTICIPANT. Nothing in the Plan or in any Award granted
hereunder will confer upon any Participant any right to continued employment by
the Company or any of its Subsidiaries or to continued service as a Director or
Advisor or limit in any way the right of the Company or any Subsidiary at any
time to terminate or alter the terms of that employment or services as a
Director or Advisor.
1.12 INFORMATION TO PARTICIPANTS. The Company will furnish to each
Participant copies of annual reports, proxy statements and all other reports
sent to the Company's shareholders. Upon written request, the Company will
furnish to each Participant a copy of its most recent Annual Report on Form 10-K
and each quarterly report to shareholders issued since the end of the Company's
most recent fiscal year.
ARTICLE II
ADMINISTRATION
2.1 COMMITTEE. The Plan will be administered by the Board or by a
Committee of not fewer than two directors appointed by the Board. As used
herein, if the Company has any class of common equity securities required to be
registered under Section 12 of the Exchange Act, as to any Award to a Covered
Employee, "Committee" shall mean a committee consisting of two or more
Directors, each of whom shall be an "outside director" as defined in Section
162(m) of the Code. Subject to the provisions of the Plan, the Board or
Committee will have the sole discretion and authority to determine from time to
time the Employees and Advisors to whom Awards will be granted and the number of
Plan Shares subject to each Award, to interpret the Plan, to prescribe, amend
and rescind any rules and regulations necessary or appropriate for the
administration of the Plan, to determine and interpret the details and
provisions of each Option Agreement and Restricted Stock Agreement, to modify or
amend any Option Agreement or Restricted Stock Agreement or waive any conditions
or restrictions applicable to any Option (or
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the exercise thereof) or to any shares of Restricted Stock, and to make all
other determinations or advisable for the administration of the Plan. The
Committee shall be solely responsible for the grant and administration of Awards
to Covered Employees. With respect to any provision of the Plan granting the
Board or the Committee the right to agree, in its sole discretion, to further
extend the term of any Award hereunder, the Board or the Committee may exercise
such right at the time of grant, in the Option Agreement relating to such Award,
or at any time or from time-to-time after the grant of any Award hereunder.
2.2 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. A majority of the members of
the Board or the Committee will constitute a quorum, and any action taken by a
majority present at a meeting at which a quorum is present or any action taken
without a meeting evidenced by a writing executed by all members of the Board or
the Committee will constitute the action of the Board or the Committee. Meetings
of the Committee may take place by telephone conference call.
2.3 COMPANY ASSISTANCE. The Company will supply full and timely
information to the Board or the Committee on all matters relating to Employees,
Outside Directors and Advisors, their employment, death, Retirement, Disability
or other termination of employment, and such other pertinent facts as the Board
or the Committee may require. The Company will furnish the Board or the
Committee with such clerical and other assistance as is necessary to the
performance of its duties.
ARTICLE III
OPTIONS
3.1 METHOD OF EXERCISE. Each Option will be exercisable at any time and
from time in whole or in part in accordance with the terms of the Option
Agreement pursuant to which the Option was granted. No Option may be exercised
for a fraction of a Plan Share.
3.2 PAYMENT OF PURCHASE PRICE. The purchase price of any Plan Shares
purchased will be paid at the time of exercise of the Option either (i) in cash,
(ii) by certified or cashier's check, (iii) by shares of Common Stock, if
permitted by the Committee, (iv) as to Outside Directors, by cash or certified
or cashier's check for the par value of the Plan Shares plus a recourse
promissory note for the balance of the purchase price, such note to provide for
the right to repay the note partially or wholly with Common Stock and with an
interest rate based on the current dividend yield of the Common Stock, (v) as to
Employees and Advisors, by cash or certified or cashier's check for the par
value of the Plan Shares plus a promissory note for the balance of the purchase
price, which note will contain such terms and provisions as the Board or the
Committee may approve, including without limitation the right to repay the note
partially or wholly with Common Stock and to base the interest rate on the
current dividend yield of the Common Stock, (vi) by delivery of a copy of
irrevocable instructions from the Optionee to a broker or dealer, reasonably
acceptable to the Company, to sell certain of the Plan Shares upon exercise of
the Option or to pledge them as collateral for a loan and promptly deliver to
the Company the amount of sale or loan proceeds necessary to pay such purchase
price or (vii) as to Employees and Advisors, in any other form of valid
consideration, as permitted by the Board or the
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Committee in its discretion. If any portion of the purchase price or a note
given at the time of exercise is paid in shares of Common Stock, those shares
will be valued at the then Fair Market Value.
