UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ____ to ____
Commission file number: 33-3657
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
California 94-3199021
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
400 South El Camino Real, Suite 1100 94402-1708
San Mateo, California (Zip Code)
(Address of principal executive offices)
Partnership's telephone number, including area code: (650) 343-9300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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 _____
No market for the Limited Partnership Units exists and therefore a market value
for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibit Index in Item 14
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PART I
Item 1. Business.
Organization
Glenborough Limited, A California Limited Partnership registered pursuant to
section 15d-5 of the Securities Exchange Act of 1934, was formed in 1986 to
acquire, own, operate, develop and lease commercial and residential real estate.
To facilitate compliance with certain recording and filing requirements, a
second limited partnership, GOCO Realty Fund I, a California Limited Partnership
("GOCO"), was formed in April, 1986 to hold and operate all real and personal
property then or thereafter owned by Glenborough Limited (the "Partnership
Property"). At the end of 1993, there was a technical termination of Glenborough
Limited and Glenborough Partners, A California Limited Partnership ("Partners"),
commenced as successor to Glenborough Limited. In 1994, a plan of reorganization
for GOCO became effective as a result of GOCO's 1992 Chapter 11 reorganization
petition. GOCO was succeeded in 1995 by GPA Ltd., A California Limited
Partnership ("GPA"). On December 31, 1997, GPA was dissolved and all of its net
assets were transferred to Partners. Partners and GPA operated as an economic
unit and unless specifically designated otherwise, are referred to collectively
as the "Partnership". The general partners of Partners are Glenborough
Corporation, a California corporation, and Robert Batinovich (collectively
"Glenborough" or "General Partner"). Glenborough Corporation is the managing
general partner of the Partnership (the "Managing General Partner").
Two subsidiary partnerships were created in February, 1994: (i) GPA West, L.P.
("West"), and (ii) GPA Industrial, L.P. ("Industrial") to facilitate the
Partnership's holding and transfer of real property. A third subsidiary
partnership, GPA Bond, L.P. ("Bond") was created in December, 1994 to hold and
operate a property purchased on December 29, 1994. The general partners of each
of these partnerships were Glenborough Corporation and Robert Batinovich while
the sole limited partner of each was GPA.
After the cancellation of a total of 1,988,589 limited partnership units of the
Partnership from December 1986 through December 1996 and the redemption of
12,177 limited partnership units in 1997, there remain 2,898,722 limited
partnership units outstanding at December 31, 1997.
Investment in Glenborough Properties L.P.
On December 31, 1995, Industrial and its four properties were contributed to an
affiliated partnership, Glenborough Properties, L.P. ("GPLP"), the operating
partnership of Glenborough Realty Trust Incorporated ("GLB"), a real estate
investment trust managed by affiliates of the Partnership, in exchange for
542,333 limited partnership units in GPLP. The debt securing the properties
owned by Industrial was assumed by GPLP. As a result of the contribution,
Industrial ceased to be a subsidiary of the Partnership at the end of 1995.
In July, 1996, the Partnership contributed its 45% non-voting limited
partnership interest in University Club Tower (UCT) to GPLP in exchange for
10,606 limited partnership units.
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In September, 1996, the Partnership sold its interest in Bond to GPLP and GRT
Corporation, a wholly owned subsidiary of GLB, in exchange for 26,067 limited
partnership units in GPLP. As a result of the sale, Bond ceased to be a
subsidiary of the Partnership.
Effective December 12, 1997, contingent upon the successful sale of the sole
property in GRC Airport Associates ("GRC Airport"), (see below), the Partnership
transferred its 25% interest in GRC Airport to GPLP for 112,877 units in GPLP.
The contingency was satisfied on February 17, 1998.
At December 31, 1997, the Partnership owns 691,883 units or approximately a 2.2%
interest in GPLP.
Other Investments
In September, 1995, the Partnership invested $1,050,000 for a 25% limited
partnership interest in GRC Airport. GRC Airport owned a property consisting of
10.14 acres of improved land with a 216,780 square foot industrial building
located in San Bruno, California. This property is leased to a single tenant
(the "Operator") which operates an off-site long-term parking facility for the
San Francisco International Airport. On February 17, 1998, GRC Airport sold its
sole real estate asset to an unaffiliated entity for $24,000,000, $2,000,000 of
which is conditioned on the purchaser's success in its efforts to purchase the
Operator's leasehold interest. If the purchaser's efforts are successful and the
additional $2,000,000 is paid to GPLP, then the Partnership will receive a
pro-rata share of the additional consideration from GPLP in the form of either
(at the option of the Partnership) cash, GPLP limited partnership units or GLB
common stock.
In June and July, 1996, the Partnership acquired 131,347 units (representing a
13% interest) of Glenco Squaw Associates ("Squaw"), an affiliated partnership,
for $351,985. Squaw's sole asset was a promissory note receivable from the sale
of its interest in a resort in Squaw Valley, California. On August 29, 1997, the
Partnership liquidated this investment by selling back to Squaw its 131,347
units for $355,810.
In December, 1996, the Partnership purchased 931 limited partnership units or a
2.7% interest in Outlook Income/Growth Fund VIII, ("Outlook VIII"), an
affiliated partnership, for $162,925. From February through August 1997, the
Partnership purchased an additional 1,865 limited partnership units or 5.3%
interest in Outlook VIII from unaffiliated sophisticated secondary market
investors for $318,810. On November 11, 1997, Outlook VIII liquidated and the
Partnership received a liquidating distribution of $1,324,354.
In February and April 1997, the Partnership purchased 1,642,746 limited
partnership units or a 4.6% interest in Outlook Income Fund 9 ("Outlook 9"), an
affiliated partnership from sophisticated secondary market investors for
$124,699. On December 3, 1997, Outlook 9 liquidated and the Partnership received
a liquidating distribution of $295,694.
On July 31, 1997, the Partnership acquired a 50% non-controlling interest in
Windswept Portfolio LLC ("Windswept"), a limited liability company for
$1,800,000. Windswept owns five multi-family projects in Houston, Texas.
Page 3 of 114
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On August 25, 1997, the Partnership contributed $200,000 for a 5.63%
non-controlling interest in Cheeseburger In Paradise - Waikiki, a California
limited partnership ("CIP-Waikiki") which owns and operates a Cheeseburger In
Paradise restaurant on Waikiki Beach in Honolulu, Hawaii.
Effective June 1, 1997, the Partnership contributed $320,000 for an 80% interest
in Resort Group, LLC, a Colorado limited liability company ("Resort"). Resort
was formed to invest $1,616,162 for an 80% interest in Mountain Resorts LLC, a
Colorado limited liability company ("Mountain Resorts") whose primary business
is the management of various condominiums and townhouses in Colorado. Of the
$1,616,162 invested by Resort, $400,202 was in cash and $1,215,960 was in the
form of a promissory note to the seller of the management company.As a result of
its investment in Resort, the Partnership consolidates its financial statements
with Resort (after Resort consolidates with Mountain Resorts) and recognizes its
joint venture partner's interest as minority interest.
From February through August 1997, the Partnership purchased limited partnership
units from sophisticated secondary market investors in the following
unaffiliated real estate partnerships:
Net
Ownership Acquisition
Partnership Units % Price
------------- ------- --------- ------------
Rancon Pacific Realty, LP 40,093 1.4% $ 113,662
Rancon Income Fund I 715 4.9% $ 213,141
Rancon Realty Fund I 3 * $ 150
Rancon Realty Fund IV 2,755 3.5% $ 635,034
Rancon Realty Fund V 2,665 2.7% $ 654,879
Note *: Less than 1%
On December 31, 1997, the Partnership liquidated its investments in Rancon
Realty Fund IV and Rancon Realty Fund V for $826,500 and $866,125, respectively.
Information regarding the Partnership Properties is incorporated herein by
reference to Item 2. - Properties.
Investment in Marketable Securities
During 1997, the Partnership purchased a total of 80,500 shares of Glenborough
Realty Trust Incorporated ("GLB") common stock for $1,851,000. GLB, an affiliate
of the Partnership, is a real estate investment trust and is publicly traded on
the New York Stock Exchange.
Business Plan
In 1998, the Partnership's intentions are: (i) to sell the remaining 1.16 acres
of the Rosemead land, located in El Monte, California, (ii) to explore the
feasibility and economic benefit of repurchasing its outstanding limited
partnership units; and (iii) to identify other suitable investments.
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Management and Operations
The Partnership engages Glenborough Corporation and its affiliates (the
"Property Manager") to manage the Partnership's assets. Pursuant to a written
management agreement, Glenborough Corporation has broad managerial
responsibility for all Partnership assets, including collection of all rents and
other charges due from tenants for properties managed by the Property Manager.
The agreement as amended, expires in 2001, except that the Partnership may
terminate the agreement without cause on 30-days written notice or immediately
if Glenborough Corporation ceases to be the managing general partner.
Environmental Matters
Federal, state and local statutes, ordinances and regulations which have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment do not presently have a
material effect on the operations of the Partnership Property nor on the capital
expenditures, earnings or competitive position of the Partnership. There can be
no assurance that such regulations will not change or have some material effect
on the Partnership in the future.
Other
The Partnership does not directly employ any individuals. All regular employees
rendering services on behalf of the Partnership are employees of Glenborough
Corporation or its affiliates.
The business of the Partnership to date has involved only one industry segment
(real estate). The Partnership has no foreign operations and the business of the
Partnership is not seasonal.
Competition
Management believes that characteristics influencing the competitiveness of a
real estate project are the geographic location of the property, the
professionalism of the property manager and the maintenance and appearance of
the property, in addition to external factors such as general economic
circumstances, trends, and the existence of new, competing properties in the
vicinity. Additional competitive factors with respect to rental properties are
the ease of access to the property, the adequacy of related facilities, such as
parking, and the ability to provide rent concessions and tenant improvements
commensurate with local market conditions. Although management believes the
Partnership Property, joint venture properties and properties indirectly owned
through investments in various partnerships are competitive with comparable
properties as to those factors within the Partnership's control, over-building
and other external factors could adversely affect the ability of the Partnership
to attract and retain tenants. The marketability of these properties may also be
affected (either positively or negatively) by these factors as well as by
changes in general or local economic conditions, including prevailing interest
rates. Depending on market and economic conditions, the Partnership may be
required to retain ownership of its properties for periods longer than
anticipated, or may need to dispose earlier than anticipated, or refinance a
property, at a time or under terms and conditions that are less advantageous
than would be the case if unfavorable economic or market conditions did not
exist.
Page 5 of 114
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Item 2. Properties.
As of December 31, 1997, the Partnership owns a 1.16 acre parcel of land held
for sale. This was once part of the Rosemead Springs Business Center
("Rosemead"), a 129,500 square foot multi-tenant office building located in El
Monte, California which was sold on April 18, 1997.
In the opinion of management, the insurance coverage on the Rosemead land is
adequate.
At December 31, 1997, the 1.16 acre parcel of land is unencumbered.
Also, as of December 31, 1997, the Partnership owns various partnership
interests ranging from less than 1% to 80% in seven affiliated and unaffiliated
real estate partnerships.
Item 3. Legal Proceedings.
The Partnership did not become a party to, nor were any of its assets the
subject of any material pending legal proceedings in 1997.
Item 4. Results of Votes of Security Holders.
During the fourth quarter of fiscal year 1997, no matters were submitted to a
vote of security holders through the solicitation of proxies or otherwise.
Page 6 of 114
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PART II
Item 5. Market for the Registrant's Equity and Related Security Holder Matters.
Market Information
There is no public market for units of limited partnership interest in the
Partnership (the "Units") and it is not expected that any will develop. The
Units have limited transferability. Restrictions on transfer may be imposed
under certain state securities laws. Consequently, holders of Units may not be
able to liquidate their investments and the Units may not be readily acceptable
as collateral.
Holders
As of December 31, 1997, 382 holders of record held the 2,898,722 outstanding
Limited Partnership Units.
Cash Distributions
The Partnership began paying quarterly cash distributions on April 30, 1987, at
a quarterly rate of $0.375 per Limited Partnership Unit and continued paying the
same quarterly cash distribution through the fourth quarter 1988 distribution on
January 31, 1989. In 1989, the Partnership lowered its quarterly cash
distribution to $0.25 per Unit for the first quarter distribution and to $0.1875
per Unit beginning with the second quarter 1989 distribution. Regular quarterly
distributions were suspended as of the second quarter of 1990.
In the first quarters of 1997 and 1998, the Partnership made special cash
distributions totaling $295,000 and $587,000 to help alleviate its partners' tax
burden arising from their portion of the undistributed taxable income of the
Partnership in 1996 and 1997, respectively. No other cash distributions have
been made since the first quarter of 1990.
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Item 6. Selected Financial Data.
The selected financial data should be read in conjunction with the financial
statements and related notes contained elsewhere in this report. This selected
financial data is not covered by the reports of the independent public
accountants.
<TABLE>
<CAPTION>
Condensed Consolidated Operating Data
(in thousands, except for Per Unit Data
and actual number of assets)
For the years ended December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues $ 3,674 $ 1,581 $ 3,259 $ 7,729 $ 22,061
Total expenses 2,472 2,424 3,940 10,126 28,389
-------- -------- -------- -------- --------
Income (loss) before minority
interest and extraordinary item 1,202 (843) (681) (2,397) (6,328)
Minority interest 111 -- -- -- --
Extraordinary item (Note 1) -- 125 -- 119,954 (30)
-------- -------- -------- -------- ---------
Net income (loss) $ 1,313 $ (718) $ (681) $117,557 $ (6,358)
======== ======== ======== ======== ========
Cash distributed from net
income (Note 2) $ 295 $ -- $ -- $ -- $ --
Per limited partnership unit (Note 3):
Income (loss) before extraordinary item $ .44 $ (.28) $ (.23) $ (.74) $ (1.81)
Net income (loss) $ .44 $ (.24) $ (.23) $ 36.52 $ (1.82)
Distributions of net income (Note 2) $ .10 $ -- $ -- $ -- $ --
At December 31:
Rental properties owned -- 1 5 6 30
Mortgage notes receivable held -- -- -- -- 1
(continued)
See accompanying notes.
</TABLE>
Page 8 of 114
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<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet Data
(in thousands)
December 31,
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Assets
Net real estate investments $ 265 $ 3,225 $ 7,493 $ 19,778 $123,701
Notes receivable, net 457 316 14 -- 44,951
Investment in partnerships and
management contracts 4,864 2,004 -- -- --
Minority interest 10 -- -- -- --
Cash and other assets 7,263 488 2,325 3,407 16,630
-------- -------- -------- -------- --------
Total assets $ 12,859 $ 6,033 $ 9,832 $ 23,185 $185,282
======== ======== ======== ======== ========
Liabilities and Partners' Equity (Deficit)
Notes payable and accrued interest $ 5,213 $ 2,218 $ 5,069 $ 17,267 $295,380
Other liabilities 2,374 52 155 629 2,170
-------- -------- -------- -------- --------
Total liabilities 7,587 2,270 5,224 17,896 297,550
Total partners' equity (deficit) 5,272 3,763 4,608 5,289 (112,268)
-------- -------- -------- -------- --------
Total liabilities and partners'
equity (deficit) $ 12,859 $ 6,033 $ 9,832 $ 23,185 $185,282
======== ======== ======== ======== ========
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
1. In 1996, the Partnership recognized an extraordinary item from debt
forgiveness after the lender forgave $125,000 of debt secured by the Bond
property. In 1994 and 1993, the Partnership recognized extraordinary items
from a Chapter 11 bankruptcy reorganization and early forgiveness of debt.
2. The Partnership has suspended regular quarterly distributions since the
second quarter of 1990; however, a special $.10 per limited partnership
unit distribution was made in March 1997.
3. In 1997, the per unit data is based on a 97.70% limited partnership
interest and 2,905,400 weighted average limited partner units outstanding.
In 1996, the per unit data is based on a 97.71% limited partnership
interest and 2,936,376 weighted average limited partner units
Page 9 of 114
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outstanding. In 1995 and 1994, the per unit data is based on a 97.73%
limited partnership interest and 2,961,853 and 3,146,492 weighted average
limited partner units outstanding, respectively. In 1993, the per unit data
is based on a 98.01% limited partnership interest and 3,414,839 weighted
average limited partner units outstanding.
The comparability of the Consolidated Financial Data reflected in the above
table has been affected by the reduction of total assets and related debt
resulting from: (i) the disposition of properties during the years ended
December 31, 1997, 1996, 1995, 1994 and 1993; and (ii) a bankruptcy
reorganization and early extinguishment of debt in 1994.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The following discussion addresses the Partnership's financial condition at
December 31, 1997 and its results of operations for the years ended December 31,
1997, 1996 and 1995. This information should be read in conjunction with the
Consolidated Financial Statements, notes thereto and other information contained
elsewhere in this report.
LIQUIDITY AND CAPITAL RESOURCES
On January 1, 1997, the Partnership's capital resources consisted primarily of
interests in four affiliated limited partnerships, Glenborough Properties L.P.
("GPLP"), GRC Airport Associates ("GRC Airport"), Glenco Squaw Associates
("Squaw") and Outlook Income / Growth Fund VIII ("Outlook VIII"), and one rental
property, Rosemead Springs. The Partnership also had $1,200,000 available on a
$3,400,000 revolving line of credit with Mid-Peninsula Bank ("Mid-Pen").
During 1997, the Partnership drew a total of $6,895,000 on the Mid-Pen revolving
line of credit to fund: (i) $2,068,000 in purchases of limited partnership units
in various affiliated and unaffiliated real estate partnerships; (ii) the
$1,851,000 in purchases of 80,500 shares of common stock in Glenborough Realty
Trust Incorporated ("GLB"), an affiliate of the Partnership which is a publicly
traded (New York Stock Exchange) real estate investment trust; (iii) a $295,000
distribution to its partners to help alleviate its partners' tax burden arising
from their portion of the 1996 undistributed taxable income of the Partnership;
(iv) a $1,800,000 investment for a 50% interest in Windswept Portfolio, LLC
("Windswept"), a limited liability company formed to own and operate five
multi-family residential properties in Texas; (v) a $320,000 investment for an
80% interest in Resort Group, LLC ("Resort"), a limited liability company formed
to indirectly own the property management business of various resorts; (vi) a
$200,000 investment for a 10% non-controlling interest in Cheeseburger In
Paradise - Waikiki, a California limited partnership which owns and operates a
restaurant in Hawaii; (vii) a short-term $80,000 loan to the Partnership's joint
venture partner in Resort; (viii) $43,000 in redemption of 12,177 of its limited
partnership units; and (ix) its short-term operating cash requirements. To
facilitate these draws, the Partnership obtained an increase in its Mid-Pen
revolving line of credit from $3,400,000 to $6,500,000. In 1997, the Partnership
also made a total of $5,207,000 in principal payments on the line of credit. As
of December 31, 1997, $2,612,000 remains available on this line of credit.
Page 10 of 114
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Resort was formed to invest $1,616,162 for an 80% interest in Mountain Resorts
LLC, a Colorado limited liability company ("Mountain Resorts"). The primary
business of Mountain Resorts is the management of various condominiums and
townhouses in the Steamboat Springs area of Colorado. As a result of its
investment in Resort, the Partnership consolidates its financial statements with
Resort (after Resort consolidates with Mountain Resorts) and recognizes its
joint venture partner's interest as minority interest.
In December 1996, the Partnership made its initial purchase of 931 limited
partnership units in Outlook VIII for $163,000. At that time, Outlook VIII owned
interests in three rental properties. From February 1997 through August 1997,
the Partnership purchased from sophisticated secondary market investors, an
additional 1,865 limited partnership units in Outlook VIII for $319,000. During
1997, Outlook VIII disposed of all of its real estate assets and in November
1997, made final liquidating distributions to its partners of which the
Partnership received $1,324,000.
Between February 1997 and April 1997, the Partnership purchased from
sophisticated secondary market investors 1,642,746 limited partnership units in
Outlook Income Fund 9 ("Outlook 9"), an affiliated partnership, for $125,000. In
December 1997, Outlook 9 liquidated and the Partnership received a liquidating
distribution of $296,000 for its investments in Outlook 9.
From February 1997 through August 1997, the Partnership purchased limited
partnership units in two unaffiliated real estate partnerships, Rancon Realty
Fund IV ("Rancon IV") and Rancon Realty Fund V ("Rancon V") for $635,000 and
$655,000, respectively, from sophisticated secondary market investors. On
December 31, 1997, the Partnership liquidated its investments in Rancon IV and
Rancon V and received $826,000 and $866,000, respectively.
On April 18, 1997, the Partnership sold its Rosemead Springs property, a 129,500
square foot multi-tenant office building located in El Monte, California, to an
unaffiliated third party for$2,675,000. The net proceeds from the sale of
$2,682,000 were used to pay-down a portion of the Partnership's revolving line
of credit with Mid-Pen.
In August 1997, the Partnership liquidated its investment in Squaw and received
$356,000 for its investment.
During 1997, the Partnership acquired an additional 112,877 limited partnership
units in GPLP upon the transfer of its 25% interest in GRC Airport to GPLP. The
transfer of the interest was subject to a contingency which was satisfied on
February 17, 1998. See Note 5 of Item 8 to the financial statements for further
information. During 1997, the Partnership received $741,128 or $1.28 per unit in
distributions from the investment in GPLP.
As of December 31, 1997, the Partnership's cash and cash equivalent balance was
$2,545,000 which was, in large part, due to the distributions received from
Outlook VIII, Outlook 9, Rancon IV and Rancon V as discussed above. The
remainder of the Partnership's assets consisted primarily of its investments in
marketable securities, management contracts, reservation deposits held in escrow
for future resort guests and miscellaneous investments in various affiliated and
unaffiliated partnerships. The Partnership's primary liabilities included
amounts due on the Mid-Pen revolving line of credit, the Resort Group promissory
note carried by the seller of the resort
Page 11 of 114
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management company and deposits held for future rental use of the condominiums
and townhouses.
The $842,000 increase in accounts payable and other liabilities at December 31,
1997 compared to December 31, 1996 is largely a result of normal and ordinary
trade payables in connection with the addition of the Mountain Resorts in 1997.
RESULTS OF OPERATIONS
1997 versus 1996
Rental income decreased $535,000 or 95% during the year ended December 31, 1997
compared to the year ended December 31, 1996 due to the loss of rental income
following the sales of the Bond Street property on September 24, 1996 and the
Rosemead Springs property on April 18, 1997.
Income from management contracts represents the revenue earned by Mountain
Resorts for managing various condominiums and townhouses in Colorado.
The $240,000 or 48% increase in income from investments in affiliated
partnerships during the year ended December 31, 1997 from the year ended
December 31, 1996 was due to the recognition of income from the commencement of
quarterly distributions from GPLP in April 1996. In addition, GPLP increased the
distribution per unit in 1997 and the Partnership increased its investment in
GPLP on September 24, 1996.
The $291,000 or 338% increase in equity in earnings of affiliated partnerships
during the year ended December 31, 1997 over the year ended December 31, 1996
was a result of the Partnership's investment in Windswept as of July 31, 1997
and the increase in GRC Airport's income. The increase in GRC Airport's income
was a result of a $13,000 increase in the base monthly rent as of January 1997.
The $1,420,000 gain on liquidation of investments in partnerships during the
year ended December 31, 1997 represents amounts collected by the Partnership in
excess of the carrying value of Glenco Squaw Associates, Rancon Realty Fund IV,
Rancon Realty Fund V, Outlook Income/Growth Fund VIII and Outlook Income Fund 9.
The Partnership's investments in these partnerships were liquidated between
August 1997 and December 1997 (See Item 8, Notes to the Consolidated Financial
Statements for a discussion of investments in these partnerships).
Interest and other income decreased $247,000 or 57% during the year ended
December 31, 1997 compared to the year ended December 31, 1996, primarily due to
the 1996 recognition of other income of: (i) a non-refundable deposit received
from a once potential buyer of Rosemead Springs after a sale had fallen through;
(ii) prior year property tax refunds received for Rosemead Springs in 1996; and
(iii) a 1996 fee for the dissolution of a purchase/sale agreement paid by the
owner of a property which the Partnership was negotiating to acquire.
Operating expenses increased $167,000 or 32% during the year ended December 31,
1997 over the year ended December 31, 1996 due to the consolidation of Resort
Group and Mountain Resorts in 1997. This increase was slightly offset by the
elimination of operating expenses
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<PAGE>
following the sales of the Bond Street (September 1996) and Rosemead Springs
(April 1997) properties.
General and administrative expenses increased $618,000 or 196% during the year
ended December 31, 1997 from the year ended December 31, 1996, due to the
consolidation of costs involved in administering Mountain Resorts.
Depreciation and amortization decreased $8,000 or 11% during the year ended
December 31, 1997 from the year ended December 31, 1996, due largely to the sale
of the Bond Street property in September 1996. The reduction of depreciable
assets in 1996 is offset by the Partnership's consolidation of Mountain Resorts
in 1997 which includes the amortization of its investment in management
contracts.
At December 31, 1997, management determined that the carrying value of the
Partnership's remaining parcel of land held for sale was in excess of the
estimated fair market value and, accordingly, recorded a provision for
impairment of land held for sale in the amount of $252,000. The fair market
value was based on a preliminary negotiated sale price of the land to an
independent third party. Due to the uncertainties inherent in this process, the
valuation does not purport to be the price at which a sale transaction involving
this property can or will take place.
During 1997, the Partnership recognized a $95,000 loss on the sale of the
Rosemead Springs property.
1996 versus 1995
Rental revenue decreased $2,404,000 or 81% during the year ended December 31,
1996 from the year ended December 31, 1995 due to: (i) the contribution of
Industrial and its four properties into GPLP at December 31, 1995 and (ii) the
sale of Bond to GPLP on September 24, 1996.
Income from investments in affiliated partnership during the year ended December
31, 1996 of $502,000 represents distributions received from its investment in
GPLP.
Equity in earnings from an investment in an affiliated partnership increased in
1996 as such investment was not acquired until September 1995; and thus, 1995
represented only a partial year of operations.
Interest and other revenue increased $93,000 or 28% during the year ended
December 31, 1996 over the year ended December 31, 1995 largely due to the
recognition as other income of: (i) a non-refundable deposit received from the
once potential buyer of Rosemead Springs after the sale fell through, and (ii) a
fee in 1996 for the dissolution of a purchase/sale agreement paid by the owner
of a property which the Partnership was negotiating to acquire.
Operating, general and administrative, depreciation and amortization, and
interest expenses decreased in 1996 compared to 1995 due to the contribution of
Industrial and sale of Bond to GPLP.
Page 13 of 114
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At December 31, 1996, after several unsuccessful contracts to sell the property
for an amount that would recover its carrying value, management concluded that
the carrying value of the Partnership's investment in Rosemead Springs and
adjacent lots was in excess of its estimated fair value and a provision for
impairment of the investment in the amount of $1,090,000 was recorded. The
estimated fair value of the Rosemead property has been based on a current offer
for the property less selling costs.
The Partnership recognized a $125,000 gain from debt forgiveness after the
lender on the loan secured by the Bond office building forgave $125,000 in debt,
prior to the sale of Bond.
Year 2000 Compliance
The Partnership utilizes a number of computer software programs and operating
systems across its entire organization, including applications used in financial
business systems and various administrative functions. To the extent that the
Partnership's software applications contain a source code that is unable to
appropriately interpret the upcoming calendar year "2000" and beyond, some level
of modification, or replacement of such applications will be necessary. The
Partnership has completed its identification of applications that are not yet
"Year 2000" compliant and has commenced modification or replacement of such
applications, as necessary. Given information known at this time about the
Partnership's systems that are non-compliant, coupled with the Partnership's
ongoing, normal course-of-business efforts to upgrade or replace critical
systems, as necessary, management does not expect "Year 2000" compliance costs
to have any material adverse impact on the Partnership's liquidity or ongoing
results of operations. No assurance can be given, however, that all of the
Partnership's systems will be "Year 2000" compliant or that compliance costs or
the impact of the Partnership's failure to achieve substantial "Year 2000"
compliance will not have a material adverse effect on the Partnership's future
liquidity or results of operations.
Page 14 of 114
<PAGE>
Item 8. Financial Statements and Supplementary Data.
GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page
Report of Independent Public Accountants...................................16
Financial Statements:
Consolidated Balance Sheets - December 3l, l997
and l996 .......................................................17
Consolidated Statements of Operations
for the years ended December 3l, l997, l996
and l995........................................................18
Consolidated Statements of Partners' Equity
for the years ended December 3l, l997,
l996 and l995...................................................19
Consolidated Statements of Cash Flows for the years
ended December 3l, l997, l996 and l995..........................20
Notes to the Consolidated Financial Statements ......................22
Financial Statement Schedule:
Schedule III - Consolidated Real Estate
Investments and Related Accumulated Depreciation
at December 31, 1997 and Note thereto................................36
Other schedules are omitted either because of the absence of conditions under
which they are required or because the required information is given in the
financial statements or notes thereto.
Page 15 of 114
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheets of GLENBOROUGH
PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1997 and 1996,
and the related consolidated statements of operations, partners' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
GLENBOROUGH PARTNERS, A CALIFORNIA LIMITED PARTNERSHIP, as of December 31, 1997,
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule
listed in the index to consolidated financial statements and schedule is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic consolidated
financial statements. This information has been subjected to the auditing
procedures applied in our audits of the basic consolidated financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic consolidated financial statements taken as a whole.
San Francisco, California /S/ ARTHUR ANDERSEN LLP
February 11, 1998 (except with respect
to the matters discussed in Note 13, as
to which the date is March 13, 1998)
Page 16 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands, except units outstanding)
Assets 1997 1996
- ------ -------- --------
Rental property held for sale - net $ -- $ 2,708
Land held for sale 265 517
Cash and cash equivalents 2,545 403
Marketable securities of affiliate,
at fair value (cost $1,851) 2,385 --
Deposits in escrow 1,762 --
Notes receivable 457 316
Investments in affiliated partnerships 973 2,004
Investments in unaffiliated partnerships 2,441 --
Investments in management contracts, net 1,450 --
Minority interest 10 --
Other assets 571 85
-------- --------
Total assets $ 12,859 $ 6,033
======== ========
Liabilities and Partners' Equity
- --------------------------------
Notes payable $ 5,021 $ 2,200
Accounts payable and accrued expenses 912 70
Reservation deposits 1,654 --
-------- --------
Total liabilities 7,587 2,270
-------- --------
Partners' equity
General partner 439 404
Limited partners, 2,898,722 and 2,910,899 units
outstanding at December 31, 1997 and 1996, respectively 4,833 3,359
-------- --------
Total partners' equity 5,272 3,763
-------- --------
Total liabilities and partners' equity $ 12,859 $ 6,033
======== ========
The accompanying notes are an integral part of these consolidated statements.
Page 17 of 114
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Operations
For the years ended December 31, 1997, 1996 and 1995
(in thousands, except per unit amounts)
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Revenue:
Rental income $ 28 $ 563 $ 2,967
Income from management contracts 924 -- --
Income from investments in affiliated partnerships 742 502 --
Equity in earnings (loss) of affiliated partnerships 377 86 (45)
Gain on liquidation of investments in partnerships 1,420 -- --
Interest and other 183 430 337
--------- --------- ---------
Total revenues $ 3,674 $ 1,581 $ 3,259
--------- --------- ---------
Expenses:
Operating, including $5, $47 and $132 paid to affiliates
in 1997, 1996 and 1995, respectively 684 517 625
General and administrative, including $172, $217 and $292
paid to affiliates in 1997, 1996 and 1995, respectively 934 316 521
Depreciation and amortization 66 74 914
Interest expense 441 427 1,880
Provision for impairment of real estate held for sale 252 1,090 --
Loss on sale of rental property 95 -- --
--------- --------- ---------
Total expenses 2,472 2,424 3,940
--------- --------- ---------
Income (loss) from operations before minority interest and
extraordinary item 1,202 (843) (681)
Minority interest 111 -- --
--------- --------- ---------
Net income (loss) before extraordinary item 1,313 (843) (681)
Extraordinary item:
Gain on forgiveness of debt -- 125 --
--------- --------- ---------
Net income (loss) $ 1,313 $ (718) $ (681)
========= ========= =========
Income (loss) from operations before
extraordinary item per Limited Partnership Unit $ .44 $ (.28) $ (.23)
Extraordinary item per Limited Partnership Unit -- .04 --
--------- --------- ---------
Net income (loss) per Limited Partnership Unit $ .44 $ (.24) $ (.23)
========= ========= =========
Distributions of net income per Limited Partnership Unit $ .10 $ -- $ --
========= ========= =========
Weighted average number of Limited Partnership Units
outstanding 2,905,400 2,936,376 2,961,853
========= ========= =========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
Page 18 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Partners' Equity
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
Total
General Limited Partners
Partner Partners Equity
------- ------- -------
Balance, December 31, 1994 $ 435 $ 4,854 $ 5,289
Net loss (15) (666) (681)
------- ------- -------
Balance, December 31, 1995 420 4,188 4,608
Net loss (16) (702) (718)
Redemption of units -- (127) (127)
------- ------- -------
Balance, December 31, 1996 404 3,359 3,763
Net income 30 1,283 1,313
Unrealized gain on marketable securities 12 522 534
Distributions (7) (288) (295)
Redemption of units -- (43) (43)
------- ------- -------
Balance, December 31, 1997 $ 439 $ 4,833 $ 5,272
======= ======= =======
The accompanying notes are an integral part of these consolidated statements.
Page 19 of 114
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,313 $ (718) $ (681)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 66 74 914
Amortization of loan fees, included in
interest expense 76 22 55
Loss on sale of rental property 95 -- --
Minority interest (111) -- --
Gain on liquidation of investments in partnerships (1,420) -- --
Equity in earnings of affiliated partnerships (377) (86) 45
Gain on forgiveness of debt -- (125) --
Provision for impairment of real estate held for sale 252 1,090 --
Changes in certain assets and liabilities:
Increase in deferred financing and other fees -- (56) (77)
Increase in deposits in escrow (1,762) -- --
Decrease (increase) in other assets (563) 131 270
Increase (decrease) in amount due from affiliate -- 195 (60)
Increase in reservation deposits 1,654 1 --
Increase (decrease) in accounts payable
and accrued expenses 836 (56) (379)
-------- -------- --------
Net cash provided by operating activities 59 472 87
-------- -------- --------
Cash flows from investing activities:
Distributions from investments in partnerships 786 102 --
Improvements to real estate -- (26) (108)
Net proceeds from sales of real estate 2,619 -- --
Proceeds from liquidation of investments
in partnerships 3,668 -- --
Investment in unaffiliated partnerships (3,624) -- --
Investment in affiliated partnerships (443) (515) (1,108)
Purchase of management contracts (1,515) -- --
Purchase of marketable securities (1,851) -- --
Increase in notes receivable (141) (302) (2,154)
Principal payment on note receivable -- -- 2,141
-------- -------- --------
Net cash used for investing activities (501) (741) (1,229)
-------- -------- --------
(continued)
</TABLE>
Page 20 of 114
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Consolidated Statements of Cash Flows - continued
For the years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from notes payable $ 8,430 $ 2,200 $ 1,200
Principal payments on notes payable (5,609) (2,213) (1,850)
Minority interest in equity 101 -- --
Distribution to partners (295) -- --
Redemption of limited partnership units (43) (127) --
-------- -------- --------
Net cash provided by (used for) financing activities 2,584 (140) (650)
Net increase (decrease) in cash and cash equivalents 2,142 (409) (1,792)
Cash and cash equivalents:
Beginning of period 403 812 2,604
-------- -------- --------
End of period $ 2,545 $ 403 $ 812
======== ======== ========
Cash paid for interest $ 351 $ 421 $ 1,898
======== ======== ========
Supplemental disclosure of non-cash investing and financing activities:
Purchase of existing notes receivable $ -- $ -- $ (2,368)
======== ======== ========
Notes receivable paid-off $ -- $ -- $ 2,368
======== ======== ========
Note payable for investment in management
contracts $ 1,216 $ -- $ --
======== ======== ========
Contribution of subsidiary partnership to affiliated partnerships:
Contribution of real estate, net $ -- $ 3,145 $(11,799)
Assumption of debt by acquiring
partnership (including accrued interest) -- (2,714) 11,583
Other assets and liabilities -- 10 216
-------- -------- --------
Net investment in affiliated partnerships $ -- $ 441 $ --
======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
</TABLE>
Page 21 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Note 1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Partnership Organization
Glenborough Limited, A California Limited Partnership, and GOCO Realty Fund I, a
California Limited Partnership ("GOCO"), were formed in 1986 to acquire, own,
operate, develop and lease commercial and residential real estate. At the end of
1993, there was a technical termination of Glenborough Limited and Glenborough
Partners, A California Limited Partnership ("Partners"), commenced as successor
to Glenborough Limited. In 1994, a plan of reorganization for GOCO became
effective as a result of GOCO's 1992 Chapter 11 reorganization petition. GOCO
was succeeded in 1995 by GPA Ltd., A California Limited Partnership ("GPA"). On
December 31, 1997, GPA Ltd. was dissolved and all of its net assets were
transferred to Partners. Partners and GPA operated as an economic unit and
unless specifically designated otherwise, are referred to collectively as the
"Partnership". The general partners of Partners are Glenborough Corporation, a
California corporation, and Robert Batinovich (collectively "Glenborough" or
"General Partner"). Glenborough Corporation is the managing general partner of
the Partnership (the "Managing General Partner).
Two subsidiary partnerships were created in February, 1994: (i) GPA West, L.P.
("West"), and (ii) GPA Industrial, L.P. ("Industrial") to facilitate the
Partnership's holding and transfer of real property. A third subsidiary
partnership, GPA Bond, L.P. ("Bond") was created in December, 1994 to hold and
operate a property purchased on December 29, 1994. The general partners of each
of these partnerships were Glenborough Corporation and Robert Batinovich while
the sole limited partner of each was GPA.
Through December 31, 1995, all three partnerships were subsidiaries of GPA. On
December 31, 1995, the Partnership contributed Industrial and its four
properties to an affiliated partnership, Glenborough Properties, L.P. ("GPLP"),
the operating partnership of Glenborough Realty Trust Incorporated ("GLB"), a
real estate investment trust managed by affiliates of the Partnership, in
exchange for 542,333 limited partnership units in GPLP. The debt securing the
properties owned by Industrial was assumed by GPLP. As a result of the
contribution, Industrial ceased to be a subsidiary of the Partnership effective
December 31, 1995.
On July 15, 1996, the Partnership contributed its 45% non-voting limited partner
interest in an affiliated partnership, University Club Tower ("UCT"), to GPLP in
exchange for 10,606 limited partnership units in GPLP.
On September 24, 1996, the partners of Bond sold their respective ownership
interests in Bond to GPLP and GRT Corporation, a wholly owned subsidiary of GLB.
GPLP issued 26,067 limited partnership units and paid-off approximately
$2,800,000 of indebtedness secured by the Bond
Page 22 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
property in exchange for the Partnership's interest in Bond. As of September 24,
1996, as a result of the sale, Bond ceased to be a subsidiary of the
Partnership.
Significant Accounting Policies
Basis of Accounting - The accompanying financial statements have been prepared
on the accrual basis of accounting in accordance with generally accepted
accounting principles under the presumption that the Partnership will continue
as a going concern.
Consolidation - The accompanying consolidated financial statements include the
accounts of Partners and its majority owned entities GPA, West, Resort Group LLC
(see below), Mountain Resorts LLC (see below), Bond (through September 24,
1996), and Industrial (through December 31, 1995). All significant intercompany
balances and transactions have been eliminated in the consolidation.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported results of operations during the reporting period.
Actual results could differ from those estimates.
Risks and Uncertainties - The Partnership's ability to (i) achieve positive cash
flow from operations, (ii) meet its debt obligations, (iii) provide
distributions either from operations or the ultimate disposition of the
Partnership's investments or (iv) continue as a going concern, may be impacted
by changes in interest rates or property values, geographic economic conditions,
or the entry of competitors into the markets where the properties of the
Partnership's investments in real estate are located. The accompanying financial
statements do not provide for adjustments with regard to these uncertainties.
New Accounting Pronouncements - In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income," which will be effective for financial
statements issued for fiscal years beginning after December 15, 1997. SFAS 130
will require the Partnership to classify items of other comprehensive income by
their nature in the statement of operations and display the accumulated balance
of other comprehensive income seperately from retained earnings and additional
paid-in capital in the statement of partners' equity.
Other comprehensive income represents revenues, expenses, gains and losses which
are included in comprehensive income, but excluded from net income. The
Partnership will adopt SFAS 130 in the financial statements for the year ended
December 31, 1998.
Page 23 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information." SFAS 131 is effective for fiscal
years beginning after December 15, 1997. Management has not yet determined the
level of additional disclosure, if any, that may be required by SFAS 131.
Additional disclosures that may be required will be provided beginning with the
financial statements of the Partnership for the year ending December 31, 1998.
Rental Property and Land Held for Sale - Rental property and land held for sale
are stated at the lower of cost or estimated fair value. Fair value is based
upon the estimated sales price of the property. Due to the uncertainties
inherent in the valuation process, the carrying value does not purport to be the
price at which a sale transaction involving this property can or will take
place. Once a rental property is classified as "held for sale", depreciation of
the asset is ceased.
Cash and Cash Equivalents - The Partnership considers certificates of deposit
and money market funds with original maturities of less than ninety days to be
cash equivalents.
Marketable Securities - The Partnership's investment in marketable securities is
recognized at its fair value. The fair value is based on the closing market
price per share of the securities as of the balance sheet date.
Rental Income - Rental income is recognized as earned over the life of the
respective leases.
Allocation of Net Income (Loss) - In 1995, pursuant to the partnership
agreements of Partners and GPA, the general partners and limited partners had
ownership interests of 2.27% and 97.73%, respectively. This percentage is
derived from the general partners' 1% direct interest in GPA and a 1.27%
indirect interest through their 1.28% general partner interest in Partners' 99%
interest in GPA.
As a result of an offer made to all of the Partnership's investors in April,
1996, the Partnership paid $127,000, a substantial discount from the estimated
value of the units, to repurchase 50,954 limited partnership units from
investors. These units were canceled with an effective date of June 30, 1996.
The reduction in outstanding limited partnership units resulted in revised
ownership interests of 2.29% and 97.71% by the general partners and limited
partners, respectively.
In 1997, the Partnership redeemed 12,177 limited partnership units from its
investors for $43,000. These units were canceled with various effective dates
between June 30, 1997 and October 1, 1997. The reduction in outstanding limited
partnership units resulted in revised ownership interests of 2.30% and 97.70% by
the general partners and limited partners, respectively.
Net Income (Loss) Per Limited Partnership Unit - Net income (loss) per limited
partnership unit is based on the limited partners' allocation of net income
(loss) divided by the weighted average
Page 24 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
limited partner units outstanding. In 1997, 1996 and 1995, the weighted average
limited partner units outstanding was 2,905,400, 2,936,376 and 2,961,853,
respectively.
Income Taxes - No provision for income taxes is included in the accompanying
consolidated financial statements, as the Partnership's results of operations
are allocated to the partners for inclusion in their respective income tax
returns. Net income (loss) and partners' equity (deficit) for financial
reporting purposes will differ from the Partnership income tax return because
accounting methods used for certain items differ for financial reporting and
income tax purposes.
Reclassifications - Certain 1996 balances have been reclassified to conform with
the current year presentation.
Note 2. RELATED PARTY TRANSACTIONS
Glenborough has the exclusive management and control of the business of the
Partnership.
Fees to Affiliates
Glenborough Corporation and its affiliates are entitled to receive expense
reimbursements, fees, and other compensation for services provided to the
Partnership as follows:
Property management fees - 3% to 5% of gross property receipts collected
Incentive fee - .5% of the fair value of assets to the extent earnings exceed
$1.50 per unit Transaction fee - 2% of qualifying transaction price Refinancing
fee - 1% of qualifying net loan refinancing proceeds
Fees and reimbursable expenses paid to Glenborough and included in the
Partnership's operating expenses for the years ended December 31, 1997, 1996 and
1995 are as follows (in thousands):
1997 1996 1995
------ ------ ------
Property management fees $ 1 $ 30 $ 106
Property management salaries (reimbursed) 4 17 26
------ ------ ------
Total property management fees and salaries $ 5 $ 47 $ 132
====== ====== ======
The Partnership also reimburses Glenborough for expenses incurred for services
provided to the Partnership such as accounting, investor services, data
processing, legal and administrative services, and the actual costs of goods and
materials used for or by the Partnership. Glenborough was reimbursed $172,000,
$217,000 and $292,000 for such expenses in 1997, 1996 and 1995, respectively.
Page 25 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
As a result of the Rosemead sale on April 18, 1997, the Partnership paid $53,500
to Glenborough in transaction fees.
Note 3. RENTAL PROPERTY AND LAND HELD FOR SALE
At December 31, 1996 the Partnership had a 129,500 square foot multi-tenant
office project in El Monte, California, known as Rosemead Springs which was held
for sale. After unsuccessfully closing on offers which would recover the
property's carrying value, management concluded that the carrying value of the
Partnership's investment in Rosemead Springs Business Center and adjacent lots
was in excess of its estimated fair value and a provision for impairment of the
investment in the amount of $1,090,000 was recorded at December 31, 1996. The
estimated fair value of the Rosemead property was based on a current purchase
offer for the property less selling costs. Rosemead Springs (excluding a 1.16
acre parcel of land adjacent to the rental property) was sold to an unaffiliated
entity for total cash consideration of $2,675,000 on April 18, 1997.
Afterincurring $62,000 in closing and other costs, the Partnership realized a
$95,000 loss on the sale of the rental property, which is included in the
accompanying consolidated statement of operations. The gross sale proceeds were
used to pay-down the Partnership's revolving line of credit with Mid-Peninsula
Bank.
At December 31, 1997, management determined that the carrying value of the
Partnership's remaining 1.16 acre parcel of land held for sale was in excess of
the estimated fair value and accordingly, recorded a provision for impairment of
land held for sale in the amount of $252,000. The fair value was based on a
preliminary negotiated sale price of the land to an independent third party. Due
to the uncertainties inherent in this process, the valuation does not purport to
be the price at which a sale transaction involving this property can or will
take place.
Note 4. MARKETABLE SECURITIES OF AFFILIATE
During 1997, the Partnership purchased a total of 80,500 shares of Glenborough
Realty Trust Incorporated ("GLB") common stock for $1,851,000. GLB, an affiliate
of the Partnership, is a real estate investment trust and is publicly traded on
the New York Stock Exchange. As of December 31, 1997, the Partnership's
investment in marketable securities had an aggregate market value of $2,385,000
(based on the closing market price of $29.625 per share on December 31, 1997).
Accordingly, the Partnership recognized an unrealized gain of $534,000 on these
marketable securities.
Page 26 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Note 5. INVESTMENT IN AFFILIATED PARTNERSHIPS
GLENBOROUGH PROPERTIES L.P.:
As of January 1, 1997, the Partnership owned 579,006 limited partnership units
in Glenborough Properties L.P. ("GPLP"), the operating partnership of GLB, from
its various contributions and sales of real estate assets to GPLP. Effective
December 12, 1997, contingent upon the successful sale of the property in GRC
Airport (see below), the Partnership transferred its 25% interest in GRC Airport
to GPLP for 112,877 limited partnership units in GPLP. This gave the Partnership
691,883 limited partnership units or an approximate 2.2% interest in GPLP. Since
the Partnership holds only a 2.2% interest in GPLP at December 31, 1997, the
Partnership accounts for this investment using the cost method.
GPLP paid $742,000 in distributions to the Partnership in 1997, which is
included in income from investments in affiliated partnerships on the
accompanying consolidated statement of operations. In 1998, the 1997 fourth
quarter distribution of $290,591 was paid to the Partnership.
At December 31, 1997, the investment in GPLP is the Partnership's only
investment in affiliated partnerships with an approximate fair market value of
$20,500,000.
GLENCO SQUAW ASSOCIATES:
In 1996, the Partnership purchased 131,347 units (13% of the total units) in
Glenco Squaw Associates ("Squaw") from investors for $352,000. Squaw is a
partnership whose sole asset is a promissory note from the sale of its interest
in a resort in Squaw Valley, California. Since the Partnership owned only a 13%
interest in Squaw, the Partnership accounted for the investment in Squaw using
the cost method. On August 29, 1997, the Partnership liquidated this investment
by selling back to Squaw its 131,347 units for $355,810 resulting in a gain on
liquidation of $3,755.
OUTLOOK INCOME/GROWTH FUND VIII:
In December, 1996, the Partnership purchased 931 limited partnership units
(equal to a 2.7% interest) in Outlook Income/Growth Fund VIII, a California
Limited Partnership ("Outlook VIII"), an affiliated partnership, for $163,000.
From February through August 1997, the Partnership purchased an additional 1,865
limited partnership units or a 5.3% interest in Outlook VIII from sophisticated
secondary market investors for approximately $319,000. On November 11, 1997,
Outlook VIII liquidated and the Partnership received a liquidating distribution
of $1,324,354 resulting in a gain on liquidation of $842,619.
OUTLOOK INCOME FUND 9:
From February through April 1997, the Partnership purchased 1,642,746 limited
partnership units or a 4.6% interest in Outlook Income Fund 9 ("Outlook 9"), an
affiliated partnership, from sophisticated secondary market investors for
$124,699. On December 3, 1997, Outlook 9 liquidated and the Partnership received
a liquidating distribution of $295,694 resulting in a gain on liquidation of
$170,995.
Page 27 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
GRC AIRPORT ASSOCIATES:
In September 1995, the Partnership invested $1,050,000 for a 25% limited
partnership interest in GRC Airport Associates, a California Limited Partnership
("GRC Airport"). The sole real estate asset of GRC Airport was a 216,000 square
foot offsite airport parking facility in San Bruno, California. This property is
leased to a single tenant (the "Operator") which operates an off-site long-term
parking facility for the San Francisco International Airport. Effective December
12, 1997, contingent upon the successful sale of the sole property in GRC
Airport, the Partnership transferred its 25% interest in GRC Airport to GPLP. No
step-up in the Partnership's investment basis was recorded as a result of this
transfer. On February 17, 1998, GRC Airport sold its sole real estate asset to
an unaffiliated entity for $24,000,000, $2,000,000 of which is conditioned on
the purchaser's success in its efforts to purchase the Operator's leasehold
interest. If the purchaser's efforts are successful and the additional
$2,000,000 is paid to GPLP, then the Partnership will receive a pro-rata share
of the additional consideration from GPLP in the form of either (at the option
of the Partnership) cash, GPLP limited partnership units or GLB common stock.
The Partnership accounted for its investment in GRC Airport using the equity
method.
In 1997, the Partnership received cash distributions from operations totaling
$224,000 plus a return of capital distribution of $500,000 from GRC Airport. The
cash distributions from operations include $53,000 for the fourth quarter 1997
distributions received December 31, 1997.
Summary condensed statement of operations for the years ended December 31, 1997
and 1996 are as follows (in thousands):
1997 1996
---------- ----------
Revenue $ 2,010 $ 1,242
Expenses 1,179 911
---------- ----------
Net income $ 831 $ 331
========== ==========
Page 28 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Note 6. INVESTMENTS IN UNAFFILIATED PARTNERSHIPS
RANCON PARTNERSHIPS:
From February 1997 through August 1997, the Partnership purchased limited
partnership units, from sophisticated secondary market investors, in the
following unaffiliated real estate partnerships:
Net
Ownership Acquisition
Partnership Units % Price
------------- ------ --------- -----------
Rancon Pacific Realty, LP 40,093 1.4% $ 113,662
Rancon Income Fund I 715 4.9% $ 213,141
Rancon Realty Fund I 3 * $ 150
Rancon Realty Fund IV 2,755 3.5% $ 635,034
Rancon Realty Fund V 2,665 2.7% $ 654,879
Note *: Less than 1%
On December 31, 1997, the Partnership liquidated its investments in Rancon
Realty Fund IV and Rancon Realty Fund V for $826,500 and $866,125, respectively,
resulting in a total gain on liquidation of investments in partnerships of
$402,712.
Since the Partnership owns less than 5% of the individual Rancon partnerships,
it accounts for these investments using the cost method.
WINDSWEPT PORTFOLIO, LLC:
On July 31, 1997, the Partnership acquired a 50% non-controlling interest in
Windswept Portfolio, LLC ("Windswept"), a limited liability company for
$1,800,000. Windswept simultaneously entered into a management agreement with
Investors Management Trust Real Estate, Inc. ("IMT") where IMT is contracted to
acquire, manage and operate for Windswept, the following five
multifamily-residential projects in Houston, Texas:
1. Ashley Square, a 117-unit apartment complex
2. Hidden Pines, a 185-unit apartment complex
3. Shenandoah Woods, a 232-unit apartment complex
4. Southern Oaks, a 198-unit apartment complex
5. Unity Pointe, a 109-unit apartment complex
Page 29 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Since the Partnership owns a 50% interest in Windswept, the Partnership accounts
for this investment using the equity method.
Summary condensed balance sheet information as of December 31, 1997, and the
condensed statement of operations from July 31, 1997 (inception) through
December 31, 1997, are as follows (in thousands):
Windswept Portfolio, LLC
Balance Sheet as of December 31, 1997
Investment in real estate $ 14,937
Cash 479
Other assets 776
----------
Total assets $ 16,192
==========
Notes payable $ 11,877
Other liabilities 485
----------
Total liabilities 12,362
Partners' equity 3,830
----------
Total liabilities and partners' equity $ 16,192
==========
Windswept Portfolio, LLC
Statement of Operations
From July 31, 1997 (inception) through December 31, 1997
Revenue $ 1,995
Expenses 1,657
---------
Net income $ 338
=========
The Partnership's share of Windswept's net income for the period from July 31,
1997 (inception) through December 31, 1997 was $169,000.
Commencing in October 1997, the Partnership began receiving monthly
distributions of $18,000 from its investment in Windswept for a total of $54,000
in 1997.
RESORT GROUP LLC:
Effective June 1, 1997, the Partnership contributed $320,000 cash for a 80%
interest in Resort Group LLC, a Colorado limited liability company ("Resort").
Resort was formed to invest $1,616,162 for an 80% interest in Mountain Resorts
LLC, a Colorado limited liability company ("Mountain Resorts"). The primary
business of Mountain Resorts is the management of various condominiums and
townhouses in the Steamboat Springs area of Colorado. As a result of its
Page 30 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
investment in Resort, the Partnership consolidates its financial statements with
Resort (after Resort consolidates with Mountain Resorts) and recognizes its
joint venture partner's interest as minority interest.
Of the $1,616,162 invested by Resort in Mountain Resorts, $404,202 was in cash
and $1,215,960 was in the form of a promissory note to the seller of the
management contracts, accruing at a rate of 8.5% per annum and maturing August
1, 2002. The note requires monthly principal and interest payments of $24,947.
Concurrent with the Partnership's investment in Resort, the Partnership loaned
$80,000 to Anthony Van Baak, the 20% partner of Resort. The promissory note
accrued interest at "Prime Rate" plus 1.5 percentage points (effective rate of
10% at December 31, 1997) and required quarterly interest payments with the
entire principal due on February 28, 1998. This note was paid-off in full on
March 7, 1998.
CHEESEBURGER IN PARADISE:
On August 25, 1997, the Partnership contributed $200,000 for a 5.63%
non-controlling limited partnership interest in Cheeseburger In Paradise -
Waikiki, a California limited partnership ("CIP-Waikiki"). CIP-Waikiki owns and
operates a Cheeseburger In Paradise restaurant on Waikiki Beach in Honolulu,
Hawaii. Since the Partnership owns a 5.63% interest in CIP-Waikiki, the
Partnership accounts for this investment using the cost method.
Note 7. INVESTMENT IN MANAGEMENT CONTRACTS
Investment in management contracts reflects the unamortized portion of the
management contracts Mountain Resorts holds with various condominium and
townhouse owners in the Steamboat Springs area of Colorado. These contracts are
amortized over seven years.
Note 8. DEPOSITS IN ESCROW
Deposits in escrow represent amounts collected by Mountain Resorts for guest
reservations for visits to the resort within the next six months. This amount is
offset by a comparable reservation deposits liability.
Note 9. NOTE RECEIVABLE AND OTHER ASSETS
On August 1, 1996, the Partnership purchased a $546,370 promissory note and a
$1,350,000 credit with the NuView Union School District ("School Credits") for
total consideration of $300,000 from an unaffiliated partnership which was
liquidating. The promissory note is secured by a 199 acre parcel of land located
in Riverside, California, requires no accrual or payment of interest, has a ten
year term and provides for a discounted payoff of $246,000 in the first year
increasing at increments of $30,000 in each subsequent year through the ten year
term. The
Page 31 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
School Credits represent prepaid property tax assessments on specified
parcels of land in the Tri-City area of San Bernardino, California. In order for
the specified parcels to be developed, the School Credits must first be repaid
to the Partnership. At December 31, 1997 and 1996, these assets are recorded at
cost of $300,000 and are included in notes receivable and other assets.
