<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-22725
CRESCENT OPERATING, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2701931
------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
306 West 7th Street, Suite 1000
Fort Worth, Texas 76102
------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (817) 339-2200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Common Stock, $.01 par value, outstanding as of November 15,
1999: 11,414,963
<PAGE> 2
CRESCENT OPERATING, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets......................................................................3
Consolidated Statements of Operations............................................................4
Consolidated Statement of Changes in Shareholders' Equity (Deficit)..............................6
Consolidated Statements of Cash Flows............................................................7
Notes To Consolidated Financial Statements (Unaudited)...........................................8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...........17
Item 3. Quantitative and Qualitative Disclosures About Market Risk......................................31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................................................31
Item 2. Change in Securities and Use of Proceeds........................................................31
Item 3. Defaults Upon Senior Securities.................................................................31
Item 4. Submission of Matters to a Vote of Security Holders.............................................31
Item 5. Other Information...............................................................................31
Item 6. Exhibits and Reports on Form 8-K................................................................32
</TABLE>
2
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CRESCENT OPERATING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 31,765 $ 42,810
Accounts receivable, net 48,068 35,544
Inventories 49,987 34,203
Real estate 128,916 109,301
Prepaid expenses and other current assets 9,610 7,508
------------------ -----------------
Total current assets 268,346 229,366
------------------ -----------------
PROPERTY AND EQUIPMENT, NET 205,337 162,181
------------------ -----------------
INVESTMENTS 94,004 367,105
------------------ -----------------
OTHER ASSETS
Real estate 94,662 68,809
Intangible assets, net 85,413 82,513
Other assets 54,560 27,359
------------------ -----------------
Total other assets 234,635 178,681
------------------ -----------------
TOTAL ASSETS $ 802,322 $ 937,333
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 79,824 $ 64,749
Accounts payable - CEI 10,700 7,731
Current portion of long-term debt - CEI 5,779 7,668
Current portion of long-term debt 83,988 84,539
Deferred revenue 43,314 46,998
------------------ -----------------
Total current liabilities 223,605 211,685
LONG-TERM DEBT - CEI, NET OF CURRENT PORTION 233,039 220,944
LONG-TERM DEBT, NET OF CURRENT PORTION 125,021 57,988
OTHER LIABILITIES 45,966 34,578
------------------ -----------------
Total liabilities 627,631 525,195
------------------ -----------------
MINORITY INTERESTS 190,917 428,206
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.01 par value, 10,000 shares authorized,
no shares issued or outstanding -- --
Common stock, $0.01 par value, 22,500 shares authorized,
11,414 and 11,402 shares issued, respectively 114 114
Additional paid-in capital 17,713 17,667
Deferred compensation on restricted shares (250) (210)
Accumulated comprehensive income (loss) (9,578) (9,763)
Retained deficit (19,919) (21,024)
Treasury stock at cost, 1,103 and 700 shares, respectively (4,306) (2,852)
------------------ -----------------
Total shareholders' equity (deficit) (16,226) (16,068)
------------------ -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) $ 802,322 $ 937,333
================== =================
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
For the three For the three
months ended months ended
September 30, 1999 September 30, 1998
----------------------- -----------------------
<S> <C> <C>
REVENUES
Equipment sales & leasing $ 37,163 $ 33,461
Hospitality 65,384 58,182
Land development 73,055 20,183
----------------------- -----------------------
Total revenues 175,602 111,826
----------------------- -----------------------
OPERATING EXPENSES
Equipment sales & leasing 35,139 31,372
Hospitality 50,520 43,380
Hospitality properties rent - CEI 13,656 13,579
Land development 72,565 25,077
Corporate general and administrative 776 1,112
----------------------- -----------------------
Total operating expenses 172,656 114,520
----------------------- -----------------------
INCOME (LOSS) FROM OPERATIONS 2,946 (2,694)
----------------------- -----------------------
INVESTMENT INCOME 1,859 5,738
----------------------- -----------------------
OTHER (INCOME) EXPENSE
Interest expense 7,789 4,387
Interest income (884) (908)
Other 182 (225)
----------------------- -----------------------
Total other (income) expense 7,087 3,254
----------------------- -----------------------
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTERESTS (2,282) (210)
INCOME TAX PROVISION (BENEFIT) (1,284) (1,320)
----------------------- -----------------------
INCOME (LOSS) BEFORE MINORITY INTERESTS (998) 1,110
MINORITY INTERESTS (1,465) (1,021)
----------------------- -----------------------
NET INCOME (LOSS) $ (2,463) $ 89
======================= =======================
EARNINGS (LOSS) PER SHARE
Basic $ (0.24) $ 0.01
======================= =======================
Diluted $ (0.24) $ 0.01
======================= =======================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,313 11,352
======================= =======================
Diluted 10,313 12,070
======================= =======================
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE> 5
CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data, unaudited)
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
September 30, 1999 September 30, 1998
---------------------- -----------------------
<S> <C> <C>
REVENUES
Equipment sales & leasing $ 103,858 $ 53,000
Hospitality 183,894 169,550
Land development 197,991 93,462
---------------------- -----------------------
Total revenues 485,743 316,012
---------------------- -----------------------
OPERATING EXPENSES
Equipment sales & leasing 98,737 49,824
Hospitality 140,241 123,791
Hospitality properties rent - CEI 40,450 38,095
Land development 188,557 97,399
Corporate general and administrative 1,766 2,251
---------------------- -----------------------
Total operating expenses 469,751 311,360
---------------------- -----------------------
INCOME FROM OPERATIONS 15,992 4,652
---------------------- -----------------------
INVESTMENT INCOME 15,700 12,388
---------------------- -----------------------
OTHER (INCOME) EXPENSE
Interest expense 21,003 11,639
Interest income (2,648) (3,124)
Other 325 (188)
---------------------- -----------------------
Total other (income) expense 18,680 8,327
---------------------- -----------------------
INCOME BEFORE INCOME
TAXES AND MINORITY INTERESTS 13,012 8,713
INCOME TAX PROVISION 60 2,948
---------------------- -----------------------
INCOME BEFORE MINORITY INTERESTS 12,952 5,765
MINORITY INTERESTS (11,847) (4,912)
---------------------- -----------------------
NET INCOME $ 1,105 $ 853
====================== =======================
EARNINGS PER SHARE
Basic $ 0.11 $ 0.08
====================== =======================
Diluted $ 0.10 $ 0.07
====================== =======================
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 10,380 11,298
====================== =======================
Diluted 10,993 12,056
====================== =======================
</TABLE>
See accompanying notes to the consolidated financial statements.
5
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
(Amounts in thousands, unaudited)
<TABLE>
<CAPTION>
Common stock Treasury stock
--------------------------- ---------------------------- Additional
Shares Amount Shares Amount paid-in capital
------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1998 11,402 $ 114 (700) $ (2,852) $ 17,667
Comprehensive income:
Net income -- -- -- -- --
Unrealized gain on Magellan warrants -- -- -- -- --
Comprehensive income
Stock options exercised 6 -- -- -- 6
Issuance of restricted common stock 6 -- -- -- 40
Purchase of treasury stock -- -- (403) (1,454) --
------------- ------------- ------------- ------------ ---------------
BALANCE at September 30, 1999 11,414 $ 114 (1,103) $ (4,306) $ 17,713
============= ============= ============= ============ ===============
<CAPTION>
Deferred
compensation Accumulated
on restricted comprehensive Retained
shares income (loss) deficit Total
------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCE at December 31, 1998 $ (210) $ (9,763) $ (21,024) $ (16,068)
-----------
Comprehensive income:
Net income -- -- 1,105 1,105
Unrealized gain on Magellan warrants -- 185 -- 185
-----------
Comprehensive income 1,290
Stock options exercised -- -- -- 6
Issuance of restricted common stock (40) -- -- --
Purchase of treasury stock -- -- -- (1,454)
------------- -------------- ----------- -----------
BALANCE at September 30, 1999 $ (250) $ (9,578) $ (19,919) $ (16,226)
============= ============== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
6
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CRESCENT OPERATING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands, unaudited)
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
September 30, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,105 $ 853
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation 15,432 8,960
Amortization 10,349 5,384
Provision for deferred income taxes (23,902) (2,493)
Gain on sale of investments (1,942) --
Equity in income of unconsolidated subsidiaries (13,758) (12,388)
Minority interests in net losses 11,847 4,912
Deferred compensation -- 50
Gain on sale of property and equipment (4,030) (468)
Changes in assets and liabilities, net of effects from acquistions:
Accounts receivable (9,576) (1,520)
Inventories (29,973) (4,802)
Prepaid expenses and current assets (1,555) (1,604)
Real estate (47,345) (1,823)
Other assets 987 (54)
Accounts payable and accrued expenses 9,751 (2,895)
Accounts payable - CEI 4,033 1,222
Deferred revenue, current and noncurrent 6,789 14,317
Other liabilities 449 1,550
------------------ ------------------
Net cash (used in) provided by operating activities (71,339) 9,201
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of business interests, net of cash acquired (26,047) (16,479)
Acquisition of business interests for minority interests (10,587) (122,604)
Purchases of property and equipment (38,743) (26,344)
Purchase of treasury stock (1,454) --
Proceeds from sale of investments 22,436 --
Proceeds from sale of property and equipment 24,065 3,271
Net (issuance of) proceeds from sale and collection of notes receivable (1,222) 25,887
Net distributions from investments 8,942 15,525
Other 1,137 --
------------------ ------------------
Net cash used in investing activities (21,473) (120,744)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of long-term debt 248,655 50,845
Payments on long-term debt (61,073) (28,950)
Proceeds of long-term debt - CEI 36,342 21,706
Payments on long-term debt - CEI (166,909) (49,237)
Capital contributions by minority interests 35,058 124,029
Distributions to minority interests (8,133) (11,091)
Other (2,173) 23
------------------ ------------------
Net cash provided by financing activities 81,767 107,325
------------------ ------------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (11,045) (4,218)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 42,810 43,401
------------------ ------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 31,765 $ 39,183
================== ==================
</TABLE>
See accompanying notes to the consolidated financial statements.
7
<PAGE> 8
CRESCENT OPERATING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Crescent Operating, Inc. was formed on April 1, 1997 by Crescent Real Estate
Equities Company ("CEI") and its subsidiary Crescent Real Estate Equities
Limited Partnership ("Crescent Partnership"). Effective June 12, 1997, CEI
distributed shares of Crescent Operating, Inc. common stock to shareholders of
CEI and unit holders of Crescent Partnership of record on May 30, 1997.
Crescent Operating, Inc. ("Crescent Operating" or "COPI") is a diversified
management company that, through various subsidiaries and affiliates
(collectively with Crescent Operating, the "Company"), currently operates
primarily in four business segments: Equipment Sales and Leasing, Hospitality,
Temperature Controlled Logistics (formerly Refrigerated Warehousing) and Land
Development. Through these segments, Crescent Operating does business throughout
the United States.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These financial statements should be read in conjunction
with the audited financial statements and related footnotes of the Company for
the fiscal year ended December 31, 1998 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 consolidated
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.
The financial results of the Company include the following:
o Subsidiaries which are wholly-owned and consolidated:
o Crescent Machinery Company ("Crescent Machinery");
o Rosestar Management LLC ("Rosestar"); and
o COI Hotel Group, Inc. ("COI Hotel").
o Subsidiaries which are not wholly-owned but the Company controls and
therefore consolidates:
o A 5% economic interest in:
- The Woodlands Land Company, Inc. ("LandCo") which has a 42.5% general
partner interest in The Woodlands Land Development Company, L.P.
("Landevco");
- Desert Mountain Development Corporation ("Desert Mountain
Development") which consolidates its 93% general partner interest in
Desert Mountain Properties Limited Partnership ("DMPLP"); and
- CRL Investments, Inc. ("CRL") which beneficially owns 60% of CR Las
Vegas, LLC ("CR Las Vegas") and 20% of CR License, LLC ("CR
License").
o A 50% general partner interest in COPI Colorado, L.P. ("COPI Colorado")
which owns 10% of Crescent Development Management Corp. ("CDMC"). The
10% interest in CDMC represents 100% of the voting stock, and therefore,
CDMC is consolidated into COPI Colorado.
8
<PAGE> 9
o Subsidiaries which the Company reports on the equity method of accounting:
o A 42.5% interest in the Woodlands Operating Company, L.P. ("TWOC");
o A 40% interest in Vornado Crescent Operations, L.P. ("AmeriCold
Operations");
o A direct 25% common membership interest in Charter Behavioral Health
Systems, LLC ("CBHS");
o An indirect 65% common membership interest in CBHS held through a
limited partner interest in COPI CBHS Holdings, L.P.; and
o A 1% interest in each of Crescent CS Holdings Corporation ("CS I") and
Crescent CS Holdings II Corporation ("CS II"), (collectively, "AmeriCold
Logistics").
2. RECENT DEVELOPMENTS:
EQUIPMENT SALES AND LEASING
Effective July 1, 1999, Crescent Machinery acquired all of the stock of E. L.
Lester and Company ("Lester"), a company engaged in equipment sales, leasing and
servicing, located in Houston, Texas. The purchase price of approximately $18.2
million was comprised of $8.5 million cash, the issuance of notes payable by
Crescent Operating in the amount of $6.0 million and the assumption of
liabilities of $3.7 million. The transaction was treated as a purchase for
accounting purposes, and accordingly, the results of operations have been
included in the Company's consolidated financial statements from the date of
acquisition.
Effective July 1, 1999, Crescent Machinery acquired all of the stock of Solveson
Crane Rental, Inc. ("Solveson"), a company engaged in equipment sales, leasing
and servicing, located in Tracy, California. The purchase price of approximately
$6.4 million was comprised of $3.2 million cash and the assumption of
liabilities of $3.2 million. The transaction was treated as a purchase for
accounting purposes, and accordingly, the results of operations have been
included in the Company's consolidated financial statements from the date of
acquisition.
HOSPITALITY
On July 23, 1999, CRL exercised its option to purchase an additional 10%
economic interest in CR License by paying $2.0 million, bringing CRL's total
economic interest in CR License to 20%. CR License is the entity which owns the
rights to the future use of the "Canyon Ranch" name. CRL has the opportunity
over the next year to pay an additional $3.0 million to obtain an additional 10%
interest in CR License.
LAND DEVELOPMENT
On August 27, 1999 and October 27, 1999, the Company sold its investments in
Hillwood/1642, Ltd. ("Hillwood") and Corporate Arena Associates, Inc.
("Corporate Arena"), respectively, for an aggregate price of approximately $1.4
million. Together, the sales resulted in an approximate $0.2 million gain.
OTHER
On October 25, 1999, the Company received notice from The Nasdaq-Amex Market
Group (the "Nasdaq") that, for the 30 consecutive trading days preceding such
date, the Company's common stock failed to maintain a closing bid price of
greater than or equal to $5.00, the minimum closing bid price required for
continued listing under the Nasdaq National Market maintenance standard
applicable to the Company. The Nasdaq has informed the Company that, in order to
continue to be listed on the Nasdaq National Market, the Company must regain
compliance with the applicable maintenance standard on or before January 24,
2000. The Company will regain compliance if the closing bid price of its common
stock equals or exceeds $5.00 for 10 consecutive trading days. In the event that
the Company does not regain compliance on or before January 24, 2000, the
Company could pursue several options, including requesting a hearing before a
Nasdaq panel on the issue of compliance or applying for listing on the Nasdaq
SmallCap Market.
9
<PAGE> 10
On September 9, 1999, Crescent Operating, Magellan Health Services, Inc.
("Magellan"), Crescent Partnership and CBHS completed a recapitalization of CBHS
and restructuring of the relationships among the parties. In connection with the
restructuring, Magellan transferred its remaining hospital-based assets
(including Charter Advantage, Charter Franchise Services, LLC, the call center
assets, the Charter name and related intellectual property and certain other
assets) to CBHS, and released CBHS from all accrued and future franchise fees.
As a result, Magellan is no longer obligated to provide franchise services to
CBHS. Magellan also transferred 80% of its CBHS common interest and all of its
CBHS preferred interest to CBHS, leaving Magellan with a 10% common membership
interest, Crescent Operating with a 25% common membership interest and 100% of
the preferred membership interest in CBHS, and a limited partnership controlled
by individual officers of Crescent Operating and in which Crescent Operating
owns 100% of the economic interests, with a 65% common interest in CBHS.
In connection with the restructuring, Magellan, CBHS, Crescent Partnership and
Crescent Operating also provided each other with mutual releases of all claims
and disputes against each other, with certain specified exceptions, and Crescent
Partnership deferred the August 1999 rent due from CBHS to the last four months
of 1999. Additionally, in connection with the settlement and mutual release of
the related claims between Magellan and Crescent Operating, the $2.5 million
held in escrow was released to Crescent Operating.
Magellan and CBHS also have modified and extended their existing arrangement
which designates CBHS as a preferred provider of inpatient acute behavioral
health services.
Effective November 10, 1999, Crescent Partnership agreed to defer the November
1999 and December 1999 minimum rent due from CBHS to December 16, 1999. In
addition, CBHS authorized Crescent Partnership to market and sell certain of the
health care facilities currently leased by CBHS under the master lease with
Crescent Partnership. Upon the closing of each sale of the subject facilities,
Crescent Partnership will reduce the amount of monthly minimum rent due under
the master lease by a specified percentage of the net proceeds of any such sale.
Further, Crescent Partnership and CBHS have agreed that, unless extended by
Crescent Partnership, the master lease will terminate on January 31, 2000, with
respect to facilities that can be sold under the master lease, subject to
certain holdover provisions.
Crescent Operating did not record gains or losses with respect to the above
transactions with CBHS. Crescent Operating had previously written off its
investment in CBHS.
As of November 12, 1999, COPI Colorado had purchased approximately 1.1 million
shares of Crescent Operating common stock at a total purchase price of $4.3
million. The average price paid for such shares, excluding brokers' commissions,
was $3.88 per share.
10
<PAGE> 11
3. INVESTMENTS:
Investments consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
--------------------- ----------------------
<S> <C> <C>
Investment in Landevco.......................................... $ 51,524 $ 37,880
Investment in AmeriCold Operations.............................. 12,753 --
Investment in CDMC projects..................................... 12,559 22,737
Investment in CR Las Vegas...................................... 8,356 --
Investment in AmeriCold Logistics............................... 3,024 293,868
Investment in Magellan warrants................................. 2,923 2,737
Investment in CR License........................................ 2,896 1,000
Investment in Houston Center Athletic Club Venture.............. 1,102 1,011
Investment in Corporate Arena .................................. 221 127
Investment in Hillwood.......................................... -- 774
Investment in Hicks-Muse........................................ -- 7,802
Investment in TWOC.............................................. (1,354) (831)
--------------------- ----------------------
$ 94,004 $ 367,105
===================== ======================
</TABLE>
Investment income consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1999 September 30, 1999
--------------------- ----------------------
<S> <C> <C>
Equity in income of Landevco..................................... $ 4,760 $ 13,390
Gain on sale of Hillwood......................................... 124 124
Equity in income of Houston Center Athletic Club Venture......... 76 211
Equity in income (loss) of AmeriCold Logistics................... (2) 283
Hicks-Muse income................................................ -- 239
Gain on sale of CS I and CS II................................... -- 1,493
Equity in income (loss) of TWOC.................................. (74) 752
Equity in income (loss) of CDMC Projects......................... (288) 2,991
Equity in loss of CR Las Vegas, LLC.............................. (1,047) (1,047)
Equity in loss of AmeriCold Operations........................... (1,690) (2,736)
--------------------- ----------------------
$ 1,859 $ 15,700
===================== ======================
</TABLE>
Due to a restructuring of the Company's investment in the Temperature Controlled
Logistics segment, Crescent Operating no longer consolidates CS I and CS II for
accounting purposes, which has resulted in a decrease in the investment in
AmeriCold Logistics of approximately $290 million.
11
<PAGE> 12
A summary of financial information for the Company's investments in TWOC and
Landevco, each of which represents a significant unconsolidated investment is
presented below (amounts in thousands). A summary of financial information for
the Company's investment in CBHS has not been provided because the Company's
investment balance is zero and no income or loss has been recognized since
February 1998.
<TABLE>
<CAPTION>
TWOC Landevco
-------------------------------------- --------------------------------------
Three months Nine months Three months ended Nine months
ended ended ended ended
September 30, September 30, September 30, September 30,
1999 1999 1999 1999
------------------- ----------------- -------------------- -----------------
<S> <C> <C> <C> <C>
Revenues ............................ $ 17,347 $ 55,061 $ 29,664 $ 86,739
Gross profit ........................ $ (178) $ 1,752 $ 11,631 $ 32,290
Net income (loss).................... $ (173) $ 1,769 $ 11,200 $ 31,507
Crescent Operating's equity
in income (loss) of subsidiary... $ (74) $ 752 $ 238 $ 670
</TABLE>
4. INTANGIBLE ASSETS:
Intangible assets consisted of the following (amounts in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------- ----------------------
<S> <C> <C>
Goodwill, net - Crescent Machinery............................ $ 8,362 $ 7,757
Goodwill, net - RoseStar...................................... 1,471 1,632
Goodwill, net - CDMC.......................................... 40,333 31,016
Membership intangible, net - DMPLP............................ 35,247 42,108
---------------------- ----------------------
$ 85,413 $ 82,513
====================== ======================
</TABLE>
5. LONG-TERM DEBT:
The Company's long-term debt facilities are composed of (i) corporate and
wholly-owned debt, and (ii) non wholly-owned debt. Corporate and wholly-owned
debt relates to debt facilities at the Crescent Operating level or owed by
entities which are owned 100% by Crescent Operating. Non wholly-owned debt
represents non-recourse debt owed by entities which are consolidated in the
Company's financial statements but are not 100% owned by the Company; the
Company's economic investment in these entities is 5% or less. Following is a
summary of the Company's debt financing (amounts in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
--------------------- ---------------------
<S> <C> <C>
LONG-TERM DEBT - CORPORATE AND WHOLLY-OWNED SUBSIDIARIES
Equipment notes payable to various finance companies, weighted
average interest of 8.5% due 1999 through 2003 (Crescent $ 93,809 $ 70,074
Machinery)....................................................
Floor plan debt payable, three to twelve month terms at 0%
interest (Crescent Machinery)................................. 30,939 7,958
Note payable to Crescent Partnership, interest at 9%, due May
2002 (COPI)................................................... 19,500 --
</TABLE>
12
<PAGE> 13
<TABLE>
<S> <C> <C>
Note payable to Crescent Partnership, interest at 12%, due May
2002 (COPI)................................................... 15,047 24,223
Line of credit in the amount of $15.0 million payable to Bank
of America, interest at LIBOR plus 1%, due August 31, 2001
(COPI)........................................................ 15,000 15,000
Line of credit in the amount of $17.2 million payable to
Crescent Partnership, interest at 12%, due May 2002 or five
years after the last draw (COPI).............................. 10,248 27,733
Notes payable to the sellers of Western Traction, Harvey
Equipment and Lester, weighted average interest of 7.8%, due
2000 through 2003 (COPI)...................................... 9,202 6,670
Note payable to Crescent Partnership, interest at 12%, due May
2002 (COPI)................................................... 9,000 9,000
Notes payable to Crescent Partnership, weighted average
interest of 10.1%, due 2002 through 2006 (RoseStar / COI
Hotel)........................................................ 2,713 3,078
------------ ------------
Total debt - corporate and wholly-owned subsidiaries..... 205,458 163,736
------------ ------------
LONG-TERM DEBT - NON WHOLLY-OWNED SUBSIDIARIES
Junior note payable to Crescent Partnership, interest at 14%,
due December 2010 (DMPLP)..................................... 60,000 60,000
Line of credit in the amount of $48.2 million payable to
Crescent Partnership, interest at 11.5%, due August 2004
(CDMC)........................................................ 46,065 35,976
Construction loans for various East West Resort Development
projects, interest at 6% to 9%, due 1999 to 2003 (CDMC)....... 36,080 32,825
Senior note payable to Crescent Partnership, interest at 10%,
due December 2005 (DMPLP)..................................... 28,266 50,717
Line of credit in the amount of $45 million payable to
National Bank of Arizona, interest at prime to prime plus 1%,
due June 2000 (DMPLP)......................................... 23,978 10,000
Line of credit in the amount of $40.0 million payable to
Crescent Partnership, interest at 11.5%, due December 2006
(CDMC)........................................................ 23,372 --
Line of credit in the amount of $22.9 million payable to
Crescent Partnership, interest at 12%, due January 2003
(CDMC)........................................................ 16,294 15,035
Line of credit in the amount of $7.0 million payable to
Crescent Partnership, interest at 12%, due August 2003
(CRL)......................................................... 5,666 --
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C> <C>
Note payable to Crescent Partnership, interest at 12%, due
June 2005 (CDMC).............................................. 2,648 2,850
----------- -----------
Total debt - non wholly-owned subsidiaries............... 242,369 207,403
----------- -----------
Total long-term debt..................................... $ 447,827 $ 371,139
=========== ===========
Current portion of long-term debt - CEI....................... $ 5,779 $ 7,668
Current portion of long-term debt............................. 83,988 84,539
Long-term debt - CEI, net of current portion.................. 233,039 220,944
Long-term debt, net of current portion........................ 125,021 57,988
----------- -----------
Total long-term debt................................ $ 447,827 $ 371,139
=========== ===========
</TABLE>
On August 27, 1999, the $15.0 million line of credit from Bank of America was
renewed for a two year term with terms similar to the previous facility.
6. OTHER LIABILITIES:
Other liabilities consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Deferred revenue................................... $ 40,764 $ 29,477
Deferred hospitality rent.......................... 4,268 3,808
Other.............................................. 934 1,293
------------------ -----------------
$ 45,966 $ 34,578
================== =================
</TABLE>
7. EARNINGS PER SHARE:
Earnings per share ("EPS") is calculated as follows (in thousands, except per
share data):
<TABLE>
Three months ended September 30, 1999 Nine months ended September 30, 1999
------------------------------------------ ------------------------------------------
Net Wtd Avg. Per Share Net Wtd. Avg. Per Share
Income Shares Amount Income Shares Amount
------------ ------------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS...................... $ (2,463) 10,313 $ (0.24) $ 1,105 10,380 $ 0.11
EFFECT OF DILUTIVE SECURITIES:
Stock Options.................. -- 613
------------- ------------
DILUTED EPS.................... $ (2,463) 10,313 $ (0.24) $ 1,105 10,993 $ 0.10
============= =========== ============ =============
</TABLE>
The Company had 994,872 and 90,600 options for its common stock outstanding for
the three and nine months ended September 30, 1999, respectively, which were not
included in the calculation of diluted EPS as they were anti-dilutive.
14
<PAGE> 15
8. INCOME TAXES:
The table below shows the reconciliation of the federal statutory income tax
rate to the effective tax rate.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1999 September 30, 1999
------------------------- ------------------------
<S> <C> <C>
Federal statutory income tax rate...................... 35.0% 35.0%
State income taxes, net of federal tax benefit......... 5.0 5.0
Minority interests..................................... 16.5 (7.7)
Change in valuation allowance.......................... - (31.9)
Other, net............................................. (0.2) 0.1
------------------------- ------------------------
Effective tax rate............................... 56.3% 0.5%
========================= ========================
</TABLE>
During 1999, the Company released its $4.2 million valuation allowance based on
both 1999 transactions and expected future taxable income.
9. BUSINESS SEGMENT INFORMATION:
Crescent Operating's assets and operations are located entirely within the
United States and are currently comprised primarily of four business segments:
(i) Equipment Sales and Leasing, (ii) Hospitality, (iii) Temperature Controlled
Logistics and (iv) Land Development. In addition to these four business
segments, the Company has grouped its investment in Magellan warrants,
investment in Hicks-Muse (sold in March 1999), interest expense on corporate
debt and general corporate overhead costs such as legal and accounting costs,
insurance costs and corporate salaries as "Other" for segment reporting
purposes. The Company uses net income as the measure of segment profit or loss.
The Company has expensed its entire investment and has no obligation or
commitment to fund CBHS' ongoing operations. As a result of the write-off, and
irrespective of the restructuring transactions described in Note 2 above, the
Company does not anticipate that it will recognize any additional losses from
its investment in CBHS. Because the Company has expensed its CBHS investment
and it is unlikely that the Company will recognize any material income from CBHS
in the near future due to the operating losses currently being incurred by CBHS,
the Company no longer reports the operations of CBHS as a separate segment.
Business segment information is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------------------------- --------------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Equipment Sales and Leasing...... $ 37,163 $ 33,461 $ 103,858 $ 53,000
Hospitality...................... 65,384 58,182 183,894 169,550
Temperature Controlled Logistics. -- -- -- --
Land Development................. 73,055 20,183 197,991 93,462
Other............................ -- -- -- --
----------------- ------------------ ------------------ ------------------
Total revenues................... $ 175,602 $ 111,826 $ 485,743 $ 316,012
================= ================== ================== ==================
Net income (loss):
Equipment Sales and Leasing...... $ 65 $ 730 $ 312 $ 959
Hospitality...................... 719 787 1,960 4,630
Temperature Controlled Logistics. (1,015) 61 (577) (30)
Land Development................. (577) 199 (192) 884
Other............................ (1,655) (1,688) (398) (5,590)
----------------- ------------------ ------------------ ------------------
Total net income (loss).......... $ (2,463) $ 89 $ 1,105 $ 853
================= ================== ================== ==================
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
Identifiable assets:
<S> <C> <C>
Equipment Sales and Leasing...... $ 185,315 $ 127,215
Hospitality...................... 49,390 38,536
Temperature Controlled Logistics. 13,846 293,780
Land Development................. 548,346 464,634
Other............................ 5,425 13,168
------------------ -----------------
Total identifiable assets........ $ 802,322 $ 937,333
================== =================
</TABLE>
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information in this Item 2 should be read in conjunction with the interim
consolidated financial statements and the accompanying notes presented in Item 1
to this Form 10-Q. The financial statements include all adjustments which
management believes are necessary to reflect a fair statement of the financial
results for the interim periods presented. All such adjustments are of a normal
and recurring nature. The information contained in this Item 2 should also be
read in conjunction with the more detailed information included in the Company's
Form 10-K for the year ended December 31, 1998. Capitalized terms used but not
otherwise defined in this Item 2 have the meanings given to them in the notes to
the financial statements included in Item 1.
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 the Company expects to achieve. Some of the factors that might cause
such a difference include (i) the impact of changes in the industries in which
the Company's businesses and investments operate (including equipment sales and
leasing, hospitality, temperature controlled logistics, land development and
behavioral healthcare) and the economic, demographic and other competitive
conditions affecting those industries, the Company's cash flows and the value of
the Company's investments, (ii) the relatively high levels of debt that the
Company maintains and the Company's ability to generate revenue sufficient to
meet debt service payments and other operating expenses, (iii) the possibility
that the Company's outstanding debt (some of which requires so-called "balloon"
payments of principal) may be refinanced at higher interest rates or otherwise
on terms less favorable to the Company, (iv) the continued availability of
equity and debt financing that may be necessary or advantageous to expand or
maintain the Company's operations and investments, (v) the underperformance or
non-performance of the Company's existing business investments, (vi) the
Company's inability to identify or pursue suitable business or investment
opportunities, and (vii) the high levels of debt and rental payments that
certain of the Company's investments are subject to make the earnings of those
investments extremely sensitive to changes in operations or business activity.