3.3 WRITTEN NOTICE REQUIRED. Any Option will be deemed to be exercised for
purposes of the Plan when written notice of exercise has been received by the
Company at its principal office from the person entitled to exercise the Option
and payment for the Plan Shares with respect to which the Option is exercised
has been received by the Company in accordance with Section 3.2.
3.4 RIGHTS OF OPTIONEES UPON TERMINATION OF EMPLOYMENT OR SERVICE.
(a) In the event an Optionee ceases to be an Employee and Advisor, and
does not continue to be a Director, for any reason other than death, Retirement,
Disability or for Cause, (i) the Board or the Committee shall have the ability
to accelerate the vesting of the Optionee's Option in its sole discretion, and
(ii) such Optionee's Option shall be exercisable (to the extent exercisable on
the date of termination of employment or service as an Employee or Advisor, or,
if the Committee, in its discretion, has accelerated the vesting of such Option,
to the extent exercisable following such acceleration) (a) if such Option is an
Incentive Stock Option, at any time within three months after the date of
termination of employment with the Company or any Subsidiary, unless by its
terms the Option expires earlier; or (b) if such Option is a Nonqualified Stock
Option, at any time within one year after the date of termination of employment
or service as an Employee or Advisor, unless by its terms the Option expires
earlier or unless the Committee agrees, in its sole discretion, to further
extend the term of such Nonqualified Stock Option; provided that the term of any
such Nonqualified Stock Option shall not be extended beyond its initial term. An
Employee or Advisor who continues to be a Director shall not be deemed to have
terminated employment or service as to any Nonqualified Stock Option
(b) In addition, unless the Board or the Committee agrees, in its sole
discretion, to extend the term of a Nonqualified Stock Option granted to an
Employee or Advisor (provided that the term of any such Option shall not be
extended beyond its initial term), an Optionee's Option may be exercised as
follows in the event such Optionee ceases to serve as an Employee, Outside
Director or Advisor due to death, Disability, Retirement or for Cause:
(i) Death. If an Optionee dies while serving as an Employee,
Outside Director or Advisor, or within three months after ceasing to be
an Employee, Outside Director or Advisor, his option shall become fully
exercisable on the date of his death and shall expire 12 months
thereafter, unless by its terms it expires sooner. During such period,
the Option may be fully exercised, to the extent that it remains
unexercised on the date of death, by the Optionee's personal
representative or by the distributees to whom the Optionee's rights
under the Option shall pass by will or by the laws of descent and
distribution.
(ii) Retirement. If an Optionee ceases to serve as an
Employee, Outside Director or Advisor as a result of Retirement, his
Option shall become fully exercisable on the date of his Retirement and
(a) if such Option is an Incentive Stock Option, such Option
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will be exercisable at any time within three months after the effective
date of such Retirement, unless by its terms the Option expires
earlier, and (b) if such Option is a Nonqualified Stock Option, such
Option will be exercisable at any time within one year after the
effective date of such Retirement, unless by its terms the Option
expires sooner.
(iii) Disability. If an Optionee ceases to serve as an
Employee, Outside Director or Advisor as a result of Disability, the
Optionee's Option shall become fully exercisable and shall expire 12
months thereafter, unless by its terms it expires sooner.
(iv) Cause. If an Optionee ceases to serve as an Employee,
Outside Director or Advisor, because the Optionee is terminated for
Cause, the Optionee's Option shall automatically expire. If any facts
that would constitute Cause for termination or removal of an Employee
or Advisor are discovered after the Optionee's relationship with the
Company has ended, any Options then held by the Optionee may be
immediately terminated by the Committee. Notwithstanding the foregoing,
if an Optionee is an Employee employed pursuant to a written employment
agreement, or is an Advisor retained pursuant to a written agreement,
the Optionee's relationship with the Company will be deemed terminated
for 'Cause' for purposes of the Plan only if the Optionee is considered
under the circumstances to have been terminated for cause for purposes
of such written agreement.
3.5 TRANSFERABILITY OF OPTIONS. Options shall not be transferable other
than pursuant to a qualified domestic relations order, by will or by the laws of
descent and distribution and, with respect to an Incentive Stock Option, may be
exercised during the lifetime of an Optionee only by that Optionee or by his
legally authorized representative.