Note 10. NOTES PAYABLE
Notes payable as of December 31, 1997 and 1996 were as follows (in thousands):
1997 1996
------- ------
$6,500 line of credit with Mid-Peninsula
Bank, secured by the Partnership's
interest in GPLP. The loan requires
monthly interest only payments, bears
interest at a rate of 1 percentage point
over the lender's index rate (effective
rate of 9.5% at December 31, 1997), and
matures September 8, 1998. $ 3,888 $2,200
Promissory note, secured by Resort's 80%
interest in Mountain Resorts. The note
accrues interest at a fixed rate of 8.5%
per annum and requires monthly payments
of principal and interest of $25 until
August 1, 2002 at which time the
principal and accrued interest are due. 1,133 --
------- ------
Total notes payable $ 5,021 $2,200
======= ======
On January 2, 1998, the Partnership paid-down $1,692,000 on the Mid-Peninsula
Bank ("Mid-Pen") revolving line of credit from the proceeds received from the
Partnership's liquidation of its investments in Rancon Realty Fund IV and Rancon
Realty Fund V.
In February 1998, the Partnership drew $852,217 on its Mid-Pen revolving line of
credit to fund a special distribution to its partners and redeem 37,827 of its
limited partnership units from 18 limited partners.
On March 12, 1998, the Partnership drew an additional $263,305 on its Mid-Pen
line of credit to purchase 10,000 shares of GLB stock.
Note 11. OPTION PLAN
The Partnership's Option Plan provided for the grant of nonstatutory options to
purchase units to the General Partners and the officers, directors, employees
and certain consultants of the
Page 32 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Managing General Partner, the property manager and its affiliates. Individuals
who rendered services to Glenborough or its affiliates as an independent
contractor may be considered an "employee" for purposes of the Option Plan,
provided services are rendered on a continuing basis.
In 1995, all of the options were terminated except those held by a former
director to purchase 19,000 Partnership units at $6.50 per unit. These
outstanding options remain exercisable through the year 2000.
Note 12. INCOME TAXES
Federal and state income tax laws provide that the income or loss of the
Partnership is reportable by the partners in their respective income tax
returns. Accordingly, no provisions for such taxes have been made in the
accompanying financial statements. The Partnership reports certain transactions
differently for tax and financial reporting purposes.
The Partnership's tax returns, its qualification as a partnership for federal
income tax purposes, and the amount of taxable income or loss are subject to
examination by the federal and state taxing authorities. If such examinations
result in changes to the Partnership's taxable income or loss, the tax liability
of the partners could change accordingly.
For federal income tax reporting, (i) revenues and expenses are recognized on an
accrual basis, i.e. lease income is recognized under the terms of the lease
contract, (ii) fees paid for services related to seeking and evaluating
potential real estate investments are deducted if and when the plans of
acquisition are subsequently abandoned, (iii) depreciation is provided for under
accelerated and modified accelerated cost recovery methods, (iv) certain
organizational costs classified as syndication costs for tax purposes are not
deductible, and (v) bad debts are deducted and written off when deemed
uncollectible.
Page 33 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
The following is a reconciliation for the years ended December 31, 1997, 1996
and 1995, of the net income (loss) for financial reporting purposes to the
estimated taxable income (loss) determined in accordance with accounting
practices used in preparation of federal income tax returns (in thousands):
1997 1996 1995
-------- -------- --------
Net income (loss) per financial statements $ 1,313 $ (718) $ (681)
Loss from investment in affiliated
partnerships -- (54) (1,000)
Financial reporting depreciation in
excess of tax depreciation (10) (45) 392
Provision for impairment of investment in
real estate 252 1,090 --
Unrealized gain on investments (1,467) -- --
Loss on sale (222) -- --
Operating revenues and expenses recognized
in a different period for financial
reporting than for tax reporting, net (463) (116) (388)
-------- -------- --------
Partners' income (loss) for
federal income tax purposes $ (597) $ 157 $ (1,677)
======== ======== ========
The following is a reconciliation as of December 31, 1997 and 1996 of partners'
equity (deficit) for financial reporting purposes to estimated partners' equity
(deficit) for federal income tax purposes (in thousands):
1997 1996
--------- ---------
Partners' equity per financial statements $ 5,272 $ 3,763
Investments in real estate partnerships (7,203) (14,500)
Depreciation -- 5,801
Cumulative provision for impairment
of investment in real estate 252 1,090
Unit redemptions (35,501) (35,501)
Unrealized gain on investments (2,000) --
Operating revenues and expenses recognized
in a different period for financial reporting
than for tax reporting, net 883 --
Redemption costs (166) --
Other -- (183)
--------- ---------
Partners' equity (deficit) for
federal income tax purposes $ (38,463) $ (39,530)
========= =========
Page 34 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Note 13. SUBSEQUENT EVENTS
Effective January 1, 1998, the Partnership purchased for $104,000 from Arlene
and Anthony Van Baak (`Van Baak"), 80% of Casa 31 Ltd. Liability Co., a Colorado
limited liability company ("Casa"), which owns 21 Casa Del Mar condominiums in
Galveston, Texas. Simultaneously with this transaction, the Partnership and Van
Baak contributed their 80% and 20% interests in Casa, respectively to Resort.
On January 8, 1998, the Partnership purchased for $500,000, a 36.36% interest in
Westward-Gulfton Ltd., a Texas Limited Partnership ("Westward"). Westward was
organized to acquire the Westward Square Apartments, a 672 unit multi-family
residential property in Houston, Texas.
On February 1, 1998, the Partnership made an unsecured $50,000 loan to Van Baak
at an interest rate of "The Wall Street Journal bank prime rate" plus 1.5
percentage points. The note is payable in four equal annual installments of
principal in the amount of $12,500 plus accrued interest commencing February 1,
1999.
On February 23, 1998, Resort purchased Mountain Resorts Properties LLC, a
limited liability company that owns nine rental condominiums in the Steamboat
Springs, Colorado area. The purchase price was $438,526 of which $132,893 was
paid in cash. The balance was in the form of four separate notes payable to the
previous owners of Mountain Resorts Properties LLC. The notes bear interest at
8.5% per annum, fully amortizing on March 1, 2001.
In February and March 1998, the Partnership purchased for $556,610, a total of
20,000 shares of GLB stock from proceeds of the Mid-Pen revolving line of credit
and cash on hand. These purchases increased the Partnership's holding in GLB to
100,500 shares.
From January 1, 1998 through March 13, 1998, the Partnership redeemed 42,957 of
its limited partnership units for approximately $294,000. The Partnership drew
approximately $265,000 on the Mid-Pen line of credit to fund these redemptions.
Page 35 of 114
<PAGE>
<TABLE>
<CAPTION>
GLENBOROUGH PARTNERS
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION
December 31, 1997
(in thousands)
Column A Column B Column C Column D
- ------------- ----------- ------------------ -------------
Net Costs
Capitalized
(Reduced)
Initial Subsequent
Cost to to Acqui-
Partnership sition
----------------- ------------
Properties Encumbrances Land Buildings Improvements
- ------------ ------------ ----- ---------- ------------
<S> <C> <C> <C> <C>
1.16 acre Rosemead
land, El Monte, CA (1) $ 0 $ 517 $ --- $ ---
Provision for impairment
of land held for sale --- --- --- (252)
------ ------ ------ --------
Total $ 0 $ 517 $ --- $ (252)
====== ====== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Column A Column E Column F Column G Column H Column I
- ------------- --------------------------- ----------- ------------- --------- --------------
Life on Which
Depreciation
Gross Amount in the Latest
Carried at Accumulated Date of Date Income Statement
December 31, 1996 Depreciation Construction Acquired Is Computed
--------------------------- ----------- ------------ -------- --------------
Buildings
and
Properties Land Improv Totals
- ------------ ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1.16 acre Rosemead
land, El Monte, CA (1) $ 517 $ --- $ 517 $ --- N/A 7/15/83 N/A
Provision for impairment
of land held for sale (252) --- (252) --- N/A N/A N/A
----- ----- ------ ------
Total $ 265 $ --- $ 265 $ ---
===== ===== ====== ======
</TABLE>
Note (1): This asset is classified as land held for sale at December 31, 1997.
See accompanying reconciliations
Page 36 of 114
<PAGE>
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
RECONCILIATION OF REAL ESTATE COST
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
NOTE TO SCHEDULE III - REAL ESTATE AND RELATED ACCUMULATED DEPRECIATION
1997 1996 1995
---- ---- ----
Balance, beginning of period $ 517 $ 3,778 $18,638
Improvements -- 18 108
Disposition of real estate -- (3,279) (14,968)
Provision for impairment of real estate held for sale (252) -- --
------ ------- -------
Balance, end of period $ 265 $ 517 $ 3,778
====== ======= =======
RECONCILIATION OF ACCUMULATED DEPRECIATION
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(in thousands)
1997 1996 1995
---- ---- ----
Balance, beginning of period $ -- $ 75 $ 2,901
Depreciation expense -- 59 343
Disposition of real estate -- (134) (3,169)
------ ------- -------
Balance, end of period $ -- $ -- $ 75
====== ======= =======
The December 31, 1997 and 1996 balances represent only operating rental
properties and not land or rental property held for sale.
The aggregate cost basis of real estate owned at December 31, 1997, for federal
income tax purposes was approximately $256,000.
Page 37 of 114
<PAGE>
PART III
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 10. Directors and Executive Officers of the Registrant.
General Partners
The Partnership has no directors or executive officers. The general partners of
the Partnership are Glenborough Corporation ("GC", the "Managing General
Partner") and Robert Batinovich.
Robert Batinovich, age 61, was the President, Chief Executive Officer and
Chairman of Glenborough Corporation from its inception in 1978 until his
resignation effective January 10, 1996. On August 31, 1994, Mr. Batinovich has
served as Chairman and Chief Executive Officer of Glenborough Realty Trust
Incorporated ("GLB"), a newly created Real Estate Investment Trust, which began
trading on the New York Stock Exchange on January 31, 1996. Mr. Batinovich also
served as President of GLB from August 31, 1994 through September 1997. He was a
member of the Public Utilities Commission from 1975 to January 1979 and served
as it President from January 1977 to January 1979. He is a member of the Board
of Directors of Farr Company, a publicly held company that manufactures
industrial filters. He has extensive real estate investment experience. Mr.
Batinovich's business background includes managing and owning manufacturing,
vending and service companies and a national bank.
For informational purposes, the following are the names and a brief description
of the background and experience of each of the controlling persons, directors
and executive officers of the Managing General Partner as of February 28, 1998:
Name Age Position
Andrew Batinovich 39 Chief Executive Officer and Chairman of the Board
Robert Bailey 36 Secretary and Corporate Counsel
Sandra Boyle 49 President and Chief Operating Officer
Terri Garnick 37 Chief Financial Officer
Kathleen Williams 49 Vice President
June Gardner 46 Director
Laurence Walker 65 Director
Page 38 of 114
<PAGE>
Andrew Batinovich was elected Chairman of the Board and Chief Executive Officer
of GC on January 10, 1996. He has been employed by GC since 1983, and had
functioned since 1987 as Chief Operating Officer and Chief Financial Officer.
Mr. Batinovich also serves as President, Chief Operating Officer and director of
GLB. He holds a California real estate broker's license and is a Member of the
National Advisory Council of Building Owners and Managers Association ("BOMA")
International. Prior to joining Glenborough, Mr. Batinovich was a lending
officer with the International Banking Group and the Corporate Real Estate
Division of Security Pacific National Bank. He received his B.A. in
International Finance from the American University of Paris. He is the son of
Robert Batinovich.
Robert Bailey joined GC in 1989 as Associate Counsel and was elected Secretary
of GC on May 15, 1995. He is responsible for all landlord/tenant documentation,
tenant litigation, corporate and partnership matters and employment matters.
From 1987 to 1989, Mr. Bailey was an associate with the law firm of Pedder,
Stover, Hesseltine & Walker, where he specialized in business litigation. He is
a member of the State Bar of California. In 1984, he received his Bachelor of
Arts degree from the University of California at Santa Barbara and his Juris
Doctor degree from Vermont Law School in 1987
Sandra Boyle has been associated with GC or its associated entities since 1984
and has served as President and Chief Operating Officer of GC since January 10,
1996. She was originally responsible for residential marketing, and her
responsibilities were gradually expanded to include residential leasing and
management in 1985, and commercial leasing and management in 1987. She was
elected Vice President in 1989, and continued to supervise marketing, leasing,
property management operations and regional offices. Ms. Boyle also serves as an
Executive Vice President of GLB. Ms. Boyle holds a California real estate
broker's license and a CPM designation, and is a member of the National Advisory
and Finance Committee of BOMA International; and is on the Board of Directors of
BOMA San Francisco and BOMA California.
Terri Garnick has served as Chief Financial Officer of GC since January 10,
1996. She is also Senior Vice President, Chief Accounting Officer and Treasurer
of GLB. Ms. Garnick is responsible for property management accounting, financial
statements, audits, Securities and Exchange Commission reporting, and tax
returns. Prior to joining GC in 1989, Ms. Garnick was a controller at August
Financial Corporation from 1986 to 1989 and was a Senior Accountant at Deloitte,
Haskins and Sells from 1983 to 1986. She is a Certified Public Accountant and
has a Bachelor of Science degree from San Diego State University.
Kathleen Williams has been Vice President, Multifamily Housing since July 1996.
She is responsible for management of the Company's multifamily units. Ms
Williams has seventeen years experience in property management and previously
served eight years as Northern California Regional Manager for Maxim Property
Management in Redwood City, California; and for five years as Asset and Property
Manager for Trammell Crow Company in Dallas, Texas. She has a B.A. in Foreign
Language/Communications from North Texas State University.
Page 39 of 114
<PAGE>
June Gardner was elected a director of GC on January 10, 1996. She was
associated with GC from 1984 through 1995, as Senior Vice President and
Corporate Controller with responsibilities in the areas of corporate financial
planning, reporting, accounting and banking relationships. Before joining GC,
Ms. Gardner was Assistant Vice President of JMB Realty Corporation from 1977 to
1984, with responsibilities in the areas of financial management and reporting.
Laurence Walker was elected a director of Glenborough Inland Realty Corporation
(merged into Glenborough Corporation on June 30, 1997) on January 10, 1996. He
has been a member of the California State Bar since 1963, and is an attorney
specializing in real estate law. Mr. Walker has been a director of Glenborough
Corporation's related entities since 1985.
Item 11. Executive Compensation.
Compensation and Fees
In accordance with the Partnership Agreement, the Managing General Partner
receives expense reimbursements and fees for services provided to the
Partnership. Information regarding these fees and reimbursements is incorporated
herein by reference to Note 2 of the Notes to Consolidated Financial Statements
under the heading "Fees to Affiliates" and Note 1 of the Notes to Consolidated
Financial Statements under the heading "Allocation of Net Income (Loss)".
The Partnership has no employees and pays no salary or other cash compensation,
directly to any person other than the fees and expense reimbursements described
above. All officers of the Managing General Partner receive a salary and other
benefits from Glenborough Corporation as compensation for Partnership activities
as well as other activities of Glenborough Corporation not related to the
Partnership.
Option Plan
As of December 31, 1997, all outstanding options, except for 19,000 options
exercisable by a former director, have been terminated.
Page 40 of 114
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding the Units owned on
December 31, 1997 by (a) each Unitholder known to the Partnership to own
beneficially more than 5% of the outstanding Units; (b) each Unitholder under
common control of an officer, director, or 5% Unitholder; (c) each individual
general partner of the Partnership and each director of the managing general
partner; and (d) all executive officers and directors of the managing general
partner as a group. All outstanding options, except for 19,000 options
exercisable by a former director were canceled as of December 4, 1995.
Name of Beneficial Units Percent
Owner (Notes 1 and 2) Owned Owned (3)
- --------------------- ----- ---------
Robert Batinovich
(Note 4) 549,469 18.71%
Robert Batinovich,
General Partner 34,577 1.18%
Glenborough Realty Trust Incorporated 116,945 3.98%
Glenborough Corporation 1,108 0.04%
Glenborough Corporation
General Partner 3,842 0.13%
Andrew Batinovich 24,248 0.83%
Laurence Walker (Note 5) 27,102 0.92%
2922 Forest Avenue
Berkeley, CA 94705
Samuel Scripps (Note 6) 459,138 15.63%
c/o Laurence Walker
2922 Forest Avenue
Berkeley, CA 94705
All Executive Officers and 52,764 1.80%
Directors as a Group
(3 persons)
Page 41 of 114
<PAGE>
Notes:
(1) Unless otherwise indicated, the addresses of the above beneficial owners are
the same as that of the registrant.
(2) The persons named on the table have sole voting and investment power with
respect to all interests beneficially owned by them, subject to community
property laws where applicable and the information contained in the footnotes to
the table. The table assumes the exercise of outstanding options held by one
former director to acquire an aggregate of 19,000 Units, which are presently
exercisable.
(3) Percent owned is calculated by dividing the sum of the Unitholder's Units
and exercisable options by the sum of all outstanding Units and exercisable
options.
(4) Excludes Mr. Batinovich's 1.18% General Partner interest in the Partnership.
Excludes 14,817 Units that Mr. Batinovich may vote as Trustee for one
Unitholder, as to which Mr. Batinovich disclaims beneficial ownership. Excludes
the 3,842 Units or 0.13% in General Partner interest and 1,108 Limited
Partnership Units owned by Glenborough Corporation, of which Mr. Batinovich was
majority owner. Excludes 5,198 Units owned by the Robert and Garnet Anne
Batinovich l982 Irrevocable Inter Vivos Trust for the benefit of Angela
Batinovich, as to which Robert Batinovich disclaims beneficial ownership.
(5) Excludes 303,979 units that Mr. Walker may vote as Trustee for one
Unitholder, as to which Mr. Walker disclaims beneficial ownership.
(6) Includes Units owned by three trusts and one partnership of which Samuel
Scripps is the beneficial owner.
Item l3. Certain Relationships and Related Transactions.
Fees and Reimbursable Expenses - During l997 and in accordance with the prior
and current Limited Partnership Agreements (incorporated by reference to
Exhibits 10.40 through 10.43 to the Partnership's annual report on Form 10-K
dated December 31, 1995, No. 33-3657), the Managing General Partner received
management fees and reimbursed expenses (see Item 8., Note 2 - Related Party
Transactions).
Item l4. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (l) Financial Statements and
(2) Financial Statement Schedule
See Item 8 of this Form 10-K for the Financial Statements of the
Partnership, Notes thereto, Report of Independent Certified Public
Accountants, and Supplemental Schedule. A Table
Page 42 of 114
<PAGE>
of Contents to Financial Statements, Supplemental Schedule and Exhibit
is included in Item 2 and incorporated herein by reference.
(3) Exhibits
Page Number or
Exhibit Incorporation
Number Description By Reference to
- ------------------------------------------------------------------------------
10.40 Limited Partnership Agreement Exhibit 10.40 to the
of Glenborough Partners, A Annual Report on
California Limited Partnership Form 10-K No. 33-3657
for the year ended
December 31, 1995
10.44 Operating Agreement of Resort Exhibit 10.44 to the
Group LLC Annual Report on
Form 10-K No. 33-3657
for the year ended
December 31, 1997
10.45 Acquisition (Mountain Resorts LLC) Exhibit 10.45 to the
Agreement Annual Report on
Form 10-K No. 33-3657
for the year ended
December 31, 1997
27. Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed a Current Report on Form 8-K, dated March 3,
1998, reporting that post-closing contingencies were
satisfied for the completion of the transfer of the
Registrant's 25% interest in GRC Airport Associates to
Glenborough Properties L.P. ("GPLP"), an affiliated
partnership, for 112,877 limited partnership units in GPLP.
Page 43 of 114
<PAGE>
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GLENBOROUGH PARTNERS,
A CALIFORNIA LIMITED PARTNERSHIP
By: /s/ Robert Batinovich By: Glenborough Corporation,
Robert Batinovich a California corporation
General Partner General Partner
Date: March 30, 1998 By: /s/ Andrew Batinovich
Andrew Batinovich
Chief Executive Officer
and Chairman of the Board
Date: March 30, 1998
By: /s/ Terri Garnick
Terri Garnick
Chief Financial Officer
Date: March 30, 1998
By: /s/ June Gardner
June Gardner
Director
Date: March 30, 1998
(A Majority of the Board of Directors of the General Partner)
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<PAGE>
GLENBOROUGH PARTNERS
A California Limited Partnership
INDEX TO EXHIBITS
Sequentially
Exhibit Number Exhibit Numbered Page
10.44 Operating Agreement of 46
Resort Group LLC
10.45 Acquisition (Mountain Resorts 76
LLC) Agreement
Page 45 of 114
<PAGE>
Exhibit 10.44
OPERAT1NG AGREEMENT
OF
RESORT GROUP, LLC
THE OWNERSHIP INTERESTS IN THIS LIMITED LIABILITY COMPANY HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR STATE SECURITIES
AUTHORITIES AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
GENERAL MANAGER THAT REGISTRATION IS NOT REQUIRED. THE SALE OR OTHER TRANSFER OF
THE OWNERSHIP INTERESTS IS ALSO RESTRICTED BY CERTAIN PROVISIONS IN THIS
AGREEMENT.
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<PAGE>
Exhibit 10.44
OPERATING AGREEMENT
OF
RESORT GROUP. LLC
THIS OPERATING AGREEMENT (this "Agreement") is entered into as of the
13th day of June, 1997, by and between GPA, LTD., a California limited
partnership ("GPA") and ANTHONY E. VAN BAAK ("Van Baak").
EXPLANATORY STATEMENT
The parties have agreed to organize and operate a limited liability
company in accordance with the terms and subject to the conditions set forth in
this Agreement.
NOW THEREFORE, for good and valuable consideration, the parties,
intending to be legally bound, agree as follows:
Section I
Defined Terms
The following capitalized terms shall have the meanings specified in
this Section I. Other terms are defined in the text of this Agreement; and
throughout this Agreement, those terms shall have the meanings respectively
ascribed to them.
"Act" means the Colorado Limited Liability Company Act, as amended from
time to time.
"Adjusted Capital Account Deficit" means, with respect to any Interest
Holder, the deficit balance, if any, in the Interest Holder's Capital Account as
of the end of the relevant taxable year, after giving effect to the following
adjustments:
(i) the deficit shall be decreased by the amounts which the
Interest Holder is deemed obligated to restore pursuant to Regulation Sections
1.704-1(g)(i) and (i)(5) (i.e., the Interest Holder's Share of Minimum Gain and
Member Minimum Gain); and
(ii) the deficit shall be increased by the items described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
"Adjusted Capital Balance" means, as of any day, an Interest Holder's
total Capital Contributions less all amounts actually distributed to the
Interest Holder pursuant to Section 4.4 hereof. If any Interest is transferred
in accordance with the terms of this Agreement,
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Exhibit 10.44
the transferee shall succeed to the Adjusted Capital Balance of the transferor
to the extent the Adjusted Capital Balance relates to the Interest transferred.
"Affiliate" means, with respect to any Member, any Person: (i) which
owns directly or indirectly more than twenty-five percent (25%) of the voting
interests in the Member; or (ii) in which the Member owns directly or indirectly
more than twenty-five percent (25%) of the voting interests; or (iii) in which
more than twenty-five percent (25%) of the voting interests are owned directly
or indirectly by a Person who has a relationship with the Member described in
clauses (i) or (ii) above.
"Agreement" means this Agreement, as amended from time to time.
"Capital Account" means the account maintained by the Company for each
Interest Holder in accordance with the following provisions:
(i) an Interest Holder's Capital Account shall be credited
with the Interest Holder's Capital Contributions, the amount of any
Company liabilities assumed by the Interest Holder (or which are
secured by Company property distributed to the Interest Holder), the
Interest Holder's allocable share of Profit and any item in the nature
of income or gain specially allocated to such Interest Holder pursuant
to the provisions of Section IV (other than Section 4.3.3); and
(ii) an Interest Holder's Capital Account shall be debited
with the amount of money and the fair market value of any Company
property distributed to the Interest Holder, the Interest Holder's
allocable share of Loss, and any item in the nature of expenses or
losses specially allocated to the Interest Holder pursuant to the
provisions of Section IV (other than Section 4.3.3)
If any Interest is transferred pursuant to the terms of this Agreement,
the transferee shall succeed to the Capital Account of the transferor to the
extent the Capital Account is attributable to the transferred Interest. If the
book value of Company property is adjusted pursuant to Section 4.3.3, the
Capital Account of each Interest Holder shall be adjusted to reflect the
aggregate adjustment in the same manner as if the Company had recognized gain or
loss equal to the amount of such aggregate adjustment. It is intended that the
Capital Accounts of all Interest Holders shall be maintained in compliance with
the provisions of Regulation Section 1.704-1(b), and all provisions of this
Agreement relating to the maintenance of Capital Accounts shall be interpreted
and applied in a manner consistent with that Regulation.
"Capital Contribution" means the total amount of cash and the fair
market value of any other assets contributed (or deemed contributed under
Regulation Section 1.704-1(b)(2)(iv)(d)) to the Company by a Member, net of
liabilities assumed or to which the assets are subject.
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<PAGE>
Exhibit 10.44
"Cash Flow" means all cash funds derived from operations of the Company
(including interest received on reserves), without reduction for any noncash
charges, but less cash funds used to pay current operating expenses and to pay
or establish reasonable reserves for future expenses, debt payments, capital
improvements and replacements as determined by the General Manager.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding law.
"Company" means the limited liability company formed in accordance with
this Agreement.
"CSOS" means the Colorado Secretary of State.
"General Manager" is the Person designated as such in Section V.
"Interest Holder" means any Person who holds a Membership Interest,
whether as a Member or as an unadmitted assignee of a Member.
"Involuntary Withdrawal" means, with respect to any Member, the
occurrence of any of the following events:
(i) the Member makes an assignment for the benefit of creditors;
(ii) the Member files a voluntary petition of bankruptcy;
(iii) the Member is adjudged bankrupt or insolvent or there is
entered against the Member an order for relief in any bankruptcy or
insolvency proceeding;
(iv) the Member files a petition seeking for the Member any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law or regulation;
(v) the Member seeks, consents to or acquiesces in the
appointment of a trustee for, receiver for or liquidation of the Member or
of all or any substantial part of the Member's properties;
(vi) the Member files an answer or other pleading admitting or
failing to contest the material allegations of a petition filed against the
Member in any proceeding described in subsections (i) through (v);
(vii) any proceeding against the Member seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any statute, law or regulation, continues for one hundred
twenty (120) days after the commencement thereof, or the appointment of a
trustee, receiver or
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<PAGE>
Exhibit 10.44
liquidator for the Member or all or any substantial part of the Member's
properties without the Member's agreement or acquiescence, which
appointment is not vacated or stayed for one hundred twenty (120) days or,
if the appointment is stayed, for one hundred twenty (120) days after the
expiration of the stay during which period the appointment is not vacated;
(viii) if the Member is an individual, the Member's death or
adjudication by a court of competent jurisdiction as incompetent to manage
the Member's person or property;
(ix) if the Member is acting as a Member by virtue of being a
trustee of a trust, the termination of the trust;
(x) if the Member is a partnership or limited liability company,
the dissolution and commencement of winding up of the partnership or
limited liability company;
(xi) if the Member is a corporation the dissolution of the
corporation or the revocation of its charter;
(xii) if the Member is an estate, the distribution by the
fiduciary of the estate's entire interest in the Company; or
(xiii) breach of the Agreement by the Member that is not cured
within thirty (30) days after notice from the other Member or the General
Manager, provided if the breach cannot reasonably be cured within such
30-day period there shall not be an Involuntary Withdrawal if the Member
commences the cure within such 30-day period, pursues the cure with
reasonable diligence, and completes the cure within a reasonable time
thereafter.
"Member" means each Person signing this Agreement and any Person who
subsequently is admitted as a member of the Company.
"Member Loan Nonrecourse Deductions" means any Company deductions that
would be Nonrecourse Deductions if they were not attributable to a loan made or
guaranteed by a Member within the meaning of Regulation Section 1.704-2(i).
"Member Minimum Gain" has the meaning set forth in Regulation Section
1.704-2(i) for "partner nonrecourse debt minimum gain."