Given these uncertainties, readers are cautioned not to place undue reliance on
such statements. The Company is not obligated to update these forward-looking
statements to reflect any future events or circumstances.
OVERVIEW
Crescent Operating is a diversified management company that, through various
subsidiaries and affiliates, currently operates primarily in four business
segments: (i) Equipment Sales and Leasing, (ii) Hospitality, (iii) Temperature
Controlled Logistics (formerly Refrigerated Warehousing) and (iv) Land
Development. Within these segments, the Company, through various entities, owned
the following as of September 30, 1999 (collectively referred to as the
"Assets"):
o THE EQUIPMENT SALES AND LEASING SEGMENT consisted of a wholly-owned
interest in Crescent Machinery, a construction equipment sales, leasing and
service company with 18 locations in seven states.
o THE HOSPITALITY SEGMENT consisted of (i) the Company's lessee interests in
the Denver Marriott City Center, the Hyatt Regency Beaver Creek, the Hyatt
Regency Albuquerque, Canyon Ranch-Tucson, Canyon Ranch-Lenox, the Ventana
Inn and Spa, the Sonoma Mission Inn and Spa, the Sonoma Mission Inn Golf
and
17
<PAGE> 18
Country Club, the Four Seasons Hotel in Houston, Texas and the Renaissance
Hotel in Houston, Texas (the "Hospitality Properties"), (ii) a two-thirds
interest in the Houston Center Athletic Club Venture, and (iii) a 5%
economic interest in CRL Investments, Inc. ("CRL") that participates in the
future use of the "Canyon Ranch" name.
o THE TEMPERATURE CONTROLLED LOGISTICS SEGMENT consisted primarily of a 40%
interest in the operations of Vornado Crescent Operations, L.P. ("AmeriCold
Operations"), which currently operates 103 refrigerated storage properties
with an aggregate storage capacity of approximately 514.4 million cubic
feet, and a 0.4% interest in AmeriCold Logistics.
o THE LAND DEVELOPMENT SEGMENT consisted of (i) a 4.65% economic interest in
Desert Mountain, a master planned, luxury residential and recreational
community in northern Scottsdale, Arizona, (ii) a 42.5% general partner
interest in TWOC, which provides management, advisory, landscaping and
maintenance services to The Woodlands, Texas and is the lessee of The
Woodlands Resort and Conference Center, (iii) a 2.125% economic interest in
Landevco, which owns approximately 9,000 acres for commercial and
residential development as well as a realty office, an athletic center, and
interests in both a title company and a mortgage company, (iv) a 50%
economic interest in COPI Colorado, a company that has a 10% economic
interest in Crescent Development Management Corp. ("CDMC"), which invests
in entities that develop or manage residential and resort properties
(primarily in Colorado) and provides support services to such properties,
and (v) a 5% economic interest in an entity which owns a 6.19% interest in
the construction and operation of a new multipurpose entertainment and
sports center (the "Arena Project") in downtown Dallas, Texas and manages
the operations of the existing arena. The Company's interest in the Arena
Project was subsequently sold during the fourth quarter of 1999. See Land
Development Segment - Recent Developments.
The Company has written-off its entire investment and has no obligation or
commitment to fund CBHS' ongoing operations. As a result of the write-off, and
irrespective of the transactions described in Note 2 to the Company's financial
statements, the Company does not anticipate that it will recognize any
additional losses from its investment in CBHS. Because the Company has
written-off its CBHS investment and it is unlikely that the Company will
recognize any material income from CBHS in the near future due to the operating
losses currently being incurred by CBHS, the Company no longer reports its
operations related to CBHS as a separate segment. See Other - Recent
Developments.
EQUIPMENT SALES AND LEASING SEGMENT
RECENT DEVELOPMENTS
On August 1, 1999, Crescent Machinery opened a new location located in Fort
Worth, Texas. This location offers new equipment sales, equipment rental, parts
and services. A full assortment of rental equipment is available and products
from JCB, Ingersoll Rand, Terex Cranes, Target and Pioneer are available for new
equipment sales. The Fort Worth location is part of Crescent Machinery's overall
strategy to capitalize on existing markets with potential growth such as the
Dallas-Fort Worth metroplex area.
Effective July 1, 1999, Crescent Machinery acquired all of the stock of E. L.
Lester and Company ("Lester"), a company engaged in equipment sales, leasing and
servicing, located in Houston, Texas. Lester specializes in the sales and rental
of 8 to 300 ton conventional and hydraulic cranes to highway, building and
industrial contractors. The purchase price of approximately $18.2 million was
comprised of $8.5 million cash, the issuance of notes payable by Crescent
Operating in the amount of $6.0 million and the assumption of liabilities of
$3.7 million.
Effective July 1, 1999, Crescent Machinery acquired all of the stock of Solveson
Crane Rental, Inc. ("Solveson"), a company engaged in equipment sales, leasing
and servicing, located in Tracy, California. Solveson specializes in the rental
of 40 to 90 ton rough terrain cranes to highway, building and industrial
contractors. The purchase price of approximately $6.4 million was comprised of
$3.2 million cash and the assumption of liabilities of $3.2 million.
18
<PAGE> 19
FINANCIAL ACTIVITY
<TABLE>
<CAPTION>
(in thousands) Three months ended September 30, Nine months ended September 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
------------------ -------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue:
New and used equipment.......... $ 21,049 $ 21,257 $ 64,649 $ 31,921
Rental equipment................ 8,932 5,795 20,355 10,864
Parts, service and supplies..... 7,182 6,409 18,854 10,215
------------------ -------------- ---------------- ----------------
Total revenue...................... 37,163 33,461 103,858 53,000
Expenses:
Cost of sales:
New and used equipment....... 18,395 18,138 55,174 27,506
Rental equipment............. 4,249 3,276 11,597 6,295
Parts, service and supplies.. 4,683 3,818 11,863 6,485
------------------ -------------- ---------------- ----------------
Total cost of sales................ 27,327 25,232 78,634 40,286
Gross profit....................... 9,836 8,229 25,224 12,714
Operating expenses.............. 7,812 6,140 20,103 9,538
------------------ -------------- ---------------- ----------------
Income from operations............. $ 2,024 $ 2,089 $ 5,121 $ 3,176
================== ============== ================ ================
EBITDA............................. $ 5,961 $ 5,214 $ 15,928 $ 8,731
================== ============== ================ ================
</TABLE>
Crescent Machinery has grown substantially in 1999 through acquisitions and
same-store growth since the prior year. Earnings before interest expense, income
taxes, depreciation and amortization ("EBITDA") for the Equipment Sales and
Leasing segment for the three months ended September 30, 1999 was $6.0 million
as compared to $5.2 million for the three months ended September 30, 1998.
EBITDA for the Equipment Sales and Leasing segment for the nine months ended
September 30, 1999 was $15.9 million as compared to $8.7 million for the nine
months ended September 30, 1998. Management believes that EBITDA can be a
meaningful measure of operating performance, cash generation and the ability to
service debt. However, EBITDA should not be considered as an alternative to: (i)
net income (determined in accordance with GAAP); (ii) operating cash flow
(determined in accordance with GAAP); or (iii) liquidity. There can be no
assurance that the Company's EBITDA is comparable to similarly titled items
reported by other companies.
HOSPITALITY SEGMENT
RECENT DEVELOPMENTS
Crescent Partnership has committed over $40 million towards capital projects at
certain of the Hospitality Properties to further enhance the guests' experience.
The projects are expected to be substantially completed during the first half of
2000 and include: (i) 30 new suites and the spa expansion at the Sonoma Mission
Inn and Spa, (ii) renovation of the guestrooms at the Four Seasons Hotel in
Houston, (iii) renovation of the newly leased Renaissance Hotel in Houston and
(iv) four new suites and a new spa which were completed at the Ventana Inn and
Spa during September 1999. Certain of these projects generate increased rent and
the related construction causes a temporary reduction in the average daily rate
of the hotel due to the negative impact on the guests' experience during
construction.
On July 23, 1999, CRL exercised its option to purchase an additional 10%
economic interest in CR License LLC ("CR License") by paying $2.0 million,
bringing CRL's total economic interest in CR License to 20%. CR License is the
entity which owns the rights to the future use of the "Canyon Ranch" name. CRL
has the opportunity over the next year to pay an additional $3.0 million to
obtain an additional 10% interest in CR License.
19
<PAGE> 20
FINANCIAL ACTIVITY
The following table sets forth certain information about the Hospitality
Properties for the nine months ended September 30, 1999 and 1998. The
information for the Hospitality Properties is based on available rooms, except
for Canyon Ranch-Tucson and Canyon Ranch-Lenox, which are destination health and
fitness resorts that measure performance based on available guest nights.
<TABLE>
<CAPTION>
For the Nine Months Ended September 30,
----------------------------------------------------------
Year Revenue Per
Completed/ Average Average Daily Available Room
Last Occupancy Rate Rate ("ADR") ("REVPAR")
Renovated Rooms 1999 1998 1999 1998 1999 1998
--------- --------- --------- ------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Full-Service/Luxury Hotels
Hyatt Regency Beaver Creek.... 1989/1998 276(1) 75% 72% $ 254 $236 $ 191 $ 173
Denver Marriott City Center... 1982/1994 613 81 81 125 126 100 102
Hyatt Regency Albuquerque..... 1990/1998 395 69 70 105 102 72 71
Sonoma Mission Inn & Spa...... 1927/1999 178(3) 82 84 218 230 178 193
Four Seasons Hotel Houston.... 1982/1999 399 65 65 197 179 128 116
Ventana Inn & Spa............. 1975/1999 62 80 58(2) 371 380 297 221(2)
Renaissance Houston........... 1974 389 63 68 94 92 59 63
--------- --------- ------- ----------- -------- --------- ---------
Total/Weighted Average 2,312 72% 73% $ 161 $155 $ 117 $ 113
========= ========= ======= =========== ======== ========= =========
Destination Health & Fitness Resorts
Canyon Ranch-Tucson........... 1980 250(4)
Canyon Ranch-Lenox............ 1989 212(4)
--------- --------- ------- ----------- -------- --------- ---------
Total/Weighted Average 462 88%(5) 87%(5) $ 529(6) $ 493(6) $ 446(7) $ 414(7)
========= ========= ======= =========== ======== ========= =========
</TABLE>
(1) In 1998, the number of rooms at Hyatt Regency Beaver Creek was reduced to
276 due to 19 rooms being converted into a 20,000 square foot spa.
(2) Average occupancy and REVPAR decreased in 1998 due to the closing of the
Ventana Inn and Spa for approximately three months as a result of the major
access road leading to the property being washed out.
(3) In February 1999, 20 rooms were taken out of commission during the
construction of the spa.
(4) Represents available guest nights, which is the maximum number of guests
that the resort can accommodate per night.
(5) Represents the number of paying and complimentary guests for the period,
divided by the maximum number of available guest nights for the period.
(6) Represents the average daily "all-inclusive" guest package charges for the
period, divided by the average daily number of paying guests for the period.
(7) Represents the total "all-inclusive" guest package charges for the period,
divided by the maximum number of available guest nights for the period.
TEMPERATURE CONTROLLED LOGISTICS SEGMENT
FINANCIAL ACTIVITY
As a result of the restructuring of the Temperature Controlled Logistics
segment, as of September 30, 1999, the Company had a 40% economic interest in
AmeriCold Operations and a 0.4% interest in AmeriCold Logistics. Because the
restructuring did not become effective until March 12, 1999, the Company's
economic share of the operations of AmeriCold Logistics for the nine months
ended September 30, 1999 included a 2% economic interest for the period from
January 1, 1999 through March 11, 1999 and a 0.4% economic interest for the
period from March 12, 1999 through September 30, 1999. The Company's economic
share of the operations of AmeriCold Operations for the nine months ended
September 30, 1999 includes a 40% economic interest for the period from March
12, 1999 through September 30, 1999.
20
<PAGE> 21
The Company's share of the net loss from AmeriCold Operations for the three and
nine months ended September 30, 1999 was $1.7 million and $2.7 million,
respectively. During these periods, margins of AmeriCold Operations were lower
than anticipated, in part, from changes in product mix and delays in two
start-up warehouse operations. The Company's share of net income from AmeriCold
Logistics for each of the three months ended September 30, 1999 and 1998 was
less than $0.1 million. The Company's share of net income (loss) from AmeriCold
Logistics for the nine months ended September 30, 1999 and 1998 was $0.3 million
and $(0.1) million, respectively. Also included in net income (loss) for the
Temperature Controlled Logistics segment for the three and nine months ended
September 30, 1999 was the $1.5 million gain on sale of 80% of the Company's
interest in AmeriCold Logistics.
LAND DEVELOPMENT SEGMENT
RECENT DEVELOPMENTS
On August 27, 1999 and October 27, 1999, the Company sold its investments in
Hillwood and Corporate Arena, respectively, for an aggregate price of
approximately $1.4 million. Together, the sales resulted in an approximate $0.2
million gain.
FINANCIAL ACTIVITY
Net loss for the Land Development Segment was $0.6 million and $0.2 million for
the three and nine months ended September 30, 1999, respectively. The Company's
share of Desert Mountain Development's net loss for the three and nine months
ended September 30, 1999 was $0.2 million and $0.1 million, respectively. The
Company's share of net income from both The Woodlands Land Company and WOCOI
Investment Company for the three and nine months ended September 30, 1999 was
$0.1 million and $0.9 million, respectively. The Company's share of COPI
Colorado's net loss for the three and nine months ended September 30, 1999 was
$0.5 million and $1.0 million, respectively.
The following table sets forth certain information as of September 30, 1999
relating to the residential development properties in which the Company owns an
interest.
<TABLE>
<CAPTION>
Total
Lots/Units Total Average
Total Developed Lots/Units Closed Sale
Lots/Units Since Closed Price Range of Proposed
Land Development Planned Inception Since Inception Per Lot/Unit Sale Prices Per Lot(1)
---------------- ------- --------- --------------- ------------ ----------------------
<S> <C> <C> <C> <C> <C>
Desert Mountain............ 2,665 2,155 1,900 $ 470,000(2) $375,000 - $3,000,000
The Woodlands.............. 36,845 21,356 21,356 $ 49,554 $15,300 - $500,000
CDMC....................... 2,600 135 132 $ 683,467 $18,000 - $4,075,000
----------- ----------- ----------------
Total Land Development..... 42,110 23,646 23,388
=========== =========== ================
</TABLE>
(1) Based on existing inventory of developed lots and lots to be developed.
(2) Includes golf membership, which for 1999 is approximately $175,000.
OTHER
RECENT DEVELOPMENTS
On October 25, 1999, the Company received notice from The Nasdaq-Amex Market
Group (the "Nasdaq") that, for the 30 consecutive trading days preceding such
date, the Company's common stock failed to maintain a closing bid price of
greater than or equal to $5.00, the minimum closing bid price required for
continued listing under the Nasdaq National Market maintenance standard
applicable to the Company. The Nasdaq has informed the Company that, in order to
continue to be listed on the Nasdaq National Market, the Company must regain
compliance with the applicable maintenance standard on or before January 24,
2000. The Company will regain compliance if the closing
21
<PAGE> 22
bid price of its common stock equals or exceeds $5.00 for 10 consecutive trading
days. In the event that the Company does not regain compliance on or before
January 24, 2000, the Company could pursue several options, including requesting
a hearing before a Nasdaq panel on the issue of compliance or applying for
listing on the Nasdaq SmallCap Market. Management believes that the Company
currently meets or exceeds all requirements for listing on the Nasdaq SmallCap
Market; however, there can be no assurance that the Company's common stock would
be accepted for listing on the Nasdaq SmallCap Market if the Company decided to
seek listing on that market.
On September 9, 1999 Crescent Operating, Magellan, Crescent Partnership and CBHS
completed a recapitalization of CBHS and restructuring of the relationships
among the parties pursuant to the parties' binding Letter Agreement dated August
10, 1999. In connection with the restructuring, Magellan transferred its
remaining hospital-based assets (including Charter Advantage, Charter Franchise
Services, LLC, the call center assets, the Charter name and related intellectual
property and certain other assets) to CBHS, and released CBHS from all accrued
and future franchise fees. As a result, Magellan is no longer obligated to
provide franchise services to CBHS. Magellan also transferred 80% of its CBHS
common interest and all of its CBHS preferred interest to CBHS, leaving Magellan
with a 10% common membership interest, Crescent Operating with a 25% common
membership interest and 100% of the preferred membership interest in CBHS, and a
limited partnership controlled by individual officers of Crescent Operating and
in which Crescent Operating owns 100% of the economic interests, with a 65%
common interest in CBHS.
In connection with the restructuring, Magellan, CBHS, Crescent Partnership and
Crescent Operating also provided each other with mutual releases of all claims
and disputes against each other, with certain specified exceptions, and Crescent
Partnership deferred the August 1999 rent due from CBHS to the last four months
of 1999. Additionally, in connection with the settlement and mutual release of
the related claims between Magellan and Crescent Operating, the $2.5 million
held in escrow was released to Crescent Operating.
Magellan and CBHS also have modified and extended their existing arrangement
which designates CBHS a preferred provider of inpatient acute behavioral health
services.
Effective November 10, 1999, Crescent Partnership agreed to defer the November
1999 and December 1999 minimum rent due from CBHS to December 16, 1999. In
addition, CBHS authorized Crescent Partnership to market and sell certain of the
health care facilities currently leased by CBHS under the master lease with
Crescent Partnership. Upon the closing of each sale of the subject facilities,
Crescent Partnership will reduce the amount of monthly minimum rent due under
the master lease by a specified percentage of the net proceeds of any such sale.
Further, Crescent Partnership and CBHS have agreed that, unless extended by
Crescent Partnership, the master lease will terminate on January 31, 2000, with
respect to facilities that can be sold under the master lease, subject to
certain holdover provisions.
Crescent Operating did not record gains or losses with respect to the above
transactions with CBHS. Crescent Operating had previously expensed its
investment in CBHS.
As of November 12, COPI Colorado had purchased approximately 1.1 million shares
of Crescent Operating common stock at a total purchase price of $4.3 million.
The average price paid for such shares, excluding brokers' commissions, was
$3.88 per share.
22
<PAGE> 23
SEGMENT FINANCIAL INFORMATION
(Amounts in thousands, except share data)
The following is a summary of Crescent Operating's financial information
reported by segment for the three months ended September 30, 1999:
<TABLE>
<CAPTION>
EQUIPMENT TEMPERATURE
SALES CONTROLLED
AND LEASING HOSPITALITY LOGISTICS
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues................................. $ 37,163 $ 65,384 $ --
Operating expenses....................... 35,139 64,176 1
---------------- ---------------- ----------------
Income (loss) from operations............ 2,024 1,208 (1)
---------------- ---------------- ----------------
Investment income (loss)................. -- (972) (1,692)
---------------- ---------------- ----------------
Other (income) expense
Interest expense.................... 1,976 232 --
Interest income..................... (24) (38) --
Other............................... (41) -- --
---------------- ---------------- ----------------
Total other (income) expense............. 1,911 194 --
---------------- ---------------- ----------------
Income (loss) before income
taxes and minority interest......... 113 42 (1,693)
Income tax provision (benefit)........... 48 17 (678)
---------------- ---------------- ----------------
Income (loss) before minority interests.. 65 25 (1,015)
Minority interests....................... -- 694 --
---------------- ---------------- ----------------
Net income (loss)........................ $ 65 $ 719 $ (1,015)
================ ================ ================
Net income (loss) per share, basic....... $ 0.01 $ 0.07 $ (0.10)
================ ================ ================
Net income (loss) per share, diluted..... $ 0.01 $ 0.07 $ (0.10)
================ ================ ================
EBITDA Calculation: (1)
Net income (loss)................... $ 65 $ 719 $ (1,015)
Interest expense, net............... 1,952 36 192
Income tax provision (benefit)...... 48 480 (670)
Depreciation and amortization....... 3,896 285 646
---------------- ---------------- ----------------
EBITDA................................... $ 5,961 $ 1,520 $ (847)
================ ================ ================
<CAPTION>
LAND
DEVELOPMENT OTHER TOTAL
---------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues................................. $ 73,055 $ -- $ 175,602
Operating expenses....................... 72,565 775 172,656
---------------- ---------------- -----------------
Income (loss) from operations............ 490 (775) 2,946
---------------- ---------------- -----------------
Investment income (loss)................. 4,523 -- 1,859
---------------- ---------------- -----------------
Other (income) expense
Interest expense.................... 3,567 2,014 7,789
Interest income..................... (804) (18) (884)
Other............................... 220 3 182
---------------- ---------------- -----------------
Total other (income) expense............. 2,983 1,999 7,087
---------------- ---------------- -----------------
Income (loss) before income
taxes and minority interest......... 2,030 (2,774) (2,282)
Income tax provision (benefit)........... 448 (1,119) (1,284)
---------------- ---------------- -----------------
Income (loss) before minority interests.. 1,582 (1,655) (998)
Minority interests....................... (2,159) -- (1,465)
---------------- ---------------- -----------------
Net income (loss)........................ $ (577) $ (1,655) $ (2,463)
================ ================ =================
Net income (loss) per share, basic....... $ (0.06) $ (0.16) $ (0.24)
================ ================ =================
Net income (loss) per share, diluted..... $ (0.06) $ (0.16) $ (0.24)
================ ================ =================
EBITDA Calculation: (1)
Net income (loss)................... $ (577) $ (1,655) $ (2,463)
Interest expense, net............... 132 1,996 4,308
Income tax provision (benefit)...... 38 (1,119) (1,223)
Depreciation and amortization....... 358 (19) 5,166
---------------- ---------------- -----------------
EBITDA................................... $ (49) $ (797) $ 5,788
================ ================ =================
</TABLE>
(1) EBITA 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.
23
<PAGE> 24
SEGMENT FINANCIAL INFORMATION
(Amounts in thousands, except share data)
The following is a summary of Crescent Operating's financial information
reported by segment for the nine months ended September 30, 1999:
<TABLE>
<CAPTION>
EQUIPMENT TEMPERATURE
SALES CONTROLLED
AND LEASING HOSPITALITY LOGISTICS
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues................................. $ 103,858 $ 183,894 $ --
Operating expenses....................... 98,737 180,691 2
---------------- ---------------- ----------------
Income (loss) from operations............ 5,121 3,203 (2)
---------------- ---------------- ----------------
Investment income (loss)................. -- (837) (960)
---------------- ---------------- ----------------
Other (income) expense
Interest expense.................... 4,683 489 --
Interest income..................... (51) (96) --
Other............................... (54) -- --
---------------- ---------------- ----------------
Total other (income) expense............. 4,578 393 --
---------------- ---------------- ----------------
Income (loss) before income
taxes and minority interest......... 543 1,973 (962)
Income tax provision (benefit)........... 231 789 (385)
---------------- ---------------- ----------------
Income (loss) before minority interests.. 312 1,184 (577)
Minority interests....................... -- 776 --
---------------- ---------------- ----------------
Net income (loss)........................ $ 312 $ 1,960 $ (577)
================ ================ ================
Net income (loss) per share, basic....... $ 0.03 $ 0.19 $ (0.05)
================ ================ ================
Net income (loss) per share, diluted..... $ 0.03 $ 0.18 $ (0.05)
================ ================ ================
EBITDA Calculation: (1)
Net income (loss)................... $ 312 $ 1,960 $ (577)
Interest expense, net............... 4,632 101 425
Income tax provision (benefit)...... 231 1,306 (508)
Depreciation and amortization....... 10,753 808 1,645
---------------- ---------------- ----------------
EBITDA................................... $ 15,928 $ 4,175 $ 985
================ ================ ================
<CAPTION>
LAND
DEVELOPMENT OTHER TOTAL
---------------- ---------------- -----------------
<S> <C> <C> <C>
Revenues................................. $ 197,991 $ -- $ 485,743
Operating expenses....................... 188,557 1,764 469,751
---------------- ---------------- -----------------
Income (loss) from operations............ 9,434 (1,764) 15,992
---------------- ---------------- -----------------
Investment income (loss)................. 17,257 240 15,700
---------------- ---------------- -----------------
Other (income) expense
Interest expense.................... 9,690 6,141 21,003
Interest income..................... (2,425) (76) (2,648)
Other............................... 378 1 325
---------------- ---------------- -----------------
Total other (income) expense............. 7,643 6,066 18,680
---------------- ---------------- -----------------
Income (loss) before income
taxes and minority interest......... 19,048 (7,590) 13,012
Income tax provision (benefit)........... 6,617 (7,192) 60
---------------- ---------------- -----------------
Income (loss) before minority interests.. 12,431 (398) 12,952
Minority interests....................... (12,623) -- (11,847)
---------------- ---------------- -----------------
Net income (loss)........................ $ (192) $ (398) $ 1,105
================ ================ =================
Net income (loss) per share, basic....... $ (0.02) $ (0.04) $ 0.11
================ ================ =================
Net income (loss) per share, diluted..... $ (0.02) $ (0.04) $ 0.10
================ ================ =================
EBITDA Calculation: (1)
Net income (loss)................... $ (192) $ (398) $ 1,105
Interest expense, net............... 321 6,065 11,544
Income tax provision (benefit)...... 657 (7,192) (5,506)
Depreciation and amortization....... 1,105 (115) 14,196
---------------- ---------------- -----------------
EBITDA................................... $ 1,891 $ (1,640) $ 21,339
================ ================ =================
</TABLE>
(1) EBITA 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.
24
<PAGE> 25
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999,
COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
Total revenue increased $63.8 million, or 57.1%, to $175.6 million for the three
months ended September 30, 1999, compared with $111.8 million for the three
months ended September 30, 1998. Total revenue increased $169.7 million, or
53.7%, to $485.7 million for the nine months ended September 30, 1999, compared
with $316.0 million for the nine months ended September 30, 1998. The increase
in total revenue is attributable to the factors discussed in the following
paragraphs.
Equipment Sales and Leasing Segment
Equipment sales and leasing revenue increased $3.7 million, or 11.0%, for the
three months ended September 30, 1999, compared with the three months ended
September 30, 1998. Revenues increased $50.9 million, or 96.0%, for the nine
months ended September 30, 1999, compared with the nine months ended September
30, 1998. Significant components of the overall increases were:
o the Company's acquisitions since January 1, 1998 and the opening of a new
location on August 1, 1999 resulting in incremental revenue of $7.9 and
$46.4 million during the three and nine months ended September 30, 1999,
respectively;
o same store revenue decreased $4.3 million for the three months ended
September 30, 1999 as compared to the same period in the prior year due to
lower new and used equipment sales; and
o same store revenue increased $4.4 million for the nine months ended
September 30, 1999 as compared to the same period in the prior year due to
increased rental revenue.
Hospitality Segment
Hospitality revenue increased $7.2 million, or 12.4%, to $65.4 million for the
three months ended September 30, 1999, compared with $58.2 million for the three
months ended September 30, 1998. Revenues increased $14.3 million, or 8.4%, to
$183.9 million for the nine months ended September 30, 1999, compared with
$169.6 million for the nine months ended September 30, 1998. Significant
components of the overall increases were:
o revenue derived from the operations of the Sonoma Mission Inn Golf and
Country Club and the Renaissance Hotel, neither of which was leased by the
Company during the three or nine months ended September 30, 1998;
o revenue derived from the newly constructed Allegria Spa at the Hyatt
Regency Beaver Creek, which conducted operations for the full nine months
ended September 30, 1999 as compared to only one month during the first
nine months of 1998;
o increased rates at certain of the Hospitality Properties resulted in higher
revenues during 1999 as compared to the corresponding period in 1998; and
o the elimination of the Austin Omni Hotel rental income, resulting from the
termination of the lease effective December 31, 1998.
Land Development Segment
Land Development revenue, which represents revenue from Desert Mountain
Development and COPI Colorado prior to the elimination of the Minority
Interests, increased $52.9 million, or 261.9%, to $73.1 million for the three
months ended September 30, 1999, compared with $20.2 million for the three
months ended September 30, 1998. Land Development revenues increased $104.5
million, or 111.8%, to $198.0 million for the nine months ended
25
<PAGE> 26
September 30, 1999, compared with $93.5 million for the nine months ended
September 30, 1998. Significant components of the overall increases were:
o revenues of COPI Colorado, which the Company did not include during the
three or nine months ended September 30, 1998, and which resulted in
incremental revenues of $53.4 and $97.2 million during the three and nine
months ended September 30, 1999, respectively; and
o a $0.5 million decrease in revenue and a $7.3 million increase in revenue
from Desert Mountain Development during the three and nine months ended
September 30, 1999, respectively. The decrease for the three months can be
attributed to fewer home sales as compared to the prior period, whereas the
increase for the nine months reflects overall higher sales prices for lots.
OPERATING EXPENSES
Total operating expenses increased $58.2 million, or 50.8%, to $172.7 million
for the three months ended September 30, 1999, compared with $114.5 million for
the three months ended September 30, 1998. Total operating expenses increased
$158.4 million, or 50.9%, to $469.8 million for the nine months ended September
30, 1999, compared with $311.4 million for the nine months ended September 30,
1998. The increase in operating expenses is attributable to the factors
discussed in the following paragraphs.
Equipment Sales and Leasing Segment
Equipment sales and leasing expenses increased $3.7 million, or 11.8%, to $35.1
million for the three months ended September 30, 1999, compared with $31.4
million for the three months ended September 30, 1998. Expenses increased $48.9
million, or 98.2% to $98.7 million for the nine months ended September 30, 1999,
compared with $49.8 million for the nine months ended September 30, 1998.
Significant components of the overall increases were:
o the Company's acquisitions since January 1, 1998 and the opening of a new
location on August 1, 1999 resulting in incremental operating expenses of
$8.2 and $46.9 million during the three and nine months ended September 30,
1999, respectively;
o decreased costs of $4.4 million incurred during the three months ended
September 30, 1999, consistent with the changes in equipment sales and
leasing revenue that is not attributable to acquisitions; and
o increased costs of $2.0 million incurred during the nine months ended
September 30, 1999 due to increased equipment sales and leasing revenue
that is not attributable to acquisitions and to increased depreciation
expense.