3.6 OPTIONS SUBJECT TO SHAREHOLDERS APPROVAL. Options granted to Covered
Employees and Incentive Stock Options granted prior to the date on which
shareholder approval of the Plan is obtained shall be subject to and conditioned
upon shareholder approval of the Plan in accordance with Section 162(m) and 422
of the Code.
ARTICLE IV
INCENTIVE STOCK OPTIONS
4.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Board or the
Committee may, in its discretion, determine, as long as all Options granted
under this Article satisfy the requirements of this Article.
4.2 DURATION OF OPTIONS. Each Option granted under this Article will expire
on the date determined by the Board or Committee, but in no event will any
Option granted under this Article expire earlier than one year or later than ten
years after the date on which the Option is granted. In addition, each Option
will be subject to early termination as provided elsewhere in the Plan.
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4.3 PURCHASE PRICE. The purchase price for Plan Shares acquired pursuant to
the exercise, in whole or in part, of any Option granted under this Article will
not be less than the Fair Market Value of the Plan Shares at the time of the
grant of the Option.
4.4 MAXIMUM AMOUNT OF OPTIONS FIRST EXERCISABLE IN ANY CALENDAR YEAR. The
maximum aggregate Fair Market Value of Plan Shares (determined at the time the
Option is granted) with respect to which Options issued under this Article are
exercisable for the first time by any Employee during any calendar year under
all incentive stock option plans of the Company and its Subsidiaries and
affiliates may not exceed $100,000. Any portion of an Option granted under the
Plan and first exercisable in excess of the foregoing limitations will be
considered granted under Article V.
4.5 REQUIREMENTS AS TO CERTAIN OPTIONS. In the event of the grant of any
Option to an individual who, at the time the Option is granted, owns shares of
stock possessing more than ten percent of the total combined voting power of all
classes of stock of the Company or any of its Subsidiaries or affiliates within
the meaning of Section 422 of the Code, the purchase price for the Plan Shares
subject to that Option must be at least 110% of the Fair Market Value of those
Plan Shares at the time the Option is granted, and the Option must not be
exercisable after the expiration of five years from the date of its grant.
4.6 INDIVIDUAL OPTION AGREEMENTS. Each Employee receiving Options under
this Article will be required to enter into a written Option Agreement with the
Company. In such Option Agreement, the Employee will agree to be bound by the
terms and conditions of the Plan and such other matters as the Committee deems
appropriate.
ARTICLE V
NONQUALIFIED STOCK OPTIONS
5.1 OPTION TERMS AND CONDITIONS. The terms and conditions of Options
granted under this Article may differ from one another as the Board or Committee
may, in its discretion, determine, as long as all Options granted under this
Article satisfy the requirements of this Article.
5.2 DURATION OF OPTIONS. Each Option granted to an Employee, Outside
Director or Advisor under this Article and all rights thereunder will expire on
the date determined by the Board or Committee, but in no event will any Option
granted under this Article expire later than ten years after the date on which
the Option is granted. In addition, each Option will be subject to early
termination as provided elsewhere in the Plan.
5.3 PURCHASE PRICE. The purchase price for Plan Shares acquired pursuant to
the exercise, in whole or in part, of any Option granted under this Article
shall be not less than the Fair Market Value of the Plan Shares at the time of
the grant of the Option.
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5.4 INDIVIDUAL OPTION AGREEMENTS. Each Employee, Outside Director or
Advisor receiving Options under this Article will be required to enter into a
written Option Agreement with the Company. In such Option Agreement, the
Employee, Outside Director or Advisor will agree to be bound by the terms and
conditions of the Plan and such other matters as the Board or Committee deems
appropriate.
ARTICLE VI
RESTRICTED STOCK
6.1 TERMS AND CONDITIONS. Each Restricted Stock Grant confers upon the
recipient thereof the right to receive a specified number of shares of Common
Stock of the Company in accordance with the terms and conditions of each
Participant's individual written agreement as set forth in Section 6.2. The
general terms and conditions of the Restricted Stock awards shall be as follows:
(a) Any shares of Common Stock awarded hereunder to a
Participant shall be restricted for a period of time to be determined
by the Committee for each participant at the time of the Award, which
period shall be not less than one year or more than ten years. The
restrictions shall prohibit the sale, assignment, transfer, pledge or
other encumbrance of such shares, and will provide for possible
reversion thereof to the Company in accordance with subparagraph (b)
during the period of restriction.