"Membership Interest" means a Person's share of the Profits and Losses
of, and the right to receive distributions from, the Company.
"Membership Rights" means all of the rights of a Member in the Company,
including a Member's: (i) Membership Interest; (ii) right to inspect the
Company's books and
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<PAGE>
Exhibit 10.44
records; and (iii) right to participate in the management of and vote on matters
coming before the Company.
"Minimum Gain" has the meaning set forth in Regulation Section
1.704-2(d). Minimum Gain shall be computed separately for each Interest Holder
in a manner consistent with the Regulations under Code Section 704(b).
"Negative Capital Account" means a Capital Account with a balance of
less than zero.
"Nonrecourse Deductions" has the meaning set forth in Regulation
Section 1.704-2(b)(1). The amount of Nonrecourse Deductions for a taxable year
of the Company equals the net increase, if any, in the amount of Minimum Gain
during that taxable year, determined according to the provisions of Regulation
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulation Section
1.704-2(b)(3) and 1.752-1(a)(2).
"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit A, as amended from time to time, and as to an Interest
Holder who is not a Member, the Percentage of the Member whose Membership
Interest has been acquired by such Interest Holder, to the extent the Interest
Holder has succeeded to that Member's Membership Interest.
"Person" means and includes any individual, corporation, partnership,
association, limited liability company, trust, estate or other entity.
"Positive Capital Account" means a Capital Account with a balance
greater than zero.
"Prime Rate" means an annual rate of interest equal to the prime rate
as reported from time to time by The Wall Street Journal, adjusted as of the
first day of each calendar quarter to the prime rate in effect on such date.
"Profit" and "Loss" mean, for each taxable year of the Company (or
other period for which profit or Loss must be computed) the Company's taxable
income or loss determined in accordance with Code Section 703(a), with the
following adjustments:
(i) all items of income, gain, loss, deduction or credit required
to be stated separately pursuant to Code Section 703(a)(1) shall be
included in computing taxable income or loss;
(ii) any tax-exempt income of the Company, not otherwise taken
into account in computing Profit or Loss, shall be included in
computing taxable income or loss;
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<PAGE>
Exhibit 10.44
(iii) any expenditures of the Company described in Code Section
705(a)(2)(B) (or treated as such pursuant to Regulation Section
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing
Profit or Loss, shall be subtracted from taxable income or loss:
(iv) gain or loss resulting from any taxable disposition of
Company property shall be computed by reference to the adjusted book
value of the property disposed of, notwithstanding the fact that the
adjusted book value differs from the adjusted basis of the property for
federal income tax purposes:
(v) in lieu of the depreciation, amortization or cost recovery
deductions allowable in computing taxable income or loss, there shall
be taken into account the depreciation computed based upon the adjusted
book value of the asset; and
(vi) I notwithstanding any other provision of this definition,
any items which are specially allocated pursuant to Section 4.3 hereof
shall not be taken into account in computing Profit or Loss.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Resignation" means a Member's dissociation with the Company by means
other than by a Transfer or an Involuntary Withdrawal.
"Transfer" means, when used as a noun, any voluntary sale,
hypothecation, pledge, assignment, attachment or other transfer, and, when used
as a verb, means voluntarily to sell, hypothecate, pledge, assign or otherwise
transfer.
Section II
Formation and Name: Office; Purpose; Term
2.1 Organization. The Company was formed on June 13, 1997, by filing
Articles of Organization with CSOS in the form attached hereto as Exhibit B,
which are hereby ratified and confirmed
2.2 Name of the Company. The name of the Company shall initially be "Resort
Group, LLC." The Company may do business under that name and under any other
name or names which the Members may select. If the Company does business under a
name other than that set forth in its Articles of Organization, then the Company
shall file a trade name certificate as required by law.
2.3 Purpose: Certain Initial Transactions. Subject to the provisions of
this Agreement, the business and principal purposes of the Company are (a) to
engage in the resort hospitality business (including, without limitation,
property rental management, association management and property management),
either directly or through direct or
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<PAGE>
Exhibit 10.44
indirect investments in businesses that engage in the resort hospitality
business, (b) to borrow money in furtherance of the purposes of the Company and
to issue promissory notes or other evidence of indebtedness in connection with
such borrowings, (c) to grant a mortgage, deed of trust, pledge or other lien on
or security interest in all or any portion of the assets of the Company to
secure the Company's obligations as debtor under all loans, lines of credit,
debt offerings, credit facilities or other financing arrangements from time to
time established to finance any portion of the Company's activities, and (d) to
do any and all other acts or things which may be incidental or necessary to
carry on the business of the Company as contemplated by this Agreement. Except
as otherwise provided in this Agreement, the Company will not engage in any
other activity or business, and no Member will have any authority to hold itself
out as a general agent of another Member in any other business or activity. In
furtherance of the purposes of the Company, the following transactions are
expressly authorized:
(i) The Company shall become a party to that certain Operating
Agreement of Mountain Resorts Acquisition, LLC dated June 13, 1997 with
Mountain Resorts, Inc., a Colorado corporation (the "Mountain Resorts
LLC Operating Agreement") and take such actions as are necessary on the
part of the Company to consummate the transactions contemplated by the
Mountain Resorts LLC Operating Agreement and carry out the obligations
of the Company thereunder, subject to the terms and conditions of the
Mountain Resorts LLC Operating Agreement.
(ii) The Company shall become a party to that certain
Acquisition Agreement dated June 1, 1997, with H. David Zabel, Patricia
H. Zabel, Glen D. Zabel, Alice T. Klauzer, Mountain Resorts, Inc. and
Mountain Resorts Acquisition, LLC (the "Acquisition Agreement"), and
take such actions as are necessary on the part of the Company to
consummate the transactions contemplated by the Acquisition Agreement
and carry out the obligations of the Company thereunder, subject to the
terms and conditions of the Acquisition Agreement. Among other things,
the Acquisition Agreement contemplates that the Company will purchase a
79to membership interest in Mountain Resorts Acquisition, LLC from
Mountain Resorts, Inc. for a purchase price of $1 595,959.60,
$380,000.00 of which (subject to closing adjustments and prorations)
shall be payable in cash at the closing of such purchase, and
$1?2152959.60 of which will be payable by the Company's promissory note
payable to Mountain Resorts, Inc. (the "Purchaser Note"). The
Acquisition Agreement further contemplates that the Company will be a
beneficiary of certain Noncompetition Covenants (as defined in the
Acquisition Agreement). The Capital Contributions to the Company shall
be used to fund the Company's initial Capital Contribution to Mountain
Resorts LLC (which shall be used to pay the consideration for the
Noncompetition Covenants) and to pay the cash portion of the purchase
price for the Mountain Resorts Acquisition, LLC interest to be
purchased by the Company pursuant to the Acquisition Agreement.
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<PAGE>
Exhibit 10.44
2.4 Term. The term of the Company shall begin upon the acceptance of the
Articles of Organization by the CSOS and shall continue in existence until May
31, 2027, unless its existence is sooner terminated pursuant to Section VII of
this Agreement.
2.5 Principal Office. The principal office of the Company in the State of
Colorado shall be located at 810 Lincoln Avenue, Suite 200, Steamboat Springs,
Colorado 80487, or at any other place which the General Manager selects.
2.6 Resident Agent. The name and address of the Company's resident agent in
the State of Colorado shall be Anthony E. Van Baak 810 Lincoln Avenue, Suite
200, P.O. Box 774671, Steamboat Springs, Colorado 80477.
2.7 Members. The name, present mailing address, taxpayer identification
number and Percentage of each Member are set forth on Exhibit A.
Section III
Members; Capital; Capital Accounts; Loans
3.1 Initial Capital Contributions. Within forty-eight (48) hours after
notice from the General Manager, the Members shall contribute to the Company
cash in the amounts respectively set forth on Exhibit A. Such contributions
shall be delivered by wire transfer or other current funds to the account
specified by the General Manager.
3.2 No Other Capital Contributions Required. No Member shall be required to
contribute any additional capital to the Company, and except as set forth in the
Act, no Member shall have any personal liability for any obligations of the
Company.
3.3 No Interest on Capital Contributions. Interest Holders shall not be
paid interest on their Capital Contributions.
3.4 Return of Capital Contributions. Except as otherwise provided in this
Agreement, no Interest Holder shall have the right to receive the return of any
Capital Contribution.
3.5 Form of Return of Capital. If an Interest Holder is entitled to receive
a return of a Capital Contribution, the Interest Holder shall not have the right
to receive anything other than cash in return of the Interest Holder's Capital
Contribution.
3.6 Capital Accounts. A separate Capital Account shall be maintained for
each Interest Holder.
3.7 Loans.
3.7.1 Revolving Line of Credit. Throughout the term of the Company, GPA
shall make available to the Company a revolving line of credit in the amount of
$1,000,000
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Exhibit 10.44
which may be used in the discretion of the General Manager for any of the
Company's purposes. The outstanding principal balance of the line of credit
shall bear interest at the rate of one and one-half percent (1-1/2%) in excess
of the Prime Rate. The General Manager shall be entitled to make draws on such
line of credit on at least seventy-two (72) hours' prior notice to GPA.
3.7.2 Other Loans. Any Member may, at any time, make or cause a loan to
be made to the Company in any amount and on those terms upon which the Company
and the Member agree.
Section IV
Profit, Loss and Distributions
4.1 Distributions of Cash Flow.
4.1.1 Tax Distributions. For each tax year the Company will, during
such tax year or the immediately subsequent tax year, but not later than ninety
(90) days following the end of such tax year, use its reasonable best efforts to
distribute to the interest holders in proportion to their Percentages an amount
equal to 35% of the taxable income (or estimated taxable income) that has been
or will be allocated to the Interest Holders for such taxable year. The amount
and timing of such distributions shall be determined by the General Manager.
4.1.2 Other Distributions. Distributions of Cash Flow in addition to
those provided for in Section 4.1.1 shall be made to the Interest Holders in
proportion to their Percentages at such times and in such amounts as are
determined by the General Manager.
4.2 Allocation of Profit or Loss. After giving effect to the special
allocations set forth in Section 4.3 for any taxable year of the Company, Profit
or Loss shall be allocated to the Interest Holders in proportion to their
Percentages.
4.3 Regulatory Allocations.
4.3.1 Qualified Income Offset. No Interest Holder shall be allocated
Losses or deductions if the allocation causes an Interest Holder to have an
Adjusted Capital Account Deficit. If an Interest Holder receives (1) an
allocation of Loss or deduction (or item thereof) or (2) any distribution, which
causes the Interest Holder to have an Adjusted Capital Account Deficit at the
end of any taxable year, then all items of income and gain of the Company
(consisting of a pro rata portion of each item of Company income, including
gross income and gain) for that taxable year shall be allocated to that Interest
Holder, before any other allocation is made of Company items for that taxable
year, in the amount and in proportions required to eliminate the excess as
quickly as possible. This Section 4.3.1 is intended to comply with, and shall be
interpreted consistently with, the "qualified income offset" provisions of the
Regulations promulgated under Code Section 704(b)
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Exhibit 10.44
4.3.2 Minimum Gain Chargeback. Except as set forth in Regulation
Section 1.704-2(f)(2), (3) and (4), if, during any taxable year, there is a net
decrease in Minimum Gain, each Interest Holder, prior to any other allocation
pursuant to this Section IV, shall be specially allocated items of gross income
and gain for such taxable year (and, if necessary, subsequent taxable years) in
an amount equal to that Interest Holder's share of the net decrease of Minimum
Gain, computed in accordance with Regulation Section 1.704-2(g)(2). Allocations
of gross income and gain pursuant to this Section 4.3.2 shall be made first from
gain recognized from the disposition of Company assets subject to nonrecourse
liabilities (within the meaning of the Regulations promulgated under Code
Section 752), to the extent of the Minimum Gain attributable to those assets,
and thereafter, from a pro rata portion of the Company's other items of income
and gain for the taxable year. It is the intent of the parties hereto that any
allocation pursuant to this Section 4.3.2 shall constitute a "minimum gain
chargeback" under Regulation Section 1.704-2(f).
4.3.3 Contributed Property and Book-Ups. In accordance with Code
Section 704(c) and the Regulations thereunder, as well as Regulation Section
1.704-1(b)(2)(iv)(d)(3), income, gain, loss and deduction with respect to any
property contributed (or deemed contributed) to the Company shall, solely for
tax purposes, be allocated among the Interest Holders so as to take account of
any variation between the adjusted basis of the property to the Company for
federal income tax purposes and its fair market value at the date of
contribution (or deemed contribution). If the adjusted book value of any Company
asset is adjusted as provided herein, subsequent allocations of income, gain,
loss and deduction with respect to the asset shall take account of any variation
between the adjusted basis of the asset for federal income tax purposes and its
adjusted book value in the manner required under Code Section 704(c) and the
Regulations thereunder.
4.3.4 Code Section 754 Adjustment. To the extent an adjustment to the
tax basis of any Company asset pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulation Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of the adjustment
to the Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases basis),
and the gain or loss shall be specially allocated to the Interest Holders in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to that Section of the Regulations.
4.3.5 Nonrecourse Deductions. Nonrecourse deductions for a taxable year
or other period shall be specially allocated among the Interest Holders in
proportion to their Percentages.
4.3.6 Member Loan Nonrecourse Deductions. Any Member Loan Nonrecourse
Deduction for any taxable year or other period shall be specially allocated to
the Interest Holder who bears the risk of loss with respect to the loan to which
the Member Loan Nonrecourse Deduction is attributable in accordance with
Regulation Section 1.704-2(b).
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Exhibit 10.44
4.3.7 Guaranteed Payments. To the extent any compensation paid to any
Member by the Company, including any fees payable to any Member pursuant to
Section 5.3 hereof, is determined by the Internal Revenue Service not to be a
guaranteed payment under Code Section 707(c) or is not paid to the Member other
than in the Person's capacity as a Member within the meaning of Code Section
707(a), the Member shall be specially allocated gross income of the Company in
an amount equal to the amount of that compensation, and the Member's Capital
Account shall be adjusted to reflect the payment of that compensation.
4.3.8 Unrealized Receivables. If an Interest Holder's Interest is
reduced (provided the reduction does not result in a complete termination of the
Interest Holder's Interest), the Interest Holder's share of the Company's
"unrealized receivables" and "substantially appreciated inventory" (within the
meaning of Code Section 751) shall not be reduced, so that, notwithstanding any
other provision of this Agreement to the contrary, that portion of the Profit
otherwise allocable upon a liquidation or dissolution of the Company pursuant to
Section 4.4 hereof which is taxable as ordinary income (recaptured) for federal
income tax purposes shall, to the extent possible without increasing the total
gain to the Company or to any Interest Holder, be specially allocated among the
Interest Holders in proportion to the deductions (or basis reductions treated as
deductions) giving rise to such recapture. Any questions as to the aforesaid
allocation of ordinary income (recapture), to the extent such questions cannot
be resolved in the manner specified above, shall be resolved by the General
Manager.
4.3.9 Withholding. All amounts required to be withheld pursuant to Code
Section 1446 or any other provision of federal, state or local tax law shall be
treated as amounts actually distributed to the affected Interest Holders for all
purposes under this Agreement.
4.4 Liquidation and Dissolution.
4.4.1 If the Company is liquidated, the assets of the Company shall be
distributed to the Interest Holders in accordance with the balances in their
respective Capital Accounts, after taking into account the allocations of Profit
or Loss pursuant to Section 4.2, if any, and distributions, if any, of cash or
property, if any, pursuant to Section 4.1.
4.4.2 No Interest Holder shall be obligated to restore a Negative
Capital Account.
4.5 General.
4.5.1 Except as otherwise provided in this Agreement, the timing and
amount of all distributions shall be determined by the General Manager.
4.5.2 If any assets of the Company are distributed in kind to the
Interest Holders, those assets shall be valued on the basis of their fair market
value, and any Interest
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Exhibit 10.44
Holder entitled to any interest in those assets shall receive that interest as a
tenant-in-common with all other Interest Holders so entitled. Unless the Members
otherwise agree, the fair market value of the assets shall be determined by an
independent appraiser who shall be selected by the General Manager. The Profit
or Loss for each unsold asset shall be determined as if the asset had been sold
at its fair market value, and the Profit or Loss shall be allocated as provided
in Section 4.2 and shall be properly credited or charged to the Capital Accounts
of the Interest Holders prior to the distribution of the assets in liquidation
pursuant to Section 4.4.
4.5.3 All Profit and Loss shall be allocated, and all distributions
shall be made to the Persons shown on the records of the Company to have been
Interest Holders as of the last day of the taxable year for which the allocation
or distribution is to be made. Notwithstanding the foregoing, unless the
Company's taxable year is separated into segments, if there is a Transfer or an
Involuntary Withdrawal during the taxable year, the Profit and Loss shall be
allocated between the original Interest Holder and the successor on the basis of
the number of days each was an Interest Holder during the taxable year;
provided, however, the Company's taxable year shall be segregated into two or
more segments as required pursuant to Section 6.9 or as otherwise determined by
the General Manager in order to account for Profit, Loss or proceeds
attributable to any extraordinary nonrecurring items of the Company.
4.5.4 The General Manager is hereby authorized, upon the advice of the
Company's tax counsel, to amend this Section IV to comply with the Code and the
Regulations promulgated under Code Section 704(b); provided, however, that no
amendment shall materially affect distributions to an Interest Holder without
the Interest Holder's prior written consent.
Section V
Management: Rights, Powers and Duties
5.1 Management.
5.1.1 General Manager. The Company shall be managed by a General
Manager, who may, but need not, be a Member. Van Baak is hereby designated to
serve as the initial General Manager. Van Baak shall serve as the Company's
General Manager until his resignation, death, permanent disability or removal as
hereinafter provided. Van Baak agrees that he shall not resign as the Company's
General Manager prior to August 1, 2000. Van Baak may be removed as the
Company's General Manager by GPA if (i) Van Baak files a voluntary petition in
bankruptcy or is adjudged bankrupt or insolvent, (ii) Van Baak commits material
fraud in connection with the Company or its activities, or (iii) Van Bank
grossly neglects his duties as General Manager. In the event Van Baak ceases to
act as the Company's General Manager, GPA shall appoint the Company's General
Manager. Any General Manager appointed by GPA may be removed and replaced by GPA
from time to time.
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Exhibit 10.44
5.1.2 General Powers. The General Manager shall have full, exclusive
and complete discretion, power and authority, subject in all cases to the other
provisions of this Agreement (including the restrictions in Section 5.1.4) and
the requirements of applicable law, to manage, control, administer and operate
the business and affairs of the Company for the purposes herein stated, and to
make all decisions affecting such business and affairs, including, without
limitation, for Company purposes, the power to:
5.1.2.1 Acquire by purchase, lease or otherwise, any real or
personal property, tangible or intangible;
5.1.2.2 Construct, operate, manage, maintain, finance and improve,
and to own, sell, convey, assign, mortgage or lease any real estate and any
personal property, tangible or intangible;
5.1.2.3 Sell, dispose of, trade or exchange all or any portion of
Company assets;
5.1.2.4 Enter into agreements and contracts and to give receipts,
releases and discharges;
5.1.2.5 Purchase liability and other insurance to protect the
Company's properties and business;
5.1.2.6 Borrow money for and on behalf of the Company and, in
connection therewith, execute and deliver instruments authorizing the confession
of judgment against the Company;
5.1.2.7 Execute or modify leases with respect to any part or all
of the assets of the Company;
5.1.2.8 Prepay, in whole or in part, refinance, amend, modify or
extend any mortgages or deeds of trust which may affect any asset of the Company
and in connection therewith to execute for and on behalf of the Company any
extensions, renewals or modifications of such mortgages or deeds of trust;
5.1.2.9 Execute any and all other instruments and documents which
may be necessary or in the opinion of the General Manager desirable to carry out
the intent and purpose of this Agreement, including, but not limited to,
documents whose operation and effect extend beyond the term of the Company;
5.1.2.10 Make any and all expenditures which the General Manager,
in its sole discretion, deems necessary or appropriate in connection with the
management of the affairs of the Company and the carrying out of its obligations
and responsibilities under this Agreement, including, without limitation, all
legal, accounting and other related
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expenses incurred in connection with the organization, financing and operation
of the Company;
5.1.2.11 Exercise all the rights, powers and privileges of the
Company as a member of Mountain Resorts Acquisition, LLC, pursuant to the
Mountain Resorts LLC Operating Agreement or otherwise, including the Company's
right to vote as a member of Mountain Resorts Acquisition, LLC, and to exercise
all the rights, powers and privileges of the Company as an owner (direct or
indirect) of any other entity in which the Company may invest;
5.1.2.12 Enter into any kind of activity necessary to, in
connection with or incidental to the accomplishment of the purposes of the
Company; and
5.1.2.13 Invest and reinvest Company reserves in short-term
instruments or money market funds.
The foregoing power and authority of the General Manager may be exercised by the
General Manager in his sole and exclusive discretion. No Person dealing with the
Company will be required to inquire into the authority of the General Manager to
take any action or make any decision.
5.1.3 Amendment of Agreement. Notwithstanding anything to the contrary
contained in Section 5.1.4, the General Manager will have the power, without the
necessity of any vote or other action of the Members, to amend this Agreement as
may be required to facilitate or implement any of the following purposes:
5.1.3.1 To add to the obligations of the General Manager or
surrender any right or power granted to the General Manager for the benefit of
the Members;
5.1.3.2 To reflect the termination or withdrawal of Members in
accordance with this Agreement; and
5.1.3.3 To reflect a change that is of an inconsequential nature
and that does not have a material adverse effect on the Members, or to cure any
ambiguity, correct or supplement any provision in this Agreement not
inconsistent with law or with other provisions, or to make other changes with
respect to matters arising under this Agreement that will not be inconsistent
with law or the provisions of this Agreement.
Notwithstanding anything to the contrary contained in this Section 5.1.3, this
Agreement will not be amended without the affirmative vote of all Members
adversely affected if such amendment would:
(i) Modify the limited liability of a Member;
(ii) Alter the allocations specified in Section 4.2;
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(iii) Amend the restriction on the General Manager's authority set
forth in Section 5.1.4: or
(iv) Amend this Section 5.1.3.
5.1.4 Extraordinary Transactions. Notwithstanding anything to the
contrary in this Agreement, the General Manager shall not undertake any of the
following without the approval of the Members:
5.1.4.1 Admitting additional Members to the Company;
5.1.4.2 Amending this Agreement except as provided in Section
5.1.3;
5.1.4.3 Purchasing on behalf of the Company any real property or
personal property with an aggregate cost in excess of $25,000 during any fiscal
year;
5.1.4.4 Selling, disposing of, trading or exchanging (i) any
Company real property, (ii) Company personal property with an aggregate value in
excess of $25,000 during any fiscal year, or (iii) all or substantially all
Company assets not in the ordinary course of the Company's business;
5.1.4.5 Voluntarily dissolving the Company;
5.1.4.6 Establishing or increasing the General Manager's
compensation above the limits specified in Section 5.3.2;
5.1.4.7 Except for amounts borrowed on the line of credit referred
to in Section 3.7.1, borrowing money on behalf of the Company to the extent the
aggregate outstanding principal balance of such borrowings exceeds $150,000 at
any time.
5.1.4.8 In exercising powers pursuant to Section 5.1.2.11,
notwithstanding any provision to the contrary in such Section, the General
Manager shall not, as General Manager of the Company, General Manager of
Mountain Resorts Acquisition, LLC or otherwise, undertake any action with
respect to Mountain Resorts Acquisition, LLC which the General Manager could not
undertake with respect to the Company pursuant to this Section, except that the
General Manager may, with respect to Mountain Resorts Acquisition, LLC:
(a) Cause Mountain Resorts to acquire or dispose of personal
property in the ordinary course of business or pursuant to a business
plan approved by GPA, without regard to the limitations set forth in
Sections 5.1.4.3 and 5.1.4.4 above, and
(b) Cause the Company and Mountain Resorts Acquisition, LLC to
perform their respective obligations pursuant to the Acquisition
Agreement (and the
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other agreements contemplated thereby), including the assumption by
Mountain Resorts Acquisition, LLC of the existing Mountain Resorts,
Inc. $350,000 revolving line of credit as contemplated by the
Acquisition Agreement.
5.1.5 Limitation on Authority of Members.
5.1.5.1 No Member is an agent of the Company solely by virtue of
being a Member, and no Member has authority to act for the Company solely by
virtue of being a Member.
5.1.5.2 Any Member who takes any action or binds the Company in
violation of this Section 5.1 shall be solely responsible for any loss and
expense incurred by the Company as a result of the unauthorized action and shall
indemnify and hold the Company harmless with respect to the loss or expense.
5.2 Meetings of and Voting by Members.
5.2.1 A meeting of the Members may be called at any time by the General
Manager or by any Member. Meetings of Members shall be held at the Company's
principal place of business or at any other place designated by the Persons
calling the meeting. Not less than ten (10) nor more than fifty (50) days before
each meeting, the Persons calling the meeting shall give written notice of the
meeting to each Member entitled to vote at the meeting. The notice shall state
the time, place and purpose of the meeting. Notwithstanding the foregoing
provisions, each Member who is entitle to notice waives notice if before or
after the meeting the Member signs a waiver of the notice which is filed with
the records of Members' meetings, or is present at the meeting in person or by
proxy and fails to object to the lack of notice. Unless this Agreement provides
otherwise, at a meeting of Members, the presence in person or by proxy of
Members holding one hundred percent (100%) of the Percentages then held by
Members constitutes a quorum. A Member may vote either in person or by written
proxy signed by the Member or by the Member's duly authorized attorney-in-fact.
5.2.2 Except as otherwise provided in this Agreement, the affirmative
vote of Members holding one hundred percent (100%) of the Percentages then held
by Members present at a meeting at which there is a quorum shall be required to
approve any matter coming before the Members.
5.2.3 An annual meeting shall be held each year during the month of
April at such time and place as the General Manager shall fix. Notice shall be
given to the Members in accordance with Section 5.2.1.
5.2.4 Members may participate in meetings by telephone or similar
communications equipment. In lieu of holding a meeting, the Members may vote or
otherwise take action by a written instrument indicating the consent of the
Members. Any
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such written instrument may be executed in counterparts and transmitted by
facsimile or similar means.
5.3 Personal Services.
5.3.1 No Member shall be required to perform services for the
Company solely by virtue of being a Member. Unless approved by the General
Manager, no Member shall perform services for the Company or be entitled to
compensation for services performed for the Company.
5.3.2 The General Manager shall be entitled to reasonable
compensation for services performed for the Company, as determined from time to
time by the General Manager, provided that without the approval of the Members
the General Manager shall not (i) establish the General Manager's initial
compensation at an amount in excess of $25,000 annually, or (ii) increase the
General Manager's annual compensation by more than ten percent (10%) of then
current compensation. In addition, the General Manager shall be entitled to
reimbursement for expenses reasonably incurred in connection with the activities
of the Company.
5.4 Duties of Parties.
5.4.1 (1) The General Manager shall perform his or her duties as a
manager in good faith, in a manner he or she reasonably believes to be in the
best interests of the limited liability company, and with such care as an
ordinarily prudent person in a like position would use under similar
circumstances. A Person who so performs his duties shall not have any liability
by reason of being or having been a General Manager of the Company.
(2) In performing his duties, a General Manager shall be
entitled to rely on information, opinions, reports, or statements of the
following persons or groups unless he has knowledge concerning the matter in
question that would cause such reliance to be unwarranted
(a) One or more employees or other agents of the Company whom
the manager reasonably believes to be reliable and competent in the matters
presented;
(b) Any attorney, public accountant or other person as to
matters which the General Manager reasonably believes to be within such person's
professional or expert competence; or
(c) A committee upon which he does not serve, duly designated
in accordance with a provision of the Articles of this organization or this
Agreement, as to matters within its designated authority, which committee the
General Manager reasonably believes to merit confidence.
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Exhibit 10.44
Section 7-108-501 of the Colorado Business Corporation Act (entitled
"Conflicting Interest Transaction") shall apply to contracts or other
transactions between the Company and any of its General Managers or committee
members and any other entity in which any of its General Managers or committee
members is a director or has a material financial interest; provided that
references therein to the "corporation" shall be deemed to be to the Company,
references to a "director" shall be deemed to be to the General Manager,
references to "shareholders" shall be deemed to be to "Members," and references
to the "board of directors" shall be to the "Management Committee," if one is
appointed.