Hospitality Segment
Hospitality expenses increased $7.2 million, or 12.6%, to $64.2 million for the
three months ended September 30, 1999, compared with $57.0 million for the three
months ended September 30, 1998. Expenses increased $18.8 million, or 11.6%, to
$180.7 million for the nine months ended September 30, 1999, compared with
$161.9 million for the nine months ended September 30, 1998. Significant
components of the overall increases were:
o rent and expenses associated with the Sonoma Mission Inn Golf and Country
Club and the Renaissance Hotel, neither of which was leased by the Company
during the three or nine months ended September 30, 1998;
o additional rent for the three and nine months ended September 30, 1999,
resulting from increased revenue generated by the Hospitality Properties,
partially offset by a decrease in rent for the three and nine months ended
September 30, 1999 due to the termination of the lease of the Austin Omni
Hotel effective December 31, 1998;
o rent and expenses associated with the newly constructed Allegria Spa at the
Hyatt Regency Beaver Creek, which was leased for only one month for the
period ended September 30, 1998; and
26
<PAGE> 27
o additional rent associated with capital projects at the Hospitality
Properties that were incurred during the three and nine months ended
September 30, 1999.
Land Development Segment
Land development expenses, which primarily represent operating costs incurred by
Desert Mountain Development and COPI Colorado prior to the elimination of the
Minority Interests, increased $47.5 million, or 189.2%, to $72.6 million for the
three months ended September 30, 1999, compared with $25.1 million for the three
months ended September 30, 1998. Expenses increased $91.2 million, or 93.6%, to
$188.6 million for the nine months ended September 30, 1999, compared with $97.4
million for the nine months ended September 30, 1998. Significant components of
the overall increases were:
o operating expenses of COPI Colorado, which the Company did not include
during the three or nine months ended September 30, 1998, and which
resulted in incremental expenses of $48.2 and $88.6 million during the
three and nine months ended September 30, 1999, respectively, and
o a $0.9 million decrease in expenses and a $2.2 million increase in expenses
incurred by Desert Mountain Development during the three and nine months
ended September 30, 1999, respectively. The decrease for the three months
is primarily attributable to fewer home sales as compared to the prior
period, and the increase for the nine months represents overall higher
development costs associated with selling higher valued lots.
Corporate General and Administrative Expenses
Corporate general and administrative expenses, totaling $0.8 million and $1.8
million for the three and nine months ended September 30, 1999, respectively,
were comparable with such costs for the three and nine months ended September
30, 1998. These expenses consisted of general corporate overhead costs, such as
legal and accounting costs, insurance costs and corporate salaries.
INVESTMENT INCOME
Investment income decreased $3.8 million or 66.7%, to $1.9 million for the three
months ended September 30, 1999, compared with $5.7 million for the three months
ended September 30, 1998. Significant components of the overall decrease were:
o equity in loss of CR Las Vegas, LLC in the amount of $1.0 million due to
the pre-opening expenses related to the opening of the Venetian Spa in Las
Vegas in June 1999.
o a decrease in income of AmeriCold Logistics in the amount of $1.1 million
due to the fact that the Company no longer consolidates CSI and CSII as a
result of the restructuring of the Temperature Controlled Logistics
segment;
o equity in loss of AmeriCold Operations in the amount of $1.7 million due to
the acquisition of AmeriCold Operations in March 1999; and
For the nine months ended September 30, 1999, investment income increased $3.3
million, or 26.6%, to $15.7 million, compared with $12.4 million for the nine
months ended September 30, 1998. Significant components of the overall increase
were:
o no losses associated with CBHS have been recorded in 1999 because the
investment in CBHS was expensed during 1998, as compared to $5.4 million
of losses recognized in the prior year;
o equity in income of CDMC projects in the amount of $3.0 million, which the
Company did not include during the three or nine months ended September 30,
1998; and
27
<PAGE> 28
o the gain on sale of 80% of the Company's interest in AmeriCold Logistics in
the amount of $1.5 million; partially offset by
o a decrease in investment income from Hicks-Muse in the amount of $3.1
million as a result of the Company's sale of its investment in Hicks-Muse
in March 1999; and
o equity in loss of AmeriCold Operations in the amount of $2.7 million due to
the acquisition of AmeriCold Operations in March 1999.
OTHER (INCOME) EXPENSE
Other (Income) Expense increased $3.8 million, or 115.2%, to $7.1 million for
the three months ended September 30, 1999, compared with $3.3 million for the
three months ended September 30, 1998. For the nine months ended September 30,
1999, other (income) expense increased $10.4 million, or 125.3%, to $18.7
million, compared with $8.3 million for the nine months ended September 30,
1998. The increases are primarily attributable to:
o an increase in interest expense in the amount of $3.4 and $9.4 million for
the three and nine months ended September 30, 1999, respectively, resulting
from (i) an increase in outstanding indebtedness in connection with
acquisitions, (ii) the inclusion of interest expense of COPI Colorado (in
the amount of $2.7 and $6.7 million, for the three and nine months ended
September 30, 1999, respectively) in the Company's operating results
(operations of CDMC were not included during the corresponding period in
1998) offset by (iii) a decrease in indebtedness at Desert Mountain
Development.
MINORITY INTERESTS
Minority Interests increased $0.5 million, or 50%, to $1.5 million for the three
months ended September 30, 1999, compared to $1.0 million for the three months
ended September 30, 1998. Minority Interests increased $6.9 million, or 140.8%,
to $11.8 million for the nine months ended September 30, 1999, compared to $4.9
million for the nine months ended September 30, 1998. Minority Interests consist
of the non-voting interests in the Land Development segment and in CRL
Investments. The increase in Minority Interests is primarily attributable to the
Company's investment in COPI Colorado, which was not acquired until September
1998.
INCOME TAX PROVISION (BENEFIT)
Income tax benefit of $1.3 million for the three months ended September 30, 1999
represents no change from the three months ended September 30, 1998. Income tax
benefit consisted of a $1.1 million benefit at the corporate level, a $0.7
million benefit for the Temperature Controlled Logistics segment, offset by a
$0.5 million provision for the Land Development segment.
Income tax provision of approximately $0.1 million for the nine months ended
September 30, 1999, consisted primarily of a $7.2 million benefit at the
corporate level offset by a $6.6 million provision for the Land Development
segment. These amounts represent a $2.8 million decrease in tax provision from
the tax benefit of $2.9 million for the nine months ended September 30, 1998.
The Company generally provides for taxes using a 40% effective rate on the
Company's share of income or loss. Additionally, for the nine months ended
September 30, 1999, the Company released $4.2 million of its net deferred tax
asset valuation allowance, based on 1999 transactions and expected future
taxable income. Management continues to evaluate the realizability of the
deferred tax assets quarterly by assessing the need for a valuation allowance.
Inability of the Company to execute business plans for certain of the Company's
segments could affect the ultimate realization of the deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
Approximately $89.8 million (including regularly scheduled payments of
principal) is payable pursuant to existing financing arrangements of the Company
during the twelve months ending September 30, 2000. The Company anticipates that
the $89.8 million (all regularly scheduled payments plus payments due on
maturity of $24.0 million) will be paid from the Company's cash flow from
operating activities or proceeds from refinancings.
28
<PAGE> 29
The Company expects to meet its short-term liquidity requirements primarily
through cash flow provided by operating activities. The Company believes that
cash flow provided by operating activities will be adequate to fund normal
recurring operating expenses and, as discussed above, regular debt service
requirements (including debt service relating to any additional or replacement
debt). The Company anticipates that it will fund the remaining amounts due
pursuant to existing financing arrangements, as well as any acquisitions or
other investments during the next 12 months, with proceeds of refinancings, cash
flow provided by operating activities, by additional debt financing secured by
the assets acquired in any acquisition transaction, by additional issuance of
common stock of the Company or by proceeds of equity offerings.
The Company expects to meet its long-term liquidity requirements (which consist
primarily of amounts due at maturity of its debt) through operating cash flows
of the Company, refinancing of existing debt or obtaining additional debt with
long-term maturities.
For a listing of the Company's primary debt financing arrangements, see Note 5
to the Financial Statements included in Part I.
The Company believes that debt and equity financing alternatives currently
available to it include public or private issuances of equity to existing
holders, issuances of equity in connection with acquisitions of additional
assets, obtaining additional secured debt in connection with acquisitions of
assets, additional secured borrowings from Crescent Partnership, and additional
proceeds from the refinancing of existing secured debt. However, there can be no
assurances that any of these sources will be available to the Company or that
the amount of capital available from these sources will be adequate to meet the
Company's needs or requests.
The $15.0 million line of credit from Bank of America, which was due on August
27, 1999, was renewed in August 1999. As a result of the renewal, the Bank of
America line of credit is due on August 31, 2001. No other material terms of the
line of credit were changed in connection with the renewal.
CASH FLOWS
Cash and cash equivalents include amounts from all consolidated subsidiaries,
including subsidiaries not wholly-owned. Changes, therefore, do not necessarily
represent increases or decreases in cash directly available to the Company.
Cash and cash equivalents were $31.8 million and $42.8 million at September 30,
1999 and December 31, 1998, respectively. The 25.7% decrease is attributable to
$71.3 million and $21.5 million of cash used in operating and investing
activities, respectively, offset by $81.8 million of cash provided by financing
activities.
OPERATING ACTIVITIES
The Company's outflow of cash used in operating activities of $71.3 million was
primarily attributable to outflows from:
o a decrease in deferred income taxes of $23.9 million;
o equity in income from unconsolidated subsidiaries of $13.8 million;
o purchases of real estate of $47.3 million; and
o increases in accounts receivable and inventory of $39.5 million.
The outflow of cash used by operating activities was partially offset by inflows
from:
o net income of $1.1 million;
o non-cash depreciation and amortization of $25.8 million;
o Minority Interests of $11.8 million;
o increases in accounts payable and accrued expenses of $9.8 million; and
o increases in deferred revenue of $6.8 million.
29
<PAGE> 30
INVESTING ACTIVITIES
The Company's outflow of cash used in investing activities of $21.5 million was
primarily attributable to outflows from:
o acquisitions of business interests of $26.0 million;
o acquisitions of business interests by Minority Interests of $10.6 million;
o purchases of property and equipment of $38.7 million.
The outflow of cash used in investing activities was partially offset by inflows
from:
o proceeds from the sale of investments of $22.4 million;
o proceeds from the sale of property and equipment of $24.1 million; and
o net distributions from investments of $8.9 million.
FINANCING ACTIVITIES
The Company's inflow of cash provided by financing activities of $81.8 million
was primarily attributable to inflows from:
o proceeds of all long-term debt of $285.0 million; and
o capital contributions attributable to Minority Interests of $35.1 million.
The inflow of cash provided by financing activities was partially offset by
outflows from:
o payments of all long-term debt of $228.0 million; and
o distributions to Minority Interests of $8.1 million.
YEAR 2000 READINESS
The Company, along with an independent firm, continues to review information
technology systems (such as accounting systems and network operating systems)
and non-information technology systems (such as microcontrollers). The Company
believes that the assessment phase for both information technology and
non-information technology systems is 100% complete.
As the assessment phase was completed at each of the locations, the Company
began implementing the modification phase to address any issues discovered in
the assessment phase. The modification phase was followed by a testing phase to
determine that the appropriate corrective action has been taken. Substantially
all testing has been completed for the Company's locations, and the Company has
not identified any significant concerns and believes that the mission-critical
systems are or can be made compliant with minor upgrades.
Based on the assessment and modifications of information technology and
non-information technology systems, the Company believes that the total cost to
specifically assess and remediate both information technology and
non-information technology systems if necessary will not be material to the
Company. To date, the Company's share of costs related to Year 2000 compliance
has been less than $1.0 million and the Company does not anticipate that
significant additional costs will be incurred. All Year 2000 compliance costs
are being expensed as incurred.
The Company believes that its greatest economic exposure lies with its
Temperature Controlled Logistics, Hospitality and Equipment Sales and Leasing
segments. Specifically, within the Hospitality and Equipment Sales and Leasing
segments, management believes that the most significant risk associated with
Year 2000 compliance issues relates to any inability of the Company's principal
vendors and suppliers to become Year 2000 compliant in a timely manner. For
example, if the computer systems used by the Company's principal equipment
vendors or hotel suppliers were to fail as a result of a failure to achieve Year
2000 compliance, the Company may experience inventory shortages. Consequently,
the Company could experience business interruptions which potentially could
30
<PAGE> 31
have a material adverse effect on the Company's operating results and financial
position. The Company has requested from its principal vendors and suppliers
information regarding their Year 2000 issues and their plans to assure timely
Year 2000 compliance. The Equipment Sales and Leasing segment has received
letters from JCB, Ingersoll Rand, Terex and Link-Belt, its major suppliers, that
the respective suppliers are Year 2000 compliant. The Hospitality and
Temperature Controlled Logistics segments have received responses from key
vendors that they are Year 2000 compliant. The Company will continue working
with its remaining vendors, suppliers and other third-party contractors to
assure that the Company will not be subjected to substantial business
interruptions as a result of Year 2000 issues. There can be no assurance,
however, that vendors, suppliers and other third parties will achieve Year 2000
compliance in a timely manner or that any non-compliance on the part of such
persons will not have an adverse effect on the Company's operations. Within the
Temperature Controlled Logistics segment, management believes that the most
significant risk associated with Year 2000 compliance issues relates to any
inability of the refrigerated storage locations to control the climate of the
individual facilities. For example, if a refrigerated warehouse compressor which
is used to control the climate of the facility could not function or could not
be controlled as a result of Year 2000 issues, the Company could experience loss
in revenues related to that location. Based on the assessment of the Temperature
Controlled Logistics facilities thus far, the Company has noted only minor
problems with the facility systems and such problems have been or will be
corrected with minimal cost.
Where risks have been identified, the Company is in the process of developing
contingency plans to ensure critical operations continue uninterrupted in the
event either the Company, key suppliers or customers fail to resolve their
respective Year 2000 issues in a timely manner. Such plans will be in place by
December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since December 31, 1998, there have been no material changes to the information
regarding market risk that was provided in the Company's Form 10-K for the year
ended December 31, 1998.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
All claims involved in or related to the arbitration proceeding between Magellan
and the Company as reported in the Company's Form 10-Q for the quarter ended
March 31, 1999, were settled and released; see Other - Recent Developments under
Item 2, Part I of this Form 10-Q.
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
Not Applicable
ITEM 5. OTHER INFORMATION
On October 25, 1999, the Company received notice from The Nasdaq-Amex Market
Group (the "Nasdaq") that, for the 30 consecutive trading days preceding such
date, the Company's common stock failed to maintain a closing bid price of
greater than or equal to $5.00, the minimum closing bid price required for
continued listing under the
31
<PAGE> 32
Nasdaq National Market maintenance standard applicable to the Company. The
Nasdaq has informed the Company that, in order to continue to be listed on the
Nasdaq National Market, the Company must regain compliance with the applicable
maintenance standard on or before January 24, 2000. The Company will regain
compliance if the closing bid price of its common stock equals or exceeds $5.00
for 10 consecutive trading days. In the event that the Company does not regain
compliance on or before January 24, 2000, the Company could pursue several
options, including requesting a hearing before a Nasdaq panel on the issue of
compliance or applying for listing on the Nasdaq SmallCap Market. Management
believes that the Company currently meets or exceeds all requirements for
listing on the Nasdaq SmallCap Market; however, there can be no assurance that
the Company's common stock would be accepted for listing on the Nasdaq SmallCap
Market if the Company decided to seek listing on that market.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits Description
<TABLE>
<S> <C>
3.1 First Amended and Restated Certificate of Incorporation (filed as Exhibit 3.3
to the Company's registration statement on Form S-1 dated July 12, 1997 ("Form
S-1") and incorporated by reference herein)
3.2 First Amended and Restated Bylaws (filed as Exhibit 3.4 to Form S-1 and
incorporated by reference herein)
3.3 Amendment of Article V of First Amended and Restated Bylaws (filed as Exhibit
3.3 to the Company's June 30, 1998 Form 10-Q ("June 30, 1998 Form 10-Q") and
incorporated by reference herein)
3.4 Repeal of Amendment of Article V of First Amended and Restated Bylaws (filed as
Exhibit 3.4 to the Company's September 30, 1998 Form 10-Q ("September 30, 1998
Form 10-Q") and incorporated by reference herein)
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Form S-1 and incorporated
by reference herein)
4.2 Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to Form S-1 and
incorporated by reference herein)
4.3 First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent (filed as Exhibit 4.3 to September 30, 1998
Form 10-Q and incorporated by reference herein)
4.4 Second Amendment to Preferred Share Purchase Rights
Agreement dated as of March 4, 1999, between Crescent
Operating, Inc. and Bank Boston, N.A., as Rights Agent
(filed as Exhibit 4.4 to March 31, 1999 Form 10-Q
("March 31, 1999 Form 10-Q") and incorporated by
reference herein)
10.1 Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form S-1 and
incorporated by reference herein)
10.2 Intercompany Agreement between Crescent Operating, Inc.
and Crescent Real Estate Equities Limited Partnership
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1997 ("June
30, 1997 Form 10-Q") and incorporated by reference
herein)
10.3 Amended and Restated Operating Agreement of Charter Behavioral Health Systems,
LLC (filed as Exhibit 10.3 to June 30, 1997 Form 10-Q and incorporated by
reference herein)
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 (filed as Exhibit 10.5 to the
Company's September 30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and
incorporated by reference herein)
</TABLE>
<PAGE> 33
<TABLE>
<S> <C>
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 (filed as Exhibit 10.6 to September
30, 1997 Form 10-Q and incorporated by reference herein)
10.7 Acquisition Agreement, dated as of February 10, 1997, between Crescent Real
Estate Equities Limited Partnership and Carter-Crowley Properties, Inc. (filed
as Exhibit 10.7 to Form S-1 and incorporated by reference herein)
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 (filed as Exhibit 10.10 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.11 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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. (filed
as Exhibit 10.12 to September 30, 1997 Form 10-Q and incorporated by reference
herein)
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. (filed as Exhibit 10.13 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.14 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.15 Agreement for Financial Services dated July 1, 1997, between Crescent Real
Estate Equities Company and Petroleum Financial, Inc. (filed as Exhibit 10.15 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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
(filed as Exhibit 10.16 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.17 to September 30, 1997 Form
10-Q and incorporated by reference herein)
10.18 1997 Crescent Operating, Inc. Management Stock Incentive Plan (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 ("December 31, 1997 Form 10-K") and incorporated by reference herein)
10.19 Memorandum of Agreement executed November 16, 1997, among Charter Behavioral
Health Systems, LLC, Charter Behavioral Health Systems, Inc. and Crescent
Operating, Inc. (filed as Exhibit 10.19 to December 31, 1997 Form 10-K and
incorporated by reference herein)
</TABLE>
<PAGE> 34
<TABLE>
<S> <C>
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 (filed
as Exhibit 10.20 to December 31, 1997 Form 10-K and incorporated by reference
herein)
10.21 Stock Purchase Agreement dated August 31, 1997, by and among Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.21
to December 31, 1997 Form 10-K and incorporated by reference herein)
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 CEI 10-K") and incorporated by reference herein)
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 CEI 10-K and incorporated by
reference herein)
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 CEI 10-K and incorporated by reference herein)
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 "1997 CEI 10-Q") and incorporated by reference herein)
10.26 Lease Agreement, dated November 18, 1996 between Crescent Real Estate Equities
Limited Partnership and Wine Country Hotel, LLC (filed as Exhibit 10.25 to the
Annual Report on Form 10-K of Crescent Real Estate Equities Company for the
Fiscal Year Ended December 31, 1996 and incorporated by reference herein)
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 1997 CEI 10-Q and incorporated
by reference herein)
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 1997 CEI
10-Q and incorporated by reference herein)
10.29 Form of Indemnification Agreement (filed as Exhibit 10.29 to December 31, 1997
Form 10-K and incorporated by reference herein)
</TABLE>
<PAGE> 35
<TABLE>
<S> <C>
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 (filed as Exhibit 10.30 to
December 31, 1997 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
("March 31, 1998 Form 10-Q") and incorporated by reference herein)
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 (filed as Exhibit 10.32 to March 31, 1998 Form
10-Q and incorporated by reference herein)
10.33 Asset Purchase Agreement dated December 19, 1997, among Crescent Operating, Inc.
Preco Machinery Sales, Inc., and certain individual Preco shareholders (filed as
Exhibit 10.33 to March 31, 1998 Form 10-Q and incorporated by reference herein)
10.34 Asset Purchase Agreement dated April 30, 1998, among Crescent Operating, Inc.,
Central Texas Equipment Company, and certain individual Central Texas
shareholders (filed as Exhibit 10.34 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
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 (filed as Exhibit 10.35 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
10.36 Buy-Out Agreement dated April 24, 1998, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership (filed as Exhibit 10.36 to
March 31, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit
10.37 to June 30, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
incorporated by reference herein)
10.39 1997 Management Stock Incentive Plan (filed as Exhibit 10.39 to June 30, 1998
Form 10-Q and incorporated by reference herein)
10.40 Credit and Security Agreement, dated as of September 21, 1998, between Crescent
Real Estate Equities Limited Partnership and Crescent Operating, Inc., together
with related Note (filed as Exhibit 10.40 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.41 First Amendment to Amended and Restated Pledge Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
</TABLE>
<PAGE> 36
<TABLE>
<S> <C>
10.42 First Amendment to Line of Credit and Security Agreement, dated as of August 11,
1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note (filed as Exhibit 10.42 to September
30, 1998 Form 10-Q and incorporated by reference herein)
10.43 First Amendment to Amended and Restated Credit and Security Agreement, dated as
of August 11, 1998, between Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.43 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.44 Second Amendment to Amended and Restated Credit and Security Agreement, dated as
of September 21, 1998, between Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.45 Second Amendment to Line of Credit and Security Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.46 Agreement of Limited Partnership of COPI Colorado, L.P. (filed as Exhibit 10.1
to that Schedule 13D Statement dated September 28, 1998, filed by COPI Colorado,
L.P., Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and Harry H.
Frampton, III, and incorporated by reference herein)
10.47 Contribution Agreement effective as of September 11, 1998, by and among Crescent
Operating, Inc., Gerald W. Haddock, John C. Goff and Harry H. Frampton, III
(filed as Exhibit 10.2 to that Schedule 13D Statement dated September 28, 1998,
filed by COPI Colorado, L.P., Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III, and incorporated by reference herein)
10.48 Agreement Regarding Schedules and Other Matters made as of September 11, 1998,
by and among Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and Harry
H. Frampton, III (filed as Exhibit 10.3 to that Schedule 13D Statement dated
September 28, 1998, filed by COPI Colorado, L.P., Crescent Operating Inc.,
Gerald W. Haddock, John C. Goff and Harry H. Frampton, III, and incorporated by
reference herein)
10.49 Stock Purchase Agreement dated as of August 7, 1998 by and among Western
Traction Company, The Carlston Family Trust, Ronald D. Carlston and Crescent
Operating, Inc. (filed as Exhibit 10.49 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.50 Stock Purchase Agreement dated as of July 31, 1998 by and among Harvey Equipment
Center, Inc., L and H Leasing Company, William J. Harvey, Roy E. Harvey, Jr.,
Betty J. Harvey and Crescent Operating, Inc. (filed as Exhibit 10.50 to
September 30, 1998 Form 10-Q and incorporated by reference herein)
10.51 Credit Agreement dated as of July 28, 1998, between Crescent Real Estate
Equities Limited Partnership and CRL Investments, Inc., together with the
related Note (filed as Exhibit 10.51 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.52 Security Agreement dated as of July 28, 1998, between Crescent Real Estate
Equities Limited Partnership and CRL Investments, Inc. (filed as Exhibit 10.52
to September 30, 1998 Form 10-Q and incorporated by reference herein)
</TABLE>
<PAGE> 37
<TABLE>
<S> <C>
10.53 First Amendment to Credit Agreement effective as of August 27, 1998, among
Crescent Operating, Inc., NationsBank, N. A., and the Support Parties identified
therein (filed as Exhibit 10.53 to September 30, 1998 Form 10-Q and incorporated
by reference herein)
10.54 Lease Agreement dated as of October 13, 1998, between Crescent Real Estate
Equities Limited Partnership and Wine Country Golf Club, Inc., relating to
Sonoma Golf Club (filed as Exhibit 10.54 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.55 First Amendment to Lease Agreement effective December 31, 1998, between Canyon
Ranch Leasing, L.L.C., and Crescent Real Estate Equities Limited Partnership,
relating to Canyon Ranch - Tucson (filed as Exhibit 10.55 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 ("December 31,
1998 Form 10-K") and incorporated by reference herein)
10.56 First Amendment to Lease Agreement effective April 1, 1996; Second Amendment to
Lease Agreement effective November 22, 1996; Third Amendment to Lease Agreement
effective August 12, 1998; and Fourth Amendment to Lease Agreement effective
December 31, 1998 between RoseStar Southwest, LLC, and Crescent Real Estate
Funding II L.P., relating to Hyatt Regency Albuquerque (filed as Exhibit 10.56
to December 31, 1998 Form 10-K and incorporated by reference herein)
10.57 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC, and Crescent Real Estate Equities Limited Partnership,
relating to Sonoma Mission Inn & Spa (filed as Exhibit 10.57 to December 31,
1998 Form 10-K and incorporated by reference herein)
10.58 First Amendment to Amended and Restated Lease Agreement effective December 31,
1998, between RoseStar Management, LLC, and Crescent Real Estate Equities
Limited Partnership, relating to Marriott City Center, Denver (filed as Exhibit
10.58 to December 31, 1998 Form 10-K and incorporated by reference herein)
10.59 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC, and Crescent Real Estate Equities Limited Partnership,
relating to Ventana Inn (filed as Exhibit 10.59 to December 31, 1998 Form 10-K
and incorporated by reference herein)
10.60 First Amendment to Amended and Restated Lease Agreement effective April 1, 1996
and Second Amendment to Amended and Restated Lease Agreement effective December
31, 1998, between RoseStar Southwest, LLC, and Crescent Real Estate Funding II,
L.P., relating to Hyatt Regency Beaver Creek (filed as Exhibit 10.60 to December
31, 1998 Form 10-K and incorporated by reference herein)
10.61 First Amendment to Lease Agreement effective December 31, 1998, between COI
Hotel Group, Inc. and Crescent Real Estate Equities Limited Partnership,
relating to Four Seasons - Houston (filed as Exhibit 10.61 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.62 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC and Crescent Real Estate Funding VI, L.P., relating to Canyon
Ranch - Lenox (filed as Exhibit 10.62 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
10.63 Master Guaranty effective December 31, 1998, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Equities Limited Partnership, Crescent Real
Estate Funding II, L.P., and Crescent Real Estate Funding VI, L.P., relating to
leases for Hyatt Regency Albuquerque, Hyatt Regency Beaver Creek, Canyon
Ranch-Lenox, Sonoma Mission Inn & Spa, Canyon Ranch - Tucson, and Marriott City
Center Denver (filed as Exhibit 10.63 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.64 Guaranty of Lease effective December 19, 1997, by Crescent Operating, Inc. for
the benefit of Crescent Real Estate Equities Limited Partnership, relating to
Ventana Inn (filed as Exhibit 10.64 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.65 Amended and Restated Guaranty of Lease effective December 31, 1998, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate Equities Limited
Partnership, relating to Four Seasons Hotel - Houston (filed as Exhibit 10.65 to
December 31, 1998 Form 10-K and incorporated by reference herein)
10.66 Amended and Restated Guaranty of Lease effective December 31, 1998, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Golf Club (filed as Exhibit 10.66 to December
31, 1998 Form 10-K and incorporated by reference herein)
10.67 Credit Agreement dated August 11, 1995, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender; First Amendment to Credit Agreement dated as of April 15, 1997; Second
Amendment to Credit Agreement dated as of May 8, 1998; and related Note and
Security Agreement (filed as Exhibit 10.67 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.68 Credit Agreement dated January 1, 1998, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender, and related Note and Security Agreement (filed as Exhibit 10.68 to
December 31, 1998 Form 10-K and incorporated by reference herein)
10.69 $3,100,000 Note dated February 29, 1996, made by Crescent Development Management
Corp. payable to Crescent Real Estate Equities Limited Partnership (filed as
Exhibit 10.69 to December 31, 1998 Form 10-K and incorporated by reference
herein)
10.70 Credit Agreement dated January 1, 1999, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender, and related Line of Credit Note and Security Agreement (filed as Exhibit
10.70 to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.71 Amended and Restated Credit Agreement dated January 1, 1999, between Crescent
Development Management Corp., as borrower, and Crescent Real Estate Equities
Limited Partnership, as lender, and related Line of Credit Note and Amended and
Restated Security Agreement (filed as Exhibit 10.71 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
10.72 Purchase Agreement dated March 12, 1999, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership, relating to sale of interests
in Crescent CS Holdings Corp., and Crescent CS Holdings II Corp., and related
Put Agreement of same date (filed as Exhibit 10.72 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
10.73 Second Amendment to Lease Agreement effective April 1, 1999, between Wine
Country Hotel, LLC, and Crescent Real Estate Funding VI, L.P., relating to
Canyon Ranch-Lenox (filed as Exhibit 10.73 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.74 Master Revolving Line of Credit Loan Agreement (Borrowing Base and Warehouse)
dated May 14, 1998, between Desert Mountain Properties Limited Partnership, as
borrower, and National Bank of Arizona, as lender; Modification Agreement dated
December 30, 1998; second Modification Agreement dated March 31, 1999; and
related Promissory Note (Borrowing Base), Promissory Note (Warehouse), Pledge
Agreement, Deed of Trust, and Amendment to Deed of Trust (filed as Exhibit 10.74
to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.75 Lease Agreement dated as of June 15, 1999, between Crescent Real Estate Funding
III, L.P. and COI Hotel Group, Inc., relating to the Renaissance Houston Hotel
(filed as Exhibit 10.75 to June 30, 1999 Form 10-Q and incorporated by reference
herein)
10.76 Guaranty of Lease dated June 15, 1999, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Funding III, L.P., relating to Renaissance
Houston Hotel (filed as Exhibit 10.76 to June 30, 1999 Form 10-Q and incorporated by
reference herein)
10.77 Asset Management Agreement dated as of January 1, 1999, between Crescent Real Estate
Equities Limited Partnership and COI Hotel Group, Inc., relating to the Omni Austin
Hotel (filed as Exhibit 10.77 to June 30, 1999 Form 10-Q and incorporated by reference
herein)
10.78 Agreement dated June 11, 1999, by and between Gerald W. Haddock and Crescent Operating,
Inc. and its subsidiaries and affiliates (filed as Exhibit 10.78 to June 30, 1999 Form
10-Q and incorporated by reference herein)
10.79 Stock Purchase Agreement dated as of July 15, 1999, by and among E. L. Lester & Company,
Incorporated, E. L. Lester, Jr., Howard T. Tellepsen II, Karen Tellepsen, Tom Tellepsen
II, Linda Lester Griffen, Crescent Operating, Inc. and Crescent Machinery Company (filed
herewith)
10.80 Stock Purchase Agreement dated as of July 8, 1999, by and among Solveson Crane Rental,
Inc., Solveson Family Revocable Trust, and Crescent Machinery Company (filed herewith)
10.81 Second Amendment to Credit Agreement effective as of August 27, 1999, among Crescent
Operating, Inc., Bank of America, N. A. (formerly NationsBank, N. A.), and the Support
Parties identified therein (filed herewith)
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
Not Applicable
<PAGE> 40
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 15th day of November, 1999.