(b) All Restricted Stock awarded under this Plan to a
Participant shall be forfeited and returned to the Company in the event
the Participant ceases to be employed by, serve as a Director of, or
serve as an Advisor to the Company, one of its Subsidiaries, or any
Affiliated Company prior to the expiration of the period of
restriction, unless the Participant's termination of employment is due
to his or her death, Disability or Retirement. An Employee or Advisor
who continues to be a Director shall not be deemed to have terminated
employment or service.
(c) In the event of a Participant's death or Disability, the
restrictions under subparagraph (a) will lapse with respect to all
Restricted Stock awarded to the Participant under this Plan prior to
any such event, and the shares of Common Stock involved shall cease to
be Restricted Stock within the meaning of this Plan and shall no longer
be subject to forfeiture to the Company pursuant to subparagraph (b).
(d) In the event of a Participant's Retirement, the
restrictions under subparagraph (a) shall continue to apply unless the
Board or the Committee in its discretion shall shorten the restriction
period.
(e) Stock certificates issued with respect to awards of
Restricted Stock made under this Plan shall be registered in the name
of the Participant, but shall be delivered by him or her to the Company
together with a stock power endorsed in blank. Each such certificate
shall bear the following legend:
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"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
FORFEITURE, RESTRICTIONS ON TRANSFER AND CERTAIN OTHER TERMS
AND CONDITIONS SET FORTH IN THE 1997 CRESCENT OPERATING,
INC. MANAGEMENT STOCK INCENTIVE PLAN AND THE AGREEMENT
BETWEEN THE REGISTERED OWNER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE AND CRESCENT OPERATING, INC. ENTERED INTO
PURSUANT TO SUCH PLAN."
(f) Upon the lapse of a restriction period as determined
pursuant to subparagraph (a), the Company will return the stock
certificates representing the shares with respect to which the
restriction has lapsed to the Participant or his or her legal
representative, and pursuant to the instruction of the Participant or
his or her legal representative will issue a certificate for such
shares which does not bear the legend set forth in subparagraph (e).
(g) Any other securities or assets (other than ordinary cash
dividends) which are received by a Participant with respect to
Restricted Stock awarded to him, which is still subject to restrictions
provided for in subparagraph (a), will be subject to the same
restrictions and shall be delivered by the Participant to the Company
as provided in subparagraph (e).
(h) From the time of grant of the Restricted Stock Award, the
Participant shall be entitled to exercise all rights attributable to
the Restricted Stock, subject to forfeiture of such rights and the
stock as provided in subparagraph (b).
6.2 INDIVIDUAL AGREEMENTS. Each Participant receiving an Award of
Restricted Stock under this Article will be required to enter into a written
Restricted Stock Agreement with the Company. In such Restricted Stock Agreement,
the Participant will agree to be bound by the terms and conditions of the Plan
and such other matters as the Board or the Committee deems appropriate.
ARTICLE VII
OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTIONS
7.1 OUTSIDE DIRECTOR STOCK-FOR-FEES ELECTION. Each Outside Director of the
Company shall be permitted to receive Director's Fees in the form of Common
Stock rather than cash in accordance with the following provisions:
(a) Each Outside Director shall have the right to elect to
receive one-half or all of such Outside Director's Fees in the form of
Common Stock rather than cash by tendering an irrevocable written
election to the Secretary of the Company pursuant to which all
Director's Fees otherwise payable to the Outside Director shall be paid
in the form of
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Common Stock as provided in (b) below. Such election shall become
effective six (6) months after its delivery to the Secretary of the
Company by the Outside Director. Such election shall remain in effect
until the earlier of (i) the date six (6) months after such Outside
Director shall have delivered to the Secretary of the Company
irrevocable written notice that his or her election to receive Common
Stock shall cease as of the date six months following delivery of the
notice, or (ii) the date on which such Outside Director terminates as a
member of the Board of Directors by reason of resignation,
non-reelection, death, or disability. Any Outside Director who having
terminated an election to receive Common Stock or having failed to
elect to receive Common Stock rather than cash may elect to receive
Director's Fees in the form of Common Stock as of the date six (6)
months following delivery of irrevocable written notice of such
election to the Secretary of the Company. An Outside Director who does
not elect to have Director's Fees paid in Common Stock shall receive
his or her remuneration in cash at such times that such remuneration is
otherwise due.