5.5 Liability and Indemnification.
5.5.1 The General Manager shall not be liable, responsible or
accountable, in damages or otherwise, to any Member or to the Company for any
act performed by the General Manager within the scope of the authority conferred
on the General Manager by this Agreement, except for actions or omissions
constituting fraud, gross negligence or an intentional breach of this Agreement
or applicable law.
5.5.2 The Company shall indemnify its Members, managers and employees
in respect of payments made and personal liabilities reasonably incurred by such
Member, manager or employee in the ordinary and proper course of the Company's
business or for the preservation of the Company's business or property. Without
limiting the foregoing, the Company shall indemnify the General Manager for any
act performed by the General Manager within the scope of the authority conferred
on the General Manager by this Agreement, except for actions or omissions
constituting fraud, gross negligence or an intentional breach of this Agreement
or applicable law.
5.6 Power of Attorney.
5.6.1 Grant of Power. Each Member constitutes and appoints the General
Manager as the Member's true and lawful attorney-in-fact ("Attorney-in-Fact"),
and in the Member's name, place and stead, to make, execute, sign, acknowledge
and file:
5.6.1.1 One or more articles of organization;
5.6.1.2 All documents (including amendments to articles of
organization) which the Attorney-in-Fact deems appropriate to reflect any
amendment, change or modification of this Agreement;
5.6.1.3 Any and all other certificates or other instruments
required to be filed by the Company under the laws of the State of Colorado or
of any other state or jurisdiction, including, without limitation, any
certificate or other instruments necessary in order for the Company to continue
to qualify as a limited liability company under the laws of the State of
Colorado
5.6.1.4 One or more fictitious or trade name certificates; and
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Exhibit 10.44
5.6.1.5 All documents which may be required to dissolve and
terminate the Company and to cancel its articles or organization.
5.6.2 Irrevocability. The foregoing power of attorney is irrevocable
and is coupled with an interest and, to the extent permitted by applicable law,
shall survive the death or disability of a Member. It also shall survive the
Transfer of an Interest, except that if the transferee is approved for admission
as a Member, this power of attorney shall survive the delivery of the assignment
for the sole purpose of enabling the Attorney-in-Fact to execute, acknowledge
and file any documents needed to effectuate the substitution. Each Member shall
be bound by any representations made by the Attorney-in-Fact acting in good
faith pursuant to this power of attorney, and each Member hereby waives any and
all defenses which may be available to contest, negate or disaffirm the action
of the Attorney-in-Fact taken in good faith under this power of attorney.
Section VI
Transfer of Interests and Withdrawals of Members
6.1 Transfers.
6.1.1 Except as otherwise provided in this Section 6.1 or in Sections
6.3, 6.4 or 6.6, no Person may Transfer all or any portion of, or any interest
or rights in, the Membership Rights owned by the Member, and no Interest Holder
may Transfer all, or any portion of, or any interest or right in, any Membership
Interest. Each Member hereby acknowledges the reasonableness of this prohibition
in view of the purposes of the Company and the relationship of the Members. The
Transfer of any Membership Rights or Membership Interests in violation of the
prohibition contained in this Section 6.1 shall be deemed invalid, null and
void, and of no force or effect. Any Person to whom Membership Rights are
attempted to be transferred in violation of this Section 6.1 shall not be
entitled to vote on matters coming before the Members, participate in the
management of the Company, act as an agent of the Company, receive distributions
from the Company, or have any other rights in or with respect to Membership
Rights. If a Member transfers any Membership Interest in a manner permitted by
this Agreement, and the transferee is not a Member or admitted as a Member,
there shall be no Membership Rights associated with the Membership Interest
transferred, and the transferee shall be entitled to receive, to the extent
transferred, only the distributions to which the transferor would be entitled.
If a Member transfers any Membership Interest in a manner permitted by this
Agreement and the transferee is a Member or is admitted as a Member, the
Membership Rights associated with the Membership Interest transferred shall be
transferred to and may be exercised by the transferee. Additional Members may be
admitted only with the unanimous consent of all then remaining Members.
6.1.2 Except for Transfers pursuant to Sections 6.3, 6.4 or 6.6, no
Person may transfer all or any portion of or any interest or rights in the
Person's Membership Rights or Membership Interest unless the following
conditions ("Conditions of Transfer") are satisfied:
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Exhibit 10.44
6.1.2.1 The Transfer will not require registration of Membership
Interests or Membership Rights under any federal or state securities law;
6.1.2.2 The transferee delivers to the Company a written agreement
to be bound by the terms of this Agreement;
6.1.2.3 The Transfer will not result in the termination of the
Company pursuant to Code Section 708;
6.1.2.4 The Transfer will not result in the Company being subject
to the Investment Company Act of 1940, as amended;
6.1.2.5 The transferor or the transferee delivers the following
information to the Company: (i) the transferee's taxpayer identification number,
and (ii) the transferee's initial tax basis in the Transferred Interest; and
6.1.2.6 The transferor complies with the provisions set forth in
Section 6.1.4
6.1.3 If the Conditions of Transfer are satisfied, then a Member or
Membership Interest Holder may Transfer that portion of that Person's Membership
Rights and/or Membership Interest as to which the Conditions of Transfer have
been satisfied. Except as otherwise provided in Section 6.1.1, the Transfer of a
Membership Interest pursuant to this Section 6.1 shall not result in the
Transfer of any of the transferor's other Membership Rights, if any, and the
transferee of the Membership Interest shall have no right to become a Member or
exercise any Membership Rights other than those specifically pertaining to the
ownership of a Membership Interest unless the transferee is admitted as a
Member.
6.1.4 Right of First Refusal.
6.1.4.1 If a Person (individually, a "Transferor") receives a bona
fide written offer (the "Transferee Offer") from any other Person (a
"Transferee") to purchase all or any portion of or any interest or rights in the
Transferor's Membership Rights and/or Membership Interest (the "Transferor
Interest") for a purchase price denominated and payable in United States
dollars, then, prior to any Transfer of the Transferor Interest, the Transferor
shall give the Company and each of the Members (excluding the Transferor, if the
Transferor is a Member) (the "Remaining Members") written notice (the "Transfer
Notice") containing each of the following:
6.1.4.1.1 the Transferee's identity;
6.1.4.1.2 a true and complete copy of the Transferee Offer;
and
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6.1.4.1.3 the Transferor's offer (the "Offer") to sell the
Transferor Interest to the Company and/or Remaining Members for a total price
equal to the price set forth in the Transferee Offer (the "Transfer Purchase
Price"), which shall be payable on the terms of payment set forth in the
Transferee Offer.
6.1.4.2 The Offer shall be and remain irrevocable for a period
(the "Offer Period") ending at 11:59 p.m. local time at the Company's principal
office, on the sixtieth (60th) day following the date the Transfer Notice is
given to the Company and Remaining Members. At any time during the Offer Period,
the Company and any Remaining Member may accept the offer by notifying the
Transferor in writing that it intends to purchase all, but not less than all, of
the Transferor Interest. The Company shall have a prior right to accept the
Offer, and if the Company accepts the Offer, no Remaining Member shall have the
right to accept the Offer. If two (2) or more Remaining Members accept the
Offer, then, in the absence of an agreement between or among them, each such
Remaining Members shall purchase the Transferor Interest in the proportion that
its respective Percentage bears to the total Percentages of all of the Remaining
Members who accept the Offer. If the Company or one or more Remaining Members
accept the Offer, then the purchasing party or parties shall fix a closing date
(the "Transfer Closing Date") for the purchase, which shall not be earlier than
ten (10) or more than sixty (60) days after the expiration of the Offer Period.
6.1.4.3 If the Company or any Remaining Member accepts the Offer,
the Transfer Purchase Price shall be paid on the Transfer Closing Date in
accordance with the payment terms set forth in the Transferee Offer.
6.1.4.4 If neither the Company nor any Remaining Member accepts
the Offer (within the time and in the manner specified in this Section), then
the Transferor shall be free for a period (the "Free Transfer Period") of thirty
(30) days after the expiration of the Offer Period to Transfer the Transferor
Interest to the Transferee, for the same or greater price and on the same terms
and conditions as set forth in the Transfer Notice. The Transfer shall be
subject, however, to the Conditions of Transfer (other than 6.1.2.6). If the
Transferor does not Transfer the Transferor Interest within the Free Transfer
Period, the Transferor's right to Transfer the Transferor Interest pursuant to
this Section shall cease and terminate.
6.1.4.5 Any Transfer by the Transferor after the last day of the
Free Transfer Period or without strict compliance with the terms, provisions and
conditions of this Section and the other terms, provisions and conditions of
this Agreement, shall be null and void and of no force or effect.
6.2 Resignation: Voluntary Dissolution. No Member shall have the right or
power to Resign from the Company, except as otherwise provided in Section 6.4 or
Section 6.6. In addition, until the Purchaser Note (as defined in the
Acquisition Agreement) has been satisfied, each Member that is a corporation,
partnership or limited liability company shall preserve its existence and shall
not voluntarily dissolve.
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6.3 Optional Buy-Out in Event of Involuntary Withdrawal.
6.3.1 If the Members elect to continue the Company after an Involuntary
Withdrawal, the withdrawn Member shall be deemed to offer for sale (the
"Withdrawal Offer") to the Company and the remaining members (the "Remaining
Members") all of the Membership Rights owned of record and beneficially by the
withdrawn Member (the "Withdrawal Interest").
6.3.2 The Withdrawal Offer shall be and remain irrevocable for a period
(the "Withdrawal Offer Period") ending at 11:59 p.m. local time at the Company's
principal office on the sixtieth (60th) day following the date the Members elect
to continue the Company. At any time during the Withdrawal Offer Period, the
Company and any Remaining Member may accept the Withdrawal Offer by notifying
the withdrawn Member in writing (the "Withdrawal Notice") that it intends to
purchase all, but not less than all, of the Withdrawal Interest. The withdrawn
Member shall not be deemed a Member for the purpose of any vote on whether the
Company shall accept the Withdrawal Offer. The Company shall have a prior right
to accept the Withdrawal Offer, and if the Company accepts the Offer, no
Remaining Member shall have the right to accept the Withdrawal Offer. If two (2)
or more Remaining Members accept the Withdrawal Offer, then, in the absence of
an agreement between or among them, each such Remaining Member shall purchase
the Withdrawal Interest in the proportion that its respective Percentage bears
to the total Percentages of all of the Remaining Members who accept the
Withdrawal Offer.
6.3.3 If the Company or any Remaining Member accepts the Withdrawal
Offer, the Withdrawal Notice shall fix a closing date (the "Withdrawal Closing
Date") for the purchase which shall be not earlier than ten (10) nor later than
sixty (60) days after the expiration of the Withdrawal Offer Period.
6.3.4 If the Company or any Remaining Member accepts the Withdrawal
Offer, the purchase price for the Withdrawal Interest shall be equal to the
Agreed Value multiplied by the Withdrawn Member's Percentage (the "Withdrawal
Purchase Price"). If the Withdrawal Interest is owned by GPA, the Withdrawal
Purchase Price for such interest shall be payable twenty-five percent (25%) in
cash on the Withdrawal Closing Date, with the balance payable in four (4) equal
annual installments of principal plus interest at the Prime Rate, which
installments shall be payable on the first annual anniversary of the Withdrawal
Closing Date and on the same day each year thereafter until the balance is paid
in full. If the Withdrawal Interest is owned by Van Baak, the Withdrawal
Purchase Price for such interest shall be payable fifty percent (50%) in cash on
the Withdrawal Closing Date, with the balance payable one (1) year after the
Withdrawal Closing Date, together with interest on such balance from the
Withdrawal Closing Date until paid at the Prime Rate.
6.3.5 If the Company fails to accept the Withdrawal Offer, then the
withdrawn Member or the withdrawn Member's successor, as the case may be, upon
the expiration of the Withdrawal Offer Period, shall thereafter be treated as
the unadmitted assignee of a Member
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6.4 Put. Within ninety (90) days after the occurrence of (i) an Involuntary
Withdrawal resulting from the death or incompetence of Van Baak, or (ii) Van
Baak's illness or disability which renders him incapable of acting as General
Manager for a period of sixty (60) or more consecutive days, as determined by
Van Baak's physician, Van Baak or his legal representative shall have the right
to require that GPA purchase all of Van Baak's Membership Rights and Membership
Interest (herein the "Put") by giving notice to GPA. The purchase price for the
Membership Rights/Membership Interest owned by Van Baak shall be the Agreed
Value multiplied by Van Baak's Percentage, which amount shall be payable fifty
percent (50%) in cash at closing, with the balance payable one (1) year after
closing, together with interest on such balance from the closing date until paid
at the Prime Rate. The closing of any purchase pursuant to this Section 6.4
shall occur on a date specified by GPA not earlier than ten (10) nor later than
sixty (60) days after notice of exercise of the Put has been given. If the Put
is exercised, the parties shall be obligated to complete the transactions
contemplated by the Put, notwithstanding that the Company may be dissolved and
not continued.
6.5 Agreed Value. For purposes of Sections 6.3 and 6.4, the "Agreed Value"
shall be __% of Gross Revenues (as hereinafter defined) increased or decreased
by the Net Asset Value (as hereinafter defined). Gross Revenues shall mean all
of the Company's income, receipts and revenues of any nature accruing during the
Company's immediately preceding complete annual accounting period from any
source whatsoever, including gross receipts from properties managed and
association management fees excluding only borrowed funds and Capital
Contributions. Net Asset Value shall mean an amount equal to all Company assets
minus all Company liabilities, as reflected on the Company's balance sheet as of
the last day of the month immediately preceding the event resulting in the need
to determine Agreed Value, except that any real estate owned shall be valued at
appraised value. The appraised value of real estate shall be determined by an
independent appraiser who is duly licensed, certified or otherwise authorized to
conduct real estate appraisals in the jurisdiction in question and who has been
selected by mutual agreement of the purchaser and seller, provided that if the
parties do not agree the appraiser shall be selected by the head of the
governmental agency having jurisdiction over the licensing or certification of
appraisers in the state in which the property is located, or such person's
designee. The cost of any appraisal shall be borne equally by the purchaser and
the seller. In the event the Company holds an ownership interest in any other
business entity, the Gross Revenues and Net Asset Value of each such entity
shall be determined separately and consolidated (on a proportionate basis if the
Company owns less than 100% of such entity) into the Gross Revenues and Net
Asset Value of the Company.
6.6 Buy/Sell. At any time after the Purchaser Note (as defined in the
Acquisition Agreement) has been satisfied, either Member may implement the
provisions of this Section by giving notice (the "Buy/Sell Notice") to the other
Member. The Buy/Sell Notice shall specify a price for one hundred percent (100%)
of the Membership Rights. The Member receiving the Buy/Sell Notice shall have
the option to either (i) purchase all the Membership Rights owned by the Member
giving the Buy/Sell Notice on the terms specified below, or (ii) sell all of
such member's Membership Rights to the Member giving the Buy/Sell Notice
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on the terms specified below. The Member receiving the Buy/Sell Notice must
elect the option described in clause (i) or the option described in clause (ii)
of the preceding sentence within sixty (60) days after receipt of the Buy/Sell
Notice. Failure to respond within said period shall constitute an irrevocable
election of the option in clause (ii). The purchase price for Membership Rights
to be purchased and sold pursuant to this Section shall be the price specified
in the Buy/Sell Notice multiplied by the seller's Percentage. If the seller of
Membership Rights is GPA, the purchase price shall be payable twenty-five
percent (25%) in cash at closing, with the balance payable in four (4) equal
annual installments of principal plus interest at the Prime Rate, which
installments shall be payable on the first annual anniversary of the closing and
on the same day each year thereafter until the balance is paid in full. If the
seller of Membership Rights is Van Baak, the purchase price shall be payable
fifty percent (50%) in cash at closing, with the balance payable one (1) year
after closing together with interest on such balance from the date of closing
until paid at the Prime Rate. The closing of any purchase and sale pursuant to
this Section shall occur on a date specified by the purchaser which shall be not
earlier than ten (10) nor earlier than sixty (60) days after the party receiving
the Buy/Sell Notice has made its election.
6.7 Assignment. Any Person having a right or obligation to purchase
Membership Rights or a Membership Interest in the Company may assign its
purchase rights or obligations to a designee, provided that no such assignment
shall release the assignor from any obligation with respect to such purchase.
6.8 Closing and Conveyance. Unless otherwise agreed by the purchasing
parties and the selling parties, the closing of any purchase and sale pursuant
to this Section VI shall occur at 10:00 a.m. at the Company's principal office
on the specified closing date. At closing, upon delivery of the purchase price,
the Membership Rights or Membership Interest in question shall be transferred to
the purchaser(s) by appropriate instrument(s) with warranty of title, free and
clear of all liens, encumbrances, restrictions, claims or equities of any nature
except those existing pursuant to this Agreement.
6.9 Effective Time of Transfer; Close of Company Books. In the event of a
transfer of Membership Rights pursuant to Sections 6.1.4, 6.3, 6.4 or 6.6 which
results in the termination of a Member's membership in the Company, the
Company's books shall be closed as of the effective date of the transfer and all
allocations and distributions for the year in which the transfer occurs shall be
determined on the basis of such closing. The transferor shall not share in
allocations or distributions accruing for periods after the effective date of
transfer. For purposes of this Section, the effective date of the transfer shall
be: (i) in the event of a transfer pursuant to Section 6.1.4, the last day of
the month prior to the month in which the Transfer Notice is given; (ii) in the
event of a transfer pursuant to Section 6.3, the last day of the month prior to
the month in which the Involuntary Withdrawal occurs; (iii) in the event of a
transfer pursuant to Section 6.4, the last day of the month prior to the month
during which the event occurs on which the exercise of the Put is based; and
(iv) in the event of a transfer pursuant to Section 6.6, the last day of the
month prior to the month in which the Buy/Sell Notice is given.
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Exhibit 10.44
Section VII
Dissolution, Liquidation and
Termination of the Company
7.1 Events of Dissolution. The Company shall be dissolved upon the
happening of any of the following events: 7.1.1 When the period fixed for its
duration in Section 2.4 has expired;
7.1.2 Upon the unanimous written agreement of the Members; or
7.1.3 Upon the death, retirement, resignation, expulsion, bankruptcy,
dissolution or Involuntary Withdrawal of a Member or the occurrence of any other
event which terminates the continued membership of a Member in the Company,
unless all of the remaining Members, within ninety (90) days after the event or
occurrence, elect to continue the business of the Company, at which time the
remaining Members may agree to the appointment of one or more additional
Members.
7.2 Liquidating Trustee. If the Company is dissolved, the General Manager
shall act as liquidating trustee. The General Manager shall liquidate and reduce
to cash the assets of the Company as promptly as is consistent with obtaining a
fair value therefor and, unless otherwise required by law, shall apply and
distribute the proceeds of liquidation, as well as any other Company assets,
first, to the payment of creditors of the Company, including Interest Holders
who are creditors, in satisfaction of the liabilities of the Company; then to
Interest Holders in accordance with Section 4.4, provided that if the
dissolution is due to the termination of a Member resulting from the transfer of
all of such Member's Membership Rights pursuant to Section 6.1.4, Section 6.3,
Section 6.4 or Section 6.6, the provisions of such Sections (as applicable)
shall apply with respect to the transferor member in lieu of this Section.
7.3 Filing of Statement of Intent to Dissolve and Articles of Dissolution.
If the Company is dissolved pursuant to Section 7.1, the General Manager shall
promptly file a Statement of Intent to Dissolve with the CSOS. After the affairs
of the Company are wound up pursuant to Section 7.2, the General Manager shall
promptly execute and file Articles of Dissolution with the CSOS. If there is no
General Manager, then the Articles of Cancellation shall be filed by the
remaining Members; if there are no remaining Members, the Articles shall be
filed by the last Person to be a Member; if there is neither a General Manager,
remaining Members, or a Person who last was a Member, the Articles shall be
filed by the legal or personal representatives of the Person who last was a
Member.
SECTION VIII
BOOKS, RECORDS, ACCOUNTING, and TAX ELECTIONS
8.1 Bank Accounts. All funds of the Company shall be deposited in a bank
account or accounts maintained in the Company's name. The General Manager shall
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Exhibit 10.44
determine the institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have authority
with respect to the accounts and the funds therein.
8.2 Books and Records. The General Manager shall keep or cause to be kept
complete and accurate books and records of the Company and supporting
documentation of transactions with respect to the conduct of the Company's
business. The books and records shall be maintained in accordance with sound
accounting practices and shall be available at the Company's registered office
for inspection and copying at the reasonable request, and at the expense, of any
member during ordinary business hours. Without limiting any of the foregoing,
the General Manager shall keep or cause to be kept at the registered office the
following:
8.2.1 A current list of the full name and last known business,
residence, or mailing address of each Member and Manager, both past and present;
8.2.2 A copy of the articles of organization and all amendments
thereto, together with executed copies of any powers of attorney pursuant to
which any amendment has been executed;
8.2.3 Copies of the Company's federal, state, and local income tax
returns and reports, if any, for the three most recent years;
8.2.4 Copies of any currently effective Agreement, copies of any
writings regarding contributions of members or members' liability therefor, and
copies of any financial statements of the Company for the three most recent
years;
8.2.5 Minutes of every annual and special meeting of the Members;
8.2.6 Any written consents obtained from Members acting in lieu of a
meeting pursuant to Section 5.2.4.
8.3 Annual Accounting Period. The annual accounting period of the Company
shall be its taxable year. The Company's taxable year shall be selected by the
General Manager subject to the requirements and limitation of the Code.
8.4 Reports. Within seventy-five (75) days after the end of each taxable
year of the Company, the General Manager shall cause to be sent to each Person
who was a Member at any time during the taxable year then ended: (i) an annual
compilation report, prepared by the Company's independent accountants in
accordance with standards issued by the American Institute of Certified Public
Accountants; and (ii) a report summarizing the fees and other remuneration paid
by the Company to any Member, the General Manager, or any Affiliate in respect
of the taxable year. In addition, within seventy-five (75) days after the end of
each taxable year of the Company, the General Manager shall cause to be sent to
each Person who was an Interest Holder at any time during the taxable year then
ended,
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Exhibit 10.44
that tax information concerning the Company which is necessary for preparing the
Interest Holder's income tax returns for that year. At the request of any
Member, the General Manager shall cause an audit of the Company's books and
records to be prepared by independent accountants for the period requested by
the Member, at the Company's expense.
8.5 Tax Matters Partner. The General Manager shall be the Company's tax
matters partner ("Tax Matters Partner"). The Tax Matters Partner shall have all
powers and responsibilities provided in Code Section 6221, et ~. The Tax Matters
Partner shall keep all Members informed of all notices from governmental taxing
authorities which may come to the attention of the Tax Matters Partner. The
Company shall pay and be responsible for all reasonable third-party costs and
expenses incurred by the Tax Matters Partner in performing those duties. A
Member shall be responsible for any costs incurred by the Member with respect to
any tax audit or tax-related administrative or judicial proceeding against any
Member, even though it relates to the Company. The Tax Matters Partner may not
compromise any dispute with the Internal Revenue Service without the approval of
the Members
8.6 Tax Elections. The General Manager shall have the authority to make all
Company elections permitted under the Code, including, without limitation,
elections of methods of depreciation and elections under Code Section 754. The
decision to make or not make an election shall be at the General Manager's sole
and absolute discretion.
8.7 Title to Company Property. All real and personal property acquired by
the Company shall be held and owned, and conveyance made, by the Company in its
name.
Section IX
General Provisions
9.1 Assurances. Each Member shall execute all such certificates and other
documents and shall do all such filing, recording, publishing and other acts as
the General Manager deems appropriate to comply with the requirements of law for
the formation and operation of the Company, to comply with all laws, rules, and
regulations relating to the acquisition, operation, or holding of the property
of the Company or to carry out this Agreement.
9.2 Notifications. Any notice, demand, consent, election, offer, approval,
request, or other communication (collectively a "notice") required or permitted
under this Agreement must be in writing and either actually delivered or sent by
certified or registered mail, postage prepaid, return receipt requested. Any
notice to be given hereunder by the Company shall be given by the General
Manager. A notice must be addressed to an Interest holder at the Interest
Holder's last known address (including facsimile address) on the records of the
Company. A notice to the Company must be addressed to the Company's principal
office. A notice delivered personally will be deemed given only when receipt is
acknowledged in writing by a person at the recipient's address authorized to
receive
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Exhibit 10.44
communications or by confirmation of fax receipt. A notice that is sent by mail
will be deemed given three (3) business days after it is mailed. Any party may
designate, by notice to all of the others, substitute addresses or addresses for
notices; and, thereafter, notices are to be directed to those substitute
addresses or addressees.
9.3 Specific Performance. The parties recognize that irreparable injury
will result from a breach of any portion of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the event
of a breach or threatened breach of one or more of the provisions of this
Agreement, any party who may be injured (in addition to any other remedies which
may be available to that party) shall be entitled to one or more preliminary or
permanent orders (i) restraining and enjoining any act which would constitute a
breach or (ii) compelling the performance of any obligation which, if not
performed, would constitute a breach.
9.4 Complete Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement among the Members It supersedes all prior
written and oral statements, agreements or understandings, including any prior
representation, statement, condition, or warranty. Except as expressly provided
otherwise herein, this Agreement may not be amended without the written consent
of all of the Members.
9.5 APPLICABLE LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY,
AND INTERPRETATION OF THIS AGREEMENT A D THE PERFORMANCE OF THE OBLIGATIONS
IMPOSED BY THIS AGREEMENT SHALL BE GOVERNED BY THE INTERNAL LAW, NOT THE LAW
RELATING TO CONFLICTS OF LAWS, OF THE STATE OF COLORADO.
9.6 Section Titles. The headings herein are inserted as a matter of
convenience only, and do not define, limit, or describe the scope of this
Agreement or the intent of the provisions hereof.
9.7 Binding Provisions. This Agreement is binding upon, and inures to the
benefit of, the parties hereto and their respective heirs, executors,
administrators, personal and legal representatives, successors, and permitted
assigns.
9.8 Jurisdiction and Venue. Any suit involving any dispute or matter
arising under this Agreement may only be brought in the United States District
Court for the District of Colorado or any Colorado State Court having
jurisdiction over the subject matter of the dispute or matter. All Members
hereby consent to the exercise of personal jurisdiction by any such court with
respect to any such proceeding.
9.9 Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the Person
may in the context require.
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Exhibit 10.44
9.10 Separability of Provisions. Each provision of this Agreement shall be
considered separable; and if, for any reason, any provision or provisions herein
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
9.11 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which,
when taken together, constitute one and the same document. The signature of any
party or any counterpart shall be deemed a signature to, and may be appended to,
any other counterpart.
9.12 Estoppel Certificate. Each Member shall, within ten (10) days after
written request by any Member or the General Manager, deliver to the requesting
Person a certificate stating, to the Member's knowledge, that: (a) this
Agreement is in full force and effect; (b) this Agreement has not been modified
except by any instrument or instruments identified in the certificate; and (c)
there is no default hereunder by the requesting Person, or if there is a
default, the nature and extent thereof If the certificate is not received within
that ten (]0)-day period, the General Manager shall execute and deliver the
certificate on behalf of the requested Member, without: qualification, pursuant
to the power of attorney granted in Section 5.6.
IN WITNESS WHEREOF, the parties have executed, or cause this Agreement to
be executed, under seal, as of the date set forth hereinabove.
MEMBERS:
GPA, LTD., a California limited partnership
By: Glenborough Corporation, a
California corporation,
Managing General Partner
By /s/ Andrew Batinovich
Andrew Batinovich
Chief Executive Officer
/s/ Anthony E. Van Baak
Anthony E. Van Baak
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Exhibit 10.45
ACQUIS1TION AGREEMENT
THIS ACQUIS1TION AGREEMENT (the "Agreement") is made and entered into as of
the 1st day of June, 1997, by and among H. DAVID ZABEL, PATRICIA H. ZABEL, GLEN
D. ZABEL and ALICE T. KLAUZER (each of whom shall be hereinafter sometimes
individually referred to as a "Shareholder" and shall be hereinafter
collectively, jointly and severally referred to as the "Shareholders"), MOUNTAIN
RESORTS, INC., a Colorado corporation ("Mountain Resorts"), MOUNTAIN RESORTS
ACQUISITION, LLC, a Colorado limited liability company ("Acquisition LLC"), and
RESORT GROUP, LLC, a Colorado limited liability company ("Resort Group").