CRESCENT OPERATING, INC.
(Registrant)
By /s/ John C. Goff
---------------------------------------
John C. Goff, President and Chief
Executive Officer and Vice-Chairman
(Principal Executive Officer)
By /s/ Richard P. Knight
---------------------------------------
Richard P. Knight, Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
------------ ---------------------------------------------------------
<S> <C>
3.1 First Amended and Restated Certificate of Incorporation (filed as Exhibit 3.3
to the Company's registration statement on Form S-1 dated July 12, 1997 ("Form
S-1") and incorporated by reference herein)
3.2 First Amended and Restated Bylaws (filed as Exhibit 3.4 to Form S-1 and
incorporated by reference herein)
3.3 Amendment of Article V of First Amended and Restated Bylaws (filed as Exhibit
3.3 to the Company's June 30, 1998 Form 10-Q ("June 30, 1998 Form 10-Q") and
incorporated by reference herein)
3.4 Repeal of Amendment of Article V of First Amended and Restated Bylaws (filed as
Exhibit 3.4 to the Company's September 30, 1998 Form 10-Q ("September 30, 1998
Form 10-Q") and incorporated by reference herein)
4.1 Specimen stock certificate (filed as Exhibit 4.1 to Form S-1 and incorporated
by reference herein)
4.2 Preferred Share Purchase Rights Plan (filed as Exhibit 4.2 to Form S-1 and
incorporated by reference herein)
4.3 First Amendment to Preferred Share Purchase Rights
Agreement dated as of September 25, 1998, between
Crescent Operating, Inc. and Bank Boston, N.A., as
Rights Agent (filed as Exhibit 4.3 to September 30, 1998
Form 10-Q and incorporated by reference herein)
4.4 Second Amendment to Preferred Share Purchase Rights
Agreement dated as of March 4, 1999, between Crescent
Operating, Inc. and Bank Boston, N.A., as Rights Agent
(filed as Exhibit 4.4 to March 31, 1999 Form 10-Q
("March 31, 1999 Form 10-Q") and incorporated by
reference herein)
10.1 Amended Stock Incentive Plan (filed as Exhibit 10.1 to Form S-1 and
incorporated by reference herein)
10.2 Intercompany Agreement between Crescent Operating, Inc.
and Crescent Real Estate Equities Limited Partnership
(filed as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1997 ("June
30, 1997 Form 10-Q") and incorporated by reference
herein)
10.3 Amended and Restated Operating Agreement of Charter Behavioral Health Systems,
LLC (filed as Exhibit 10.3 to June 30, 1997 Form 10-Q and incorporated by
reference herein)
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 (filed as Exhibit 10.5 to the
Company's September 30, 1997 Form 10-Q ("September 30, 1997 Form 10-Q") and
incorporated by reference herein)
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
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 (filed as Exhibit 10.6 to September
30, 1997 Form 10-Q and incorporated by reference herein)
10.7 Acquisition Agreement, dated as of February 10, 1997, between Crescent Real
Estate Equities Limited Partnership and Carter-Crowley Properties, Inc. (filed
as Exhibit 10.7 to Form S-1 and incorporated by reference herein)
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 (filed as Exhibit 10.10 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.11 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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. (filed
as Exhibit 10.12 to September 30, 1997 Form 10-Q and incorporated by reference
herein)
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. (filed as Exhibit 10.13 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.14 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
10.15 Agreement for Financial Services dated July 1, 1997, between Crescent Real
Estate Equities Company and Petroleum Financial, Inc. (filed as Exhibit 10.15 to
September 30, 1997 Form 10-Q and incorporated by reference herein)
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
(filed as Exhibit 10.16 to September 30, 1997 Form 10-Q and incorporated by
reference herein)
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. (filed as Exhibit 10.17 to September 30, 1997 Form
10-Q and incorporated by reference herein)
10.18 1997 Crescent Operating, Inc. Management Stock Incentive Plan (filed as Exhibit
10.18 to the Company's Annual Report on Form 10-K for the year ended December
31, 1997 ("December 31, 1997 Form 10-K") and incorporated by reference herein)
10.19 Memorandum of Agreement executed November 16, 1997, among Charter Behavioral
Health Systems, LLC, Charter Behavioral Health Systems, Inc. and Crescent
Operating, Inc. (filed as Exhibit 10.19 to December 31, 1997 Form 10-K and
incorporated by reference herein)
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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 (filed
as Exhibit 10.20 to December 31, 1997 Form 10-K and incorporated by reference
herein)
10.21 Stock Purchase Agreement dated August 31, 1997, by and among Crescent Operating,
Inc., Gerald W. Haddock, John C. Goff and Sanjay Varma (filed as Exhibit 10.21
to December 31, 1997 Form 10-K and incorporated by reference herein)
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 CEI 10-K") and incorporated by reference herein)
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 CEI 10-K and incorporated by
reference herein)
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 CEI 10-K and incorporated by reference herein)
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 "1997 CEI 10-Q") and incorporated by reference herein)
10.26 Lease Agreement, dated November 18, 1996 between Crescent Real Estate Equities
Limited Partnership and Wine Country Hotel, LLC (filed as Exhibit 10.25 to the
Annual Report on Form 10-K of Crescent Real Estate Equities Company for the
Fiscal Year Ended December 31, 1996 and incorporated by reference herein)
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 1997 CEI 10-Q and incorporated
by reference herein)
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 1997 CEI
10-Q and incorporated by reference herein)
10.29 Form of Indemnification Agreement (filed as Exhibit 10.29 to December 31, 1997
Form 10-K and incorporated by reference herein)
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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 (filed as Exhibit 10.30 to
December 31, 1997 Form 10-K and incorporated by reference herein)
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 (filed as Exhibit 10.31 to the Company's March 31, 1998 Form 10-Q
("March 31, 1998 Form 10-Q") and incorporated by reference herein)
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 (filed as Exhibit 10.32 to March 31, 1998 Form
10-Q and incorporated by reference herein)
10.33 Asset Purchase Agreement dated December 19, 1997, among Crescent Operating, Inc.
Preco Machinery Sales, Inc., and certain individual Preco shareholders (filed as
Exhibit 10.33 to March 31, 1998 Form 10-Q and incorporated by reference herein)
10.34 Asset Purchase Agreement dated April 30, 1998, among Crescent Operating, Inc.,
Central Texas Equipment Company, and certain individual Central Texas
shareholders (filed as Exhibit 10.34 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
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 (filed as Exhibit 10.35 to March 31, 1998 Form 10-Q and
incorporated by reference herein)
10.36 Buy-Out Agreement dated April 24, 1998, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership (filed as Exhibit 10.36 to
March 31, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit
10.37 to June 30, 1998 Form 10-Q and incorporated by reference herein)
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 (filed as Exhibit 10.38 to June 30, 1998 Form 10-Q and
incorporated by reference herein)
10.39 1997 Management Stock Incentive Plan (filed as Exhibit 10.39 to June 30, 1998
Form 10-Q and incorporated by reference herein)
10.40 Credit and Security Agreement, dated as of September 21, 1998, between Crescent
Real Estate Equities Limited Partnership and Crescent Operating, Inc., together
with related Note (filed as Exhibit 10.40 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.41 First Amendment to Amended and Restated Pledge Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.41 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
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10.42 First Amendment to Line of Credit and Security Agreement, dated as of August 11,
1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc., together with related Note (filed as Exhibit 10.42 to September
30, 1998 Form 10-Q and incorporated by reference herein)
10.43 First Amendment to Amended and Restated Credit and Security Agreement, dated as
of August 11, 1998, between Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.43 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.44 Second Amendment to Amended and Restated Credit and Security Agreement, dated as
of September 21, 1998, between Crescent Real Estate Equities Limited Partnership
and Crescent Operating, Inc. (filed as Exhibit 10.44 to September 30, 1998 Form
10-Q and incorporated by reference herein)
10.45 Second Amendment to Line of Credit and Security Agreement, dated as of September
21, 1998, between Crescent Real Estate Equities Limited Partnership and Crescent
Operating, Inc. (filed as Exhibit 10.45 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.46 Agreement of Limited Partnership of COPI Colorado, L.P. (filed as Exhibit 10.1
to that Schedule 13D Statement dated September 28, 1998, filed by COPI Colorado,
L.P., Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and Harry H.
Frampton, III, and incorporated by reference herein)
10.47 Contribution Agreement effective as of September 11, 1998, by and among Crescent
Operating, Inc., Gerald W. Haddock, John C. Goff and Harry H. Frampton, III
(filed as Exhibit 10.2 to that Schedule 13D Statement dated September 28, 1998,
filed by COPI Colorado, L.P., Crescent Operating, Inc., Gerald W. Haddock, John
C. Goff and Harry H. Frampton, III, and incorporated by reference herein)
10.48 Agreement Regarding Schedules and Other Matters made as of September 11, 1998,
by and among Crescent Operating, Inc., Gerald W. Haddock, John C. Goff and Harry
H. Frampton, III (filed as Exhibit 10.3 to that Schedule 13D Statement dated
September 28, 1998, filed by COPI Colorado, L.P., Crescent Operating Inc.,
Gerald W. Haddock, John C. Goff and Harry H. Frampton, III, and incorporated by
reference herein)
10.49 Stock Purchase Agreement dated as of August 7, 1998 by and among Western
Traction Company, The Carlston Family Trust, Ronald D. Carlston and Crescent
Operating, Inc. (filed as Exhibit 10.49 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.50 Stock Purchase Agreement dated as of July 31, 1998 by and among Harvey Equipment
Center, Inc., L and H Leasing Company, William J. Harvey, Roy E. Harvey, Jr.,
Betty J. Harvey and Crescent Operating, Inc. (filed as Exhibit 10.50 to
September 30, 1998 Form 10-Q and incorporated by reference herein)
10.51 Credit Agreement dated as of July 28, 1998, between Crescent Real Estate
Equities Limited Partnership and CRL Investments, Inc., together with the
related Note (filed as Exhibit 10.51 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.52 Security Agreement dated as of July 28, 1998, between Crescent Real Estate
Equities Limited Partnership and CRL Investments, Inc. (filed as Exhibit 10.52
to September 30, 1998 Form 10-Q and incorporated by reference herein)
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10.53 First Amendment to Credit Agreement effective as of August 27, 1998, among
Crescent Operating, Inc., NationsBank, N. A., and the Support Parties identified
therein (filed as Exhibit 10.53 to September 30, 1998 Form 10-Q and incorporated
by reference herein)
10.54 Lease Agreement dated as of October 13, 1998, between Crescent Real Estate
Equities Limited Partnership and Wine Country Golf Club, Inc., relating to
Sonoma Golf Club (filed as Exhibit 10.54 to September 30, 1998 Form 10-Q and
incorporated by reference herein)
10.55 First Amendment to Lease Agreement effective December 31, 1998, between Canyon
Ranch Leasing, L.L.C., and Crescent Real Estate Equities Limited Partnership,
relating to Canyon Ranch - Tucson (filed as Exhibit 10.55 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998 ("December 31,
1998 Form 10-K") and incorporated by reference herein)
10.56 First Amendment to Lease Agreement effective April 1, 1996; Second Amendment to
Lease Agreement effective November 22, 1996; Third Amendment to Lease Agreement
effective August 12, 1998; and Fourth Amendment to Lease Agreement effective
December 31, 1998 between RoseStar Southwest, LLC, and Crescent Real Estate
Funding II L.P., relating to Hyatt Regency Albuquerque (filed as Exhibit 10.56
to December 31, 1998 Form 10-K and incorporated by reference herein)
10.57 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC, and Crescent Real Estate Equities Limited Partnership,
relating to Sonoma Mission Inn & Spa (filed as Exhibit 10.57 to December 31,
1998 Form 10-K and incorporated by reference herein)
10.58 First Amendment to Amended and Restated Lease Agreement effective December 31,
1998, between RoseStar Management, LLC, and Crescent Real Estate Equities
Limited Partnership, relating to Marriott City Center, Denver (filed as Exhibit
10.58 to December 31, 1998 Form 10-K and incorporated by reference herein)
10.59 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC, and Crescent Real Estate Equities Limited Partnership,
relating to Ventana Inn (filed as Exhibit 10.59 to December 31, 1998 Form 10-K
and incorporated by reference herein)
10.60 First Amendment to Amended and Restated Lease Agreement effective April 1, 1996
and Second Amendment to Amended and Restated Lease Agreement effective December
31, 1998, between RoseStar Southwest, LLC, and Crescent Real Estate Funding II,
L.P., relating to Hyatt Regency Beaver Creek (filed as Exhibit 10.60 to December
31, 1998 Form 10-K and incorporated by reference herein)
10.61 First Amendment to Lease Agreement effective December 31, 1998, between COI
Hotel Group, Inc. and Crescent Real Estate Equities Limited Partnership,
relating to Four Seasons - Houston (filed as Exhibit 10.61 to December 31, 1998
Form 10-K and incorporated by reference herein)
10.62 First Amendment to Lease Agreement effective December 31, 1998, between Wine
Country Hotel, LLC and Crescent Real Estate Funding VI, L.P., relating to Canyon
Ranch - Lenox (filed as Exhibit 10.62 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
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10.63 Master Guaranty effective December 31, 1998, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Equities Limited Partnership, Crescent Real
Estate Funding II, L.P., and Crescent Real Estate Funding VI, L.P., relating to
leases for Hyatt Regency Albuquerque, Hyatt Regency Beaver Creek, Canyon
Ranch-Lenox, Sonoma Mission Inn & Spa, Canyon Ranch - Tucson, and Marriott City
Center Denver (filed as Exhibit 10.63 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.64 Guaranty of Lease effective December 19, 1997, by Crescent Operating, Inc. for
the benefit of Crescent Real Estate Equities Limited Partnership, relating to
Ventana Inn (filed as Exhibit 10.64 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.65 Amended and Restated Guaranty of Lease effective December 31, 1998, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate Equities Limited
Partnership, relating to Four Seasons Hotel - Houston (filed as Exhibit 10.65 to
December 31, 1998 Form 10-K and incorporated by reference herein)
10.66 Amended and Restated Guaranty of Lease effective December 31, 1998, by Crescent
Operating, Inc. for the benefit of Crescent Real Estate Equities Limited
Partnership, relating to Sonoma Golf Club (filed as Exhibit 10.66 to December
31, 1998 Form 10-K and incorporated by reference herein)
10.67 Credit Agreement dated August 11, 1995, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender; First Amendment to Credit Agreement dated as of April 15, 1997; Second
Amendment to Credit Agreement dated as of May 8, 1998; and related Note and
Security Agreement (filed as Exhibit 10.67 to December 31, 1998 Form 10-K and
incorporated by reference herein)
10.68 Credit Agreement dated January 1, 1998, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender, and related Note and Security Agreement (filed as Exhibit 10.68 to
December 31, 1998 Form 10-K and incorporated by reference herein)
10.69 $3,100,000 Note dated February 29, 1996, made by Crescent Development Management
Corp. payable to Crescent Real Estate Equities Limited Partnership (filed as
Exhibit 10.69 to December 31, 1998 Form 10-K and incorporated by reference
herein)
10.70 Credit Agreement dated January 1, 1999, between Crescent Development Management
Corp., as borrower, and Crescent Real Estate Equities Limited Partnership, as
lender, and related Line of Credit Note and Security Agreement (filed as Exhibit
10.70 to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.71 Amended and Restated Credit Agreement dated January 1, 1999, between Crescent
Development Management Corp., as borrower, and Crescent Real Estate Equities
Limited Partnership, as lender, and related Line of Credit Note and Amended and
Restated Security Agreement (filed as Exhibit 10.71 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
10.72 Purchase Agreement dated March 12, 1999, between Crescent Operating, Inc. and
Crescent Real Estate Equities Limited Partnership, relating to sale of interests
in Crescent CS Holdings Corp., and Crescent CS Holdings II Corp., and related
Put Agreement of same date (filed as Exhibit 10.72 to March 31, 1999 Form 10-Q
and incorporated by reference herein)
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10.73 Second Amendment to Lease Agreement effective April 1, 1999, between Wine
Country Hotel, LLC, and Crescent Real Estate Funding VI, L.P., relating to
Canyon Ranch-Lenox (filed as Exhibit 10.73 to March 31, 1999 Form 10-Q and
incorporated by reference herein)
10.74 Master Revolving Line of Credit Loan Agreement (Borrowing Base and Warehouse)
dated May 14, 1998, between Desert Mountain Properties Limited Partnership, as
borrower, and National Bank of Arizona, as lender; Modification Agreement dated
December 30, 1998; second Modification Agreement dated March 31, 1999; and
related Promissory Note (Borrowing Base), Promissory Note (Warehouse), Pledge
Agreement, Deed of Trust, and Amendment to Deed of Trust (filed as Exhibit 10.74
to March 31, 1999 Form 10-Q and incorporated by reference herein)
10.75 Lease Agreement dated as of June 15, 1999, between Crescent Real Estate Funding
III, L.P. and COI Hotel Group, Inc., relating to the Renaissance Houston Hotel
(filed as Exhibit 10.75 to June 30, 1999 Form 10-Q and incorporated by reference
herein)
10.76 Guaranty of Lease dated June 15, 1999, by Crescent Operating, Inc. for the
benefit of Crescent Real Estate Funding III, L.P., relating to Renaissance
Houston Hotel (filed as Exhibit 10.76 to June 30, 1999 Form 10-Q and incorporated by
reference herein)
10.77 Asset Management Agreement dated as of January 1, 1999, between Crescent Real Estate
Equities Limited Partnership and COI Hotel Group, Inc., relating to the Omni Austin
Hotel (filed as Exhibit 10.77 to June 30, 1999 Form 10-Q and incorporated by reference
herein)
10.78 Agreement dated June 11, 1999, by and between Gerald W. Haddock and Crescent Operating,
Inc. and its subsidiaries and affiliates (filed as Exhibit 10.78 to June 30, 1999 Form
10-Q and incorporated by reference herein)
10.79 Stock Purchase Agreement dated as of July 15, 1999, by and among E. L. Lester & Company,
Incorporated, E. L. Lester, Jr., Howard T. Tellepsen II, Karen Tellepsen, Tom Tellepsen
II, Linda Lester Griffen, Crescent Operating, Inc. and Crescent Machinery Company (filed
herewith)
10.80 Stock Purchase Agreement dated as of July 8, 1999, by and among Solveson Crane Rental,
Inc., Solveson Family Revocable Trust, and Crescent Machinery Company (filed herewith)
10.81 Second Amendment to Credit Agreement effective as of August 27, 1999, among Crescent
Operating, Inc., Bank of America, N. A. (formerly NationsBank, N. A.), and the Support
Parties identified therein (filed herewith)
27 Financial Data Schedule
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EXHIBIT 10.79
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STOCK PURCHASE AGREEMENT
BY AND AMONG
E. L. LESTER & COMPANY, INCORPORATED
EARL L. LESTER, JR.
HOWARD T. TELLEPSEN, JR.
KAREN TELLEPSEN
TOM TELLEPSEN II
LINDA LESTER GRIFFIN
AND
CRESCENT OPERATING, INC.
CRESCENT MACHINERY COMPANY
JULY 15, 1999
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TABLE OF CONTENTS
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STOCK PURCHASE AGREEMENT...................................................-1-
ARTICLE I -- TERMS OF THE TRANSACTION......................................-1-
1.1 Agreement to Sell and to Purchase Shares..........................-1-
1.2 Purchase Price and Payment........................................-1-
1.3 Adjustment of Purchase Price......................................-2-
ARTICLE II -- CLOSING, CLOSING DATE AND EFFECTIVE DATE ....................-3-
2.1 Closing and Closing Date..........................................-3-
2.2 Effective Date....................................................-3-
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF SELLERS
AND THE COMPANY.......................................................-4-
3.1 Corporate Organization............................................-4-
3.2 Qualification.....................................................-4-
3.3 Charter and Bylaws................................................-4-
3.4 Capitalization of the Company.....................................-4-
3.5 Authority Relative to This Agreement..............................-5-
3.6 Noncontravention..................................................-5-
3.7 Governmental Approvals............................................-6-
3.8 No Subsidiaries...................................................-6-
3.9 Shares .........................................................-6-
3.10 Financial Statements.............................................-6-
3.11 Absence of Undisclosed Liabilities...............................-7-
3.12 Absence of Certain Changes.......................................-7-
3.13 Tax Matters......................................................-7-
3.14 Compliance With Laws.............................................-8-
3.15 Legal Proceedings................................................-8-
3.16 Title to Properties..............................................-8-
3.17 Sufficiency and Condition of Properties..........................-9-
3.18 Real Property....................................................-9-
3.19 Tangible Personal Property.......................................-9-
3.20 Leased Property.................................................-10-
3.21 Inventory.......................................................-10-
3.22 Receivables.....................................................-10-
3.23 Permits ........................................................-11-
3.24 Agreements......................................................-11-
3.25 ERISA ........................................................-11-
3.26 Environmental Matters...........................................-13-
3.27 Labor Relations.................................................-14-
3.28 Employees.......................................................-14-
3.29 Insider Interests...............................................-15-
3.30 Insurance.......................................................-15-
3.31 Bank Accounts and Powers of Attorney............................-15-
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3.32 Books and Records...............................................-15-
3.33 Illegal Payments................................................-15-
3.34 Offerings of Securities.........................................-16-
3.35 Brokerage Fees..................................................-16-
3.36 Disclosure......................................................-16-
3.37 Representations and Warranties on Closing Date..................-16-
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF CRESCENT
AND BUYER............................................................-16-
4.1 Corporate Organization...........................................-16-
4.2 Authority Relative to This Agreement.............................-17-
4.3 Noncontravention.................................................-17-
4.4 Governmental Approvals...........................................-17-
4.5 Brokerage Fees...................................................-17-
4.6 Legal Proceedings................................................-18-
4.7 Purchase for Investment..........................................-18-
4.8 Reports and Financial Statements.................................-18-
4.9 Absence of Undisclosed Liabilities...............................-18-
4.10 Representations and Warranties on Closing Date..................-18-
ARTICLE V -- CONDUCT OF THE COMPANY PENDING CLOSING.......................-19-
5.1 Conduct and Preservation of Business.............................-19-
5.2 Restrictions on Certain Actions..................................-19-
ARTICLE VI -- ADDITIONAL AGREEMENTS.......................................-21-
6.1 Access to Information............................................-21-
6.2 Third Party Consents.............................................-21-
6.3 Employment Agreement.............................................-21-
6.4 [Reserved].......................................................-21-
6.5 Employee and Employee Benefit Plan Matters.......................-22-
6.6 [Reserved].......................................................-22-
6.7 Uncollected Receivables..........................................-22-
6.8 Public Announcements.............................................-22-
6.9 [Reserved].......................................................-22-
6.10 [Reserved]......................................................-23-
6.11 Fees and Expenses...............................................-23-
6.12 Transfer Taxes..................................................-23-
6.13 New Lease Agreement.............................................-23-
6.14 Cancellation of Certain Key Employee Benefits...................-23-
6.15 Accuracy of Representations and Warranties......................-23-
6.16 Supplemental Insurance for McCarthy Brothers' Crane Accident....-23-
6.17 Survival of Covenants...........................................-23-
ARTICLE VII -- TAX MATTERS................................................-24-
Section 7.1. Liability for Taxes, Filing Returns.....................-24-
Section 7.2 Corporate Records........................................-25-
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Section 7.3. Resolution of Disagreements.............................-25-
Section 7.4. Life Insurance Policies.................................-25-
ARTICLE VIII -- CONDITIONS TO OBLIGATIONS OF SELLERS......................-26-
8.1 Representations and Warranties True..............................-26-
8.2 Covenants and Agreements Performed...............................-26-
8.3 Certificate......................................................-26-
8.4 Legal Proceedings................................................-26-
8.5 Opinion of Counsel...............................................-26-
8.6 Lease Agreement..................................................-26-
8.7 Other Documents..................................................-26-
ARTICLE IX -- CONDITIONS TO OBLIGATIONS OF CRESCENT AND BUYER.............-27-
9.1 Representations and Warranties True..............................-27-
9.2 Covenants and Agreements Performed...............................-27-
9.3 Certificate......................................................-27-
9.4 Opinion of Counsel...............................................-28-
9.5 Legal Proceedings................................................-28-
9.6 Consents ........................................................-28-
9.7 No Material Adverse Change.......................................-28-
9.8 Employment Agreements............................................-28-
9.9 Assignment and Assumption Agreement..............................-28-
9.10 Other Documents.................................................-28-
ARTICLE X -- TERMINATION, AMENDMENT, AND WAIVER...........................-29-
10.1 Termination.....................................................-29-
10.2 Effect of Termination...........................................-30-
10.3 Amendment.......................................................-30-
10.4 Waiver ........................................................-30-
10.5 Remedies Exclusive..............................................-30-
ARTICLE XI -- SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION................-30-
11.1 Survival........................................................-30-
11.2 Indemnification by Sellers......................................-30-
11.3 Indemnification by Buyer........................................-31-
11.4 Procedure for Indemnification...................................-31-
11.5 Deductible for Buyer Group Damages..............................-32-
11.6 Limitations on Buyer Group Damages..............................-32-
11.7 Excluded Damages................................................-33-
11.8 Indemnification for Buyer Group Damages Related to McCarthy
Brothers' Crane Accident........................................-33-
ARTICLE XII -- MISCELLANEOUS..............................................-33-
12.1 Notices ........................................................-33-
12.2 Entire Agreement................................................-34-
12.3 Binding Effect; Assignment; No Third Party Benefit..............-34-
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12.4 Severability....................................................-34-
12.5 GOVERNING LAW...................................................-34-
12.6 Further Assurances..............................................-34-
12.7 Descriptive Headings............................................-34-
12.8 Gender ........................................................-35-
12.9 References......................................................-35-
12.10 Counterparts...................................................-35-
12.11 Injunctive Relief..............................................-35-
12.12 Jurisdiction and Venue.........................................-35-
ARTICLE XIII -- DEFINITIONS...............................................-35-
13.1 Certain Defined Terms...........................................-35-
13.2 Certain Additional Defined Terms................................-37-
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 15,
1999, is made by and among E. L. Lester & Company, Incorporated, a Texas
corporation (the "Company"), Earl L. Lester, Jr., an individual ("Lester"),
Howard T. Tellepsen, Jr., an individual ("H. Tellepsen"), Karen Tellepsen, an
individual ("K. Tellepsen"), Tom Tellepsen II, an individual ("T. Tellepsen"),
Linda Lester Griffin, an individual ("Griffin") (Lester together with H.
Tellepsen, K. Tellepsen, T. Tellepsen, and Griffin, being referred to herein
individually as a "Seller" and collectively as "Sellers"), Crescent Operating
Inc., a Delaware corporation ("Crescent"), and Crescent Machinery Company, a
Texas corporation ("Buyer").
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, Sellers desire to sell to Buyer, and Buyer desires to
purchase from Sellers, the Shares; 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 Buyer and Crescent;
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 Buyer hereby agree as follows:
ARTICLE I -- TERMS OF THE TRANSACTION
1.1 Agreement to Sell and to Purchase Shares. At the Closing, and on
the terms and subject to the conditions set forth in this Agreement, each
Seller shall sell and deliver to Buyer, and Buyer shall purchase and accept
from each Seller, the number of Shares set forth opposite the name of such
Seller on Annex I.
1.2 Purchase Price and Payment. In consideration of the sale of the
Shares to Buyer, and subject to adjustment pursuant to Section 1.3 below, Buyer
shall pay to Sellers at the Closing the aggregate purchase price of Eighteen
Million, Thirty-Four Thousand, Seven Hundred Forty-Eight and No/100 Dollars
($18,034,748.00) (the "Purchase Price") payable as follows:
(a) at the Closing Buyer shall pay to or as directed by Sellers
an aggregate of Twelve Million, Thirty-Four Thousand, Seven
Hundred Forty-Eight and No/100 Dollars ($12,034,748.00),
payable in cash and, unless otherwise requested by Sellers or
Sellers' Representative (as hereinafter defined), allocated
in accordance with the percentages set forth on Annex I
attached hereto (the "Cash Portion"); and
<PAGE> 7
(b) the remaining Six Million and No/100 Dollars ($6,000,000.00)
of the Purchase Price shall be paid by Crescent's delivery at
the Closing of Crescent's promissory notes to each of the
Sellers in the amounts set forth on Annex I attached hereto
(the "Promissory Notes"), which shall be in the form of
Exhibit 1.2A attached hereto, to be (i) secured by a security
interest in, and pledge of, the Shares purchased by Buyer
hereunder pursuant to a pledge agreement to be granted by
Buyer in favor of Sellers, at the Closing (the "Pledge
Agreement") in the form of Exhibit 1.2B attached hereto, and
(ii) guaranteed by that certain guaranty of promissory notes
by Buyer in favor of Sellers (the Guaranty of Promissory
Notes") in the form of Exhibit 1.2C attached hereto.
The Purchase Price shall be allocated among Sellers in accordance with the
percentages set forth on Annex I attached hereto. Buyer shall pay the allocable
Cash Portion of the Purchase Price set forth above in immediately available
funds by confirmed wire transfer to a bank account to be designated by each
Seller or by Sellers' Representative (as hereinafter defined) (such designation
to occur no later than the three (3) business days prior to the Closing Date).
1.3 Adjustment of Purchase Price.
(a) The Purchase Price will be adjusted (either increased or
decreased) based on the aggregate net change in the asset and liability
accounts of the Company set forth on Schedule 1.3(a) hereto (the aggregate
balance of such accounts, the "Net Worth of the Company") as of the Effective
Date (as hereinafter defined), as compared to the Net Worth of the Company as
of January 31, 1999 (the "Determination Date") as shown on Schedule 1.3(a). If,
upon completion of the procedures set forth in Section 1.3(b) below, it is
finally determined that (i) the Net Worth of the Company as of the Effective
Date is greater than the Net Worth of the Company as of the Determination Date,
then the Purchase Price shall be increased by the amount of such difference in
cash, and Buyer shall pay to Sellers, such difference within ten (10) days
after such final determination or (ii) the Net Worth of the Company as of the
Effective Date is less than the Net Worth of the Company as of the
Determination Date, then the Purchase Price shall be decreased by the amount of
such difference, and the principal amount of the Promissory Note granted to
each Seller shall be reduced by such Seller's respective proportion of the
total reduction of the Purchase Price. Any payments to Sellers or reduction in
the principal amount of any Seller's Promissory Note required by this Section
1.3 shall be made or charged, as the case may be, on a pro rata basis to
Sellers based on the percentages set forth on Annex I attached hereto.
Additionally, the principal amount of each Seller's Promissory Note may also be
reduced by such Seller's proportionate share of any indemnification claims
under Article XI hereof.