(b) If an Outside Director elects to receive payment of
Director's Fees in the form of Common Stock, such Common Stock shall be
issued as soon as practicable after the annual meeting of shareholders
or meeting of the Board or Committee of the Board to which such
remuneration relates. The number of shares of Common Stock to be issued
to such Outside Director shall be determined by dividing:
(i) the remuneration otherwise payable to the Outside
Director, by
(ii) ninety percent (90%) of the Fair Market Value of the
Company's Common Stock on the determination date on the rounding up or
down of any fractional share to the nearest whole share.
The determination date shall be the date that the relevant payment of
Director's Fees is payable.
(c) Shares of Common Stock issued under this Article VII
shall be free of any restrictions except for restrictions applicable
under the Exchange Act.
7.2 INCOME TAX. Each Outside Director who elects to receive Director's Fees
in the form of Common Stock rather than cash shall be responsible for payment of
federal, state, and local income taxes on the Fair Market Value of such Common
Stock.
ARTICLE VIII
TERMINATION, AMENDMENT AND ADJUSTMENT
8.1 TERMINATION AND AMENDMENT. The Plan will terminate on October 15, 2007.
No Awards will be granted under the Plan after that date of termination,
although Awards granted prior to such date shall remain outstanding in
accordance with their terms. Subject to the limitations contained in this
Section 8.1, the Board or the Committee may at any time amend or revise the
terms of the Plan, including the form and substance of the Option Agreements and
Restricted Stock Agreements to be used in connection herewith; provided that,
without
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shareholder approval, no amendment or revision may (i) increase the maximum
aggregate number of Plan Shares, except as permitted Section 8.2, (ii) change
the minimum purchase price for shares under Article IV or Article V or (iii)
permit the granting of an Award to anyone other than as provided in the Plan. No
amendment, suspension or termination of the Plan may, without the consent of the
Optionee who has received an Award hereunder, alter or impair any of that
Participant's rights or obligations under any Award granted under the Plan prior
to that amendment, suspension or termination.
8.2 ADJUSTMENT. If the outstanding Common Stock is increased, decreased,
changed into or exchanged for a different number or kind of shares or securities
through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split, an appropriate and proportionate adjustment will be made
in the maximum number and kind of Plan Shares as to which Awards may be granted
under the Plan. A corresponding adjustment will be made in the number or kind of
shares allocated to and purchasable under unexercised Options or shares of
Restricted Stock with respect to which restrictions have not yet lapsed prior to
any such change. Any such adjustment in outstanding Options will be made without
change in the aggregate purchase price applicable to the unexercised portion of
the Option, but with a corresponding adjustment in the price for each share
purchasable under the Option. Any new or additional or different class of
securities that are distributed to a Participant in his capacity as the owner of
Restricted Stock as granted hereunder shall be considered to be Restricted Stock
and shall be subject to all of the conditions and restrictions provided herein
applicable to Restricted Stock. The foregoing adjustments and the manner of
application of the foregoing provisions will be determined solely by the Board
or the Committee, and any such adjustment may provide for the elimination of
fractional share interests.
ARTICLE IX
MISCELLANEOUS
9.1 OTHER COMPENSATION PLANS. The adoption of the Plan will not affect any
other stock option or incentive or other compensation plans in effect for the
Company or any of its Subsidiaries, nor will the Plan preclude the Company or
any of its Subsidiaries, from establishing any other forms of incentive or other
compensation for Employees.
9.2 PLAN BINDING ON SUCCESSORS. The Plan will be binding upon the
successors and assigns of the Company and any of its Subsidiaries that adopt the
Plan.
9.3 NUMBER AND GENDER. Whenever used herein, nouns in the singular will
include the plural where appropriate, and the masculine pronoun will include the
feminine gender.
9.4 HEADINGS. Headings of articles and sections hereof are inserted for
convenience of reference and constitute no part of the Plan.
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ARTICLE X
DEFINITIONS
As used herein with initial capital letters, the following terms have the
meanings set forth unless the context clearly indicates to the contrary:
10.1 "Advisor" means any person performing advisory or consulting services
for the Company or Subsidiary of the Company, with or without compensation, to
whom the Company chooses to grant Options in accordance with the Plan, provided
that bona fide services must be rendered by such person and such services shall
not be rendered in connection with the offer or sale of securities in a capital
raising transaction.