EXPLANATORY STATEMENT
A. The Shareholders constitute all of the stockholders and all of the
directors of Mountain Resorts, which operates a resort hospitality and property
management business (including property rental management, association
management and property management) in Routt County, Colorado (herein referred
to as the "Mountain Resorts Business").
B. The parties have agreed that substantially all of the operating assets
and liabilities of Mountain Resorts, and all of the Mountain Resorts Business,
will be transferred to a limited liability company formed to operate the
Mountain Resorts Business, and that Resort Group will acquire an eighty percent
(80%) interest in such limited liability company.
NOW THEREFORE, in consideration of the Explanatory Statement, which is a
substantive part of this Agreement, the mutual covenants, promises, agreements,
representations and warranties contained in this Agreement, and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties do hereby covenant, promise, agree, represent and
warrant as follows:
1. Formation of Acquisition LLC; Transfer of Mountain Resorts Business, Assets
and Liabilities: Ancillary Agreements.
1.1 Formation of Acquisition LLC. The parties hereby approve the Articles
of Organization of Acquisition LLC in the form of Exhibit 1.1 which were filed
with the Colorado Secretary of State on June 13, 1997. At the Formation Closing
on the Formation Closing Date, Mountain Resorts and Resort Group shall, as the
members of Acquisition LLC, enter into an operating agreement for Acquisition
LLC (the "Operating Agreement") on terms satisfactory to Mountain Resorts and
Resort Group but which shall include terms to the effect of the following:
(i) Mountain Resorts will transfer to Acquisition LLC, as its initial
capital contribution, the Assets and Assumed Liabilities (as defined in
Section 1.2) and the Mountain Resorts Business in exchange for a
ninety-nine percent (99So) membership interest in Acquisition LLC and shall
receive an initial capital account of $2,000,000,
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Exhibit 10.45
which the parties agree is the net fair market value of the Assets and
Mountain Resorts Business, less the Assumed Liabilities;
(ii) Resort Group will contribute to Acquisition LLC as its initial
capital contribution cash in the amount of $20,202 in exchange for a one
percent (1%) interest in Acquisition LLC, and Resort Group shall receive an
initial capital account of $20,202;
(iii) The initial manager of Acquisition LLC shall be Anthony E. Van
Baak;
(iv) Acquisition LLC shall promptly take steps to change its name to
Mountain Resorts, LLC, and Mountain Resorts shall change its name to
Mountain Resorts Holdings, Inc. Effective the earlier of August 1, 2000 or
the date Mountain Resorts ceases to be a member of Acquisition LLC,
Mountain Resorts shall change its name to a name that does not include any
reference to "Mountain Resorts" or any variation thereof;
(v) Mountain Resorts will have the right to require that Resort Group
(or its designee) purchase Mountain Resorts' remaining twenty percent (20%)
membership interest in Acquisition LLC (after the purchase and sale of the
LLC Interest contemplated by this Agreement) for $404,040.40 on or after
August 1, 2000, which obligation shall be personally guaranteed by Robert
Batinovich, the Robert Batinovich Trust UDT 2/16/90, Andrew Batinovich, the
Andrew Batinovich Trust UDT 8/3/94 and Anthony E. Van Baak (the "Put"); and
(vi) Resort Group or its designee shall have the right to purchase
Mountain Resorts' remaining twenty percent (20%) membership interest in
Acquisition LLC for $404,040.40 on or after August 1, 2000.
1.2 Transfer of Assets and Liabilities. Effective as of the Formation
Closing on the Formation Closing Date, Mountain Resorts shall assign, transfer
and deliver to Acquisition LLC by instruments of transfer with warranty of title
reasonably satisfactory to Resort Group (the "Transfer Documents") all of
Mountain Resorts' assets and property of any kind, tangible or intangible,
except and excluding only those assets listed on Exhibit 1.2(a) (the "Excluded
Assets"), which assets (except the Excluded Assets) are referred to herein as
the "Assets." In addition, effective as of the Formation Closing on the
Formation Closing Date Mountain Resorts shall transfer to Acquisition LLC the
liabilities of Mountain Resorts listed on Exhibit 1.2(b), which are referred to
herein as the "Assumed Liabilities," and Acquisition LLC shall assume and pay in
accordance with their terms, provided that Acquisition LLC's obligation with
respect to the Assumed Liabilities shall be limited to the amounts specified in
Sections 1.3.3 and 1.3.4. Without limitation, the Assets shall include the
following:
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Exhibit 10.45
The Mountain Resorts Business and, except for the Excluded Assets, all
furniture, fixtures, equipment, inventory, supplies and other property, tangible
or intangible, owned, leased or used by Mountain Resorts in the Mountain Resorts
Business; all documents, information and lists associated with the Mountain
Resorts Business; all licenses, permits, covenants, approvals and certificates
related to the Mountain Resorts Business to the extent assignable; all telephone
numbers used in association with the Mountain Resorts Business; the goodwill of
Mountain Resorts and all names used in association with the Mountain Resorts
Business; all other intangible and contractual rights (including any pending
contracts) associated with the Mountain Resorts Business; and all inventory
associated with the Mountain Resorts Business, including, without limitation,
the following items:
(i) Tangible Assets:
(a) All exterior and interior signage.
(b) All computer hardware and software.
(c) All telephone systems and equipment.
(d) All linen.
(e) Any and all inventory of housekeeping supplies and guest amenities.
(f) Any and all maintenance and engineering inventory and supplies.
(g) Miscellaneous office supplies, including stationery, envelopes,
folios, memo pads and reservation and other office supplies.
(h) Condominium Unit E-102, Shadow Run Condominiums.
(i) The Personal Property (Section 3.1.14).
(ii) Intangible Assets:
(a) All advance deposits and prepaid expenses related to the Mountain
Resorts Business.
(b) All accounts receivable and other current assets as of May 31,
1997. which shall he reflected on a balance sheet of Mountain
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Exhibit 10.45
Resorts as of May 31, 1997 (the "Closing Balance Sheet") which
shall be prepared and delivered by Mountain Resorts at Closing.
(c) The telephone numbers listed on Exhibit 1.2(ii)(c).
(d) Mountain Resorts' name and all variations thereof and all
Mountain Resorts logos and, if any, trademarks, trade names
and any mottos, designs or other marketing devices or rights
thereto.
(e) All brochures, literature and other marketing materials
connected with the Mountain Resorts Business.
(f) Guest history, travel agent lists, customer lists and all other
lists, documents or information compiled in connection with or
relating to the Mountain Resorts Business.
(g) The Management Contracts (Section 3.1.15), the Service
Contracts (Section 3.1.16) and the Commitments (Section 3.1.17)
and all rights of Mountain Resorts thereunder.
(h) All of the Mountain Resorts goodwill and similar assets.
(i) Copies of all of Mountain Resorts' employment and personnel
records and copies of all books and records pertaining to the
Mountain Resorts Business (the "Records"). Mountain Resorts
shall maintain the Records for a period of at least thirty-six(36)
months after Closing and shall provide such Records to
Acquisition LLC or its representatives for inspection and
copying upon reasonable request.
(j) The Villas at Walton Creek Condominium Purchase Agreement
dated June 23, 1997 for Condominium Unit 302, the Palomino,
including the earnest money and all rights of the purchaser
under such contract (the "Villas Contract").
1.3 Business Transition; Disposition of Certain Assets and Liabilities.
1.3.1 Business Transition. The parties acknowledge and agree that,
subject to the provisions of this Agreement, the transfer of the Assets, Assumed
Liabilities and the Mountain Resorts Business and the rights, benefits and
obligations associated therewith shall
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Exhibit 10.45
be effective as of commencement of business on June 1, 1997 (the "Effective
Date"). All activities and operations of the Mountain Resorts Business through
the day before the Effective Date shall be for the account of and at the expense
and risk of Mountain Resorts, and Acquisition LLC shall have no interest therein
nor obligation with respect thereto. Except as otherwise contemplated by Section
1.3.4, all activities and operations of the Mountain Resorts Business on and
after the Effective Date shall be for the account of and at the expense and risk
of Acquisition LLC, and Mountain Resorts shall have no interest therein nor
obligation with respect thereto (except in its capacity as a member of
Acquisition LLC). As of the Effective Date, Mountain Resorts shall permanently
cease engaging in the Mountain Resorts Business and shall thereafter refrain
from engaging in any aspect of the Mountain Resorts Business, either directly or
indirectly and in any capacity whatsoever, except in its capacity as a member of
Acquisition LLC acting for the benefit of Acquisition LLC. Each party will
cooperate with the other parties in effecting an orderly transition of the
Mountain Resorts Business to Acquisition LLC including, without limitation, the
following:
(i) Except as required to effect clauses (ii) and (iii) below the
transfer of all bank accounts used in the Mountain Resorts
Business into the name of Acquisition LLC;
(ii) Unless otherwise requested by Acquisition LLC, through December
31, 1997 (and thereafter as may be mutually agreed by Mountain
Resorts and Acquisition LLC) Mountain Resorts shall provide
Acquisition LLC with real estate brokerage and escrow services
as required for the Mountain Resorts Business;
(iii) Unless otherwise requested by Acquisition LLC, through December
31, 1997 (and thereafter as may be mutually agreed by Mountain
Resorts and Acquisition LLC) Mountain Resorts shall provide
Acquisition LLC with sufficient employees and payroll services
(including payroll services for parties directly employed by
Acquisition LLC) to operate the Mountain Resorts Business.
Mountain Resorts shall not be entitled to compensation for the services referred
to in clauses (ii) and (iii) above, provided that Acquisition LLC shall pay or
reimburse to Mountain Resorts all direct expenses incurred by Mountain Resorts
in providing such services, including without limitation expenses for payroll,
employment taxes, workers' compensation insurance and similar items.
1.3.2 Liabilities of Mountain Resorts. Anything contained in this
Agreement or the Ancillary Agreements to the contrary notwithstanding, except
for Acquisition LLC's obligations with respect to the Assumed Liabilities,
Mountain Resorts shall be and remain
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Exhibit 10.45
solely liable and responsible for all debts, obligations, duties and liabilities
of Mountain Resorts and the Mountain Resorts Business prior to the Effective
Date. Except as specifically provided in this Agreement with respect to the
Assumed Liabilities, Acquisition LLC does not and shall not assume, agree to pay
or pay any debts, obligations, duties or liabilities of any nature of Mountain
Resorts or the Mountain Resorts Business or any liens or encumbrances on any of
the Assets including, but not limited to, any debts, obligations, duties or
liabilities relating to Mountain Resorts' employees or employee benefit plans,
regardless of whether any such lien, encumbrance, debt, obligation, duty or
liability arises under any contract, agreement, practice, arrangement, statute,
law, ordinance, rule, regulation or otherwise.
1.3.3 Disposition of Certain Assets and Liabilities. Except as provided
in the following sentence and in Section 1.3.4, all liabilities and obligations
of Mountain Resorts of any nature whatsoever outstanding as of the day prior to
the Effective Date or accruing for any period prior to the Effective Date shall
be paid in full or otherwise satisfied and discharged by Mountain Resorts and/or
Shareholders as soon as practicable after the Effective Date, but in any event
prior to the Formation Closing Date. The foregoing shall not be applicable to
those specific Assumed Liabilities listed on Exhibit 1.2(b), which shall not
exceed individually or in the aggregate the amounts specified in Exhibit 1.2(b).
Mountain Resorts shall use its unrestricted cash on hand as of close of business
on the day prior to the Effective Date to pay or provide for the payment of the
liabilities referred to in this Section, but shall not liquidate or otherwise
dispose of any other assets for such purpose. In the event Mountain Resorts'
unrestricted cash on hand as of close of business on the day prior to the
Effective Date is insufficient to pay or provide for the payment of the
liabilities referred to in this Section, Shareholders shall contribute cash to
Mountain Resorts in an amount sufficient to satisfy such liabilities. Mountain
Resorts shall not distribute or otherwise dispose of unrestricted cash received
after the close of business on the day prior to the Effective Date except in
connection with the operation of the Mountain Resorts Business in the ordinary
course from the Effective Date to the Formation Closing Date as contemplated by
this Agreement.
1.3.4 Transferred Unrestricted Cash, Accounts Payable and Accounts
Receivable. The parties acknowledge and agree that as of May 31, 1997, the
unrestricted cash on hand of Mountain Resorts was $137,192.00 (the "Unrestricted
Cash") and that the Unrestricted Cash is not intended to be included in the
Assets to be transferred to Acquisition LLC. The parties further acknowledge and
agree that outstanding accounts payable accruing prior to the Effective Date and
included within the Assumed Liabilities shall be transferred to Acquisition LLC
solely as a paying agent for Mountain Resorts, and that such accounts payable
will be in excess of the accounts receivable and other current assets accruing
prior to the Effective Date included within the Assets. The excess of accounts
payable accruing prior to the Effective Date over the accounts receivable and
other current assets accruing prior to the Effective Date, as such amounts are
reflected on the
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Exhibit 10.45
Closing Balance Sheet, shall be a liability of Mountain Resorts to Acquisition
LLC which shall be settled at Formation Closing as hereinafter provided. At
Formation Closing, Mountain Resorts shall provide to Acquisition LLC an
accounting from the Effective Date to the Closing Date of the Unrestricted Cash
on hand, disposition of Unrestricted Cash, payment of accounts payable accruing
prior to the Effective Date (including the source of funds used for payment),
and collection of accounts receivable accruing prior to the Effective Date
(including the disposition of such funds). Such accounting is referred to herein
as the Closing Settlement Summary. At Formation Closing, Acquisition LLC shall
reimburse to Mountain Resorts an amount equal to the Unrestricted Cash that has
been transferred to Acquisition LLC or used to pay accounts payable accruing
prior to the Effective Date included in the Assumed Liabilities, less the excess
of accounts payable over accounts receivable as of the Effective Date.
Acquisition LLC shall not be obligated to reimburse Unrestricted Cash used for
Mountain Resorts' obligations not included in the Assumed Liabilities or that is
otherwise used or retained by Mountain Resorts. If additional accounts payable
accruing for periods prior to the Effective Date arise after Formation Closing,
Mountain Resorts shall promptly pay the amount of such accounts payable to
Acquisition LLC upon the request of Acquisition LLC. To the extent not paid
prior to Formation Closing, Acquisition LLC shall pay the Mountain Resorts
accounts payable accruing prior to the Effective Date that are included in the
Assumed Liabilities. Acquisition LLC shall have no obligation with respect to
any Mountain Resorts accounts payable except to the extent it receives payment
therefor from Mountain Resorts as contemplated by this Section. Acquisition LLC
shall be entitled to collect and retain accounts receivable and other current
assets accruing prior to the Effective Date. Acquisition LLC shall use diligent
efforts to collect such items in the ordinary course of business, and to the
extent any such items have not been fully collected by June 1, 1998, at the
request of Acquisition LLC Mountain Resorts shall pay to Acquisition LLC the
full (face) amount of the uncollected item, and Acquisition LLC shall assign
such items to Mountain Resorts.
1.3.5 Line of Credit. Mountain Resorts shall maintain its operating
line of credit with Norwest Bank Steamboat Springs, N.A. until the Formation
Closing Date in the maximum amount of $350,000, and may, after obtaining the
prior consent of Resort Group as to the amount of each draw, utilize such line
of credit to fund normal and customary operating expenses of Mountain Resorts
incurred in the ordinary course of business for the period from the Effective
Date through the Formation Closing Date. The outstanding balance of such line of
credit as of the Effective Date shall be satisfied as contemplated by Section
1.3.3. Acquisition LLC shall use best efforts to cause H. David Zabel and
Patricia H. Zabel to be released as soon as practicable after the Formation
Closing Date from personal liability for the Mountain Resorts operating line of
credit to the extent of amounts properly drawn on such line of credit for the
purposes specified in this Section for the period from the Effective Date
through the Formation Closing Date, and shall cause such release to be effected
no later than January 31, 1998. Acquisition LLC shall be solely
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Exhibit 10.45
responsible for repayment of amounts properly drawn on such line of credit for
the period from the Effective Date through the Formation Closing Date, and
thereafter.
1.4 Ancillary Agreements. For purposes of this Agreement, the "Ancillary
Agreements" shall mean and include each of the following:
(i) The Operating Agreement referred to in Section 1.1;
(ii) The Transfer Documents referred to in Section 1.2;
(iii) The Purchaser Note referred to in Section 2.2.1;
(iv) The Assignment referred to in Section 2.2.2;
(v) The Employment Contracts referred to in Section 4.1; and
(vi) The Noncompetition Covenants referred to in Section 4.2.
2. Purchase and Sale of Membership Interest.
2.1 Purchase and Sale. On the terms and subject to the conditions set forth
in this Agreement, at the Purchase Closing on the Purchase Closing Date,
Mountain Resorts shall sell, assign, transfer and deliver to Resort Group and
Resort Group shall purchase from Mountain Resorts a seventy-nine percent (79%)
membership interest in Acquisition LLC, including all rights and interests
associated with such membership interest and a proportionate part of Mountain
Resorts' capital account associated with such membership interest (the "LLC
Interest").
2.2 Purchase Price: Transfer of LLC Interest.
2.2.1 The full, entire purchase price for the LLC Interest that shall
be paid at Purchase Closing by Resort Group to Mountain Resorts shall be One
Million Five Hundred Ninety-Five Thousand Nine Hundred Fifty-Nine and 60/100
Dollars ($1,595,959.60) (the "Purchase Price"). The Purchase Price shall be paid
$380,000 in currently available funds at Purchase Closing (the "Cash Portion of
the Purchase Price") and $1,215,959.60 by Resort Group's promissory note in the
form of Exhibit 2.2.1(a) (the "Purchaser Note") which shall be dated the Closing
Date, bear interest at the rate of eight and one-half percent (8.5%) per annum,
and shall be payable in sixty (60) equal monthly installments of principal and
interest commencing one (1) month after the Closing Date. The Purchaser Note
shall be secured by the guaranty of Robert Batinovich, the Robert Batinovich
Trust UDT 2/16/90, Andrew Batinovich, the Andrew Batinovich Trust UDT 8/3/94 and
Anthony E. Van Baak ("Guarantors") in the form appended to Exhibit 2.2.1(a) (the
"Guaranty") and a pledge of
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Resort Group's interest in Acquisition LLC pursuant to a pledge agreement in the
form of Exhibit 2.2.1(b) (the "Pledge").
2.2.2 Mountain Resorts shall deliver to Resort Group at the Purchase
Closing on the Purchase Closing Date, concurrently with the payment of the
Purchase Price, an assignment of the LLC Interest in the form of Exhibit 2.2.2
(the "Assignment"), with warranty of title, transferring the LLC Interest to
Resort Group free and clear of all security interests, agreements, liens,
encumbrances, pledges, claims and restrictions of any nature or kind.
2.2.3 Acquisition LLC shall make an election pursuant to Section 754 of
the Internal Revenue Code of 1986 (the "Code") to adjust the basis of
Acquisition LLC's assets as a result of the purchase and sale of the LLC
Interest. Such adjustment shall be made in accordance with the provisions of
Code Section 754 and Code Section 743 and the regulations thereunder. To the
extent permitted by Code Sections 754 and 743 and the regulations thereunder,
the adjustment to basis of Acquisition LLC's assets shall be made in accordance
with the following allocation of values, which the parties agree represents the
fair market value of the various categories of assets of Acquisition LLC:
Noncompetition Covenants $ 20,000
Association Management Contracts 81,648
Fixed Assets (net) 241,808
Goodwill (going concern value) 1,676,544
Each of the parties agrees to take any actions reasonably requested by
Acquisition LLC in order to effect the adjustment to basis of Acquisition LLC's
assets as contemplated by this Section.
3. Representations and Warranties.
3.1 Representations and Warranties of Shareholders. Mountain Resorts, H.
David Zabel, Patricia H. Zabel and Glen D. Zabel (who, for purposes of this
Section 3, are referred to as the "Warrantors") jointly and severally represent
and warrant to Resort Group and Acquisition LLC that as of the date hereof and
as of the Closing on the Closing Date that:
3.1.1 Assets. Except for the Excluded Assets, the Assets constitute all
of the assets and property of any nature, tangible or intangible, real or
personal, owned or leased by Mountain Resorts in the Mountain Resorts Business.
The Assets are adequate in type and quantity for the continued operation of the
Mountain Resorts Business has it has historically been conducted. Mountain
Resorts has, and at Formation Closing will convey to Acquisition LLC, sole and
exclusive, good, merchantable and marketable, legal and
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beneficial title to the Assets, free and clear of any and all pledges, claims,
equities, threats, liens, restrictions, agreements, leases, security interests,
charges and encumbrances of any nature, excepting only the encumbrances securing
the Assumed Liabilities as disclosed on Exhibit 1.2(b).
3.1.2 LLC Interest. Mountain Resorts is the sole and exclusive record
and beneficial owner of the LLC Interest and possesses good, merchantable and
marketable title to the Interest. At Purchase Closing Mountain Resorts shall
convey to Resort Group good, merchantable and marketable title to the LLC
Interest, free and clear of any and all security interests, agreements,
restrictions, claims, equities, liens, pledges and encumbrances of any nature or
kind, except as set forth in the Operating Agreement. Mountain Resorts has the
absolute and unconditional right to sell, assign, transfer and deliver the LLC
Interest to Resort Group in accordance with the terms of this Agreement. The LLC
Interest has been duly, legally and validly issued, is fully paid and
nonassessable, and is not subject to capital calls or similar obligations
requiring the contribution of money or property to Acquisition LLC. Delivery of
the LLC Interest by Mountain Resorts to Resort Group at the Purchase Closing on
the Purchase Closing Date pursuant to this Agreement will transfer to Resort
Group the full and entire legal and equitable title to and ownership of a 79%
membership interest in Acquisition LLC.
3.1.3 Due Organization: Good Standing: Authority. Mountain Resorts is a
corporation duly organized, validly existing as a stock corporation, and in good
standing under the laws of the State of Colorado. Mountain Resorts has full
right, power and authority to own its properties and assets and to carry on the
Mountain Resorts Business as it has historically been conducted. Mountain
Resorts is not qualified and authorized to do business in any jurisdiction other
than the State of Colorado. Mountain Resorts is not in breach or violation of,
and the execution, delivery and performance of this Agreement and the Ancillary
Agreements to which it is a party will not result in a breach or violation of
any of the provisions of its Governing Documents, as amended to the date of this
Agreement.
3.1.4 Authorization and Validity of Agreements. The Shareholders have
the legal capacity, right, power and authority to enter into this Agreement and
the Ancillary Agreements to which they are parties. Mountain Resorts has the
full right, power and authority to execute and deliver this Agreement and the
Ancillary Agreements to which it is a party and to perform the transactions
contemplated thereby. The execution and delivery of this Agreement and the
Ancillary Agreements by Mountain Resorts and the performance by Mountain Resorts
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate and stockholder action. This Agreement has
been duly executed and delivered by the Shareholders and Mountain Resorts and is
the legal, valid and binding obligation of such parties, enforceable against
them in accordance with its terms. The Ancillary Agreements to which any of the
Shareholders or Mountain Resorts is a party, when executed and delivered by
them, will be the legal valid and binding
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obligations of each of them, respectively, enforceable against them in
accordance with their terms, except in each case as such enforceability may be
limited by general principles of equity, bankruptcy, insolvency, moratorium and
similar laws relating to creditors' rights generally.
3.1.5 Transfer Obligations Options Warrants and Similar Rights and
Agreements. Except for transactions contemplated by this Agreement or the
Operating Agreement, there are no options, warrants, calls, subscriptions,
rights, convertible securities or other securities or any commitments,
agreements, arrangements or understandings of any kind or nature obligating
Mountain Resorts or Acquisition LLC to directly or indirectly issue or transfer
any membership interest in Acquisition LLC or any instruments or undertakings of
any type convertible into or evidencing the right to purchase or otherwise
acquire any membership interest in Acquisition LLC.
3.1.6 No Subsidiaries. Etc. Except for its interest in Acquisition LLC
pursuant to the Operating Agreement, Mountain Resorts does not, directly or
indirectly, own any interest in or control any corporation, partnership, joint
venture, or other business entity.
3.1.7 Agreement Not in Conflict with Other Instruments; Required
Approvals. The execution, delivery, and performance of this Agreement and the
Ancillary Agreements to which they are parties by any of the Shareholders or
Mountain Resorts, and the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements to which any Shareholder or Mountain
Resorts is a party will not (a) violate or require any registration,
qualification, consent, approval, or filing under, (i) any law, statute,
ordinance, rule or regulation (hereinafter collectively referred to as "Law") of
any federal, state or local government (hereinafter collectively referred to as
"Government") or any agency, bureau, commission or instrumentality of any
Government ("hereinafter collectively referred to as "Governmental Agencies"),
or (ii) any judgment, injunction, order, writ or decree of any court,
arbitrator, Government or Governmental Agency by which any of the Shareholders
or Mountain Resorts or any of their respective assets or properties is bound;
(b) conflict with, require any consent, approval, or filing under, result in the
breach or termination of any provision of, constitute a default under, result in
the acceleration of the performance of any of the Shareholders' or Mountain
Resorts' obligations under, or result in the creation of any claim, security
interest, lien, charge, or encumbrance upon any of Mountain Resorts' properties,
assets, or businesses pursuant to, (i) Mountain Resorts' Governing Documents,
(ii) any indenture, mortgage, deed of trust, license, permit, approval, consent,
franchise, lease, contract, or other instrument or agreement to which any of the
Shareholders or Mountain Resorts is a party or by which any of the Shareholders
or Mountain Resorts or any of their respective assets or properties is bound, or
(iii) any judgment, injunction, order, writ or decree of any court, arbitrator,
Government or Governmental Agency by which any of the Shareholders or Mountain
Resorts or any of their respective assets or properties is bound. If the consent
or approval of any Person is
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required in order to avoid violation of the foregoing, then prior to Closing
Shareholders and Mountain Resorts shall obtain or cause Mountain Resorts and/or
Acquisition LLC, as applicable, to obtain, on terms satisfactory to Resort
Group, the consent to or approval of the transactions contemplated by this
Agreement from each Person whose consent or approval may be required (the
"Consents").
3.1.8 Conduct of Business in Compliance with Regulatory and Contractual
Requirements. Mountain Resorts has conducted and is conducting Mountain Resorts
Business in compliance with all applicable Laws of all Governments and
Governmental Agencies. To best of knowledge, neither the real or personal
properties owned, leased, operated or occupied by Mountain Resorts, nor the use,
operation or maintenance thereof or the operation of the Mountain Resorts
Business, (i) violates any Laws of any Government or Governmental Agency, or
(ii) violates any restrictive or similar covenant, agreement, commitment,
understanding or arrangement.
3.1.9 Licenses: Permits; Related Approvals. Mountain Resorts possesses
all licenses, permits, consents, approvals, authorizations, qualifications, and
orders ("hereinafter collectively referred to as "Permits") of all Governments
and Governmental Agencies lawfully required to enable Mountain Resorts to
conduct the Mountain Resorts Business in all jurisdictions. All of the Permits
are in full force and effect, and to best of knowledge no suspension,
modification or cancellation of any of the Permits is pending or threatened.
3.1.10 Legal Proceedings. There is no action, suit, proceeding or
arbitration by any Government, Governmental Agency or other Person (i) pending
to which Mountain Resorts is a party, (ii) threatened against or relating to
Mountain Resorts or any of the Assets or Mountain Resorts Business, (iii)
challenging Mountain Resorts' or Shareholders' right to execute, deliver,
perform under or consummate the transactions contemplated by this Agreement, or
(iv) asserting any right with respect to any of the Assets or LLC Interest, and
to best of knowledge there is no basis for any such action, suit, proceeding or
arbitration, or any claim or investigation related to the foregoing. Warrantors
are not aware of any set of facts or circumstances which give rise to any claim
affecting the Assets or the conduct of the Mountain Resorts Business or the
authority of Mountain Resorts or Shareholders to consummate the transactions
provided for in this Agreement.
3.1.11 Financial Statements: Undisclosed Liabilities. Correct and
complete copies of Mountain Resorts' unaudited balance sheets as of December 31,
1995, December 31, 1996, and as of May 31, 1997, and Mountain Resorts' unaudited
Statement of Operations and Retained Earnings for the years ended as of December
31, 1995, December 31, 1996, and for the period ended May 31, 1997 (hereinafter
collectively referred to as the "Financial Statements") have been provided to
Resort Group. The Financial Statements are in accordance with the books and
records of Mountain Resorts, are true, correct and complete in all material
respects and accurately present Mountain Resorts' financial position as of the
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dates set forth therein and the results of Mountain Resorts' operations for the
periods then ended, all in conformity with generally accepted accounting
principles applied on a consistent basis during each period and on a basis
consistent with that of prior periods. Except (i) as disclosed in the Financial
Statements, and (ii) as disclosed in this Agreement, Mountain Resorts has no
liabilities or obligations of any nature or kind, known or unknown, whether
accrued, absolute, contingent, or otherwise. To best of knowledge, there is no
basis for assertion against Mountain Resorts of any claim, liability or
obligation not fully disclosed in the Financial Statements. All prepaid items
set forth in Mountain Resorts' Financial Statements have been properly accrued.