(b) Within ninety (90) days after the Closing, Buyer will prepare and
deliver to Lester, as Sellers' representative ("Sellers' Representative," as
may be changed or designated at any time by Sellers owning not less than
seventy-five percent (75%) of the Shares by notice to Buyer) , a statement of
the Net Worth of the Company as of the close of business on the Effective Date
(the "Closing Statement"), which statement shall be prepared in a manner
consistent with the methodology used in preparation of the statement of Net
Worth of the Company as of the Determination Date as reflected in Schedule
1.3(a) to the extent that that methodology is consistent with generally
accepted accounting principles. In the event that the aforementioned
methodology is inconsistent with GAAP,
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<PAGE> 8
the generally accepted accounting principles used by Buyer shall be used to
prepare the Closing Statement. In the event either the Company's current
accounting methodology or Buyer's application of GAAP would not apply to an
accounting treatment of a Company specific item, then such item shall be
treated in accordance with the most widely applied generally accepted
accounting principle used by the Company's industry. Sellers and their
representatives shall have access to all books and records of the Company, to
the same extent as set forth in Section 7.2 of this Agreement, and the right to
make copies and extracts thereof, for the purpose of reviewing the calculation
provided by Buyer. If, within thirty (30) days following delivery of the
Closing Statement to Sellers' Representative, he or she has not given Buyer
notice of objection to the Closing Statement (such notice must contain a
detailed statement of the basis of Lester's objection), then the Net Worth of
the Company reflected in the Closing Statement will be used in computing the
adjustment to the Purchase Price. If Sellers' Representative gives Buyer such
notice of objection and the parties are unable to resolve the subject of such
objection within fifteen (15) days after such notice, then the issues in
dispute will be submitted to PricewaterhouseCoopers, LLP, certified public
accountants (the "Accountants"), for resolution with instructions to the
Accountants to resolve such dispute within forty-five (45) days. If issues in
dispute are submitted to the Accountants for resolution (i) each party will
furnish to the Accountants such work papers and other documents and information
relating to the disputed issues as the Accountants may request and are
available to that party; (ii) the determination by the Accountants, as set
forth in a notice delivered to both parties by the Accountants, will be binding
and conclusive on the parties; and (iii) Buyer and Sellers as a group will each
bear 50% of the fees and expenses of the Accountants for such determination.
The final determination of the Net Worth of the Company as of the close of
business on the Effective Date shall occur on the earliest of (A) thirty (30)
days after delivery of the Closing Statement to Sellers' Representative without
objection, (B) written agreement of Sellers' Representative and Buyer to the
Closing Statement or any modification thereof, or (C) written determination by
the Accountants.
ARTICLE II -- CLOSING, CLOSING DATE AND EFFECTIVE DATE
2.1 Closing and Closing Date. The closing of the transactions
contemplated hereby (the "Closing") shall take place (i) at the offices of
Thompson & Knight, P.C., in Dallas, Texas, at 3:00 p.m., local time, on July
15, 1999, or (ii) at such other time or place or on such other date as the
parties hereto shall agree. The date on which the Closing is required to take
place is herein referred to as the "Closing Date".
2.2 Effective Date. Notwithstanding the date this Agreement is
executed or the formal closing referenced above, the effective date for all
purposes of this Agreement including the transfer of the Shares shall be the
beginning of business on July 1, 1999 (the "Effective Date").
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<PAGE> 9
ARTICLE III -- REPRESENTATIONS
AND WARRANTIES OF SELLERS AND THE COMPANY
H. Tellepsen, K. Tellepsen, T. Tellepsen and Griffin each severally,
and Lester and the Company jointly and severally, represent and warrant to
Buyer that:
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority to own, lease, and operate its properties and to carry on
its business as now being conducted. No actions or proceedings to dissolve the
Company are pending.
3.2 Qualification. The Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions set forth on
Schedule 3.2, which are all the jurisdictions in which such qualification or
licensing is required for the conduct of its business, or where failure to be
so qualified would not have a material adverse affect on the Company.
3.3 Charter and Bylaws. The Company has made available to Buyer
accurate and complete copies of (i) the Articles of Incorporation and Bylaws of
the Company (certified by the Secretary of State of such Company's jurisdiction
of incorporation and the secretary or an assistant secretary of such Company,
respectively) as currently in effect, (ii) the stock records of the Company,
and (iii) 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 500,000 shares of Common Stock, par value $1.00 per share,
of which 68,000 shares are outstanding and 32,000 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 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. Except for the
repurchase of 11,612 shares of the Company's capital stock from each of the
Sellers to be effected immediately prior to the Closing as reflected in Section
5.2(c) hereof, there are (and as of the Closing Date there will be) no
outstanding obligations of the Company to repurchase, redeem,
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<PAGE> 10
or otherwise acquire any of the foregoing shares, securities, options, 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 its terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, fraudulent conveyance,
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.
(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 its terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
fraudulent conveyance, 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.
3.6 Noncontravention.
(a) 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 hereof, violate
any Applicable Law binding upon the Company, except in the case of clause (ii)
above, for such consents, approvals, authorizations and waivers that are
required under contracts of the Company that have
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<PAGE> 11
been obtained and are unconditional and in full force and effect and such
notices that have been duly given.
(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 may be
bound, or (ii) assuming compliance with the matters referred to in Section 3.7
hereof, violate any Applicable Law binding upon such Seller.
3.7 Governmental Approvals. Other than filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and routine
filing under applicable federal and state securities laws, no consent,
approval, order, or authorization of, or declaration, filing, or registration
with, any Governmental Entity is required to be obtained or made by any Seller
or the Company in connection with the execution, delivery, or performance by
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. Except as
disclosed on Schedule 3.8, 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 individually, but not jointly, represents and
warrants to Buyer that, with respect to the Shares owned by such Seller as
reflected on Annex I hereto, such Seller is (and at the Closing will be) the
record and beneficial owner of, and upon consummation of the transactions
contemplated hereby Buyer will acquire good, valid, and marketable title to,
the number of Shares set forth opposite the name of such Seller on Annex I
((and being the Shares owned by such Seller after the redemption of Shares
referenced in Section 5.2(c)), free and clear of all Encumbrances, other than
(i) those that may arise by virtue of any actions taken by or on behalf of
Buyer or its affiliates or (ii) restrictions on transfer that may be imposed by
federal or state securities laws.
3.10 Financial Statements. The Company has delivered to Buyer accurate
and complete copies of (i) the Company's balance sheet as of January 31, 1999
and the related statements of income, and changes in financial position for the
year then ended, (the "January 31, 1999 Financial Statements"), and (ii) the
Company's trial balance sheet as of April 30, 1999 (the "Latest Balance
Sheet"), prepared by the Company's chief financial officer (collectively, the
"Financial Statements" copies of which financial statements are attached hereto
as Schedule 3.10). The Financial Statements (i) represent actual bona fide
transactions, (ii) have been prepared from the books and records of the
Company, and (iii) accurately and fairly present the Company's financial
position as of the respective dates thereof and its results of operations and
changes in financial position 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 January 31, 1999,
giving rise to special or nonrecurring income or any such write-up or
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<PAGE> 12
revaluation. Each Seller, the Company and Buyer hereby acknowledge and agree
that the sale of equipment in the ordinary course of business does not
constitute special or nonrecurring income.
3.11 Absence of Undisclosed Liabilities. The Company does not have any
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), or
(iv) liabilities specifically set forth on Schedule 3.11.
3.12 Absence of Certain Changes. Except for matters contemplated by
this Agreement or as disclosed on Schedule 3.12, since January 31, 1999, (i)
there has not been any material adverse change in, or any event or condition
that might reasonably be expected to result in any material adverse change in,
the business, assets, results of operations, or condition (financial or
otherwise), of the Company (excluding general economic conditions affecting the
rental crane industry as a whole); (ii) the business of the Company has been
conducted only in the ordinary course consistent with past practice; (iii) the
Company has not incurred any material liability, engaged in any material
transaction, or entered into any material agreement outside the ordinary course
of business consistent with past practice; (iv) the Company has not suffered
any material loss, damage, destruction, or other casualty to any of its assets
(whether or not covered by insurance); and (v) the Company has not taken any of
the actions set forth in Section 5.2 except as permitted thereunder.
3.13 Tax Matters. Except as disclosed on Schedule 3.13:
(a) the Company has (and as of the Closing Date will have) duly filed
all federal, state, local, and foreign Tax Returns required to be filed by or
with respect to it with the IRS or other applicable Taxing authority, and no
extensions with respect to such Tax Returns have (or as of the Closing Date
will have) been requested or granted;
(b) the Company has (and as of the Closing Date will have) paid, or
specifically and fully reserved against in the Latest Balance Sheet (not
including any reserve for deferred taxes to reflect timing differences between
book and tax income), all Taxes due, or claimed by any Taxing authority to be
due, from or with respect to it, except Taxes that are being contested in good
faith by appropriate legal proceedings and for which adequate reserves have
been set aside as fully disclosed on Schedule 3.13;
(c) there has been no issue raised or adjustment proposed (and none is
pending) by the IRS or any other Taxing authority in connection with any of the
Tax Returns;
(d) the Company has (and as of the Closing Date will have) made all
deposits required with respect to Taxes;
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<PAGE> 13
(e) the federal income Tax Returns of the Company have been audited by
the IRS through the Taxable year ended January 31, 1986 and the audit
proceedings have been closed and all adjustments settled through the Taxable
year ended January 31, 1986;
(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 or an election under Section 1362 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 have
received any written notice, which has not been dismissed or otherwise disposed
of, that the Company has not so complied. The Company is not charged or, to the
best knowledge of 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 Company. Except as disclosed on Schedule 3.15 and
subject to Sections 6.16 and 11.8 hereof, any and all potential liability of
the Company under such Proceedings is adequately covered (except for agreed
deductible amounts) by the existing insurance maintained by the Company
described in Section 3.33. 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 and indefeasible title
to all properties (real, personal, and mixed, tangible and intangible) it owns,
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 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,
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<PAGE> 14
individually or in the aggregate, materially interfere with the conduct of the
Company's normal operations.
3.17 Sufficiency and Condition of Properties. Except for the cranes
involved in the Accident (as hereinafter defined), the properties owned,
leased, or used by the Company are in substantially the same operating
condition and repair (ordinary wear and tear excepted) as when inspected on or
about September 8, 1998, by Crane and Rigging Specialists, Inc. 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 or its lessees'
possession.
3.18 Real Property.
(a) The Company does not own any real property. Set forth on Schedule
3.18 is a list, by street address of all real property leased by the Company
(for purposes of this Section 3.18, the "Real Property"), a brief description
of the principal facilities and structures (if any) located thereon, and 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. To the best of Sellers and the Company's knowledge,
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) 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 patent structural defects.
(c) The Company has delivered to Buyer, accurate and complete copies
of all leases, certificates of occupancy, and Permits in the possession of the
Company relating to the Real Property or the buildings, improvements, or
fixtures situated thereon.
3.19 Tangible Personal Property. Set forth on Schedule 3.19A is a
list, as of January 31, 1999, of each item of 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 and having a
value in excess of $1,000.00. Set forth on Schedule 3.19B is a list, as of May
31, 1999, of other tangible personal property located on the Company's premises
that is not owned by the Company and that will not be removed after the
consummation of the transactions contemplated herein until the owner of such
property is no longer employed by the Company. All tangible personal property
owned, leased, or used by the Company is in good operating condition and repair
(ordinary wear and tear and repairs
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<PAGE> 15
in process 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. 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, is in peaceable
possession (or remedied any claims relating thereto) of the property covered
thereby. Except as described on Schedule 3.20, no waiver, indulgence, or
postponement of the lessee's obligations under any such lease has been granted
by the lessor or of the lessor's obligations thereunder by the lessee other
than in the ordinary course of business. 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 in
each such case except for any such breach or default which exists in the
ordinary course of business and would not, individually or in the aggregate,
have a material adverse effect on the Company. 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 or market. 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 reasonably expected repair and replacement
obligations in the ordinary course, under applicable warranties or otherwise.
3.22 Receivables. All receivables (including accounts and notes
receivable, and employee advances) 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 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
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date thereof). The allowances for doubtful accounts reflected on the Latest
Balance Sheet and on the books of the Company and were and are reasonable in
light of historical data and other relevant information.
3.23 Permits. Set forth on Schedule 3.23 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 3.23, 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.
3.24 Agreements.
(a) All agreements, arrangements, and understandings of any nature
(written or oral, formal or informal) (collectively, for purposes of this
Section 3.24, "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, or condition (financial or otherwise), of the Company are listed on
Schedule 3.24 .
(b) The Company has delivered to Buyer accurate and complete copies of
the agreements listed on Schedule 3.24. Except as set forth on Schedule 3.24,
each of such agreements is a valid and binding agreement of the parties thereto
enforceable against them in accordance with its terms except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
fraudulent conveyance, 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. 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.
3.25 ERISA.
(a) Set forth on Schedule 3.25 is a list identifying each "employee
benefit plan", as defined in Section 3(3) of ERISA, (i) which is subject to any
provision of ERISA, (ii) which is maintained, administered, or contributed to
by the Company or any affiliate of the Company, and (iii) which covers any
employee or former employee of the Company or any affiliate of the Company or
under which the Company or any affiliate of the Company has any liability. The
Company has delivered to Buyer accurate and complete copies of such plans (and,
if applicable, the related trust agreements) and all amendments thereto and
written interpretations thereof, together with (i) the three most recent annual
reports (Form 5500 including, if applicable, Schedule B thereto) prepared in
connection with any such plan and (ii) the most recent actuarial valuation
report prepared in connection with any such plan. Such plans are referred to in
this Section 3.25 as the "Employee Plans". For purposes of this Section 3.25
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
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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 3.25.
(b) No Employee Plan (i) constitutes a "multiemployer plan", as
defined in Section 3(37) of ERISA (for purposes of this Section 3.26, a
"Multiemployer Plan"), (ii) is maintained in connection with any trust
described in Section 501(c)(9) of the Code, or (iii) is subject to Title IV of
ERISA or to the minimum funding standards of ERISA and the Code. During the
past five years, neither the Company nor any of its affiliates has 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 Taxes pursuant to Section 4975 of the Code. There
are no pending or, to the best knowledge of Sellers and the Company, threatened
claims by or on behalf of the Employee Plans, or by any participant therein,
alleging a breach or breaches of fiduciary duties or violations of Applicable
Laws which could result in liability on the part of the Company, its officers
or directors, or such Employee Plans, under ERISA or any other Applicable Law
and there is no basis for any such claim.
(c) Each Employee Plan which is intended to be qualified under Section
401(a) of the Code is so qualified and has been so qualified since the date of
its adoption, and each trust forming a part thereof is exempt from Tax pursuant
to Section 501(a) of the Code. Set forth on Schedule 3.25 is a list of the most
recent IRS determination letters with respect to any such Plans, accurate and
complete copies of which letters have been delivered to Buyer. Each Employee
Plan has been maintained in compliance with its terms and with the requirements
prescribed by all Applicable Laws, including but not limited to ERISA and the
Code, which are applicable to such Plans.
(d) To the extent not listed on Schedule 3.24, there is set forth on
Schedule 3.25 a list of each employment, severance, or other similar contract,
arrangement, or policy and each plan or arrangement (written or oral) providing
for insurance coverage (including any self-insured arrangements), workers'
compensation, disability benefits, supplemental unemployment benefits, vacation
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation rights, or other forms of incentive
compensation or post-retirement insurance, compensation, or benefits which (i)
is not an Employee Plan, (ii) is entered into, maintained, or contributed to,
as the case may be, by the Company or any affiliate of the Company, and (iii)
covers any employee or former employee of the Company or any affiliate of the
Company or under which the Company or any affiliate of the Company has any
liability. Such contracts, plans, and
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arrangements as are described in the preceding sentence are referred to for
purposes of this Section 3.26 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 could give rise to any
penalty or excise Tax pursuant to Section 4980B or 4999 of the Code.
(f) Except as disclosed on Schedule 3.25, 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
subsequent to January 31, 1999, 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 January 31, 1999.
3.26 Environmental Matters.
(a) Except as discussed on Schedule 3.26 or in the Phase I and Phase
II Environmental Audit Reports prepared by Law Engineering on behalf Buyer (the
"Environmental Reports"), neither the Company nor any property owned or leased
by the Company (for purposes of this Section 3.26, 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 Substances, or Solid Wastes (such Applicable Laws as
they now exist are collectively, for purposes of this Section, 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
heretofore amended, for purposes of this Section 3.26, 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 heretofore amended, for
purposes of this Section 3.26, 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 3.26 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 is not required to obtain any Permits it does not
currently possess 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 has
taken all steps necessary to determine and has determined that no Hazardous
Substances or Solid Wastes, other than those described in the Environmental
Reports, have been Disposed of or otherwise Released on or to the Property.
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<PAGE> 19
(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, as in effect on the date
hereof; and provided, 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, as of
the date hereof, than that specified in either CERCLA or RCRA, such broader
meaning shall apply.
3.27 Labor Relations.
(a) Except as disclosed on Schedule 3.27 (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) since
January 1, 1993, 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.
(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.
3.28 Employees. Set forth on Schedule 3.28 is a list of (a) all
directors and officers of the Company, and (b) the name, dates of employment by
the Company and title of each employee, agent, and consultant of the Company as
of May 31, 1999, 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. Except as
disclosed on Schedule 3.29, 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.
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3.29 Insider Interests. Except as disclosed on Schedule 3.29, no
shareholder, director, or officer of the Company or any associate of any such
shareholder, director or officer 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, or associate. To the best knowledge of Sellers and the Company, no
shareholder, director, or officer of the Company, nor any associate of any such
shareholder, director, or officer owns, directly or indirectly, any interest
in, or serves as a director, officer or employee of, any customer, supplier
(excluding Holmes Investment Corp. ("HIC")), or competitor of the Company. For
purposes of this Section 3.29 only, an "associate" of any shareholder,
director, or officer means any member of the immediate family of such
shareholder, director, or officer 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.
3.30 Insurance. Set forth on Schedule 3.30 is a list of all policies
of fire, liability, casualty, life, and other insurance owned or held by the
Company on the date hereof. Such policies (other than those which expire by
their terms prior to the Closing Date) are in full force and effect. The
Company has insurance coverages that are sufficient to satisfy all requirements
of Applicable Laws and any agreements, arrangements, or understandings to which
the Company is a party, and provide insurance coverage for the assets and
operations of the Company, which the Company considers to be adequate. 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 carrier of all pending or threatened claims against it that are
insured. Schedule 3.30 also lists all pending and threatened insured claims
that are not listed on Schedule 3.15.
3.31 Bank Accounts and Powers of Attorney. Set forth on Schedule 3.35
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.
3.32 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, and have been maintained in
accordance with good business practice. Such books and records accurately and
fairly reflect, in reasonable detail in all material respects, all
transactions, assets, and liabilities of the Company for the prior twenty-five
(25) year period.
3.33 Illegal Payments. To the best knowledge of Sellers and the
Company, none of Sellers or the Company or any director, officer, 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
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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, or
agent knows or has reason to believe to have been illegal under any Applicable
Law.
3.34 Offerings of Securities. All securities which have been offered
or sold by the Company have been offered and sold pursuant to valid exemptions
from the Securities Act and applicable state securities laws.
3.35 Brokerage Fees. Except as disclosed on Schedule 3.35, neither
Sellers nor any of their affiliates has retained any financial advisor, broker,
agent, or finder or paid or agreed to pay any financial advisor, broker, agent,
or finder on account of this Agreement or any transaction contemplated hereby.
Each Seller agrees, severally and in proportion to such Seller's proportionate
share of the Company as set forth on Annex I attached hereto ("Seller's
Proportionate Share") to indemnify and hold harmless Buyer from and against any
and all losses, claims, damages, and liabilities (including legal and other
expenses reasonably incurred in connection with investigating or defending any
claims or actions) with respect to any finder's fee, brokerage commission, or
similar payment in connection with any transaction contemplated hereby asserted
by any person on the basis of any act or statement made or alleged to have been
made by Seller or any of such Seller's affiliates.
3.36 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.
3.37 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 have been true and correct as of such earlier date.
ARTICLE IV -- REPRESENTATIONS
AND WARRANTIES OF CRESCENT AND BUYER
Crescent and Buyer, joint and severally, represent and warrant to
Sellers and the Company that:
4.1 Corporate Organization. Each of Crescent and Buyer is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and corporate authority to own, lease, and operate its properties and to
carry on its business as now being conducted.
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4.2 Authority Relative to This Agreement. Each of Crescent and Buyer
has full corporate power and corporate authority to execute, deliver, and
perform this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery, and performance by each of Crescent and Buyer 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
and Buyer. This Agreement has been duly executed and delivered by each of
Crescent and Buyer and constitutes, and each of the Promissory Notes, Pledge
Agreement and other agreement, instrument, or document executed or to be
executed by each of Crescent and Buyer in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by each of Crescent and Buyer and constitutes, or when executed and
delivered will constitute, a valid and legally binding obligation of each of
Crescent and Buyer, enforceable against each of Crescent and Buyer in
accordance with their respective terms, except that such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium,
and similar laws affecting creditors' rights generally and (ii) equitable
principles which may limit the availability of certain equitable remedies (such
as specific performance) in certain instances.
4.3 Noncontravention. The execution, delivery, and performance by each
of Crescent and Buyer of this Agreement and the consummation by it of the
transactions contemplated hereby do not and will not (i) conflict with or
result in a violation of any provision of the charter or bylaws of each of
Crescent and Buyer, (ii) conflict with or result in a violation of any
provision of, or constitute (with or without the giving of notice or the
passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration under, any bond, debenture, note, mortgage,
indenture, lease, contract, agreement, or other instrument or obligation to
which Crescent or Buyer is a party or by which Crescent or Buyer or any of
their respective properties may be bound, (iii) result in the creation or
imposition of any Encumbrance upon the properties of either Crescent or Buyer
(except for the pledge of the Shares as contemplated by Section 1.2 hereof), or
(iv) assuming compliance with the matters referred to in Section 4.4 hereof,
violate any Applicable Law binding upon each of Crescent and Buyer.
4.4 Governmental Approvals. Other than filings required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and routine
filing under applicable federal and state securities laws, no consent,
approval, order, or authorization of, or declaration, filing, or registration
with, any Governmental Entity is required to be obtained or made by either
Crescent or Buyer in connection with the execution, delivery, or performance by
Crescent and Buyer of this Agreement or the consummation by it of the
transactions contemplated hereby, other than (i) compliance with any applicable
requirements of the Securities Act; (ii) compliance with any applicable
requirements of the Exchange Act; (iii) compliance with any applicable state
securities laws; and (iv) filings with Governmental Entities to occur in the
ordinary course following the consummation of the transactions contemplated
hereby.
4.5 Brokerage Fees. Neither Crescent, Buyer 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 Buyer agree to jointly and severally 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
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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 either Crescent,
Buyer or any of their respective affiliates.
4.6 Legal Proceedings. There are no Proceedings pending or, to the
best knowledge of Crescent or Buyer, threatened seeking to restrain, prohibit,
or obtain damages or other relief in connection with this Agreement or the
transaction contemplated hereby or which may reasonably be expected to
materially adversely affect the assets, business or condition of (financial or
other) of Crescent or Buyer.
4.7 Purchase for Investment. The Buyer is acquiring the Shares for
investment for its own account, not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof to the public within the
meaning of such terms under the Securities Act of 1933, as amended.
4.8. Reports and Financial Statements. Since January 1, 1997, Crescent
has filed with the Securities and Exchange Commission (the "SEC") all forms,
statements, reports and documents (including all exhibits, amendments and
supplements thereto) required to be filed by it under each of the Securities
Act, the Exchange Act, and the respective rules and regulations thereunder, all
of which, as amended if applicable, complied as of their respective filing
dates in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder. Crescent has made
available to the Company copies of its (a) Annual Report on Form 10-K for the
fiscal year ended December 31, 1998, as filed with the SEC, (b) proxy and
information statements relating to all meetings of its stockholders (whether
annual or special) from January 1, 1998 until the date hereof and (c) all other
reports, including quarterly reports, or registration statements filed by
Crescent with the SEC since January 1, 1998 (other than registration statements
filed on Form S-8) (collectively, the "Crescent SEC Reports").
4.9. Absence of Undisclosed Liabilities. Neither Crescent nor any of
its subsidiaries had at December 31, 1998, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except liabilities, obligations or contingencies which (a) are
accrued or reserved against in the financial statements of Crescent included in
the Crescent SEC Reports or reflected in the notes thereto, (b) were incurred
after December 31, 1998 in the ordinary course of business, (c) could not,
singly or in the aggregate, reasonably be expected to have a material adverse
effect on Crescent or (d) have been discharged or paid in full prior to the
date hereof.
4.10 Representations and Warranties on Closing Date. The
representations and warranties made in this Article IV will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
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ARTICLE V -- CONDUCT OF THE COMPANY PENDING CLOSING
Each Seller (except Lester) severally, and Lester and the Company
jointly and severally, hereby covenant and agree with Buyer as follows:
5.1 Conduct and Preservation of Business. Except as contemplated by
this Agreement, during the period from the date hereof to the Closing (if the
same are different), 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 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,
after the date hereof and prior to the Closing, the Company shall not, without
the prior written consent of Buyer (which consent shall not be unreasonably
withheld):
(a) amend its charter or bylaws;
(b) (i) issue, sell, or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase,
or otherwise) any shares of its capital stock of any class or any other
securities or equity equivalents; or (ii) amend in any respect any of the terms
of any such securities outstanding as of the date hereof;
(c) (i) split, combine, or reclassify any shares of its capital stock;
(ii) declare, set aside, or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its capital
stock; provided, however, that the Company may make a distribution of certain
life insurance policies in redemption of 11,612 shares of the Company's capital
stock in the aggregate, with each Seller having Shares redeemed from such
Seller, pro rata in proportion to their ownership percentages set forth on
Annex I; (iii) repurchase, redeem, or otherwise acquire any of its securities,
except as noted in the proviso to clause (ii); 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) except in the ordinary course of business consistent with past
practice, 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,
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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 other than inventory 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 except
in the ordinary course of business and consistent with past practice and
excluding the purchase of equipment for sale to customers;
(i) make any Tax election or settle or compromise any federal, state,
local, or foreign Tax liability;
(j) except as set forth on Schedule 3.13, pay, discharge, or satisfy
any claims, liabilities, or obligations (whether accrued, absolute, contingent,
unliquidated, or otherwise, and whether asserted or unasserted), other than the
payment, discharge, or satisfaction in the ordinary course of business
consistent with past practice, or in accordance with their terms, of
liabilities reflected or reserved against in the Latest Balance Sheet or
incurred since January 31, 1999 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 other than in the ordinary course of
business;
(o) change any of the accounting principles or practices used by it,
except for any change, notice of which has been given in writing by the Company
to Buyer;
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(p) 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
(q) 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 Buyer and its authorized representatives
reasonable access to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers and other
materials prepared by the Company's independent public accountants, of the
Company, (ii) shall permit Buyer and its authorized representatives to make
such inspections (other than environmental testing or inspections, which shall
require prior written approval of the Company, which shall not be unreasonably
withheld) as they may reasonably require, and (iii) shall cause the Company's
officers to furnish Buyer and its authorized representatives with such
financial and operating data and other information with respect to the Company
as Buyer may from time to time reasonably request; provided, however, that no
investigation pursuant to this Section 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, and provided further that
no such access or inspection shall unreasonably interfere with the conduct of
business by the Company.
6.2 Third Party Consents. Lester and the Company shall use 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 or
required to enable Sellers to transfer the Shares to Buyer as contemplated by
this Agreement and to otherwise consummate the transactions contemplated
hereby. All costs and expenses of obtaining or effecting any and all of the
consents, approvals, orders, authorizations, waivers, declarations, filings,
and registrations referred to in this Section 6.2 shall be borne by the
Company.
6.3 Employment Agreement. Each of Lester and Oscar Hahn, Jr. ("Hahn")
and the Company shall enter into an employment and noncompetition agreement
(the "Employment Agreements") at (and subject to the occurrence of) the Closing
pursuant to which the Company shall agree to employ each of Lester and Hahn as
employees of the Company for the period and on the terms set forth therein. The
Employment Agreements shall be in substantially the form set forth as Exhibit
6.3A and Exhibit 6.3B. None of the Purchase Price paid to Lester with respect
to the Shares is in consideration for or attributable to the Employment
Agreement. Lester will be fully and adequately compensated for his employment
and noncompetition pursuant to the Employment Agreement.
6.4 [Reserved].
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6.5 Employee and Employee Benefit Plan Matters. Prior to the Closing,
the Company shall terminate its Employee Benefit Plans, including the E. L.
Lester & Company, Incorporated Profit Sharing Plan and the E. L. Lester &
Company, Inc. Flexible Benefit Plan.
6.6 [Reserved].
6.7 Uncollected Receivables. After the Closing, Buyer will, or cause
the Company to, use commercially reasonable efforts to collect the accounts
receivable owned by the Company. If, on or prior to December 31, 1999, the
Company has been unable to collect (i) 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 Sheet, and (ii) those amounts of
Texas state and Louisiana parish sales tax due from certain customers as set
forth on Schedule 3.13 (collectively the "Uncollected Receivables"), Buyer
shall have the option to cause the Company to sell and, upon exercise of such
option, Sellers proportionably in the ratio of their Share ownership shall have
the obligation to buy such Uncollected Receivables at the aggregate face value
thereof less an amount equal to the allowance for doubtful accounts as
reflected on the Latest Balance Sheet. Sellers shall be obligated to consummate
such repurchase within ten (10) days after written notice from Buyer of Buyer's
election to require such repurchase, with payment to be made by having Crescent
reduce the principal amount of each Seller's Promissory Note by such Seller's
proportionate amount of Uncollected Receivables repurchased pursuant to this
Section 6.7. Upon receipt by Buyer of such amount from Sellers by reduction of
the principal amount of the Promissory Notes, Buyer shall cause all right,
title and interest in and to the uncollected balances of such receivables to be
assigned, transferred and delivered to Sellers, without recourse to Buyer or
the Company. In the event that the Company makes any sales to or performs any
services for any account debtor of any of the receivables after the Closing
Date, any payments received by the Company from such account debtor shall be
applied: (i) as designated by such account debtor, or (ii) in the absence of
any such designation, to the oldest unpaid receivable owed by such account
debtor. Each of Buyer and Sellers shall promptly pay to the other any amounts
received by it (or any of its affiliates) on account of a receivable (or any
portion thereof) which is, at such time, the property of the other or any
affiliate of the other. Buyer shall promptly pay to Sellers any amounts
received by it on or prior to one (1) year after the Closing Date on account of
a receivable written off the Company's financial books prior to the Closing
Date. Sellers, severally and in proportion to each Seller's Proportionate
Share, shall indemnify and hold harmless Buyer (on an after-tax basis) for any
Taxes incurred by Buyer or the Company with respect to the Company's sale of
the Uncollected Receivables to Sellers pursuant to this Section 6.7.
6.8 Public Announcements. Except as may be required by Applicable Law
or the National Association of Securities Dealers, Inc., neither Buyer nor
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. Notwithstanding the foregoing, Buyer,
Crescent, the Company and Sellers hereby agree and acknowledge that, after the
Closing Date, Harris, Webb & Garrison, Inc. may issue a press release stating
it assisted and advised Sellers in the transactions contemplated herein.