10.2 "Award" means a grant of Options under Articles IV and V of the Plan or
an Award of Restricted Stock under Article VI of the Plan.
10.3 "Board" means the Board of Directors of the Company, provided that, if
the Board delegates all or any part of its authority to a committee composed of
one or more directors, then the term "Board" shall be deemed to refer to such
committee to the extent of such delegation.
10.4 "Cause" will mean an act or acts involving a felony, fraud, willful
misconduct, commission of any act that causes or reasonably may be expected to
cause substantial injury to the Company or other good cause. The term "other
good cause" as used in this Section will include, but shall not be limited to,
habitual impertinence, a pattern of conduct that tends to hold the Company up to
ridicule in the community, conduct disloyal to the Company, conviction of any
crime of moral turpitude and substantial dependence, as judged by the Committee,
on alcohol or any controlled substance. "Controlled substance" means a drug,
immediate precursor or other substance listed in Schedules I-V of the Federal
Comprehensive Drug Abuse Prevention Control Act of 1970, as amended.
10.5 "Code" means the Internal Revenue Code of 1986, as amended.
10.6 "Committee" shall have the meaning set forth in Section 2.1.
10.7 "Common Stock" means the Common Stock, par value $.01 per share, of the
Company or, in the event that the outstanding shares of such Common Stock are
hereafter changed into or exchanged for shares of a different stock or security
of the Company or some other corporation, such other stock or security.
10.8 "Company" means Crescent Operating, Inc., a Delaware corporation.
10.9 "Covered Employee" means any individual who is the chief executive
officer or is acting in such capacity, or is among the four highest compensated
officers (other than the chief executive officer) of the Company or of any
Subsidiary.
10.10 "Director" means a member of the Board of Directors of the Company.
14
<PAGE> 15
10.11 "Director's Fees" means the remuneration otherwise payable to an
Outside Director of the Company as an annual retainer and for attending meetings
of the Board and meetings of the committees of the Board.
10.12 "Disability" of a Participant shall be deemed to occur whenever a
Participant is rendered unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuing period of not less than 12 months.
10.13 "Effective Date" means October 15, 1997.
10.14 "Employee" means an employee (as defined under Section 3401(c) of the
Code and the regulations thereunder) of the Company (including an officer), or
an officer or other employee of any of the Subsidiaries of the Company.
10.15 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
10.16 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
10.17 "Fair Market Value" means such value as will be determined by the
Board or the Committee on the basis of such factors as it deems appropriate;
provided that if the Common Stock is traded on a national securities exchange,
such value will be determined by the Board or the Committee on the basis of the
closing price for the Common Stock on the date for which such determination is
relevant, as reported on the exchange and further provided that if there should
be no sales on such date, such value shall be deemed equal to the closing price
on the last preceding date on which sales of Common Stock were reported. If the
Common Stock is traded on more than one exchange, such value will be determined
on the basis of the exchange trading the greatest volume of shares on such date.
In no event shall "Fair Market Value" be less than the par value of the Common
Stock.
10.18 "Incentive Stock Option" means an Option granted under Article IV.
10.19 "Nonqualified Stock Option" means an Option granted under Article V.
10.20 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted under the Plan.
10.21 "Option Agreement" means an agreement between the Company and a
Participant with respect to one or more Options.
10.22 "Outside Director" means a Director who is not an Employee of the
Company or of any Subsidiary.
15
<PAGE> 16
10.23 "Participant" means an Employee, Director or Advisor to whom an Award
has been granted hereunder.
10.24 "Plan" means the 1997 Crescent Operating, Inc. Management Stock
Incentive Plan, as amended from time to time.
10.25 "Plan Shares" means shares of Common Stock issuable pursuant to the
Plan.
10.26 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the Exchange Act or who is a "covered
employee" within the meaning of Section 162(m) of the Code.
10.27 "Restricted Stock" means an Award of Common Stock granted under
Article VI.
10.28 "Restricted Stock Agreement" means an agreement between the Company
and a Participant with respect to an Award of Restricted Stock.
10.29 "Retirement" means termination of employment or service as a Director
on or after the date on which a Participant attains age 70.
10.30 "Securities Act" means the Securities Act of 1933, as amended.
10.31 "Subsidiary" means a subsidiary corporation of the Company, as defined
in Section 424(f) of the Code.
16
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