The representations and warranties in this Section shall also apply with respect
to the Closing Balance Sheet and Closing Settlement Summary prepared by Mountain
Resorts for Closing.
3.1.12 Tax Matters. Mountain Resorts has duly and timely filed with all
appropriate Governmental Agencies, all tax returns, information returns, and
reports required to be filed by Mountain Resorts. Except for accruals for
payroll taxes payable as set forth in Mountain Resorts' Balance Sheet as of May
31, 1997 (the "Accrued Taxes"), Mountain Resorts has paid in full all taxes
(including taxes withheld from employees' salaries and other withholding taxes
and obligations), interest, penalties, assessments and deficiencies owed by
Mountain Resorts to all taxing authorities. Complete and correct copies of the
income tax returns of Mountain Resorts for Mountain Resorts' three fiscal years
ending December 31, 1994, December 31, 1995, and December 31, 1996, as filed by
Mountain Resorts with the Internal Revenue Service (the "IRS") and all state
taxing authorities (collectively, the "Returns") have been provided to Resort
Group. The Returns of Mountain Resorts for the five (5) most recent taxable
years have not been audited by any taxing authority, and Mountain Resorts is not
a party to any consents, agreements or similar undertakings with the IRS or any
other taxing authority. All information reported on the Returns is true,
accurate and complete in all material respects. All claims by the IRS or any
state taxing authorities for taxes due and payable by Mountain Resorts have been
paid by Mountain Resorts. The provisions for the Accrued Taxes are adequate for
the payment of all of Mountain Resorts' liabilities for unpaid taxes (whether or
not disputed). All federal income tax returns required to be filed by Mountain
Resorts have either been examined by the IRS, or the period during which any
assessments may be made by the IRS has expired without waiver or extension for
all years through Mountain Resorts' fiscal year ended December 31, 1993, and any
deficiencies or assessments claimed or made have been paid, settled, or fully
provided for in the Financial Statements. Mountain Resorts has not adopted a
plan of complete liquidation under the Internal Revenue Code of 1954, as amended
(the "Code"), or filed a consent pursuant to Section 341 of the Code. Mountain
Resorts is not a party to, and is not aware of, any pending or threatened
action, suit, proceeding, or assessment against it for the collection of taxes
by any Governmental Agency.
3.1.13 Real Property. Except for Condominium Unit E-102, Shadow Run
Condominiums, which is owned by Mountain Resorts and included in the Assets and
the six
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Exhibit 10.45
(6) Norwegian Log Condominium Units included within the Excluded Assets,
Mountain Resorts does not own any real estate.
3.1.14 Condition of Personal Property. Attached hereto as Exhibit
3.1.14 is a true, correct and complete list of each item of personal property
owned by Mountain Resorts or used in the Mountain Resorts Business with a
current replacement cost of $500.00 or more, including, but not limited to, all
equipment, machinery and fixtures, indicating whether it is owned or the manner
in which the Personal Property is otherwise utilized by Mountain Resorts. Such
items, together with all other personal property owned by Mountain Resorts or
used in the Mountain Resorts Business is referred to collectively as the
"Personal Property" and is included in the Assets. Mountain Resorts has sole and
exclusive, good and merchantable title to all of the Personal Property owned by
it, free and clear of all pledges, claims, liens, restrictions, security
interests, charges and other encumbrances, except as disclosed on Exhibit
3.1.14. The Personal Property is adequate in type and quantity for the
continuation of the Mountain Resorts Business as it has historically been
conducted. There is no warranty as to the repair or condition of the Personal
Property, which shall be transferred to Acquisition LLC in "AS IS" condition.
3.1.15 Management Contracts. Attached hereto as Exhibit 3.1.15(a) is a
true, correct and complete list of all property rental management, property
management and association management contracts under which Mountain Resorts is
providing property rental management, property management or association
management services (collectively, the "Management Contracts"). Representative
samples of Mountain Resorts' property rental management contracts have been
provided to Resort Group, and correct and complete copies of all property
management and association management contracts have been provided to Resort
Group. The date by which each association that is a party to an association
management contract may determine not to renew its contract with Mountain
Resorts is set forth on Exhibit 3.1.15(a). Each of the Management Contracts is
in full force and effect, is valid and binding upon each of the parties thereto
and is fully enforceable by Mountain Resorts against the other party thereto in
accordance with its terms. Neither Shareholders nor Mountain Resorts has any
notice of, or any reason to believe that there is or has been any actual,
threatened or contemplated, termination, nonrenewal or modification of any of
the Management Contracts, except that the Promontory Condominium Association has
declined to renew its contract. Except as otherwise provided below with respect
to nonrenewal of association management contracts as a result of improper
financial administration, there is no warranty of renewal or retention of the
Management Contracts beyond their current terms. The Management Contracts have
been administered and accounted for by Mountain Resorts properly and in
accordance with their terms, and no party to any of the Management Contracts is
in breach of or in default thereunder, nor has any event occurred which, with
the lapse of time, notice or election, may become a breach or default by
Mountain Resorts or any other party to or under any of the Management Contracts.
The execution, acknowledgement, sealing, delivery and performance
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of this Agreement by the Shareholders and the consummation of the transactions
contemplated by this Agreement (i) will not result in the breach or termination
of or constitute a default under any Management Contract, (ii) does not require
the consent of any party to a Management Contract, or any other Person for whose
benefit a Management Contract was executed, and (iii) will not give any such
party or Person the right to terminate any Management Contract. Except as
otherwise disclosed on Exhibit 3.1.15(b), all payments required to be made
pursuant to the Management Contracts by parties to the Management Contracts, and
other Persons for whose benefit Management Contracts were executed, have been
paid in full through May 31, 1997. All amounts payable pursuant to the
Management Contracts and that accrue for any period prior to the Effective Date
shall be paid by Mountain Resorts pursuant to Section 1.3.3. Without limiting
the generality of the foregoing, it shall be a breach of the warranty set forth
in this Section if (i) any Mountain Resorts association management contract is
not renewed after the Effective Date for the express reason that Mountain
Resorts, prior to the Closing, failed to comply with its financial obligations
pursuant to such contract and Acquisition LLC reasonably determines there is a
basis for such claim, or (ii) any association management contract of Mountain
Resorts is terminated prior to its next scheduled renewal date on the basis that
such contract was not assignable to Acquisition LLC or as a result of a breach
of such contract by Mountain Resorts prior to Closing. The Management Contracts
are in compliance with all applicable Laws of all Governments and Governmental
Agencies. All deposits and escrowed funds held pursuant to the Management
Contracts as of May 31, 1997 are properly accounted for and are reflected on the
Financial Statements dated May 31, 1997 as: 1120 Cash in escrow; 1122 Cash in
escrow; 1123 Cash in escrow - Cds; and 1128 Cash in escrow - security deposits.
3.1.16 Service Agreements. Except for the Operator Services Agreement
dated July 7, 1992 with AMI, a License Agreement with First Resorts for
reservation system software, and the yearly contracts with Steamboat Central
Reservations for reservation services (collectively, the "Service Contracts"),
there are no contracts or agreements under which third parties have contracted
with Mountain Resorts to provide services and/or supplies to Mountain Resorts.
3.1.17 Contracts Licenses. and Other Agreements. Mountain Resorts is
not a party to any contracts, licenses, permits or other agreements except the
Management Contracts, the Service Contracts, and the items referred to in this
Section 3.1.17. Regarding the contracts, licenses, permits and other agreements
of Mountain Resorts:
3.1.17.1 The only leases relating to real property to which Mountain
Resorts is a party are:
Office Lease. Lease of approximately 5,000 square feet of office
space at 2145 Resort Drive, Suite 100. Lessor is First National Land
Company. Lease expires November 30, 1998, with option to extend for
three (3) years.
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Exhibit 10.45
Laundry Lease. Lease of approximately 1,500 square feet of laundry
space in Building C, Big Country Industrial Park, 1475 South Lincoln.
Lessor is Ski Country Kitchens. Lease expires May 1, 1998; notice of
nonrenewal has been given.
3.1.17.2 Mountain Resorts is not a party to any lease of personal
property.
3.1.17.3 Mountain Resorts is not a party to any license,
franchise, assignment or other agreement relating to trademarks, trade names,
patents, copyrights, service marks (or applications therefor), unpatented
designs or styles, know-how or technical assistance.
3.1.17.4 No Permits are required for the operation of Mountain
Resorts' business other than a Colorado real estate broker's license and State
of Colorado and City of Steamboat Springs sales tax licenses, all of which have
been obtained by Mountain Resorts and are in full force and effect.
3.1.17.5 Except for (i) that certain Employment Agreement dated
May 29, 1997, between Mountain Resorts and Greg Fritz (the "Fritz Employment
Agreement"), and (ii) that certain Settlement Agreement and Mutual Release and
Supplementary Agreement dated August 28, 1996, between Lana LeChabrier, d/b/a
The Thor Trust Company, The Terraces Development Group, L.L.C., Jon Peddie,
Robert S. Dick, Terraces Condominium Owners Association and Mountain Resorts,
Inc., there are no employment, compensation or consulting agreements, contracts,
understandings or arrangements of Mountain Resorts with any officer, director,
employee, broker, agent, consultant, salesman or other Person.
3.1.17.6 There are no agreements of Mountain Resorts for the
purchase, sale or lease of goods, materials, supplies, machinery, equipment,
capital assets and services.
3.1.17.7 Except for the Service Contracts, Mountain Resorts has no
agreements and arrangements with any supplier, distributor, franchisor or
dealer. Mountain Resorts pays commissions and fees to various wholesale
reservation agents under its "preferred customer" program (two of which are
pursuant to written contract), travel agents, etc.
3.1.17.8 Exhibit 3.1.17.8 contains a true, correct and complete
list of all agreements and arrangements of Mountain Resorts for the borrowing or
lending of money, on a secured or unsecured basis, or guaranteeing, indemnifying
or otherwise becoming liable for the obligations or liabilities of any other
Person.
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Exhibit 10.45
3.1.17.9 There are no agreements and arrangements or other
obligations of Mountain Resorts for the construction, modification or
improvement of any building or structure having a cost in excess of $5,000.00,
or the incurrence of any other capital expenditure involving payments in excess
of $5,000.00, including commitments with respect to managed properties but
excluding commitments which Mountain Resorts has no obligation to fund, in whole
or in part.
3.1.17.10 Exhibit 3.1.17.10 contains a true, correct and complete
list of all agreements and understandings of Mountain Resorts other than those
referenced in Sections 3.1.17.1 through 3.1.17.9 which are material in nature,
involve the payment or receipt, in any 12-month period, of more than $1,000.00,
or have a term of more than twelve (12) months.
The Service Contracts and each of the agreements, arrangements and
understandings referred to in Sections 3.1.17.1 through 3.1.17.10 (hereinafter
collectively referred to as the "Commitments") is in full force and effect, is
valid and binding upon each of the parties thereto and is fully enforceable by
Mountain Resorts against the other party thereto in accordance with its terms.
Correct and complete copies of each of the Commitments (or where they are oral,
true, correct and complete written summaries) have been provided to Resort
Group. Neither Shareholders nor Mountain Resorts has any notice of, or any
reason to believe that there is or has been any actual, threatened or
contemplated termination or modification of any of the Commitments. No party to
any of the Commitments is in breach of or in default thereunder, nor has any
event occurred which, with the lapse of time, notice or election, may become a
breach or default by Mountain Resorts or any other party to or under any of the
Commitments. Mountain Resorts has the right to quiet enjoyment of all real
properties leased to it for the full term of the lease thereof. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated by this Agreement (i) will not result in the breach or
termination of or constitute a default under any Commitment, (ii) does not
require the consent of any party to any of the Commitments, and (iii) will not
give any such party the right to terminate any of the Commitments. All payments
required to be made by Shareholders, Mountain Resorts or any other party to any
of the Commitments pursuant to any of the Commitments have been paid in full
through May 31, 1997. The Commitments are in compliance with all applicable Laws
of all Governments and Governmental Agencies and there are no Laws of any
Government or Governmental Agencies, actions, suits, proceedings, arbitrations,
orders, writs, or decrees in any such case existing or proposed, which adversely
affect or might adversely affect Mountain Resorts' rights under any of the
Commitments.
3.1.18 Insurance. Attached hereto as Exhibit 3.1.18(a) is a true,
correct and complete list of all insurance policies of Mountain Resorts, setting
forth with respect to each policy the name of the insurer, a description of the
policy, the dollar amount of coverages, the amount of the premium, the date
through which all premiums have been paid, and the
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Exhibit 10.45
expiration date. Each insurance policy relating to the insurance referred to in
Exhibit 3.1.18(a) is in full force and effect, is valid and enforceable, and
Mountain Resorts is not in breach of or in default under any such policy.
Neither Shareholders nor Mountain Resorts has any notice of or any reason to
believe that there is or has been any actual, threatened, or contemplated
termination or cancellation of any insurance policy relating to the insurance
referred to in Exhibit 3.1.18(a). Attached hereto as Exhibit 3.1.18(b) is a
true, correct and complete list and summary of all claims which have been made
under each insurance policy relating to the insurance referred to in Exhibit
3.1.18(a). Mountain Resorts has not failed to give any notice or to present any
claim under any insurance policy in a due and timely fashion.
3.1.19 Employment Matters.
3.1.19.1 None of the Mountain Resorts employees are covered by a
collective bargaining agreement or, to the best of knowledge, are represented by
a labor organization, and no petition for representation concerning any of
Mountain Resorts' employees has been filed with the National Labor Relations
Board; neither Mountain Resorts nor Shareholders are aware of any union
organizational activity and have no reason to believe that any such activity is
being contemplated. Neither Mountain Resorts nor Shareholders have engaged in
any unfair labor practice.
3.1.19.2 Mountain Resorts is not in violation of applicable equal
employment opportunity, wage and hour or any other Laws of any Government or
Governmental Agency relating to employment. There are no active, pending, or
threatened administrative or judicial proceedings under any Laws of any
Government or Governmental Agency relating to current or former Mountain Resorts
employees, and there are no claims, charges, or employment-related suits or
controversies which have occurred within the last five (5) years or are
presently pending or threatened under any employment related Laws of any
Government or Governmental Agency. Mountain Resorts is not subject to any
judgments, decrees, conciliation agreements or settlement agreements concerning
employment-related matters.
3.1.19.3 Except for the Fritz Employment Agreement, Mountain
Resorts has not entered into any employment agreements with any of its
employees, and all employees may be terminated at will. Mountain Resorts has no
contractual obligation or special termination or severance arrangement in
respect of any Mountain Resorts employee. There are no present or future
obligations to any person who is or has been employed by Mountain Resorts under
any retirement plan or deferred compensation program or arrangement and there is
no provision of any agreement or arrangement with any of the Mountain Resorts
employees, or any other legal or contractual requirement, which would obligate
Mountain Resorts to continue to employ any employee.
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Exhibit 10.45
3.1.19.4 Mountain Resorts has paid all wages, bonuses, commissions
and other benefits and sums due (and all required taxes, insurance, social
security and withholding thereon) through the Closing Date.
3.1.19.5 Mountain Resorts has maintained in effect all insurance
policies and other employee benefits covering any employee claims incurred
through the date of this Agreement and the Closing Date.
3.1.19.6 Exhibit 3.1.19.6 sets forth each Mountain Resorts
employee's date of hire, position, present salary, amount of bonus paid in the
past year, and announced termination date (if any). Mountain Resorts has
provided Resort Group with access to the personnel files and employment records
of all Mountain Resorts Employees.
3.1.19.7 Except for the Mountain Resorts, Inc. Saving Plan
administered by the Principal Financial Group (annuity #4-13919) (the "Plan"),
Mountain Resorts does not now nor has it ever established, maintained or
contributed to any employee plan or practice in which any of its employees have
participated or are subject (including, but not limited to, any employee pension
plan or employee benefit plan as such terms are defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") but excluding the
payment of current cash compensation). The Plan is not a multi-employer plan, as
that term is defined in Section 4001(a)(3) of ERISA. No employer other than
Mountain Resorts now contributes to or has ever contributed to the Plan, and the
Plan is in full force and effect and Mountain Resorts is not and on the Closing
Date will not be in default in any manner thereunder. The Plan may be amended or
terminated by Mountain Resorts at its option. To the best of knowledge:
(i) Mountain Resorts and its fiduciaries and administrators of the
Plan have at all times complied with all provisions of the Plan and
applicable law (including without limitation the provisions of ERISA)
in operating and dealing with the Plan
(ii) The Plan complies with the Internal Revenue Code of 1986, as
amended (the "Code"), and has been established or amended to comply
with the provisions of the Code and ERISA as in effect as on the date
of this Agreement;
(iii) The Plan has no "accumulated funding deficiency" as that
term is defined in Section 412 of the Code; (iv) No fiduciary or party
in interest (as those terms are defined in Section 3(21)(A) and (3)(14)
of ERISA, respectively) has engaged in any "prohibited transaction" (as
that term is defined in Section 406 of ERISA or Section 4975 of the
Code) with respect to the Plan;
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Exhibit 10.45
(v) No "reportable event" (as that term is defined in Section 4043
of ERISA) has occurred with respect to the Plan;
(vi) No liability to the Pensions Benefit Guarantee Corporation
(except for premiums which are not delinquent) or to any other person
or entity has been incurred or expected to be incurred by Mountain
Resorts with respect to the Plan. All reports and returns required to
be filed with any Governmental Agency with respect to the Plan have
been timely and accurately filed. No Governmental Agency has conducted
an audit or investigation or made an assessment of taxes or penalties
in respect to the Plan. The Plan does not have any liability to any
participant or beneficiary, except accrued liability, payment of which
is not due under the Plan.
3.1.20 Patents: Trademarks: Related Contracts. Mountain Resorts has no
patents, trademarks, trade names, or trademark or trade name registrations,
service marks, and copyrights or copyright registrations (the "Proprietary
Rights"). To best of knowledge, Mountain Resorts has not infringed and is not
infringing upon any patent, trademark, trade name, or trademark or trade name
registration, service mark, copyright, or copyright registration of any other
Person.
3.1.21 Books and Records: Fiscal Year: Method of Accounting. Mountain
Resorts has made available to Resort Group all of its tax, accounting, corporate
and financial books and records. The books and records pertaining to Mountain
Resorts' business made available to Resort Group are true, correct and complete
in all material respects, have been maintained on a current basis, and fairly
reflect the basis for Mountain Resorts' financial condition and results of
operations as set forth in the Financial Statements. Mountain Resorts has
consistently used the fiscal year ended December 31 as its taxable year, and has
consistently used the accrual method as its method of accounting for tax
purposes.
3.1.22 Bank Accounts and Safe Deposit Arrangements. Attached hereto as
Exhibit 3.1.22 is a true, correct and complete list of each checking account,
savings account and other bank account and safe deposit box maintained by
Mountain Resorts, and the names of all persons authorized to withdraw funds or
other property from, or otherwise deal with, such accounts and safe deposit
boxes.
3.1.23 Absence of Certain Changes or Events. Since May 31, 1997,
Mountain Resorts has not
3.1.23.1 Incurred any indebtedness, obligation or liability
(contingent or otherwise), except normal trade or business obligations incurred
in the ordinary course of its business, and except the Villas Contract.
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3.1.23.2 Discharged or satisfied any security interest, lien or
encumbrance or paid any indebtedness, obligation or liability (contingent or
otherwise), except (a) current liabilities and (b) scheduled payments pursuant
to obligations under contracts, agreements, or leases referred to in Sections
3.1.17.1 through 3.1.17.10 hereto.
3.1.23.3 Mortgaged, pledged, or subjected to lien, charge,
security interest, or other encumbrance any of its assets or properties.
3.1.23.4 Sold, assigned, transferred, leased, disposed of, or
agreed to sell, assign, transfer, lease, or dispose of, any of its assets or
properties.
3.1.23.5 Acquired or leased any assets or property of any other
Person.
3.1.23.6 Canceled or compromised any debt or claim.
3.1.23.7 Waived or released any rights.
3.1.23.8 Transferred or granted any rights with respect to
know-how or any rights existing under any leases, licenses, agreements,
inventions, or any of the Proprietary Rights.
3.1.23.9 Except for salary increases for nonmanagement employees
in the ordinary course of business, granted or made any contract, agreement,
promise or commitment to grant any wage, salary or employee benefit increase to,
or entered into any employment contract, bonus, stock option, profit sharing,
pension, incentive, retirement or other similar arrangement or plan with, any
officer, employee or other Person. Employment turnover occurs and Mountain
Resorts will continue to hire and terminate employees in the ordinary course of
its business, but all employees will be hired as an "employee at will" unless
otherwise disclosed and approved by Resort Group.
3.1.23.10 Entered into any collective bargaining agreement or made
any commitment or incurred any liability to any labor organization.
3.1.23.11 Made any capital expenditure in excess of $5,000.00 or
entered into any commitment therefor.
3.1.23.12 Suffered any casualty loss or damage, whether or not
such loss or damage is or was covered by insurance.
3.1.23.13 Suffered any adverse change in its operations, earnings,
assets, liabilities, properties, or business or in its condition (financial or
otherwise).
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3.1.23.14 Changed the nature of its business or its method of
accounting
3.1.23.15 Other than in the ordinary course of business, entered
into any transaction. contract or commitment.
3.1.23.16 Terminated or modified, or agreed to the termination or
modification of, any Management Contract or any of the Commitments, except in
the ordinary course of business. It is acknowledged that property rental
management contracts are routinely acquired and/or terminated in the ordinary
course of the business. Mountain Resorts has not terminated or modified any
association management contract, except that the Promontory Condominium
Association chose not to renew its contract.
3.1.23.17 Suffered a loss of any supplier or suppliers, which loss
(individually or in the aggregate) has had, or may have, an adverse effect on
its financial condition, results of operations, business, or prospects.
3.1.23.18 Suffered any material adverse change in its assets or
liabilities, in its condition, financial or otherwise, or in its business,
properties, earnings or net worth.
3.1.23.19 Amended, revoked or terminated its Governing Documents
in any respect, except as authorized pursuant to Section 1.1(iv).
3.1.24 Insider Transactions. Except as disclosed on Exhibit 3.1.24,
there are no indebtedness or other obligations, agreements, undertakings,
liabilities or commitments (contingent or otherwise) of Mountain Resorts to or
from any past or present officer, director, member, stockholder or any Person
related to, controlling, controlled by or under common control with any of the
foregoing.
3.1.25 Adverse Conditions. Shareholders and Mountain Resorts have no
knowledge of any present condition, state of facts or circumstances which has
affected or may affect adversely the Assets, Assumed Liabilities or Mountain
Resorts Business or prevent Acquisition LLC from carrying on the Mountain
Resorts Business.
3.1.26 Full Disclosure. This Agreement (including the Exhibits hereto)
does not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements contained herein not misleading.
There is no fact known to Shareholders or Mountain Resorts which is not
disclosed in this Agreement which materially adversely affects the accuracy of
the representations and warranties contained in this Agreement or Mountain
Resorts' financial condition, results of operations, business, or prospects.
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Exhibit 10.45
3.1.27 Negotiations with Other Persons. Shareholders will not, and will
not permit Mountain Resorts to, initiate, encourage the initiation by others, or
participate in any discussions or negotiations with any other Persons relating
to the sale or other disposition of any of the capital stock of Mountain Resorts
or any assets of Mountain Resorts, and will promptly notify the Purchaser if any
Person initiates such discussions or negotiations with them or Mountain Resorts.
3.1.28 No Brokerage. Neither Mountain Resorts nor Shareholders have
incurred any obligation or liability, contingent or otherwise, for brokerage
fees, finder's fees, agent's commissions, or the like in connection with this
Agreement or the transactions contemplated hereby.
3.2 Representations and Warranties of the Purchaser. Resort Group
represents and warrants to Mountain Resorts and Shareholders that:
3.2.1 Due Organization: Good Standing: Power. Resort Group is a limited
liability company validly existing and in good standing under the laws of the
State of Colorado. Resort Group has all requisite corporate power to enter into
this Agreement and to perform its obligations hereunder.
3.2.2 Authorization and Validity of Documents. The execution, delivery
and performance of this Agreement by Resort Group, and the consummation by
Resort Group of the transactions contemplated hereby, have been duly and validly
authorized by Resort Group. This Agreement has been duly executed and delivered
by Resort Group and is a legal, valid, and binding obligation of Resort Group,
enforceable against Resort Group in accordance with its terms, except as such
enforceability may be limited by general principles of equity, bankruptcy,
insolvency, moratorium and similar laws relating to creditors rights generally.
3.2.3 No Brokerage. Resort Group has not incurred any obligation or
liability, contingent or otherwise, for brokerage fees, finder's fees, agent's
commissions, or the like in connection with this Agreement or the transactions
contemplated hereby.
3.2.4 Authority of Anthony E. Van Baak. Anthony E. Van Baak has been
duly authorized by all requisite action to act on behalf of Resort Group in the
negotiation of and execution of this Agreement and to represent Guarantors'
agreement to guarantee the Purchaser Note.
3.2.5 Financial Statements. Correct and complete copies of the personal
financial statements of each of Robert Batinovich dated July 7, 1997 (which
include assets held in the Robert Batinovich Trust UDT 2/16/90), the Andrew
Batinovich Trust UDT 8/3/94 dated March 31, 1997 and June 30, 1997, and Anthony
E. Van Baak dated April 30,
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Exhibit 10.45
1997, have been provided to Mountain Resorts. Such financial statements are true
and correct in all material respects as of the dates thereof, and there has been
no material adverse change in the financial condition of either of the
Guarantors to the date of this Agreement.
3.2.6 Full Disclosure. This Agreement (including the Exhibits hereto)
does not contain any untrue statement of any material fact with respect to
Resort Group or Guarantors or omit to state any material fact with respect to
Resort Group or Guarantors necessary to make statements contained herein not
misleading.
3.2.7 Agreement Not in Conflict. Neither Resort Group nor any of the
Guarantors is a party to any contract, agreement or other obligation prohibiting
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby.
3.2.8 Legal Proceedings. There is no action, suit, proceeding or
arbitration by any Government, Governmental Agency or other Person (i) pending
to which Resort Group is a party, (ii) threatened against or relating to Resort
Group, or (iii) challenging Resort Group's or Guarantors' right to execute,
deliver, perform under or consummate the transactions contemplated by this
Agreement. Resort Group is not aware of any set of facts or circumstances which
give rise to any claim affecting the authority of Resort Group or Guarantors to
consummate the transactions provided for in this Agreement.
3.2.9 Investment Intent. Resort Group is acquiring the LLC Interest for
investment only, for Resort Group's own account, and not with a view to, for
offer for sale or for sale in connection with, the distribution or transfer
thereof, and the LLC Interest is not being purchased for the subdivision or
fractionalization thereof. Resort Group has no contract, undertaking, agreement
or arrangement with any Person to sell, hypothecate, donate or otherwise
transfer (with or without consideration) to any Person any of the LLC Interest
which Resort Group is acquiring hereunder, and Resort Group has no present plans
or intention to enter into any such contract, undertaking, agreement or
arrangement.
4. Employment Contracts and Noncompetition Covenants.
4.1 Employment Contracts. At the Formation Closing Acquisition LLC shall
enter into Employment Contracts with H. David Zabel, Glen D. Zabel and Alice T.
Klauzer in the form of Exhibits 4.1(a), 4.1(b) and 4.1(c), respectively (the
"Employment Contracts"). The parties to the Employment Contracts agree to abide
by the terms of their respective Employment Contracts in operating the Mountain
Resorts Business from the Effective Date to the Closing Date and thereafter.