6.9 [Reserved].
6.10 [Reserved].
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6.11 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. Buyer or
Crescent shall pay the filing fees for the filings required under the HSR Act.
6.12 Transfer Taxes. All sales and transfer Taxes and fees incurred in
connection with this Agreement and the transactions contemplated hereby shall
be borne equally by Buyer and Seller, and Buyer shall file all necessary
documentation with respect to, and make all payments of, such Taxes and fees on
a timely basis, and Sellers shall, on a pro rata basis, reimburse Buyer for
their half of such Taxes and fees within ten (10) days of the written notice
from Buyer, except any sales and transfer Taxes related to the sale of those
motor vehicles listed on Schedule 3.19B to Lester shall be borne and paid by
Lester, individually.
6.13 New Lease Agreement. At or prior to the Closing, the Company and
HIC shall have entered into a new lease agreement for the facility owned by HIC
located at 7455 Cullen, Houston, Texas, which lease agreement shall be in
substantially the form set forth on Exhibit 6.13 attached hereto.
6.14 Cancellation of Certain Key Employee Benefits. All Salary
Continuation Agreements that the Company is a party to shall be assumed by a
partnership controlled by Sellers prior to the Closing Date and the Company
shall not have any further obligations thereunder. Prior to Closing, the
Company shall also take whatever steps necessary to transfer any obligations
the Company may have pursuant to that certain letter agreement dated September
15, 1997, by and between the Company and Oscar Hahn, Jr., pursuant to which Mr.
Hahn is to receive certain proceeds upon the sale of the Company. Such matters,
and assignment by the Company of certain other potential recoveries to such
partnership, shall be effected pursuant to that certain Assignment and
Assumption Agreement (the "Assignment and Assumption Agreement") in
substantially the form set forth on Exhibit 6.14 attached hereto.
6.15 Accuracy of Representations and Warranties. Between the date
hereof and Closing, Buyer and Crescent hereby agree not to take any action
which would or might made any of the representations or warranties of Buyer or
Crescent 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 fort in this Agreement not being satisfied.
6.16 Supplemental Insurance for McCarthy Brothers' Crane Accident.
Notwithstanding anything to the contrary contained herein, Buyer may purchase a
supplemental umbrella insurance policy (with such terms and conditions as are
acceptable to Buyer in Buyer's sole discretion) related to the McCarthy
Brothers' Crane Accident described on Schedule 3.15.
6.17 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 Section 11.1. hereof.
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ARTICLE VII -- TAX MATTERS
Section 7.1. Liability for Taxes, Filing Returns.
(a) Taxable Periods Ending on or Before the Closing Date. Sellers
shall cause to be prepared and duly filed all Tax Returns required to be filed
by or with respect to the Company for all Taxable years and periods ending on
or before the Closing Date. Sellers shall pay, or cause the Company to pay
prior to the Closing Date, all Taxes whether or not shown to be due on such Tax
Returns for all periods covered by such Tax Returns. Sellers shall, severally
and in proportion to each Seller's Proportionate Share, indemnify and hold
harmless Buyer and the Company against all Taxes of the Company for any Taxable
year or Taxable period ending on or before the Closing Date. Notwithstanding
the foregoing, Buyer shall be responsible for, and shall indemnify and hold
harmless Sellers against, Taxes between the Closing Date and the Effective Date
but expressly excluding any and all Taxes related to the surrender,
cancellation, exchange or other transfer of the life insurance policies
described in Section 7.4 hereof.
(b) Taxable Periods Commencing After the Closing Date. Buyer shall be
solely liable for all Taxes of the Company for all Taxable years and periods
commencing after the Closing Date. Buyer shall cause to be prepared and duly
filed all Tax Returns of the Company for Taxable periods commencing after the
Closing Date. Buyer shall pay all Taxes whether or not shown to be due on such
Tax Returns for all periods covered by such Tax Returns. Notwithstanding the
foregoing, except to the extent provided in Section 7.1(c) below, Buyer shall
be liable for, and shall indemnify and hold harmless Sellers against, any and
all Taxes for any Taxable year or Taxable period commencing after the Closing
Date due or payable by the Company, but expressly excluding any and all Taxes
related to the surrender, cancellation or other transfer of the life insurance
policies described in Section 7.4 hereof.
(c) Taxable Periods Commencing Before and Ending After the Closing
Date. Buyer shall cause the Company to pay all Taxes due for any Taxable year
or Taxable period commencing before and ending after the Closing Date (the
"Straddle Period"). Upon notice from Buyer, Sellers shall severally and in
proportion to each Seller's Proportionate Share pay to Buyer prior to the date
any payment for Taxes as described in this Section 7.1(c) is due, an amount
equal to the excess, if any, of (i) the Taxes that would have been due if the
Straddle Period had ended on the Effective Date (using an
interim-closing-of-the-books method except that exemptions, allowances, and
deductions that are otherwise calculated on an annual basis (such as deductions
for depreciation and depletion) shall be apportioned on a per diem basis) over
(ii) the sum of the Taxes for the Straddle Period (A) which have been
specifically and fully reserved for on the Closing Statement (not including any
reserve for deferred taxes to reflect timing differences between book and tax
income) or (B) paid by the Company or by Seller or an affiliate thereof with
respect to the Company prior to the Effective Date. Notwithstanding the
foregoing, Sellers shall be responsible for any and all Taxes related to the
surrender, cancellation, exchange or other transfer of the life insurance
policies described in Section 7.4 hereof.
(d) Several Liability of Taxes; Limitations. Sellers (other than
Lester) shall be severally liable in accordance with each Seller's
Proportionate Share, and Lester shall be individually liable for all
liabilities to Buyer or the Company for Taxes pursuant to this Agreement. The
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responsibility of the parties for Taxes pursuant to this Section 7.1 shall not
be subject to the limitations contained in Article XI hereof (other than the
survival period related to Taxes set forth in Section 11.1 hereof), and the
responsibility for Straddle Period Taxes (including, but not limited to,
property and franchise taxes for 1999) shall not be subject to any limitations
in Article XI hereof (other than the survival period related to Taxes set forth
in Section 11.1 hereof).
Section 7.2 Corporate Records. The parties hereto shall provide each
other with such cooperation and information as they may reasonably request of
each other in preparing or filing any return, amended return, or claim for
refund, in determining a liability or a right to refund, or in conducting any
audit or other proceeding, in respect of Taxes imposed on the parties. Buyer
and Seller shall preserve or cause to be preserved, and retain or cause to be
retained, all returns, schedules, work papers, and all material records or
other documents relating to any such returns, claims, audits, or other
proceedings until the expiration of the statutory period of limitations
(including extensions) of the Taxable periods to which such documents relate
and until the final determination of any payments which may be required with
respect to such periods under this Agreement and shall make such documents
available at the then current administrative headquarters of the Company to
Seller or Buyer, as the case may be, and their respective officers, employees,
and agents upon reasonable notice and at reasonable times, it being understood
that Seller and Buyer shall be entitled to make copies of any such books and
records as they shall deem necessary. Buyer further agrees to permit
representatives of Seller to meet with employees of Buyer and the Company on a
mutually convenient basis in order to enable such representatives to obtain
additional information and explanations of any documents provided. Any
information obtained pursuant to this Section 7.2 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of returns
or claims for refund or in conducting any audit or other proceedings.
Section 7.3. Resolution of Disagreements. If Sellers and Buyer
disagree as to the amount of Taxes for which each is liable under this
Agreement, Sellers and Buyer shall promptly consult each other in an effort to
resolve such dispute. If any such dispute cannot be resolved within 15 days
after the initial date of consultation, Sellers and Buyer shall cause such
dispute to be resolved in the same manner, and subject to the same terms and
conditions, as if such dispute was an issue to be resolved pursuant to Section
1.3.
Section 7.4. Life Insurance Policies. Sellers (other than Lester)
shall be severally liable in accordance with each Seller's Proportionate Share,
and Lester shall be individually liable and each shall so indemnify and hold
harmless Buyer with respect to any Taxes incurred by the Company in connection
with the Company's surrender, cancellation, exchange or other transfer of
certain life insurance policies on Lester, Hahn, James Berly and Raymond Galit
and the subsequent distribution of such proceeds and redemption of certain
shares of the Company's capital stock from the Sellers. Such indemnification
obligation shall not be subject to the limitations contained in Article XI.
ARTICLE VIII -- 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:
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8.1 Representations and Warranties True. All the representations and
warranties of Buyer and Crescent 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. Buyer and Crescent 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. Sellers shall have received a certificate executed by
Crescent and Buyer by the president or any vice president of Crescent and
Buyer, dated the Closing Date, representing and certifying, in such detail as
Sellers may reasonably request, that the conditions set forth in this Article
VIII have been fulfilled and that Buyer and Crescent are not in breach of any
provision of this Agreement.
8.4 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.
8.5 Opinion of Counsel. Lester shall receive an opinion of Thompson &
Knight, P.C., legal counsel to Crescent and Buyer and from Terry Dorris,
General Counsel of Crescent, each dated the Closing Date, with respect to the
matters as may be reasonably requested by Lester.
8.6 Lease Agreement. The Company and HIC shall have executed and
delivered the Lease Agreement.
8.7 Other Documents. Sellers shall have received the payments,
certificates, instruments, and documents listed below:
(a) The Cash Portion of the Purchase Price to be paid to each Seller
at Closing pursuant to Section 1.2 hereof.
(b) The Promissory Notes to be delivered to each Seller pursuant to
Section 1.2 hereof, registered in the name of such Seller and duly executed by
Crescent.
(c) The Pledge Agreement to be delivered to Sellers pursuant to
Section 1.2 hereof, together with the stock certificates representing their
respective Shares duly endorsed in blank, or accompanied by stock powers duly
executed in blank, and otherwise in form acceptable to Buyer for transfer on
the books of the Company, all duly executed by Buyer.
(d) The Guaranty of Promissory Notes to be delivered and duly executed
by Buyer in favor of Sellers.
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(e) A copy of the resolutions of the Board of Directors of Buyer
authorizing the execution, delivery, and performance by Buyer of this
Agreement, certified by the secretary or an assistant secretary of Buyer.
(f) Certificates from the Secretary of State of Texas and the
Comptroller of Public Accounts of the State of Texas with respect to Buyer and
from the Secretary of State of Delaware with respect to Crescent, each dated
not more than ten (10) days prior to the Closing Date, as to the legal
existence and good standing, respectively, of each Buyer and Crescent under the
laws of the jurisdiction of each such corporation's incorporation.
(g) A certificate of incumbency and signatures of all officers
executing this Agreement and all of the documents contemplated herein, executed
by the secretary or the assistant secretary of each of Buyer and Crescent.
(h) 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.
ARTICLE IX -- CONDITIONS TO
OBLIGATIONS OF CRESCENT AND BUYER
The obligations of Crescent and Buyer to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
9.1 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.
9.2 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.
9.3 Certificate. Buyer shall have received a certificate executed by
Lester, individually, and on behalf of the Company by the president of the
Company, dated the Closing Date, representing and certifying, in such detail as
Buyer may reasonably request, that the conditions set forth in this Article IX
have been fulfilled and that Sellers and the Company are not in breach of any
provision of this Agreement.
9.4 Opinion of Counsel. Buyer shall have received an opinion of
Andrews & Kurth, LLP, legal counsel to Sellers and the Company, dated the
Closing Date, with respect to the matters as may be reasonably requested by
Buyer.
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9.5 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.
9.6 Consents. All consents and approvals of third parties (including
Governmental Entities) set forth on Schedule 9.6 hereto shall have been
obtained, and all thereof shall be in full force and effect at the time of
Closing.
9.7 No Material Adverse Change. Since January 31, 1999, there shall
not have been any material adverse change in the business, assets, results of
operations or condition (financial or otherwise) of the Company (excluding
changes caused by general economic conditions of the rental crane industry as a
whole).
9.8 Employment Agreements. Lester and Hahn shall have entered into
their respective Employment Agreements.
9.9 Assignment and Assumption Agreement. The Company shall have
executed and delivered to Lester Associates L.P. the Assignment and Assumption
Agreement.
9.10 Other Documents. Buyer shall have received the certificates,
instruments, and documents listed below:
(a) The stock certificates representing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, and otherwise in
form acceptable to Buyer for transfer on the books of the Company, which stock
certificates shall be reissued in the name of Buyer and subjected to the Pledge
Agreement as provided in Section 8.6(c).
(b) The minute books, stock records, and corporate seal of the
Company.
(c) All of 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) The written resignation from the Board of Directors of the Company
of each member of such Board, such resignation to be effective concurrently
with the Closing on the Closing Date.
(e) The written resignation or removal as an officer of the Company of
each of Lester, Hahn, Raymond Galit, Cliff Bunner and Riley Howard, such
resignation or removal to be effective concurrently with the Closing on the
Closing Date.
(f) 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.
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(g) Certificates from the Secretary of State of Texas and the
Comptroller of Public Accounts of the State of Texas, each 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.
(h) A certificate of incumbency and signatures of all officers
executing this Agreement and all of the documents contemplated herein, executed
by the secretary or the assistant secretary of the Company.
(i) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the Closing Date to carry out the intent
and purposes of this Agreement.
ARTICLE X -- TERMINATION, AMENDMENT, AND WAIVER
10.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing in
the following manner:
(a) by mutual written consent of Sellers and Buyer; or
(b) by either Sellers or Buyer, if:
(i) the Closing shall not have occurred on or before
July 31, 1999, 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
Buyer or Crescent contained in this Agreement shall not be true and correct,
when made or at any time prior to the Closing as if made at and as of such
time, or (ii) Buyer shall have failed to fulfill any of 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 Buyer or
Crescent; or
(d) by Buyer or Crescent, 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.
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10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1 by Sellers, on the one hand, or Buyer and
Crescent, 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 10.2 and in Sections 6.8 and 6.11
shall survive the termination hereof. Nothing contained in this Section 10.2
shall relieve any party from liability for damages as a result of any breach of
this Agreement.
10.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
10.4 Waiver. Each of Sellers and the Company, on the one hand, and
Buyer and Crescent, 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.
10.5 Remedies Exclusive. The rights and remedies provided in Article
XI shall be the exclusive 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.
ARTICLE XI -- SURVIVAL OF
REPRESENTATIONS; INDEMNIFICATION
11.1 Survival. The representations and warranties of the parties
hereto contained in this Agreement or in any certificate, instrument, or
document delivered pursuant hereto shall survive the Closing for a period
ending on (and including) the third (3rd) anniversary of the Closing Date (the
"Survival Date") regardless of any investigation made by or on behalf of any
party; provided, however, that the representations and warranties regarding
Taxes shall survive until expiration of the applicable statute of limitations
and the representations and warranties contained in Section 3.26 shall survive
for a period ending on (and including) the fifth (5th) anniversary of the
Closing Date.
11.2 Indemnification by Sellers. Subject to the terms and conditions
of this Article XI, each Seller agrees severally and in proportion to such
Seller's Proportionate Share to indemnify, defend, and hold harmless Buyer, the
subsidiaries and parent corporations of Buyer (including, after the Closing,
the Company), each director and officer of Buyer or any of its subsidiaries or
parent corporations, and each affiliate thereof, and their respective heirs,
legal representatives, successors and assigns (collectively, the "Buyer
Group"), from and against any and all claims, actions, causes of action,
demands, assessments, losses, damages, liabilities, judgments, settlements,
penalties, costs, and expenses (including reasonable attorneys' fees and
expenses), (collectively, "Damages"), asserted against, resulting to, imposed
upon, or incurred by any member of the Buyer Group, directly or
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<PAGE> 36
indirectly, by reason of or resulting from any breach by Sellers (or Lester in
the case of the Company) of any of their representations, warranties,
covenants, or agreements contained in this Agreement or in any certificate,
instrument, or document delivered pursuant hereto. Provided, however, the
amount of any Buyer Group Damages indemnifiable hereunder shall be reduced by
the amount of insurance proceeds and proceeds or amounts received from third
parties, in each case, in connection with or as a result of such Buyer Group
Damages, net of any increase in insurance premiums to Buyer Group that are
incurred specifically as a result of the claim upon which payment is made;
provided, further, that any Buyer Group Damages payable by Sellers pursuant to
this Agreement shall first be recovered by offset of amounts outstanding and
payable pursuant to the Promissory Notes, pro rata in proportion with each
Seller's Proportionate Share, before Sellers shall be obligated to make payment
of any Buyer Group Damages.
11.3 Indemnification by Buyer. Subject to the terms and conditions of
this Article XI, Buyer shall indemnify, defend, and hold harmless each Seller,
the subsidiaries and parent corporations, if any, of such Seller, each director
and officer, if any, of such Seller or any of its subsidiaries or parent
corporations, and each affiliate thereof, and their respective heirs, legal
representatives, successors, and assigns (collectively, the "Seller Group"),
from and against any and all Damages asserted against, resulting to, imposed
upon, or incurred by any member of the Seller Group, directly or indirectly, by
reason of or resulting from any breach by Buyer of any of its representations,
warranties, covenants, or agreements contained in this Agreement or in any
certificate, instrument, or document delivered pursuant hereto.
11.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 11.2 or 11.3 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
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<PAGE> 37
have no liability with respect to any compromise or settlement thereof effected
without its written consent (which shall not be unreasonably withheld). No
party hereto shall have any indemnification obligation pursuant to this Article
XI in respect of any representation or warranty referred to herein unless
before the Survival Date it shall have received from the party seeking
indemnification written notice of the existence of the claim for or in respect
of which indemnification in respect of such representation of warranty is
sought. Such notice shall set forth with commercial reasonable specificity (i)
the basis under this Agreement, and the facts that otherwise form the basis, of
such claim, (ii) an estimate, including a statement of any significant
calculation of such estimate, including a statement of any significant
assumptions employed therein, and (iii) the date on and manner in which the
party delivering such notice became aware of the existence of such claim;
provided, however, that any notice which the party seeking indemnification
delivers the indemnifying party prior to the Survival Date which notifies the
indemnifying party of the existence of a claim and notwithstanding the failure
of such notice to meet the requirements set forth in clauses (i), (ii) and
(iii) above, does not materially prejudice the indemnifying party's ability to
defend such claim, shall be deemed to have met the requirement of delivery of
notice prior to the Survival Date for the purpose of preserving the indemnified
party's right to indemnification pursuant to this Article XI. The provisions of
this Section 11.4 shall have no effect upon any other obligation of the parties
hereto under this Agreement, whether to be performed before, at, or after the
Closing. Each of the indemnifying party and the indemnified party shall be
entitled to consult with each other, to the extent it reasonably requests, in
respect of the defense of such claim and shall cooperate in the defense of any
such claim, or in the pursuit of any right of Buyer or Sellers (including but
not limited to claims by Sellers for recovery of sales taxes) including making
its officers, directors, employees and books and records available for use in
defending against such claim or pursuing such rights, and shall take those
commercially reasonable actions within its power which are necessary to
preserve any legal defenses to such matters.
11.5 Deductible for Buyer Group Damages. No indemnification shall be
required to be made by the Sellers pursuant to this Article XI with respect to
any Buyer Group Damages unless and until the aggregate amount of Damages
incurred by the Buyers Group with respect to all Buyer Group Damages exceeds
One Hundred Twenty-Five Thousand Dollars ($125,000), it being agreed and
understood that, if such amount is exceeded, Sellers shall be severally liable,
in proportion to such Seller's Proportionate Share, to the fullest extent of
such Buyer Group Damages, excluding those not in excess of One Hundred
Twenty-Five Thousand Dollars ($125,000).
11.6 Limitations on Buyer Group Damages. No indemnification shall be
required to be made by Sellers pursuant to this Article XI with respect to any
Buyer Group Damages to the extent that the aggregate amount of damages incurred
by the Buyer Group with respect to all Buyer Group Damages exceeds the
following thresholds:
(a) the aggregate Purchase Price up to but not including the
first anniversary of the Closing Date;
(b) $6,000,000 from the first anniversary of the Closing Date up
to but not including the second anniversary of the Closing
Date; and
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<PAGE> 38
(c) $4,000,000 from the second anniversary of the Closing Date up
to the third anniversary of the Closing Date.
11.7 Excluded Damages. Anything in this Agreement to the contrary
notwithstanding, no party hereto shall have any liability, in any circumstance,
for lost business opportunities, loss of revenue, speculative or prospective
profits, or any other special, incidental, consequential, exemplary, punitive
or indirect damages.
11.8 Indemnification for Buyer Group Damages Related to McCarthy
Brothers' Crane Accident. Notwithstanding anything to the contrary contained
herein, including any limitations set forth in this Article XI, Sellers shall
be severally liable, in proportion to such Seller's Proportionate Share, to
Buyer for (i) any and all insurance deductibles arising out of, or applicable
to, insurance claims brought under the insurance policies listed on Schedule
3.30, related to the Accident, and (ii) reimbursing Buyer for the cost of
repairing the Company's Damaged Cranes (as hereinafter defined) that were
involved in the Accident and not otherwise collected on or prior to December
31, 1999 from McCarthy Brothers or under insurance coverages maintained by the
Company; provided, that any amounts billed to but not paid by McCarthy Brothers
shall accrue interest at seven and one-half percent (7 1/2%) commencing sixty
(60) days after the date billed until paid by Sellers or otherwise; provided,
further, that payment of such amounts by Sellers under either clause (i) or
(ii) above shall be effected by first reducing the principal amount of each
Seller's Promissory Note by such Seller's Proportionate Share of the
deductibles and unreimbursed crane repair costs to the full extent of such
Promissory Note and thereafter, if any deductibles and unreimbursed repair
costs remain, by payment by Sellers in cash; provided, finally, that if such
reimbursement is made by Sellers to the Company, any payments or reimbursements
thereafter received by the Company from McCarthy Brothers or insurers shall be
promptly paid to Sellers in cash to the extent of the payments (including the
respective reductions of the Promissory Notes) made by Sellers to the Company.
Except as set forth in this Section 11.8, Sellers shall not be responsible for
indemnifying Buyer for any other Buyer Group Damages as a result of claims
arising out of the Accident.
ARTICLE XII -- MISCELLANEOUS
12.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall
be in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, or sent by cable, telegram, telefax, or telex, to the parties at the
following addresses (or at such other addresses as shall be specified by the
parties by like notice):
If to Buyer: 306 West 7th Street, Suite 1025
Fort Worth, Texas 76102
Attention: Jeffrey Stevens
Telefax: 817.339.1001
If to Sellers, to: Earl L. Lester, Jr., Sellers' Representative
E. L. Lester & Company, Incorporated
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<PAGE> 39
7455 Cullen Boulevard
Houston, Texas 77051
Telefax: 713.733.9536
12.2 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.
12.3 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 after payment in full of the Promissory Notes, Buyer
may assign to any wholly owned subsidiary of Buyer any of Buyer's rights,
interests, or obligations hereunder, upon notice to the other party or parties,
provided that no such assignment shall relieve any party of its obligations
hereunder. Except as provided in Article XI, 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.
12.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in
all other respects this Agreement shall remain in full force and effect;
provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by Applicable Law.
12.5 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.
12.6 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.
12.7 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.
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<PAGE> 40
12.8 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.
12.9 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.
12.10 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.
12.11 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.
12.12 Jurisdiction and Venue. Except as may be otherwise provided in
any of the documents executed and delivered in connection with the transactions
contemplated by this Agreement, 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 hereof, 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 XIII -- DEFINITIONS
13.1 Certain Defined Terms. As used in this Agreement, each of the
following terms has the meaning given it below:
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<PAGE> 41
"Accident" means that certain accident involving two
cranes owned by the Company and leased to McCarthy Brothers
Construction that occurred on or about June 17, 1999 at the project
site in Freeport, Texas.
"affiliate" means, other than in Section 3.25 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.
"Damaged Cranes" means the cranes that were involved in
the Accident.
"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.
"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).
"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.
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<PAGE> 42
"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
actual 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 Buyer 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 Buyer pursuant hereto
or in connection herewith.
"Treasury Regulations" means one or more treasury
regulations promulgated under the Code by the Treasury Department of
the United States.
13.2 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 13.1, the following terms are used in this Agreement as defined in
the Sections set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Accountants 1.3
Affiliate 3.25
Agreements 3.24
Applicable Environmental Laws 3.26
Assignment and Assumption Agreement 6.14
Associate 3.29
Benefit Arrangements 3.26
Buyer Group 11.2
Buyer Group Damages 11.5
Cash Portion 1.2
CERCLA 3.26
Closing 2.1
Closing Date 2.1
Closing Statement 2.1
Common Stock 3.4
Crescent SEC Reports 4.8
Damages 11.2
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Determination Date 1.3
Disposal 3.26
Effective Date 2.2
Employee Benefit Plan 3.25
Employee Pension Benefit Plan 3.25
Employee Plans 3.25
Employment Agreements 9.8
Environmental Reports 3.26
Financial Statements 3.10
Guaranty of Promissory Notes 1.2
HIC 3.29
Hazardous Substance 3.26
January 31, 1999 Financial Statements 3.10
Latest Balance Sheet 3.10
Lease Agreement 8.6
Multiemployer Plan 3.25
Net Worth of the Company 1.3
Pledge Agreement 1.2
Promissory Notes 1.2
Property 3.26
Purchase Price 1.2
RCRA 3.26
Real Property 3.18
Release 3.26
SEC 4.8
Seller Group 11.3
Seller's Proportionate Share 3.35
Sellers' Representative 1.3
Shares 3.9
Solid Waste 3.26
Straddle Period 7.1
Survival Date 11.1
Uncollected Receivables 6.7
</TABLE>
[Signature page to follow]
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<PAGE> 44
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.
E. L. LESTER & COMPANY INCORPORATED
By:
--------------------------------
Earl L. Lester, Jr., Chairman
------------------------------------
Earl L. Lester, Jr.
------------------------------------
Howard T. Tellepsen, Jr.
------------------------------------
Karen Tellepsen
------------------------------------
Tom Tellepsen II
------------------------------------
Linda Lester Griffin
CRESCENT MACHINERY COMPANY
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
CRESCENT OPERATING, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
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<PAGE> 1
EXHIBIT 10.80
STOCK PURCHASE AGREEMENT
by and among
SOLVESON CRANE RENTAL, INC.
SOLVESON FAMILY REVOCABLE TRUST (DTD 8/14/90)
and
CRESCENT MACHINERY COMPANY
July 8, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
STOCK PURCHASE AGREEMENT.....................................................1
ARTICLE I -- TERMS OF THE TRANSACTION........................................1
1.1 Agreement to Sell and to Purchase Shares.......................1
1.2 Purchase Price and Payment.....................................1
1.3 Adjustment of Purchase Price...................................1
1.4 Escrow Agreement...............................................2
ARTICLE II -- CLOSING AND CLOSING DATE.......................................2
2.1 Closing Date...................................................2
2.2 Effective Date.................................................2
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF SELLER
AND THE COMPANY.....................................................3
3.1 Corporate Organization.........................................3
3.2 Qualification..................................................3
3.3 Charter and Bylaws.............................................3
3.4 Capitalization of each Company.................................3
3.5 Authority Relative to This Agreement...........................4
3.6 Noncontravention...............................................4
3.7 Governmental Approvals.........................................5
3.8 No Subsidiaries................................................5
3.9 Shares ......................................................5
3.10 Financial Statements..........................................5
3.11 Absence of Undisclosed Liabilities............................5
3.12 Absence of Certain Changes....................................6
3.13 Tax Matters...................................................6
3.14 Compliance With Laws..........................................7
3.15 Legal Proceedings.............................................7
3.16 Title to Properties...........................................7
3.17 Sufficiency and Condition of Properties.......................7
3.18 Real Property.................................................8
3.19 Tangible Personal Property....................................8
3.20 Leased Property...............................................8
3.21 Inventory.....................................................9
3.22 Receivables...................................................9
3.23 Intellectual Property.........................................9
3.24 Permits .....................................................10
3.25 Agreements...................................................10
3.26 ERISA .....................................................11
3.27 Environmental Matters........................................12
3.28 Labor Relations..............................................13
3.29 Employees....................................................13
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.30 Insider Interests.............................................14
3.31 Insurance.....................................................14
3.32 Financial Requirements........................................14
3.33 Bank Accounts and Powers of Attorney..........................14
3.34 Books and Records.............................................15
3.35 Illegal Payments..............................................15
3.36 Offerings of Securities.......................................15
3.37 Brokerage Fees................................................15
3.38 Disclosure....................................................15
3.39 Representations and Warranties on Closing Date................16
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF BUYER........................16
4.1 Corporate Organization.........................................16
4.2 Authority Relative to This Agreement...........................16
4.3 Noncontravention...............................................16
4.4 Governmental Approvals.........................................17
4.5 Brokerage Fees.................................................17
4.6 Representations and Warranties on Closing Date.................17
ARTICLE V -- CONDUCT OF THE COMPANY PENDING CLOSING..........................17
5.1 Conduct and Preservation of Business...........................17
5.2 Restrictions on Certain Actions................................17
ARTICLE VI -- ADDITIONAL AGREEMENTS..........................................19
6.1 Access to Information..........................................19
6.2 Third Party Consents...........................................20
6.3 Employment Agreement...........................................20
6.4 [Reserved]......................................................20
6.5 Employee and Employee Benefit Plan Matters.....................20
6.6 New Lease ......................................................20
6.7 Uncollected Receivables........................................20
6.8 Public Announcements...........................................20
6.9 [Reserved].....................................................20
6.10 [Reserved]....................................................20
6.11 Fees and Expenses.............................................21
6.12 Transfer Taxes................................................21
6.13 Survival of Covenants.........................................21
ARTICLE VII -- TAX MATTERS...................................................21
Section 7.1. Liability for Taxes, Filing Returns...................21
Section 7.2 Corporate Records......................................22
Section 7.3 Resolution of Disagreements............................22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VIII -- CONDITIONS TO OBLIGATIONS OF SELLER..........................22
8.1 Representations and Warranties True............................22
8.2 Covenants and Agreements Performed.............................23
8.3 Legal Proceedings..............................................23
8.4 Other Documents................................................23
ARTICLE IX -- CONDITIONS TO OBLIGATIONS OF BUYER.............................23
9.1 Representations and Warranties True............................23
9.2 Covenants and Agreements Performed.............................23
9.3 Certificate....................................................23
9.4 Legal Proceedings..............................................23
9.5 Consents ......................................................24
9.6 No Material Adverse Change.....................................24
9.7 Due Diligence..................................................24
9.8 Employment Agreements..........................................24
9.9 New Lease......................................................24
9.10 Other Documents...............................................24
ARTICLE X -- TERMINATION, AMENDMENT, AND WAIVER..............................25
10.1 Termination...................................................25
10.2 Effect of Termination.........................................26
10.3 Amendment.....................................................26
10.4 Waiver ......................................................26
10.5 Remedies Not Exclusive........................................26
ARTICLE IX -- SURVIVAL OF
REPRESENTATIONS; INDEMNIFICATION....................................26
11.1 Survival......................................................26
11.2 Indemnification by ...........................................26
11.3 Indemnification by Buyer......................................27
11.4 Procedure for Indemnification.................................27
11.5 Threshold for Buyer Group Damages.............................27
ARTICLE XII -- MISCELLANEOUS.................................................28
12.1 Notices ......................................................28
12.2 Entire Agreement..............................................28
12.3 Binding Effect; Assignment; No Third Party Benefit............28
12.4 Severability..................................................28
12.5 GOVERNING LAW.................................................29
12.6 Further Assurances............................................29
12.7 Descriptive Headings..........................................29
12.8 Gender ......................................................29
12.9 References....................................................29
12.10 Counterparts.................................................29
12.11 Injunctive Relief............................................29
12.12 Jurisdiction and Venue.......................................30
ARTICLE XIII -- DEFINITIONS..................................................30
13.1 Certain Defined Terms.........................................30
13.2 Certain Additional Defined Terms..............................31
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of July 8,
1999, is made by and among Solveson Crane Rental, Inc., a California corporation
(the "Company"), Solveson Family Revocable Trust (DTD 8/14/90) ("Seller"), and
Crescent Machinery Company, a Texas corporation ("Buyer").