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Exhibit 10.45
4.2 Noncompetition Covenants. The parties acknowledge and agree that the
primary purpose and intent of this Agreement is to transfer the Mountain Resorts
Business and all existing and future goodwill associated therewith to
Acquisition LLC. The parties further acknowledge and agree that Mountain
Resorts, H. David Zabel, Glen D. Zabel and Alice T. Klauzer have, and by virtue
of their employment with Acquisition LLC will continue to possess and develop,
personal contacts and relationships with Mountain Resorts' clients, customers,
suppliers, agents and others having business relationships with Mountain Resorts
and Acquisition LLC, all of which are intended to inure to the benefit of
Acquisition LLC. Accordingly, at Formation Closing Mountain Resorts, H. David
Zabel and Patricia H. Zabel (collectively), Glen D. Zabel and Alice T. Klauzer
shall enter into noncompetition agreements with Acquisition LLC and Resort Group
(the "Noncompetition Covenants"). The Noncompetition Covenants with Glen D.
Zabel and Alice T. Klauzer are contained in their respective Employment
Agreements. The Noncompetition Covenants with Mountain Resorts, Inc., H. David
Zabel and Patricia H. Zabel are in the form of Exhibits 4.2(a) and 4.2(b),
respectively. The consideration for the Noncompetition Covenants shall be
$5,000.00 each, payable by Acquisition LLC at the Formation Closing.
5. Additional Covenants of the Parties.
5.1 Affirmative Covenants of Mountain Resorts and Shareholders. Without
limiting any other provision of this Agreement, Mountain Resorts and
Shareholders, jointly and severally, covenant, promise and agree that from the
date hereof and until the Closing Mountain Resorts and the Shareholders shall:
5.1.1 Continue to operate the Mountain Resorts Business diligently,
consistent with past practices and consistent with this Agreement, and not take
any action, omit to take any action, or engage in any transaction other than in
acts or transactions in the ordinary course of business, as such business has
been operated historically, but subject to and in accordance with the provisions
of this Agreement and the Employment Contracts.
5.1.2 Preserve the Assets and the Mountain Resorts Business and
preserve the relationship of the business with suppliers, customers, banking
institutions and others.
5.1.3 Maintain and continue normal and usual maintenance, repair and
replacement of the Assets of Mountain Resorts.
5.1.4 Perform the Management Contracts, Assumed Liabilities, Permits,
Service Contracts and Commitments in accordance with their terms, and not
modify, amend, extend or renew any of such items (except renewals of Management
Contracts in the ordinary course of business) without the prior consent of
Resort Group.
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Exhibit 10.45
5.1.5 Pay or provide for payment of all sales, use, personal property,
social security, withholding, payroll, unemployment compensation, income and
other taxes, assessments, fees and public charges due and payable by Mountain
Resorts in respect of its business through the Closing Date and any portion
thereof applicable to any period prior to the Closing Date.
5.1.6 Pay all wages, bonuses, commissions and other employment benefits
and sums (and all required taxes, insurance and withholding thereon), including
all accrued vacation, accrued sick leave, accrued benefits and accrued payments
(and pro rata accruals for a portion of a year) due to Mountain Resorts'
employees through the Closing Date.
5.1.7 Maintain in effect all insurance policies and other employee
benefits covering any employee claims which may be incurred through the Closing
Date.
5.1.8 Fully perform and comply with all covenants, promises and
agreements hereunder which are required to be performed or complied with by
Mountain Resorts and/or Shareholders prior to or at the Closing.
5.1.9 Exert their best efforts to prevent the occurrence of any event
which could result in any of Mountain Resort's and/or Shareholders'
representations and warranties contained in this Agreement not being true and
correct at or as of the time immediately after the occurrence of such event, and
promptly notify Resort Group of the occurrence of any event or the discovery of
any fact which would cause any of their covenants, promises and agreements to be
breached or violated or any of their representations and warranties to become
not true and correct or which could interfere with or prevent the consummation
of the transactions contemplated hereby.
5.1.10 Not apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of Mountain Resorts
or any Shareholder or any of their respective property, make a general
assignment for the benefit of creditors, or file a petition for relief under
Title 11 of the United States Code or any similar federal or state statute.
5.1.11 (i) Provide Resort Group and its representatives with full
access during normal business hours to all of Mountain Resorts' properties,
assets and records, (ii) provide Resort Group and its representatives with such
financial and operating data and other information with respect to the Mountain
Resorts Business and properties as Resort Group shall from time to time request,
and (iii) permit Resort Group and its representatives to consult with
Shareholders and Greg Fritz. Resort Group agrees to not contact any other
representatives, agents or employees of Mountain Resorts without the prior
consent of Mountain Resorts, which consent shall not be unreasonably withheld.
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Exhibit 10.45
5.1.12 Take none of the actions described in Section 3.1.23 of this
Agreement or any action which is or would cause a violation of any Laws of any
Governments or Governmental Agencies.
5.1.13 Provide to Resort Group updated Exhibits to this Agreement
promptly after any event or occurrence which may cause any of the Exhibits to
this Agreement to be incorrect or incomplete in any respect, and promptly notify
Resort Group of any material adverse change in Mountain Resorts, its business,
assets or properties.
5.2 Affirmative Covenants of Resort Group. Without limiting any other
provision of this Agreement, Resort Group covenants, promises and agrees that
from the date hereof and until the Closing it shall:
5.2.1 Fully perform and comply with all covenants, promises and
agreements hereunder which are required to be performed or complied with by
Resort Group prior to or at the Closing.
5.2.3 Exert its best efforts to prevent the occurrence of any event
which could result in any of Resort Group's representations and warranties
contained in this Agreement not being true and correct at or as of the time
immediately after the occurrence of such event, and promptly notify Mountain
Resorts of the occurrence of any event or the discovery of any fact which would
cause any of their covenants, promises and agreements to be breached or violated
or any of their representations and warranties to become not true and correct or
which could interfere with or prevent the consummation of the transactions
contemplated hereby.
5.2.4 Promptly notify Mountain Resorts of any material adverse change
in Resort Group's business, assets or properties or any material adverse change
in the financial condition of the Guarantors.
5.4 Confidential Information. Mountain Resorts and Shareholders on the one
hand, and Resort Group on the other hand, each acknowledge that in the course of
the transaction contemplated by this Agreement it may receive from the other
information that is of a confidential or proprietary nature ("Confidential
Information"). Each party agrees to hold such Confidential Information in the
strictest confidence and agrees that all Confidential Information received by it
from another party shall not at any time or in any manner be utilized for its
advantage or disclosed by it to third parties except as the disclosing party may
otherwise agree or as required by law. The parties agree to restrict access to
Confidential Information to those of their representatives or agents directly
participating in the decision-making process with regard to the transaction
contemplated by this Agreement and who acknowledge this restriction on the use
of Confidential Information. In the event that the transaction contemplated by
this Agreement is not consummated, any
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Exhibit 10.45
party who has received Confidential Information will, at the request of the
party providing such information, return the Confidential Information and
certify that it has destroyed all copies of such information.
6. Closing.
6.1 Formation Closing. The closing of the formation of Acquisition LLC
(including the transfer of the Assets, Assumed Liabilities and Mountain Resorts
Business to Acquisition LLC along with the initial capital contribution by
Resort Group as contemplated by Section 1 of this Agreement) is referred to
throughout this Agreement as the "Formation Closing." The Formation Closing
shall take place at Weiss, Van Scoyk & Coe, LLP, Steamboat Springs, Colorado, at
1:00 p.m. on August 1, 1997. The time, place and date of the Formation Closing
are referred to throughout this Agreement as the "Formation Closing Date."
Without limiting any other provision of this Agreement, at the Formation Closing
the following shall occur:
(i) The Assets shall be assigned, transferred and delivered to
Acquisition LLC by the execution and delivery of the Transfer Documents;
(ii) Resort Group shall pay $20,200 to Acquisition LLC ($20,000 of
which may be applied to the payments referenced in subsection (vi) below;
(iii) Acquisition LLC shall assume the payment of the Assumed
Liabilities;
(iv) Mountain Resorts and Resort Group shall enter into the Operating
Agreement;
(v) Acquisition LLC, on one hand, and H. David Zabel, Glen D. Zabel and
Alice T. Klauzer, on the other hand, shall enter into the Employment
Contracts; and (vi) Acquisition LLC, on one hand, and Mountain Resorts, H.
David Zabel and Patricia H. Zabel (collectively), Glen D. Zabel and Alice
T. Klauzer, respectively, on the other hand, shall enter into the
Noncompetition Agreements, and in consideration therefor Acquisition LLC
shall pay $5,000 to each of Mountain Resorts, H. David Zabel and Patricia
H. Zabel (collectively), Glen D. Zabel and Alice T. Klauzer.
6.2 Purchase Closing. The closing of the purchase and sale of the LLC
Interest from Mountain Resorts to Resort Group as contemplated by Section 2 of
this Agreement is referred to throughout this Agreement as the "Purchase
Closing." The Purchase Closing
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Exhibit 10.45
shall take place at Weiss, Van Scoyk & Coe, LLP, Steamboat Springs, Colorado, at
3:00 p.m. on August 1, 1997. The time, place and date of the Purchase Closing
are referred to throughout this Agreement as the "Purchase Closing Date."
Without limiting any other provision of this Agreement, at the Purchase Closing
the following shall occur:
(i) Resort Group shall deliver to Mountain Resorts the Cash Portion of
the Purchase Price in currently available funds;
(ii) Resort Group shall deliver to Mountain Resorts the Purchaser Note,
including the Guaranty and the Pledge;
(iii) Mountain Resorts shall deliver to Resort Group the Assignment;
(iv) Robert Batinovich, the Robert Batinovich Trust UDT 2/16/90, Andrew
Batinovich and the Andrew Batinovich Trust UDT 8/3/94 shall deliver to
Mountain Resorts a guarantor agreement in the form of Exhibit 6.2(iv) (the
"Guarantor Agreement"); and
(v) Mountain Resorts and Acquisition LLC shall deliver to each other
executed copies of the Closing Balance Sheet and the Closing Settlement
Summary approved by the parties.
6.3 Closing. The completion of both the Formation Closing and the Purchase
Closing is referred to throughout this Agreement as the "Closing." The time,
place and date of the Closing are referred to throughout this Agreement as the
"Closing Date." Notwithstanding any other provision of this Agreement or the
Ancillary Agreements, neither this Agreement, the Ancillary Agreements or the
transactions contemplated thereby shall be completed or effective unless both
the Formation Closing and the Purchase Closing (i.e., the Closing) shall have
occurred.
6.4 Mountain Resorts' and Shareholders' Conditions to Close. Mountain
Resorts' and Shareholders' obligation to close the transactions contemplated
hereby at the Closing shall be subject to the complete satisfaction and
fulfillment of all of the following conditions precedent, any or all of which
may be waived in whole or in part by the benefited party (but no such waiver of
any such condition precedent shall be or constitute a waiver of any covenant,
promise, agreement, representation or warranty made by Resort Group in this
Agreement):
6.4.1 All representations and warranties made by Resort Group in this
Agreement shall be complete and accurate at and as of the Closing on the Closing
Date, and Resort Group shall deliver a certificate to that effect to Mountain
Resorts at Closing.
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Exhibit 10.45
6.4.2 All covenants, promises and agreements made by Resort Group in
this Agreement and all other actions required to be performed or complied with
by Resort Group under this Agreement prior to or at the Closing shall have been
fully performed or complied with by Resort Group, and Resort Group shall deliver
to Mountain Resorts a certificate to that effect at Closing.
6.4.3 There shall not have occurred any material adverse change to the
financial condition of the Guarantors, and Guarantors shall deliver a
certificate to that effect to Mountain Resorts at Closing.
6.4.4 There shall not have occurred any material adverse change to the
financial condition of Resort Group, or any other occurrence which would
materially and adversely affect Resort Group's ability to perform any of its
obligations under this Agreement or the purchaser Note.
6.4.5 Mountain Resorts and Shareholders shall have approved the Closing
Balance Sheet and the Closing Settlement Summary.
6.5 Resort Group's Conditions to Close. Resort Group's obligation to close
the transactions contemplated hereby at the Closing shall be subject to the
complete satisfaction and fulfillment of all of the following conditions
precedent, any or all of which may be waived in whole or in part by the
benefited party (but no such waiver of any such condition precedent shall be or
constitute a waiver of any covenant, promise, agreement, representation or
warranty made by Mountain Resorts or the Shareholders in this Agreement):
6.5.1 All representations and warranties made by Mountain Resorts and
Shareholders in this Agreement shall be complete and accurate at and as of the
Closing on the Closing Date, and Mountain Resorts and Shareholders shall deliver
to Resort Group a certificate to that effect at Closing.
6.5.2 All covenants, promises and agreements made by Mountain Resorts
and Shareholders in this Agreement and all other actions required to be
performed or complied with by Mountain Resorts and Shareholders under this
Agreement prior to or at the Closing shall have been fully performed or complied
with by Mountain Resorts and Shareholders, and Mountain Resorts and Shareholders
shall deliver to Resort Group certificates to that effect at Closing.
6.5.3 Resort Group shall have received all things required to be
delivered or furnished to Resort Group by Mountain Resorts and Shareholders
hereunder prior to or at the Closing.
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Exhibit 10.45
6.5.4 There shall not have occurred any material adverse change in the
business, assets, liabilities or prospects of Mountain Resorts
6.5.5 Resort Group shall have approved the Closing Balance Sheet and
the Closing Settlement Summary.
7. Indemnification.
7.1 Mountain Resorts shall defend, indemnify and hold harmless Acquisition
LLC and Resort Group from and against any and all claims, threats, liabilities,
taxes, interest, fines, penalties, suits, actions, proceedings, demands,
damages, losses, costs and expenses (including attorneys' and experts' fees and
court costs) of every kind and nature arising out of, resulting from, or in
connection with:
7.1.1 Any misrepresentation or breach by Mountain Resorts or any of the
Shareholders or any of their representations or warranties contained in this
Agreement.
7.1.2 Any nonfulfillment, failure to comply or breach by Mountain
Resorts or any of the Shareholders of or with any covenant, promise or agreement
of Mountain Resorts or any of the Shareholders contained in this Agreement.
7.1.3 Any debts, obligations, duties and liabilities of Mountain
Resorts or any of the Shareholders, except and excluding only the Assumed
Liabilities to the extent the Assumed Liabilities are the obligation of
Acquisition LLC pursuant to this Agreement.
7.1.4 Any matter, act, thing or occurrence caused by or resulting from
any act or omission of Mountain Resorts or any of the Shareholders on or prior
to the date of Closing or the operation of the Mountain Resorts Business on or
prior to the Effective Date.
7.2 Indemnification by Acquisition LLC. Acquisition LLC shall defend,
indemnify and hold harmless Mountain Resorts from and against any and all
claims, threats, liabilities, taxes, interest, fines, penalties, suits, actions,
proceedings, demands, damages, losses, costs and expenses (including attorneys'
and experts' fees and court costs) of every kind and nature arising out of,
resulting from, or in connection with:
7.2.1 Any matter, act, thing or occurrence caused by or resulting from
any act or omission of Acquisition LLC (including acts or omissions of the
employees referred to in Section 1.3.1(iii)) from and after the Closing or from
the operation of the Mountain Resorts Business from and after the Effective Date
to the Closing, provided that the foregoing indemnity shall not include any
matter resulting in whole or in part from Mountain Resorts' or any Shareholder's
involvement in the activities and operations of Acquisition LLC or the Mountain
Resorts Business from and after the Effective Date, as members or employees of
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Exhibit 10.45
Acquisition LLC, which indemnity shall be governed by the provisions of the
Operating Agreement and the provisions of law applicable to employers and
employees generally.
7.2.2 Any nonfulfillment, failure to comply or breach by Resort Group
of or with any covenant, promise or agreement of Resort Group contained in this
Agreement.
7.3 Indemnification by Resort Group. Resort Group shall defend, indemnify
and hold Mountain Resorts from and against any and all claims, threats,
liabilities, taxes, interest, fines, penalties, suits, actions, proceedings,
demands, damages, losses, costs and expenses (including attorneys' and experts'
fees and court costs) of every kind and nature arising out of, resulting from,
or in connection with:
7.3.1 Any misrepresentation or breach by Resort Group of any of its
representations or warranties contained in this Agreement.
7.3.2 Any nonfulfillment, failure to comply or breach by Resort Group
of or with any covenant, promise or agreement of Resort Group contained in this
Agreement.
7.4 Defense of Claims. In the event of any claim, threat, liability, tax,
interest, fine, penalty, suit, action, proceeding, demand, damage, loss, cost or
expense with respect to which indemnity is or may be sought hereunder (an
"Indemnity Claim"), the indemnified party shall promptly notify the indemnifying
party of such Indemnity Claim, specifying in reasonable detail the Indemnity
Claim and the circumstances under which it arose. The indemnifying party may
elect to assume the defense of such Indemnity Claim, at its expense, by written
notice to the indemnified party given within 10 days after the indemnifying
party receives notice of the Claim, and the indemnifying party shall promptly
engage counsel reasonably acceptable to the indemnified party to direct and
conduct such defense; provided, however, that the indemnified party shall have
the right to engage its own counsel, at its own expense, to participate in such
defense. In the event the indemnifying party does not so elect to assume the
defense of such Indemnity Claim in the manner specified above, or if, in the
reasonable opinion of counsel to the indemnified party, there are defenses
available to the indemnified party which are different from or additional to
those available to the indemnifying party or which give rise to a material
conflict between the defense of the indemnified party and of the indemnifying
party, then upon notice to the indemnifying party, the indemnified party may
elect to engage separate counsel to conduct its defense, at the expense of the
indemnifying party, and the indemnifying party shall not have the right to
direct or conduct such defense.
7.4.1 In the event the indemnifying party assumes the defense of any
Indemnity Claim, it may at any time notify the indemnified party of its
intention to settle, compromise or satisfy such Indemnity Claim and may make
such settlement, compromise or satisfaction (at its own expense) unless within
twenty (20) days after the giving of such
Page 107 of 114
<PAGE>
Exhibit 10.45
notice the indemnified party shall give notice of its intention to assume the
defense of the Indemnity Claim, in which event the indemnifying party shall be
relieved of its duty hereunder to indemnify the indemnified party. Unless the
indemnified party shall have given the notice referred to in the preceding
sentence, (i) the indemnified party shall not consent to or make any settlement,
compromise or satisfaction with respect to the Indemnity Claim without the prior
written consent of the indemnifying party, which consent shall not be
unreasonably withheld, and (ii) any settlement, compromise or satisfaction made
by the indemnifying party with respect to such Indemnity Claim shall be deemed
to have been consented to by and shall be binding upon the indemnified party.
8. Miscellaneous.
8.1 Survival of Representations Warranties and Agreements. All of the
representations, warranties, covenants, promises and agreements of the parties
contained in this Agreement (or in any document delivered or to be delivered
pursuant to this Agreement or in connection with the Closing) shall survive the
execution, acknowledgment, sealing and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
8.2 Certain Definitions. As used throughout this Agreement, the following
terms have the following meanings:
"Affiliate" has the meaning ascribed to such term in Rule 405
promulgated under the Securities Act, as such rule is in effect on the date
hereof.
"Bankruptcy Code" means the United States Bankruptcy Code, 11 U.S. C.
Section 101 et seq., and all future acts supplemental thereto or amendatory
thereof.
"Governing Documents" means, with respect to a corporation, its
articles of incorporation, bylaws or similar documents, as amended to date; with
respect to a limited liability company, its articles of organization, operating
agreement and similar documents, as amended to date; and with respect to any
other entity, its organizational and governing instruments, no matter now named.
"Person" means an individual, partnership, limited liability company,
corporation, trust, unincorporated organization, government, or agency or
political subdivision of a government.
"SEC" means the Securities and Exchange Commission, or any other
Federal agency at the time administering the Securities Act or the Exchange Act.
Page 108 of 114
<PAGE>
Exhibit 10.45
"Securities Act" means the Securities Act of 1933, or any similar
Federal statute, and the rules and regulations of the SEC promulgated
thereunder, all as the same shall be in effect at the relevant time.
8.3 Notices. All notices, demands, consents, and other communications which
are required or may be given under this Agreement (collectively, a "Notice")
shall be in writing and shall be given either (a) by personal delivery, or (b)
by certified or registered U.S. mail, return receipt requested, postage prepaid,
to the following addresses:
If to Mountain Resorts or any of the Shareholders as applicable:
Mountain Resorts, Inc.
H. David Zabel
Patricia H. Zabel
Glen D. Zabel
Alice T. Klauzer
41225 Routt County Road 36
P.O. Box 773742
Steamboat Springs, CO 80477
with a courtesy copy to:
Sarah D. Claassen, Esquire
P.O. Box 774064
Steamboat Springs, CO 80477
If to Resort Group:
Resort Group, LLC
810 Lincoln Avenue, Suite 200
P.O. Box 774671
Steamboat Springs, CO 80477
Attention: Anthony E. Van Baak
and
GPA, Ltd.
400 South El Camino Real, Suite 1100
San Mateo, CA 94402
Attention: Andrew Batinovich
Page 109 of 114
<PAGE>
Exhibit 10.45
with a courtesy copy to:
Weiss, Van Scoyk & Coe, LLP
P.O. Box 880550
Steamboat Springs, CO 80488
or to such other address of which written notice in accordance with this Section
8.3 shall have been provided by such party. Notices may only be given in the
manner hereinabove described in this Section 8.3 and shall be deemed received
when given in such manner.
8.4 Entire Agreement. This Agreement (including the Exhibits hereto and the
Ancillary Agreements) constitutes the full, entire and integrated agreement
between the parties hereto with respect to the subject matter hereof, and
supersedes all prior negotiations, correspondence, understandings and agreements
among the parties hereto respecting the subject matter hereof. All Exhibits are
incorporated into this Agreement by reference.
8.5 Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties hereto.
8.6 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, each other Person who is indemnified
under any provision of this Agreement, and their respective heirs, personal and
legal representatives, guardians and successors. Nothing in this Agreement,
express or implied, is intended to confer upon any other Person any rights,
remedies, obligations, or liabilities.
8.7 Severability. Any provision of this Agreement which is held by a court
of competent jurisdiction to be prohibited or unenforceable shall be ineffective
to the extent of such prohibition or unenforceability, without invalidating or
rendering unenforceable the remaining provisions of this Agreement.
8.8 Amendment; Waiver. No provision of this Agreement may be amended,
waived, or otherwise modified without the prior written consent of all of the
parties hereto. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement herein contained. The waiver by any party hereto
of a breach of any provision or condition contained in this Agreement shall not
operate or be construed as a waiver of any subsequent breach or of any other
conditions hereof.
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<PAGE>
Exhibit 10.45
8.9 Section Headings. The section and other headings contained in this
Agreement are for reference purposes only and shall not affect the meaning or
interpretation of this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
8.11 Applicable Law. This Agreement is made and entered into, and shall be
governed by and construed in accordance with, the laws of the State of Colorado.
8.12 Remedies.
8.12.1 General. The parties hereto acknowledge that the Mountain
Resorts Business which is the subject matter of this Agreement is unique; that
any claim for monetary damages may not constitute an adequate remedy; and that
it may therefore be necessary for the protection of the parties and to carry out
the terms of this Agreement to apply for the specific performance of the
provisions hereof. It is accordingly hereby agreed by all parties that no
objection to the form of the action or the relief prayed for in any proceeding
for specific performance of this Agreement shall be raised by any party, in
order that such relief may be expeditiously obtained by an aggrieved party. All
parties may proceed to protect and enforce their rights hereunder by a suit in
equity, transaction at law or other appropriate proceeding, whether for specific
performance or for an injunction against a violation of the terms hereof or in
aid of the exercise of any right, power or remedy granted hereunder or by law,
equity or statute or otherwise. No course of dealing and no delay on the part of
any party hereto in exercising any right, power or remedy shall operate as a
waiver thereof or otherwise prejudice its rights, powers or remedies, and no
right, power or remedy conferred hereby shall be exclusive of any other right,
power or remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise.
8.12.2 Right of Offset and Suspension of Payment. Notwithstanding any
other provision of this Agreement, in the event (i) any of the Shareholders or
Mountain Resorts breach any of their representations or warranties, or default
in the performance of any of their obligations pursuant to this Agreement or the
Noncompetition Covenants; (ii) it is necessary for Acquisition LLC or Resort
Group to pay after Closing any obligation of Mountain Resorts or any of the
Shareholders (excluding only the Assumed Liabilities and obligations of the
Mountain Resorts Business after the Effective Date); (iii) Acquisition LLC or
Resort Group is entitled to be indemnified or defended by Mountain Resorts
pursuant to Section 7; or (iv) a claim is made against Acquisition LLC or Resort
Group which Acquisition LLC or Resort Group, in good faith, believes will be
within clauses (i), (ii) or (iii) above, then Acquisition LLC or Resort Group
may give notice to Mountain Resorts of
Page 111 of 114
<PAGE>
Exhibit 10.45
the loss, claim, payment, action or other matter, and Mountain Resorts shall
have a reasonable time under the circumstances, but not to exceed thirty (30)
days, in which to pay the loss, expense, claim or matter in question or take
other action satisfactory to pay, satisfy or contest (to a conclusion) such
loss, claim, action or other matter. If Mountain Resorts fails to do so or the
third-party claimant prevails, Acquisition LLC and Resort Group shall have the
right (but not the obligation), without further notice, to pay or otherwise
satisfy such expense, claim or other matter in the amount necessary to remove
any threat, liability or adverse action involving Acquisition LLC, Resort Group,
or their assets, and in addition to all other available rights and remedies,
Resort Group may withhold and deduct all amounts expended from the next payments
due pursuant to the Purchaser Note or any note given in payment for the Put the
amount of any such loss, cost or expense, including reasonable attorneys' fees,
incurred or suffered by Acquisition LLC or Resort Group. Acquisition LLC and/or
Resort Group may exercise this right of offset pursuant to this Section without
any prior judicial determination with respect thereto. Further, Resort Group may
suspend payment of amounts owing under the Purchaser Note or the Put during any
period that a breach or violation of this Agreement or the Noncompetition
Covenants by Mountain Resorts or any Shareholder. The foregoing remedies are in
addition to, and not in lieu of, any other rights of offset or other remedies
available to Acquisition LLC or Resort Group under this Agreement and the
Ancillary Agreements, at law or otherwise.
8.13 Further Assurances. Mountain Resorts and Shareholders jointly and
severally agree to execute and deliver, after the date hereof, without
additional consideration, such further assurances, instruments and documents,
and to take such further actions, as Resort Group may request in order to
fulfill the intent of this Agreement and the transactions contemplated hereby.
8.14 Enforcement. Venue for any action brought to enforce the terms of this
Agreement may be in the District Court of Routt County, Colorado or any other
place where venue is proper at the election of the enforcing party. In the event
it is necessary to enforce the terms of this Agreement, the prevailing party
shall be entitled to an award of its attorneys' fees and costs.
8.1S Tax Risks. Mountain Resorts and Shareholders have consulted with and
received advice from their own tax advisers with respect to the federal and
state income tax consequences to them of the transactions contemplated by this
Agreement. Without limiting any other provision of this Agreement, Mountain
Resorts and Shareholders acknowledge and agree that no representation or
warranty of any nature has been made to them by Resort Group, its members or
their representatives and advisers regarding the tax consequences of the
transactions contemplated by this Agreement. In entering into this Agreement and
consummating the transactions contemplated hereby, Mountain Resorts and
Shareholders are relying solely on advice received from their own tax advisers.
Mountain Resorts and Shareholders further acknowledge that they have been
advised as to the tax risks of the
Page 112 of 114
<PAGE>
Exhibit 10.45
transactions contemplated by this Agreement, and that the consideration payable
by Resort Group pursuant to this Agreement has been adjusted to fully compensate
them for tax risks.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement under seal, with the intention of making it a sealed instrument, on
the date first above written.
SHAREHOLDERS: /s/ H. David Zabel
H. David Zabel
/s/ Patricia H. Zabel
Patricia H. Zabel
/s/ Glen D. Zabel
Glen D. Zabel
/s/ Alice T. Klauzer
Alice T. Klauzer
MOUNTAIN RESORTS:
MOUNTAIN RESORTS, INC., a
Colorado corporation
By /s/ H. David Zabel, President
H. David Zabel, President
ACQUISITON LLC: MOUNTAIN RESORTS ACQUISITION, LLC,
A Colorado limited liability company
By /s/ Anthony E. Van Baak
Anthony E. Van Baak,
General Manager
Page 113 of 114
<PAGE>
Exhibit 10.45
RESORT GROUP:
RESORT GROUP, LLC, a Colorado
limited liability company
By /s/ Anthony E. Van Baak
Anthony E. Van Baak,
General Manager
Page 114 of 114
<PAGE>
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