WHEREAS, Seller owns all the outstanding shares of common stock, no par
value per share, of the Company (the "Shares"); and
WHEREAS, Seller desires to sell to Buyer, and Buyer desire to purchase
from Seller, the Shares; 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 Buyer;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, the Company, Seller and Buyer hereby agree as follows:
ARTICLE I -- TERMS OF THE TRANSACTION
1.1 Agreement to Sell and to Purchase Shares. At the Closing, and on
the terms and subject to the conditions set forth in this Agreement, Seller
shall sell and deliver to Buyer, and Buyer shall purchase and accept from
Seller, the number of Shares set forth opposite the name of Seller on Annex I.
1.2 Purchase Price and Payment. In consideration of the sale of the
Shares to Buyer, and subject to adjustment pursuant to Section 1.3 below, Buyer
shall pay to Seller at the Closing the aggregate purchase price of Three
Million, Two Hundred Eight Thousand, One Hundred Seventy-Two and No/100 Dollars
($3,208,172.00) (the "Purchase Price") by delivery at closing of Buyer's
promissory note in the principal aggregate amount of the Purchase Price minus
ten percent (10%) of the Purchase Price (the "Promissory Note"), which shall be
in the form of Exhibit 1.2 attached hereto.
1.3 Adjustment of Purchase Price.
(a) The Purchase Price will be adjusted (either up or down) based on
the aggregate net change in the asset and liability accounts of the Company set
forth on Schedule 1.3(a) hereto (the aggregate balance of such accounts, the
"Net Worth of the Company") as of the Effective Date, as compared to the Net
Worth of the Company as of March 31, 1999, as shown on Schedule 1.3(a). If, upon
completion of the procedures set forth in Section 1.3(b) below, it is finally
determined that (i) the Net Worth of the Company as of the Effective Date is
greater than the Net Worth of the Company as of March 31, 1999, then the
Purchase Price shall be increased by the amount of such difference in cash, and
Buyer shall pay to Seller the amount of such difference within ten (10) days
after such final determination, or (ii) the Net Worth of the Company as of the
Effective Date is less than the Net Worth of the Company as of March 31, 1999,
then the Purchase Price shall be decreased
<PAGE> 6
by the amount of such difference, and Seller shall pay to Buyer the amount of
such difference in cash within ten (10) days after such final determination.
(b) Within sixty (60) days after the Closing, Buyer will prepare and
deliver to Seller 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
1.3(b) hereto. If, within thirty (30) days following delivery of the Closing
Statement to Seller, Seller has not given Buyer notice of its objection to the
Closing Statement (such notice must contain a detailed statement of the basis of
the Seller's objection), then the Net Worth of the Company reflected in the
Closing Statement will be used in computing the adjustment to the Purchase
Price. If Seller gives Buyer such notice of objection and the parties are unable
to resolve the subject of such objection within fifteen (15) days after such
notice, then the issues in dispute will be submitted to PricewaterhouseCoopers
LLP, certified public accounts (the "Accountants"), for resolution with
instructions to the Accountants to resolve such dispute within forty-five (45)
days. If issues in dispute are submitted to the Accountants for resolution (i)
each party will furnish to the Accountants such work papers and other documents
and information relating to the disputed issues as the Accountants may request
and are available to that party; (ii) the determination by the Accountants, as
set forth in a notice delivered to both parties by the Accountants, will be
binding and conclusive on the parties; and (iii) Buyer and Seller as a group
will each bear 50% of the fees and expenses of the Accountants for such
determination. 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 Seller without objection,
(B) written agreement of Seller and Buyer to the Closing Statement or any
modification thereof, or (C) written determination by the Accountants.
1.4 Escrow Agreement. In order to secure the indemnity obligations of
Seller under Article XI, Buyer shall, on the date the principal balance of the
Promissory Note is repaid, deposit into escrow an amount equal to ten percent
(10%) of the Purchase Price payable to Seller at the Closing pursuant to the
terms of an escrow agreement (the "Escrow Agreement") to be entered into at the
Closing by Seller, Buyer, and Bank of America (or other escrow agent selected by
the parties), as escrow agent. The Escrow Agreement shall be in substantially
the form set forth as Exhibit 1.4. Except as otherwise set forth in the
incremental release provisions therein, the escrow agent shall hold the escrowed
funds in escrow under the Escrow Agreement at all times for a three-year period
beginning on the Closing Date.
ARTICLE II -- CLOSING AND CLOSING DATE
2.1 Closing Date. The closing of the transactions contemplated hereby
(the "Closing") shall take place (i) at the offices of Thompson & Knight, P.C.,
in Dallas, Texas, at 10:00 a.m., local time, on July 8, 1999, or (ii) at such
other time or place or on such other date as the parties hereto shall agree. The
date on which the Closing is required to take place is herein referred to as the
"Closing Date."
2.2 Effective Date. Notwithstanding the date this Agreement is
executed or the formal closing referenced above, the effective date of the
transfer of the shares shall be the beginning of business on July 1, 1999 (the
"Effective Date").
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<PAGE> 7
ARTICLE III -- REPRESENTATIONS
AND WARRANTIES OF SELLER AND THE COMPANY
Seller and the Company jointly and severally represent and warrant to
Buyer that:
3.1 Corporate Organization. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
corporate authority to own, lease, and operate its properties and to carry on
its business as now being conducted. No actions or proceedings to dissolve the
Company are pending.
3.2 Qualification. The Company is duly qualified or licensed to do
business and is in good standing in each of the jurisdictions set forth on
Schedule 3.2, which are all the jurisdictions in which it owns, leases, or
operates property or in which such qualification or licensing is required for
the conduct of its business.
3.3 Charter and Bylaws. The Company has made available to Buyer
accurate and complete copies of (i) the Articles of Incorporation and Bylaws of
the Company (certified by the Secretary of State of such Company's jurisdiction
of incorporation and the secretary or an assistant secretary of such Company,
respectively) as currently in effect, (ii) the stock records of the Company, and
(iii) 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 each 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 each Company . The authorized capital stock of
the Company consists of (i) 10,000,000 shares of common stock, no par value per
share, of which 10,100 shares are outstanding and no shares are held in the
Company's treasury. All outstanding shares of capital stock of the Company have
been validly issued and are fully paid and nonassessable, and no 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.
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<PAGE> 8
(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 each
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, fraudulent
conveyance, moratorium, and similar laws affecting creditors' rights generally,
and (ii) equitable principals which may limit the availability of certain
equitable remedies (such as specific performance) in certain instances.
(b) Seller has full legal right, power, and authority to execute,
deliver, and perform this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Seller and constitutes, and each other agreement, instrument, or document
executed or to be executed by Seller in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by Seller and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Seller, enforceable
against Seller in accordance with their respective terms, except that such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium, and similar laws affecting
creditors' rights generally, and (ii) equitable principals which may limit the
availability of certain equitable remedies (such as specific performance) in
certain instances.
3.6 Noncontravention.
(a) The execution, delivery, and performance by Seller and the Company
of this Agreement and the consummation by them of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of the charter or bylaws of the Company, (ii) conflict with or result
in a violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which the Company is a party or by which the Company or any of its
properties may be bound, (iii) result in the creation or imposition of any
Encumbrance upon the properties of the Company, or (iv) assuming compliance with
the matters referred to in Section 3.7, violate any Applicable Law binding upon
the Company.
(b) The execution, delivery, and performance by Seller of this
Agreement and the consummation by Seller of the transactions contemplated hereby
do not and will not (i) conflict with or result in a violation of any provision
of, or constitute (with or without the giving of notice or the passage of time
or both) a default under, or give rise (with or without the giving of notice or
the passage of time or both) to any right of termination, cancellation, or
acceleration under, any contract, agreement, instrument, or obligation to which
Seller is a party or by which Seller or any of Seller's properties may be bound,
(ii) result in the creation or imposition of any Encumbrance upon the properties
of
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<PAGE> 9
Seller, or (iii) assuming compliance with the matters referred to in Section
3.7, violate any Applicable Law binding upon Seller.
3.7 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by Seller or the Company in connection
with the execution, delivery, or performance by Seller and the Company of this
Agreement or the consummation by them of the transactions contemplated hereby.
3.8 No Subsidiaries. The Company has no subsidiaries. In addition,
Company does not own, directly or indirectly, any capital stock or other
securities of any corporation or have any direct or indirect equity or ownership
interest in any other person.
3.9 Shares. Seller is (and at the Closing will be) the record and
beneficial owner of, and upon consummation of the transactions contemplated
hereby Buyer will acquire good, valid, and marketable title to all of the
Shares, free and clear of all Encumbrances, other than (i) those that may arise
by virtue of any actions taken by or on behalf of Buyer or its affiliates or
(ii) restrictions on transfer that may be imposed by federal or state securities
laws.
3.10 Financial Statements. The Company has delivered to Buyer accurate
and complete copies of (i) the Company's unaudited balance sheet as of March 31,
1999 and the related unaudited statements of income, stockholders' equity, and
cash flows for the year then ended, and the notes and schedules thereto, as
prepared by Bowman & Company, LLP, independent public accountant (the "Unaudited
Financial Statements"), and (ii) the Company's unaudited balance sheet as of
June 30, 1999 (the "Latest Balance Sheet"), and the related unaudited statements
of income, stockholders' equity, and cash flows for the three-month period then
ended (the "Unaudited Interim Financial Statements"), certified by the Company's
chief financial officer (collectively, the "Financial Statements"). The
Financial Statements (i) represent actual bona fide transactions, (ii) have been
prepared from the books and records of the Company in conformity with generally
accepted accounting principles applied on a basis consistent with preceding
years throughout the periods involved, except that the Financial Statements are
not accompanied by notes or other textual disclosure required by generally
accepted accounting principles, and (iii) accurately, completely, and fairly
present the Company's financial position as of the respective dates thereof and
its results of operations and cash flows 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 March 31,
1999 giving rise to special or nonrecurring income or any such write-up or
revaluation.
3.11 Absence of Undisclosed Liabilities. The Company does not have any
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 described in the notes accompanying the Audited Financial
Statements, (iii) liabilities which have arisen since the date of the Latest
Balance Sheet in the ordinary course of business (none of which is a material
liability for breach of contract, breach of warranty, tort, or infringement),
(iv) liabilities arising under executory contracts entered into in the ordinary
course of
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<PAGE> 10
business (none of which is a liability for breach of contract), or (v)
liabilities specifically set forth on Schedule 3.11.
3.12 Absence of Certain Changes. Except as disclosed on Schedule 3.12,
since March 31, 1999, (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) 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) 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)
Company has not taken any of the actions set forth in Section 5.2 except as
permitted thereunder.
3.13 Tax Matters. Except as disclosed on Schedule 3.13:
(a) the Company has (and as of the Closing Date will have) duly filed
all federal, state, local, and foreign Tax Returns required to be filed by or
with respect to it with the IRS or other applicable Taxing authority, and no
extensions with respect to such Tax Returns have (or as of the Closing Date will
have) been requested or granted;
(b) the Company has (and as of the Closing Date will have) paid, or
specifically and fully reserved against in the Latest Balance Sheet (not
including any reserve for deferred taxes to reflect timing differences between
book and tax income), all Taxes due, or claimed by any Taxing authority to be
due, from or with respect to it, except Taxes that are being contested in good
faith by appropriate legal proceedings and for which adequate reserves have been
set aside as fully disclosed on Schedule 3.13;
(c) there has been no issue raised or adjustment proposed (and none is
pending) by the IRS or any other Taxing authority in connection with any of the
Tax Returns;
(d) the Company has (and as of the Closing Date will have) made all
deposits required with respect to Taxes;
(e) the federal income Tax Returns of the Company have been audited by
the IRS through the Taxable years ended either March 31, 1986 or March 31, 1987,
and the audit proceedings have been closed and all adjustments settled through
the Taxable year ended March 31, 1987;
(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 or an election under Section 1362 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
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<PAGE> 11
of employment, wages and hours, safety, occupational safety, health,
environmental protection, product safety, and civil rights). Neither Seller nor
the Company have received any written notice, which has not been dismissed or
otherwise disposed of, that the Company has not so complied. Company is not
charged or, to the best knowledge of Seller and the Company, threatened with,
or, to the best knowledge of Seller and the Company, under investigation with
respect to, any violation of any Applicable Law relating to any aspect of the
business of Company.
3.15 Legal Proceedings. Except as disclosed on Schedule 3.15, there
are no Proceedings pending or, to the best knowledge of Seller and the Company,
threatened against or involving the Company (or any of its directors or officers
in connection with the business or affairs of the Company) or any properties or
rights of the. 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 Seller and the Company, threatened seeking to restrain,
prohibit, or obtain damages or other relief in connection with this Agreement or
the transactions contemplated hereby.
3.16 Title to Properties. The Company has good, marketable title to all
properties (personal, 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 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 Seller and the
Company have not received any notice to the contrary. All such tangible
properties are in the Company's possession or under its control.
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3.18 Real Property.
(a) Set forth on Schedule 3.18 is a list, by street address of all real
property leased by the Company (for purposes of this Section 3.18, the "Real
Property"), 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 Seller and the
Company have no actual 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) 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 patent structural defects.
(c) The Company has delivered to Buyer, accurate and complete copies of
all leases to which the Company is a party relating to the Real Property or the
buildings, improvements, or fixtures situated thereon.
3.19 Tangible Personal Property. Set forth on Schedule 3.19 is a list,
as of May 31, 1999, 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. 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 of the lessee's obligations under any such lease has
been granted by the lessor or of the lessor's obligations thereunder by the
lessee. The lessee under each such lease is not in breach of or in default under
such lease, nor has any event occurred which (with or without the giving of
notice or the passage of time or both) would constitute a default by the lessee
under such lease, and the lessee has not received any notice from, or given any
notice to, the lessor indicating that the lessee or the lessor is in breach of
or in default under such lease. To the best knowledge of Seller and the
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<PAGE> 13
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. 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. Subject to Section 6.7 hereof, 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 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.
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(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 (5) 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 Seller 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 Seller and the Company,
threatened against any Company asserting that the use by any Company of any of
such Intellectual Property infringes the rights of any other person or seeking
revocation, termination, or concurrent use of any of such Intellectual Property,
and there is, to the best knowledge of Seller and the Company, no basis for any
such Proceeding. To the best knowledge of Seller 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 Seller 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 Seller and the Company, no
event has occurred which permits, or with or without the giving of notice or the
passage of time or both would permit, the revocation or termination of any
thereof. Except as disclosed on Schedule 3.24, no notice has been issued by any
Governmental Entity and no Proceeding is pending or, to the best knowledge of
Seller and the Company, threatened with respect to any alleged failure by any
Company to have any Permit.
3.25 Agreements.
(a) All agreements, arrangements, and understandings of any nature
(written or oral, formal or informal) (collectively, for purposes of this
Section 3.25, "agreements") to which the Company is a party or by which the
Company or any of its properties is otherwise bound, regardless of amount or
subject matter, that are material to the business, assets, results of
operations, condition (financial or otherwise), or prospects of the Company are
listed on Schedule 3.25.
(b) The Company has delivered to Buyer accurate and complete copies of
the agreements listed on Schedule 3.25. Each of such agreements is a valid and
binding agreement of the parties thereto enforceable against them in accordance
with its terms. 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.
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(a) The Company's Medical Expense Reimbursement Plan, adopted April 22,
1983 and as amended January 1, 1999 (the "Medical Plan") is the only plan
providing employee benefits sponsored, maintained or contributed to by the
Company and may be an "employee benefit plan," as defined in Section 3(3) of
ERISA. If so, the Medical Plan (i) has been subject to any provision of ERISA,
(ii) has been maintained, administered, or contributed to by the Company or any
affiliate of any Company, and (iii) has covered any employee or former employee
of the Company or any affiliate of the Company or under which the Company or any
affiliate of the Company has any liability. The Company has delivered to Buyer
accurate and complete copies of the Medical Plan (and, if applicable, the
related trust agreements) and all amendments thereto and written interpretations
thereof, together with (i) the three most recent annual reports, if applicable
(Form 5500 including, if applicable, Schedule B thereto), prepared in connection
with the Medical Plan and (ii) the most recent actuarial valuation report, if
applicable, prepared in connection with the Medical Plan. 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 Company has no other "employee benefit plan" as defined in
Section 3(3) of ERISA. The Medical Plan would not constitute an "employee
pension benefit plan" as defined in Section 3(2) of ERISA.
(b) The Medical Plan (i) does not constitute a "multiemployer plan," as
defined in Section 3(37) of ERISA (for purposes of this Section 3.26, a
"Multiemployer Plan"), (ii) is not maintained in connection with any trust
described in Section 501(c)(9) of the Code, (iii) is not 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 the Medical Plan. 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 the
Medical 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 Medical Plan, or by any participant therein, alleging a
breach or breaches of fiduciary duties or violations of Applicable Laws which
could result in liability on the part of the Company, its officers or directors,
or the Medical Plan, under ERISA or any other Applicable Law and there is no
basis for any such claim.
(c) Other than the Medical Plan the Company and those arrangements
listed on Schedule 3.26, the Company has no other 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 benefit plan covered by
ERISA, (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
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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 as the "Benefit
Arrangements." Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by Applicable
Laws.
(d) 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 could give rise to any penalty or excise Tax pursuant to
Section 4980B or 4999 of the Code.
(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, the Medical Plan or Benefit Arrangement which would increase materially
the expense of maintaining the Medical Plan or Benefit Arrangement above the
level of the expense incurred in respect thereof for the fiscal year ended March
31, 1999.
3.27 Environmental Matters.
(a) Except as set forth in the Phase I Environmental Audit Report
prepared by Law Engineering on behalf of Buyer, the Company, as an operator on
the property leased by the Company is not in violation of, or subject to any
pending or, to the best knowledge of Seller and the Company, threatened
Proceeding under, or subject to any remedial obligations under, any Applicable
Laws pertaining to health, safety, the environment, Hazardous Substances, or
Solid Wastes (such Applicable Laws as they now exist or are hereafter enacted
and/or amended are collectively, for purposes of this Section, 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. To the best knowledge of the Company, no asbestos, material containing
asbestos that is or may become friable, or material containing asbestos deemed
hazardous by Applicable Laws, has been installed in on the leased property. The
representations and warranties set forth in the preceding sentences of this
Section 3.27 would continue to be true and correct following disclosure to the
applicable Governmental Entities of all relevant facts, conditions, and
circumstances, if any, pertaining to the leased 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 leased property consistent with good commercial or
customary practice. The Company has taken all steps necessary to determine and
has determined that no Hazardous
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<PAGE> 17
Substances or Solid Wastes have been Disposed of or otherwise Released on or to
the leased 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) (i) There are no collective bargaining agreements or other similar
agreements, arrangements, or understandings, written or oral, with employees as
a group to or by which the Company is a party or is bound; (ii) no employees of
the Company are represented by any labor organization, collective bargaining
representative, or group of employees; (iii) no labor organization, collective
bargaining representative, or group of employees claims to represent a majority
of the employees of the Company in an appropriate unit of the Company; (iv) the
Company has not been involved with any representational campaign by any union or
other organization or group seeking to become the collective bargaining
representative of any of its employees or been subject to or, to the best
knowledge of Seller and the Company, threatened with any strike or other
concerted labor activity or dispute; and (v) the Company is not obligated to
bargain collectively with respect to wages, hours, and other terms and
conditions of employment with any recognized or certified labor organization,
collective bargaining representative, or group of employees.
(b) The Company is in compliance with all Applicable Laws pertaining to
employment and employment practices and wages, 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 Seller and the Company, threatened Proceeding by or
before, and except a disclosed on Schedule 3.28 the Company is not subject to
any judgment, order, writ, injunction, or decree of or inquiry from, the
National Labor Relations Board, the Equal Employment Opportunity Commission, the
Department of Labor, or any other Governmental Entity in connection with any
current, former, or prospective employee of the Company.
(c) Seller and the Company believe that relations with the employees of
the Company are satisfactory.
3.29 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 31, 1999, 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. Other than on Schedule 3.30, no Seller and no affiliate of any
Seller has entered into any type of employment or consulting agreement, written
or
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<PAGE> 18
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. Except as disclosed on Schedule 3.30, no
shareholder, director, officer, or employee of the Company or any associate of
any such shareholder, director, officer, or employee is presently, directly or
indirectly, a party to any transaction with the Company, including, without
limitation, any agreement, arrangement, or understanding, written or oral,
providing for the employment of, furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to any such shareholder,
director, officer, employee, or associate. To the best knowledge of Seller and
the Company, no shareholder, director, officer, or employee of the Company, any
associate of any such shareholder, director, officer, or employee owns, directly
or indirectly, any interest in, or serves as a director, officer, or employee
of, any customer, supplier, or competitor of the Company. For purposes of this
Section 3.30 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 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
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<PAGE> 19
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 Seller and the Company,
none of Seller or the Company or any director, officer, employee, or agent of
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 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. To the extent that any
such securities were registered under the Securities Act, the applicable
registration statements and prospectuses filed with the Securities and Exchange
Commission pursuant to the Securities Act, at the time each such registration
statement became effective, and at all times when delivery of a prospectus was
required pursuant to the Securities Act, complied in all material respects with
the requirements of the Securities Act and the rules and regulations thereunder.
3.37 Brokerage Fees. Neither Seller nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby. Seller shall indemnify and hold harmless
Buyer from and against any and all losses, claims, damages, and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission, or similar payment in connection with any transaction
contemplated hereby asserted by any person on the basis of any act or statement
made or alleged to have been made by any Seller or any of Seller's affiliates.
3.38 Disclosure. No representation or warranty made by Seller or the
Company in this Agreement, and no statement of Seller or the Company contained
in any document, certificate, or other writing furnished or to be furnished by
Seller 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. Seller 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 Buyer pursuant to this Agreement which materially and adversely
affects, or will materially and adversely affect, the business, assets, results
of operations, condition (financial or otherwise), or prospects of the Company
or the ability of Seller to consummate the transactions contemplated hereby.
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<PAGE> 20
3.39 Representations and Warranties on Closing Date. The
representations and warranties made in this Article III will be true and correct
on and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date,
except that any such representations and warranties which expressly relate only
to an earlier date shall be true and correct on the Closing Date as of such
earlier date.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby generally represents and warrants to Seller and the
Company that:
4.1 Corporate Organization. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and corporate authority to
own, lease, and operate its properties and to carry on its business as now being
conducted.
4.2 Authority Relative to This Agreement. Buyer has full corporate
power and corporate authority to execute, deliver, and perform this Agreement
and to consummate the transactions contemplated hereby. The execution, delivery,
and performance by Buyer of this Agreement, and the consummation by it of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate action of Buyer. This Agreement has been duly executed and delivered
by Buyer and constitutes, and each other agreement, instrument, or document
executed or to be executed by Buyer in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by Buyer and constitutes, or when executed and delivered will
constitute, a valid and legally binding obligation of Buyer, enforceable against
Buyer in accordance with their respective terms, except that such enforceability
may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and similar laws affecting creditors' rights generally and (ii)
equitable principles which may limit the availability of certain equitable
remedies (such as specific performance) in certain instances.
4.3 Noncontravention. The execution, delivery, and performance by Buyer
of this Agreement and the consummation by it of the transactions contemplated
hereby do not and will not (i) conflict with or result in a violation of any
provision of the charter or bylaws of Buyer, (ii) conflict with or result in a
violation of any provision of, or constitute (with or without the giving of
notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration under, any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Buyer is a party or by which Buyer or any of its properties
may be bound, (iii) result in the creation or imposition of any Encumbrance upon
the properties of Buyer, or (iv) assuming compliance with the matters referred
to in Section 4, violate any Applicable Law binding upon Buyer.
4.4 Governmental Approvals. No consent, approval, order, or
authorization of, or declaration, filing, or registration with, any Governmental
Entity is required to be obtained or made by Buyer in connection with the
execution, delivery, or performance by Buyer of this Agreement or the
consummation by it of the transactions contemplated hereby, other than (i)
compliance with any applicable requirements of the Securities Act; (ii)
compliance with any applicable requirements of the Exchange Act; (iii)
compliance with any applicable state securities laws; and (iv) filings with
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<PAGE> 21
Governmental Entities to occur in the ordinary course following the consummation
of the transactions contemplated hereby.
4.5 Brokerage Fees. Neither Buyer nor any of its affiliates has
retained any financial advisor, broker, agent, or finder or paid or agreed to
pay any financial advisor, broker, agent, or finder on account of this Agreement
or any transaction contemplated hereby. Buyer shall indemnify and hold harmless
Seller from and against any and all losses, claims, damages, and liabilities
(including legal and other expenses reasonably incurred in connection with
investigating or defending any claims or actions) with respect to any finder's
fee, brokerage commission, or similar payment in connection with any transaction
contemplated hereby asserted by any person on the basis of any act or statement
made or alleged to have been made by either Buyer or any of its affiliates.
4.6 Representations and Warranties on Closing Date. The representations
and warranties made in this Article IV will be true and correct on and as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on and as of the Closing Date, except that any such
representations and warranties which expressly relate only to an earlier date
shall be true and correct on the Closing Date as of such earlier date.
ARTICLE V -- CONDUCT OF THE COMPANY PENDING CLOSING
Seller and the Company hereby jointly and severally covenant and agree
with Buyer as follows:
5.1 Conduct and Preservation of Business. Except as contemplated by
this Agreement, during the period from the date hereof to the Closing, the
Company (i) shall conduct its operations according to its ordinary course of
business consistent with past practice and in compliance with all Applicable
Laws; (ii) shall use its reasonable best efforts to preserve, maintain, and
protect its properties; and (iii) shall use its reasonable best efforts to
preserve intact its business organization, to keep available the services of its
officers and employees, and to maintain existing relationships with licensors,
licensees, suppliers, contractors, distributors, customers, and others having
business relationships with it.
5.2 Restrictions on Certain Actions. Without limiting the generality of
the foregoing, and except as otherwise expressly provided in this Agreement,
prior to the Closing, the Company shall not, without the prior written consent
of Buyer:
(a) amend its charter or bylaws;
(b) (i) issue, sell, or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase,
or otherwise) any shares of its capital stock of any class or any other
securities or equity equivalents; or (ii) amend in any respect any of the terms
of any such securities outstanding as of the date hereof;
(c) (i) split, combine, or reclassify any shares of its capital stock;
(ii) declare, set aside, or pay any dividend or other distribution (whether in
cash, stock, or property or any combination thereof) in respect of its capital
stock; (iii) repurchase, redeem, or otherwise acquire any of its securities; or
(iv) adopt a plan of complete or partial liquidation or resolutions providing
for or authorizing a
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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 and
outside of the ordinary course of business;
(i) make any Tax election or settle or compromise any federal, state,
local, or foreign Tax liability;
(j) pay, discharge, or satisfy any claims, liabilities, or obligations
(whether accrued, absolute, contingent, unliquidated, or otherwise, and whether
asserted or unasserted), other than the payment, discharge, or satisfaction in
the ordinary course of business consistent with past practice, or in accordance
with their terms, of liabilities reflected or reserved against in the Latest
Balance Sheet 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;
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(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 Buyer;
(q) take any action which would or might make any of the
representations or warranties of Seller or the Company contained in this
Agreement untrue or inaccurate as of any time from the date of this Agreement to
the Closing or would or might result in any of the conditions set forth in this
Agreement not being satisfied; or
(r) authorize or propose, or agree in writing or otherwise to take, any
of the actions described in this Section 5.2.
ARTICLE VI -- ADDITIONAL AGREEMENTS
6.1 Access to Information. Between the date hereof and the Closing,
Seller and the Company (i) shall give Buyer and its authorized representatives
reasonable access to all employees, all plants, offices, warehouses, and other
facilities, and all books and records, including work papers and other materials
prepared by the Company's independent public accountants, of the Company, (ii)
shall permit Buyer and its authorized representatives to make such inspections
as they may reasonably require, and (iii) shall cause the Company's officers to
furnish Buyer and its authorized representatives with such financial and
operating data and other information with respect to the Company as Buyer may
from time to time reasonably request; provided, however, that no
investigation pursuant to this Section 6.1 shall affect any representation or
warranty of Seller 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 Seller and the Company shall have the right
to have a representative present at all times.
6.2 Third Party Consents. Seller and the Company shall use its
reasonable best efforts to obtain all consents, approvals, orders,
authorizations, and waivers of, and to effect all declarations, filings, and
registrations with, all third parties (including Governmental Entities) that are
necessary, required, or deemed by Buyer to be desirable to enable Seller to
transfer the Shares to Buyer as contemplated by this Agreement and to otherwise
consummate the transactions contemplated hereby. All costs and expenses of
obtaining or effecting any and all of the consents, approvals, orders,
authorizations, waivers, declarations, filings, and registrations referred to in
this Section 6.2 shall be borne by Seller.
6.3 Employment Agreement. Each of Harvey Solveson and Tom Solveson and
the Company shall enter into an employment and non-competition agreement (the
"Employment Agreements") at (and subject to the occurrence of) the Closing
pursuant to which the Company shall agree to employ Harvey Solveson and Tom
Solveson as employees of the Company for the period and on the terms
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set forth therein. The Employment Agreements shall be in substantially the form
set forth as Exhibit 6.3A and 6.3B
6.4 [Reserved].
6.5 Employee and Employee Benefit Plan Matters. The Company shall
cancel the Medical Plan and its Phantom Stock Appreciation Plan prior to the
Closing.
6.6 New Lease. The Company and Seller will enter into a real property
lease agreement (the "Lease Agreement") with respect to the property located at
1 Sloan Court, Tracy, California 95376, effective as of the Effective Date, on
substantially the same terms as set forth in the lease agreement set forth as
Exhibit 6.6.
6.7 Uncollected Receivables. If, on or prior to December 31, 1999, the
Company has been unable to collect the account receivables owned by it as of
Closing Date hereunder in full, subject to the allowance for doubtful accounts
as reflected on the Latest Balance Sheet, Buyer shall have the option to cause
the Company to sell and, upon exercise of such option, Seller 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. Seller shall be obligated to consummate
such repurchase within ten days after written notice from Buyer of Buyer's
election to require such repurchase.
6.8 Public Announcements. Except as may be required by Applicable Law
or the National Association of Securities Dealers, Inc., neither Buyer, on the
one hand, nor Seller and the Company, on the other, shall issue any press
release or otherwise make any public statement with respect to this Agreement or
the transactions contemplated hereby without the prior written consent of the
other party.
6.9 [Reserved].
6.10 [Reserved].
6.11 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.
6.12 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 equally by Seller, and Seller shall file all necessary documentation
with respect to, and make all payments of, such Taxes and fees on a timely
basis.
6.13 Survival of Covenants. Except for any covenant or agreement which
by its terms expressly terminates as of a specific date, the covenants and
agreements of the parties hereto contained in this Agreement shall survive the
Closing without contractual limitation, subject to Section 11.1 hereof.
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ARTICLE VII -- TAX MATTERS
Section 7.1. Liability for Taxes, Filing Returns.
(a) Taxable Periods Ending on or Before the Closing Date. Seller shall
cause to be prepared and duly filed all Tax Returns required to be filed by or
with respect to the Company for all Taxable years and periods ending on or
before the Closing Date. Seller shall be solely liable for and shall pay all
Taxes shown to be due on such Tax Returns for all periods covered by such Tax
Returns. Seller shall indemnify and hold harmless Buyer and the Company against
all Taxes of the Company for any Taxable year or Taxable period ending on or
before the Closing Date. Notwithstanding the foregoing, Buyer shall be
responsible for Taxes accruing in the ordinary course of business between the
Closing Date and the Effective Date.
(b) Taxable Periods Commencing After the Closing Date. Buyer shall be
solely liable for all taxes of the Company for all Taxable years and periods
commencing after the Closing Date. Buyer shall cause to be prepared and duly
filed all Tax Returns of the Company for Taxable periods commencing after the
Closing Date. Buyer shall pay all Taxes shown to be due on such Tax Returns for
all periods covered by such Tax Returns. Except to the extent provided in
Section 7.1(c) below, Buyer shall be liable for, and shall indemnify and hold
harmless Seller against, any and all Taxes for any Taxable year or Taxable
period commencing after the Closing Date due or payable by the Company.
(c) Taxable Periods Commencing Before and Ending After the Closing
Date,. Buyer shall cause the Company to pay all Taxes due for any Taxable year
or Taxable period commencing before and ending after the Closing Date (the
"Straddle Period"). Upon notice from Buyer, Seller shall pay to Buyer prior to
the date any payment for Taxes as described in this Section 7.1(c) is due, an
amount equal to the excess, if any, of (i) the Taxes that would have been due if
the Straddle Period had ended on the Closing Date (using an
interim-closing-of-the-books method except that exemptions, allowances, and
deductions that are otherwise calculated on an annual basis (such as deductions
for depreciation and depletion) shall be apportioned on a per diem basis) over
(ii) the sum of the Taxes for the Straddle Period (A) which have been
specifically and fully reserved for on the Closing Statement or (not including
any reserve for deferred taxes to reflect timing differences between book and
tax income) (B) paid by the Company or by Seller or an affiliate thereof with
respect to the Company prior to the Effective Date. (not including any reserve
for deferred taxes to reflect timing differences between book and tax income).
Notwithstanding the foregoing, Buyer shall be responsible for Taxes accruing in
the ordinary course of business between the Closing Date and the Effective Date.
(d) Limitations. The responsibility of the parties for Taxes pursuant
to this Section 7.1 shall not be subject to the limitations on indemnification
contained in Article XI, including, but not limited to, any limitations with
respect to the survival period, caps, floors or baskets.
Section 7.2 Corporate Records. The parties hereto shall provide each
other with such cooperation and information as they may reasonably request of
each other in preparing or filing any return, amended return, or claim for
refund, in determining a liability or a right to refund, or in conducting any
audit or other proceeding, in respect of Taxes imposed on the parties. Buyer and
Seller shall preserve or cause to be preserved, and retain or cause to be
retained, all returns,
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schedules, work papers, and all material records or other documents relating to
any such returns, claims, audits, or other proceedings until the expiration of
the statutory period of limitations (including extensions) of the Taxable
periods to which such documents relate and until the final determination of any
payments which may be required with respect to such periods under this Agreement
and shall make such documents available at the then current administrative
headquarters of the Company to Seller or Buyer, as the case may be, and their
respective officers, employees, and agents upon reasonable notice and at
reasonable times, it being understood that Seller and Buyer shall be entitled to
make copies of any such books and records as they shall deem necessary. Buyer
further agrees to permit representatives of Seller to meet with employees of
Buyer and the Company on a mutually convenient basis in order to enable such
representatives to obtain additional information and explanations of any
documents provided. Any information obtained pursuant to this Section 7.2 shall
be kept confidential, except as may be otherwise necessary in connection with
the filing of returns or claims for refund or in conducting any audit or other
proceedings.
Section 7.3. Resolution of Disagreements. If Seller and Buyer disagree
as to the amount of Taxes for which each is liable under this Agreement, Seller
and Buyer shall promptly consult each other in an effort to resolve such
dispute. If any such dispute cannot be resolved within 15 days after the initial
date of consultation, Seller and Buyer shall cause such dispute to be resolved
in the same manner, and subject to the same terms and conditions, as if such
dispute was an issue to be resolved pursuant to Section 1.3(b).
ARTICLE VIII -- CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of the Seller to consummate the transactions
contemplated by this Agreement shall be subject to the fulfillment on or prior
to the Closing Date of each of the following conditions:
8.1 Representations and Warranties True. All the representations and
warranties of Buyer contained in this Agreement, and in any agreement,
instrument, or document delivered pursuant hereto or in connection herewith on
or prior to the Closing Date, shall be true and correct on and as of the Closing
Date as if made on and as of such date, except as affected by transactions
contemplated or permitted by this Agreement and except to the extent that any
such representation or warranty is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
specified date.
8.2 Covenants and Agreements Performed. Buyer shall have performed and
complied with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing Date.
8.3 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.
8.4 Other Documents. Seller shall have received the certificates,
instruments, and documents listed below:
(a) The Purchase Price to be delivered to Seller in the form of a
promissory note pursuant to Section 1.2; and
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(b) Such other certificates, instruments, and documents as may be
reasonably requested by Seller prior to the Closing Date to carry out the intent
and purposes of this Agreement.
ARTICLE IX -- CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the fulfillment on or prior to the Closing
Date of each of the following conditions:
9.1 Representations and Warranties True. All the representations and
warranties of Seller 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.
9.2 Covenants and Agreements Performed. Seller and the Company shall
have performed and complied with all covenants and agreements required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date.
9.3 Certificate. Buyer shall have received a certificate executed by
Seller and on behalf of the Company by the chairman and chief financial officer
of the Company, dated the Closing Date, representing and certifying, in such
detail as Buyer may reasonably request, that the conditions set forth in this
Article IX have been fulfilled and that Seller and the Company are not in breach
of any provision of this Agreement.
9.4 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.
9.5 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.
9.6 No Material Adverse Change. Since March 31, 1999, 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.
9.7 Due Diligence. The due diligence conducted by Buyer and its
representatives in connection with the proposed transactions contemplated hereby
shall not have caused Buyer or its representatives to become aware of any facts
relating to the business, assets, results of operations, condition (financial or
otherwise), or prospects of the Company which, in the good faith judgment of
Buyer, make it inadvisable for Buyer to proceed with the consummation of the
transactions contemplated hereby.
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9.8 Employment Agreements. Harvey Solveson and Tom Solveson shall have
entered into their respective Employment Agreements with the Company.
9.9 New Lease. The Seller and the Company shall have executed the Lease
Agreement.
9.10 Other Documents. Buyer shall have received the certificates,
instruments, and documents listed below:
(a) The stock certificates representing the Shares duly endorsed in
blank, or accompanied by stock powers duly executed in blank, and otherwise in
form acceptable to Buyer for transfer on the books of the Company.
(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 of 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) The written resignation from the Board of Directors of the Company
of each member of such Board, such resignation to be effective concurrently with
the Closing on the Closing Date.
(e) The written resignation as an officer of the Company of each
officer of the Company, such resignation to be effective concurrently with the
Closing on the Closing Date.
(f) A copy of the resolutions of the Board of Directors of 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.
(g) A certificate from the Secretary of State of California, dated not
more than 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.
(h) Lien search reports, each dated not more than 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 office of the Secretary of
State of California or the county clerk's office of San Joaquin County.
(i) Such other certificates, instruments, and documents as may be
reasonably requested by Buyer prior to the Closing Date to carry out the intent
and purposes of this Agreement.
ARTICLE X -- TERMINATION, AMENDMENT, AND WAIVER
10.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing in the following
manner:
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(a) by mutual written consent of Seller and Buyer; or
(b) by either Seller or Buyer, if:
(i) the Closing shall not have occurred on or before
August 31, 1999, unless such failure to close shall be due to a breach
of this Agreement by the party seeking to terminate this Agreement
pursuant to this clause (i); or
(ii) there shall be any statute, rule, or regulation that
makes consummation of the transactions contemplated hereby illegal or
otherwise prohibited or a Governmental Entity shall have issued an
order, decree, or ruling or taken any other action permanently
restraining, enjoining, or otherwise prohibiting the consummation of
the transactions contemplated hereby, and such order, decree, ruling,
or other action shall have become final and nonappealable; or
(c) by Seller, if (i) any of the representations and warranties of
Buyer contained in this Agreement shall not be true and correct, when made or at
any time prior to the Closing as if made at and as of such time, or (ii) Buyer
shall have failed to fulfill any of its obligations under this Agreement, and,
in the case of each of clauses (i) and (ii), such misrepresentation, breach of
warranty, or failure (provided it can be cured) has not been cured within 30
days of actual knowledge thereof by Buyer; or
(d) by Buyer, if (i) any of the representations and warranties of
Seller or the Company contained in this Agreement shall not be true and correct,
when made or at any time prior to the Closing as if made at and as of such time,
or (ii) Seller or the Company shall have failed to fulfill any of their
obligations under this Agreement, 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 Seller.
10.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 10.1 by Seller, on the one hand, or Buyer, on the
other, written notice thereof shall forthwith be given to the other party
specifying the provision hereof pursuant to which such termination is made, and
this Agreement shall become void and have no effect, except that the agreements
contained in this Section 10.2 and in Sections 6.8 and 6.11 shall survive the
termination hereof. Nothing contained in this Section 10.2 shall relieve any
party from liability for damages as a result of any breach of this Agreement.
10.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed by or on behalf of all the parties hereto.
10.4 Waiver. Each of Seller and the Company, on the one hand, and
Buyer, on the other, may (i) waive any inaccuracies in the representations and
warranties of the other contained herein or in any document, certificate, or
writing delivered pursuant hereto or (ii) waive compliance by the other with any
of the other's agreements or fulfillment of any conditions to its own
obligations contained herein. Any agreement on the part of a party hereto to any
such waiver shall be valid only if set forth in an instrument in writing signed
by or on behalf of such party. No failure or delay by a party hereto in
exercising any right, power, or privilege hereunder shall operate as a waiver
thereof
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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.
10.5 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 IX -- SURVIVAL OF
REPRESENTATIONS; INDEMNIFICATION
11.1 Survival. The representations and warranties of the parties hereto
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto shall survive the Closing for a period ending on (and
including) the third (3rd) anniversary of the Closing Date, regardless of any
investigation made by or on behalf of any party, except that any representations
and warranties regarding Taxes shall survive until expiration of the applicable
statutes of limitations.
11.2 Indemnification by Seller. Subject to the terms and conditions of
this Article XI, Seller shall indemnify, defend, and hold harmless Buyer, the
subsidiaries and parent corporations of Buyer (including, after the Closing, the
Company), each director and officer of Buyer or any of its subsidiaries or
parent corporations, and each affiliate thereof, and their respective heirs,
legal representatives, successors and assigns (collectively, the "Buyer Group"),
from and against any and all claims, actions, causes of action, demands,
assessments, losses, damages, liabilities, judgments, settlements, penalties,
costs, and expenses (including reasonable attorneys' fees and expenses), of any
nature whatsoever, whether actual or consequential (collectively, "Damages"),
asserted against, resulting to, imposed upon, or incurred by any member of the
Buyer Group, directly or indirectly, by reason of or resulting from any breach
by Seller of any of its representations, warranties, covenants, or agreements
contained in this Agreement or in any certificate, instrument, or document
delivered pursuant hereto.
11.3 Indemnification by Buyer. Subject to the terms and conditions of
this Article XI, Buyer shall indemnify, defend, and hold harmless Seller, the
subsidiaries and parent corporations, if any, of Seller, each director and
officer, if any, of Seller or any of its subsidiaries or parent corporations,
and each affiliate thereof, and their respective heirs, legal representatives,
successors, and assigns (collectively, the "Seller Group"), from and against any
and all Damages asserted against, resulting to, imposed upon, or incurred by any
member of the Seller Group, directly or indirectly, by reason of or resulting
from any breach by Buyer of any of its representations, warranties, covenants,
or agreements contained in this Agreement or in any certificate, instrument, or
document delivered pursuant hereto.
11.4 Procedure for Indemnification. Promptly after receipt by an
indemnified party under Section 11.2 or 11.3 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
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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).
11.5 Threshold for Buyer Group Damages. No indemnification shall be
required to be made by the Sellers pursuant to this Article XI with respect to
any Buyer Group Damages unless and until the aggregate amount of Damages
incurred by the Buyers Group with respect to all Buyer Group Damages (whether
asserted, resulting, imposed or incurred before, on or after the Closing Date)
exceeds Thirty Thousand Dollars ($30,000), it being agreed and understood that,
if such amount is exceeded, Seller shall be liable to the fullest extent of such
Buyer Group Damages, including those not in excess of Thirty Thousand Dollars
($30,000).
ARTICLE XII -- MISCELLANEOUS
12.1 Notices. All notices, requests, demands, and other communications
required or permitted to be given or made hereunder by any party hereto shall be
in writing and shall be deemed to have been duly given or made if delivered
personally, or transmitted by first class registered or certified mail, postage
prepaid, return receipt requested, or sent by prepaid overnight delivery
service, or sent by cable, telegram, telefax, or telex, to the parties at the
following addresses (or at such other addresses as shall be specified by the
parties by like notice):
If to Buyer: 2323 Irving Boulevard
Dallas, Texas 75207
Attention: Mark Roberson
Telefax: (214) 634-9183
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If to Seller: Solveson Family Revocable Trust (DTD 8/14/90)
c/o/ Harvey Solveson, Trustee
13991 Strawberry Circle
Penn Valley, CA 95946
Telefax: (530) 432-7620
12.2 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.
12.3 Binding Effect; Assignment; No Third Party Benefit. This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors, and permitted assigns.
Except as otherwise expressly provided in this Agreement, neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties, except that Buyer may assign to any wholly owned subsidiary of Buyer
any of Buyer's rights, interests, or obligations hereunder, upon notice to the
other party or parties, provided that no such assignment shall relieve Buyer of
its obligations hereunder. Except as provided in Article XI, 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.
12.4 Severability. If any provision of this Agreement is held to be
unenforceable, this Agreement shall be considered divisible and such provision
shall be deemed inoperative to the extent it is deemed unenforceable, and in all
other respects this Agreement shall remain in full force and effect; provided,
however, that if any such provision may be made enforceable by limitation
thereof, then such provision shall be deemed to be so limited and shall be
enforceable to the maximum extent permitted by Applicable Law.
12.5 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.
12.6 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.
12.7 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.
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12.8 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.
12.9 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.
12.10 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.
12.11 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.
12.12 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 12.1, 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 XIII -- DEFINITIONS
13.1 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.
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"Applicable Law" means any statute, law, rule, or
regulation or any judgment, order, writ, injunction, or decree of any
Governmental Entity to which a specified person or property is subject.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Encumbrances" means liens, charges, pledges, options,
mortgages, deeds of trust, security interests, claims, restrictions
(whether on voting, sale, transfer, disposition, or otherwise),
easements, and other encumbrances of every type and description,
whether imposed by law, agreement, understanding, or otherwise.
"ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Governmental Entity" means any court or tribunal in any
jurisdiction (domestic or foreign) or any public, governmental, or
regulatory body, agency, department, commission, board, bureau, or
other authority or instrumentality (domestic or foreign).
"Intellectual Property" means patents, trademarks,
service marks, trade names, copyrights, trade secrets, know-how,
inventions, and similar rights, and all registrations, applications,
licenses, and rights with respect to any of the foregoing.
"IRS" means the Internal Revenue Service.
"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.
30
<PAGE> 35
"Tax Return" means any return or report, including any
related or supporting information, with respect to Taxes.
"to the best knowledge of Seller and the Company" (or
similar references to Seller and the Company's knowledge) means the
actual knowledge of or receipt of notice (oral or written) by any of
Seller or the Company's executive officers, as such knowledge has been
obtained in the normal conduct of the business of the Company or in
connection with the preparation of the Schedules to this Agreement and
the furnishing of information to Buyer as contemplated by this
Agreement, after having made a reasonable investigation of the accuracy
of the representations and warranties made by Seller and the Company in
this Agreement or in any document, certificate, or other writing
furnished by Seller or the Company to Buyer pursuant hereto or in
connection herewith.
"Treasury Regulations" means one or more treasury
regulations promulgated under the Code by the Treasury Department of
the United States.
13.2 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 13.1, the following terms are used in this Agreement as defined in the
Sections set forth opposite such terms:
<TABLE>
<CAPTION>
Defined Term Section Reference
------------ -----------------
<S> <C>
Accountants 1.3
agreements 3.25
Applicable Environmental Laws 3.27
associate 3.30
Audited Financial Statements 3.10
Benefit Arrangements 3.26
Buyer Preamble
Buyer Group 11.2
CERCLA 3.27
Closing 2.1
Closing Date 2.1
Closing Statement 1.3
Damages 11.2
Disposal 3.27
Effective Date 2.2
Employment Agreements 6.3
Escrow Agreement 1.4
Financial Statements 3.10
Hazardous Substance 3.27
Latest Balance Sheet 3.10
Lease Agreements 6.6
Medical Plan 3.26
Net Worth of the Company 1.3
Promissory Note 1.2
Purchase Price 1.2
RCRA 3.27
Real Property 3.18
Release 3.27
Seller Preamble
Seller Group 11.3
Shares Preamble
Solid Waste 3.27
Straddle Period 7.1
Unaudited Financial Statements 3.10
Unaudited Interim Financial Statements 3.10
</TABLE>
[Signature page to follow]
31
<PAGE> 36
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.
SOLVESON CRANE RENTAL, INC.
By:
---------------------------------
Harvey Solveson
Chief Financial Officer
SOLVESON FAMILY REVOCABLE TRUST (DTD
8/14/90)
By:
---------------------------------
Harvey Solveson
Trustee
CRESCENT MACHINERY COMPANY
By:
------------------------------
Name:
----------------------------
Title:
----------------------------
<PAGE> 1
EXHIBIT 10.81
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Second Amendment") is
entered into effective as of August 27, 1999, by and among CRESCENT OPERATING,
INC., a Delaware corporation ("Borrower") and BANK OF AMERICA, N.A., formerly
NationsBank, N.A. (successor in interest by merger to NationsBank of Texas,
N.A.), a national banking association ("Lender"), with the acknowledgment,
confirmation, approval and agreement of the undersigned "Support Parties"
(herein so called) as set forth hereinbelow. Such Support Parties are signing
this Second Amendment solely for the purposes set forth in Section 11 of this
Second Amendment.
W I T N E S S E T H:
WHEREAS, Borrower and Lender are parties to that certain Credit
Agreement dated as of August 27, 1997 (the "Original Credit Agreement") as
amended by that certain First Amendment to Credit Agreement dated effective as
of August 27, 1998 (the "First Amendment") (the Original Credit Agreement as
amended by the First Amendment is referred to in this Second Amendment as the
"Credit Agreement") and Borrower, Lender and Support Parties are parties to that
certain Support Agreement of even date with the Original Credit Agreement, as
amended and confirmed as set forth in the First Amendment (the "Support
Agreement");
WHEREAS, Borrower and Support Parties have requested that Lender agree
to a renewal of the credit facility evidenced by the Credit Agreement and
extension of the "Termination Date" as currently defined in the Credit Agreement
and other matters as set forth herein, and Bank is willing to do so upon the
terms and conditions set forth herein; and
WHEREAS, Borrower and Lender desire to amend the Credit Agreement by
this Second Amendment, with the acknowledgment, confirmation, approval and
agreement of the Support Parties with respect to the Support Agreement, all as
set forth hereinbelow, and the parties desire to enter into the agreements,
modifications and amendments as set forth below;
NOW, THEREFORE, for and in consideration of the above premises and for
other good and valuable consideration, the parties hereto agree as follows:
1. Definitions. All capitalized terms defined in the Credit Agreement,
as amended hereby, and not otherwise defined in this Second Amendment shall have
the same meanings as assigned to them in the Credit Agreement when used in this
Second Amendment, unless the context hereof shall otherwise require or provide.
2. Representations and Warranties. In order to induce Lender to enter
into this Second Amendment, Borrower represents and warrants to Lender that:
A. This Second Amendment, the Credit Agreement, as amended
hereby, and the Loan Papers are the legal and binding obligations of Borrower,
enforceable in accordance with their respective terms, except as limited by
bankruptcy, insolvency or other laws of general application relating to the
enforcement of creditors' rights;
B. No event has occurred and is continuing which constitutes a
Default or a Potential Default; and
C. All of the representations and warranties contained in
Paragraph 5 of the Credit Agreement, as amended by this Second Amendment, are
true and correct as of the date hereof.
Page 1 of 5
<PAGE> 2
3. Amendments to Credit Agreement.
A. In order to renew and extend the credit facility evidenced
by the Credit Agreement, as amended by this Second Amendment, and the Loan
Papers, the definition of the term "Termination Date" as set forth in the Credit
Agreement is hereby amended and restated in its entirety to read as follows:
Termination Date means the earlier to occur of the following
dates: (a) August 31, 2001; and (b) the effective date that Lender's
commitment to extend credit under this agreement is otherwise canceled
or terminated in accordance with this agreement.
B. Paragraph 5 of the Credit Agreement is hereby amended to
replace clause (k) thereof with the following clause (k):
(k) use its best efforts to complete offerings(s) and/ or
private placement(s) of securities of Borrower comprising a
Successful Rights Offering prior to August 31, 2001; provided
that Borrower will utilize the Support Agreement dated August
27, 1997, executed by Richard E. Rainwater, John Goff and
Gerald Haddock in connection herewith, as it may be modified,
amended, confirmed or restated, if necessary in order to
accomplish the foregoing and pay the Obligation in full when
due, and Borrower specifically agrees to take all reasonable
and necessary action to enforce such Support Agreement in such
instance and/or, at the request of Lender, to join Lender in
any such enforcement action;
C. Without affecting in any way the obligations of Richard E.
Rainwater and John Goff as "Support Parties" under the Support Agreement
(including without limitation as referred to in Paragraph 5 of the Credit
Agreement), Gerald Haddock is hereby released from his obligations as a "Support
Party" under such Support Agreement, and the name "Gerald Haddock" is hereby
deleted from Paragraph 7 of the Credit Agreement and Paragraph 9 of the Credit
Agreement.
D. The promissory note in the face principal amount of
$15,000,000.00 dated August 27, 1997 executed by Borrower and payable to Lender
(or its predecessors in interest) and executed in connection with the Original
Credit Agreement is hereby renewed and extended to be evidenced by that certain
promissory note dated of even date herewith in the face principal amount of
$15,000,000.00 executed by Borrower and payable to Lender (sometimes referred to
in this Second Amendment and in connection herewith as the "Renewal Note"),
which the parties agree and acknowledge to be the "Note" as contemplated in
Paragraph 4(a) of the Credit Agreement and a "Loan Paper" as defined in the
Credit Agreement.
E. The definition of the term "Lender" as set forth in the
Credit Agreement and all references to "Lender" in the Credit Agreement and in
the other Loan Papers are hereby amended to refer to Bank of America, N.A.,
formerly NationsBank, N.A. (successor in interest by merger to NationsBank of
Texas, N.A.).
4. Conditions Precedent. This Second Amendment and the obligations of
Lender hereunder are subject to the conditions precedent that Lender shall have
received from Borrower, together with this Second Amendment duly executed by
Borrower, Richard E. Rainwater and John Goff: (i) the Renewal Note, duly
executed by Borrower, and any other documents requested by Lender prior to
closing in connection herewith, all in form and substance satisfactory to
Lender, (ii) payment of Lender's costs and expenses incurred in connection
herewith as contemplated in the Credit Agreement including, without limitation,
the reasonable attorney's fees of the Lender's legal counsel and any other
costs, expenses and disbursements incurred by Lender through the date of
execution of this Second Amendment, and (iii) payment of a non-refundable
facility fee (the "Facility Fee") in the amount of $75,000.00. The parties each
acknowledge and agree that the Facility Fee payable hereunder is a bona fide fee
intended as reasonable compensation to Lender for committing to make funds
available to Company as described in the Credit
Page 2 of 5
<PAGE> 3
Agreement, as amended by this Second Amendment, and the administration of such
credit facility and for no other purpose.
5. Further Assurances. Borrower shall make, execute or endorse, and
acknowledge and deliver or file or cause same to be done, all such documents,
notices or other assurances, and take all such other action, as Lender may, from
time to time, deem reasonably necessary or proper in connection with this Second
Amendment and the Credit Agreement, as amended hereby.
6. Scope of Amendments. Any and all other provisions of the Credit
Agreement and any other Loan Papers are hereby amended and modified wherever
necessary and even though not specifically addressed herein, so as to conform to
the amendments and modifications set forth in this Second Amendment.
7. Limitation on Agreements. The amendments set forth herein are
limited in scope as described herein and shall not be deemed (a) to be a consent
under or waiver of any other term or condition of the Credit Agreement or any of
the Loan Papers, or (b) to prejudice any right or rights which Lender now has or
may have in the future under, or in connection with the Credit Agreement as
amended by this Second Amendment, the Note, the Loan Papers or any of the
documents referred to herein or therein.
8. Governing Law. This Second Amendment has been prepared, in being
executed and delivered and is intended to be performed in the State of Texas,
and the substantive laws of such state and the applicable federal laws of the
United States of America shall govern the validity, construction, enforcement
and interpretation of this Second Amendment.
9. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO, INCLUDING, BUT NOT LIMITED TO, THOSE ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY RELATED AGREEMENTS OR INSTRUMENTS, INCLUDING ANY CLAIM BASED ON
OR ARISING FROM AN ALLEGED TORT, SHALL BE DETERMINED BY BINDING ARBITRATION IN
ACCORDANCE WITH THE FEDERAL ARBITRATION ACT (OR IF NOT APPLICABLE, THE
APPLICABLE STATE LAW). THE RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION
OF COMMERCIAL DISPUTES OF JUDICIAL ARBITRATION AND MEDIATION SERVICES, INC.
(J.A.M.S.), AND THE "SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION
AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS CREDIT
AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO
COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES
IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY OF THE
BORROWER'S DOMICILE AT TIME OF THIS AGREEMENT'S EXECUTION AND ADMINISTERED BY
J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE AMERICAN ARBITRATION
ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL BE COMMENCED WITHIN NINETY
(90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY,
UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING
FOR UP TO AN ADDITIONAL SIXTY (60) DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO:
(I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION
OR REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY
THE LENDER OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY
SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE LENDER
HERETO: (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF,
OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO
OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE
LENDER MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR
OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE
PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
Page 3 of 5
<PAGE> 4
10. Multiple Counterparts. This Second Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties hereto may execute this Second Amendment
by signing any such counterpart.
11. Signatures of Support Parties. By signing below where indicated,
the undersigned Support Parties each (a) acknowledge this Second Amendment and
the Credit Agreement as amended hereby; (b) agree with the terms, conditions and
amendments contained in this Second Amendment and the Credit Agreement as
amended hereby as they relate to the Support Agreement, including without
limitation, the amended definition of "Termination Date" as set forth in this
Second Amendment; (c) agree that the Support Agreement shall be amended as
follows: (i) Gerald Haddock is hereby released from his obligations as a
"Support Party" as contemplated therein, (ii) the term "Target Date" as used in
the Support Agreement shall be amended to be August 31, 2001, (iii) the word
"renewed," shall be inserted after the comma between the words "increased" and
"extended" contained on the first line of clause c of Section 1 of the Support
Agreement, (iv) the name of the "Bank" shall be changed to "Bank of America,
N.A., formerly NationsBank, N.A. (successor in interest by merger to NationsBank
of Texas, N.A.)" and (v) the Support Agreement shall be deemed to be further
amended wherever necessary in order to continue the obligations of the
undersigned Support Parties contained in the Support Agreement and conform to
the changes reflected in this Second Amendment; and (d) confirm their continuing
obligations under the Support Agreement, as amended hereby, which shall continue
in full force and effect as contemplated therein and herein, until the
Obligation has been paid in full and Lender shall have no further commitment to
make Advances.
THE CREDIT AGREEMENT AND THE SUPPORT AGREEMENT, AS EACH IS AMENDED BY THIS
SECOND AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed to be effective as of the date and year first above
written.
LENDER:
BANK OF AMERICA, N.A., formerly NationsBank, N.A.
By:
-------------------------------------------
Cary C. Conwell, Senior Vice President
BORROWER:
CRESCENT OPERATING, INC., a Delaware corporation
By:
------------------------------------------
Jeff Stevens, Executive Vice President
and Chief Operating Officer
Page 4 of 5
<PAGE> 5
THE CREDIT AGREEMENT AND THE SUPPORT AGREEMENT, AS EACH IS AMENDED BY THIS
SECOND AMENDMENT, AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SUPPORT PARTIES:
---------------------------------------
RICHARD E. RAINWATER
---------------------------------------
JOHN GOFF
Page 5 of 5
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 31,765
<SECURITIES> 0
<RECEIVABLES> 48,697
<ALLOWANCES> 629
<INVENTORY> 49,987
<CURRENT-ASSETS> 268,346
<PP&E> 222,081
<DEPRECIATION> 16,744
<TOTAL-ASSETS> 802,322
<CURRENT-LIABILITIES> 223,605
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> (16,340)
<TOTAL-LIABILITY-AND-EQUITY> 802,322
<SALES> 485,743
<TOTAL-REVENUES> 485,743
<CGS> 469,751
<TOTAL-COSTS> 469,751
<OTHER-EXPENSES> 18,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,003
<INCOME-PRETAX> 13,012
<INCOME-TAX> 60
<INCOME-CONTINUING> 1,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105
<EPS-BASIC> .11
<EPS-DILUTED> .10
</TABLE>
