SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
Commission File Number: 0-19989
Stratus Properties Inc.
Incorporated in Delaware 72-1211572
(IRS Employer Identification No.)
98 San Jacinto Blvd., Suite 220, Austin, Texas 78701
Registrant's telephone number, including area code: (512) 478-5788
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
On September 30, 1998, there were issued and outstanding
14,288,270 shares of the registrant's Common Stock, par value
$0.01 per share.
STRATUS PROPERTIES INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 8
Report of Independent Public Accountants 9
Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Part II. Other Information 16
Signature 18
Exhibit Index E-1
<PAGE> 2
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1998 1997
----------- ----------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,724 $ 873
Accounts receivable:
Property sales 843 1,265
Other, including income tax of $140,000 4,169 316
Prepaid expenses 397 473
----------- ---------
Total current assets 9,133 2,927
Real estate and facilities, net 98,940 105,274
Investment in unconsolidated affiliates 2,494 -
Other assets 7,190 4,553
----------- ---------
Total assets $ 117,757 $ 112,754
=========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 1,867 $ 1,231
Accrued interest, property taxes and other 1,499 1,789
----------- ---------
Total current liabilities 3,366 3,020
Long-term debt 33,117 37,118
Other liabilities 6,144 6,009
Mandatorily redeemable preferred stock 10,000 -
Stockholders' equity 65,130 66,607
----------- ---------
Total liabilities and stockholders' equity $ 117,757 $ 112,754
=========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1998 1997 1998 1997
--------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $ 6,239 $ 4,037 $ 12,302 $ 24,298
Costs and expenses:
Cost of sales 4,512 4,033 9,165 18,568
General and administrative expenses 683 641 3,182 2,120
------- ------- -------- --------
Total costs and expenses 5,195 4,674 12,347 20,688
------- ------- -------- --------
Operating income (loss) 1,044 (637) (45) 3,610
Interest expense, net (495) (547) (1,480) (1,608)
Other income, net 17 4,646 48 5,404
------- ------- -------- --------
Income (loss) before income taxes
and minority interest 566 3,462 (1,477) 7,406
Income tax provision - - - (220)
Minority interest - (7) - (15)
------- ------- -------- --------
Net income (loss) $ 566 $ 3,455 $ (1,477) $ 7,171
======= ======= ======== ========
Net income (loss) per share:
Basic $0.04 $0.24 $(0.10) $0.50
===== ===== ====== =====
Diluted $0.03 $0.24 $(0.10) $0.50
===== ===== ====== =====
Average shares outstanding:
Basic 14,288 14,288 14,288 14,288
====== ====== ====== ======
Diluted 16,205 14,550 14,288 14,485
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
--------------------
1998 1997
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(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (1,477) $ 7,171
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 54 91
Cost of real estate sold 10,564 21,605
Minority interest share of net income - 15
(Increase) decrease in working capital:
Accounts receivable and other (3,354) 1,150
Accounts payable and accrued liabilities 346 (2,348)
Long term receivable and other (2,504) (3,221)
-------- -------
Net cash provided by operating activities 3,629 24,463
-------- -------
Cash flow from investing activities:
Real estate and facilities (4,284) (6,820)
Investment in ABC West Phase I Joint Venture (494) -
Investment in Oly Walden Partnership (1,999) -
-------- -------
Net cash used in investing activities (6,777) (6,820)
-------- -------
Cash flow from financing activities:
Proceeds from preferred stock issuance 10,000 -
Repayment of credit facility, net (6,000) (15,807)
Proceeds from convertible debt facility 1,999 -
-------- -------
Net cash provided by (used in) financing activities 5,999 (15,807)
-------- -------
Net increase in cash and cash equivalents 2,851 1,836
Cash and cash equivalents at beginning of year 873 2,108
-------- -------
Cash and cash equivalents at end of period $ 3,724 $ 3,944
======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
STRATUS PROPERTIES INC.
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Stratus Properties Inc. (STRS or the Company), formerly FM Properties Inc.,
operates through a partnership in which STRS owned a 99.8 percent interest
until December 1997 when STRS acquired the remaining 0.2 percent interest
from the outside managing partner (See Note 1 of "Notes to Financial
Statements" in the 1997 Annual Report on Form 10-K). As a result of this
acquisition, STRS restated previously reported interim 1997 financial
results to reflect application of consolidation accounting for its
partnership investment rather than the equity method.
2. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per
Share," which simplifies the computation of earnings per share (EPS). STRS
adopted SFAS 128 in the fourth quarter of 1997 and restated prior years'
EPS data as required by SFAS 128.
Basic net income (loss) per share was calculated by dividing net
income applicable to common stock by the weighted-average number of common
shares outstanding during the period. Third-quarter 1998 diluted net
income per share of common stock was calculated by dividing net income
applicable to common stock by the weighted-average number of common shares
outstanding during the period plus the net effect of dilutive stock
options, which represented approximately 202,000 shares. The third-quarter
1998 calculation also assumes the conversion of the Company's approximate
1.7 million shares of mandatorily redeemable preferred stock into 1.7
million shares of common stock and takes into account that the Company had
$2.0 million of outstanding convertible debt, for a period of one day, that
if converted would represent approximately 3,000 shares of common stock.
The diluted loss per share calculation for the 1998 nine-month period
excludes as anti-dilutive the conversion of the mandatorily redeemable
preferred stock and convertible debt discussed above, as well as
outstanding options to purchase approximately 303,000 shares of common
stock, considering the loss for the period. The Company had options
outstanding representing approximately 262,000 and 197,000 shares of common
stock in the third quarter and nine months of 1997, respectively, which
were included in these period's dilutive net income per share calculations.
Outstanding options to purchase 299,000 and 235,000 shares of common
stock at average exercise prices of $6.14 and $5.23 per share for the third
quarter of 1998 and 1997, respectively, and outstanding options to purchase
289,000 and 235,000 shares of common stock at average exercise prices of
$6.19 and $5.23 per share for the nine months ended September 30, 1998 and
1997, respectively, were not included in the computation of diluted net
income (loss) per share because exercise prices were greater than the
average market price for the periods presented.
3. NEW ACCOUNTING STANDARD
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activity," which establishes accounting and
reporting standards requiring that every derivative instrument be recorded
in the balance sheet as either an asset or liability measured at its fair
value. SFAS 133 requires that changes in a derivative's fair value be
recognized currently in earning unless specific hedge accounting criteria
are met. SFAS 133 is effective for fiscal years beginning after June 15,
1999. STRS currently uses no derivatives thus adoption of SFAS 133 would
have no impact on STRS' earnings or financial position.
4. LONG-TERM DEBT
In December 1997, STRS entered into a restructured credit facility
consisting of a $35.0 million revolving credit facility and a $15.0 million
term loan facility, with individual borrowings bearing interest at rates
based on the lead lender's prime rate or LIBOR, at STRS' option. The
aggregate commitment will decline to $35.0 million on January 1, 1999,
<PAGE> 6
$15.0 million on January 1, 2000 and will be eliminated on January 1, 2001.
Accordingly, the Company would classify any borrowings on this credit
facility in excess of $35 million as current maturities of long-term debt
during 1998. As of September 30, 1998, credit facility borrowings totaled
$31.1 million of STRS' $33.1 million outstanding long-term debt. IMC
Global Inc. (IGL) has guaranteed amounts borrowed under the facility in
exchange for an annual fee, payable quarterly, equal to the difference
between STRS' cost of LIBOR-funded borrowings before the assumption of the
guarantee by IGL and the rate on the LIBOR-funded loans under the new
facility. STRS cannot amend or refinance the facility without IGL's
consent. At September 30, 1998, the amount available under the facility,
net of outstanding letters of credit and including available cash was $22.3
million, which on January 1, 1999 would be reduced to $7.3 million. For
further discussion of the restructured credit facility, see Note 4 of
"Notes to the Financial Statements" in STRS' 1997 Annual Report on Form 10-
K. STRS had $2.0 million of additional long-term debt outstanding on
September 30, 1998 resulting from its borrowing on a convertible debt
facility (see Notes 5 and 8 below).
5. OLYMPUS TRANSACTION
On May 22, 1998, STRS and Olympus Real Estate Corporation (Olympus), an
affiliate of Hicks, Muse, Tate & Furst Incorporated, formed a strategic
alliance to develop certain of STRS' existing properties and to pursue new
real estate acquisition and development opportunities. Under the terms of
the agreement, Olympus made a $10 million investment in STRS mandatorily
redeemable preferred stock, provided a $10 million convertible debt
financing facility to STRS and agreed to make available up to $50 million
of additional capital representing its share of direct investments in joint
STRS/Olympus projects. Olympus has the right to nominate up to 20 percent
of STRS' Board of Directors.
The $10 million mandatorily redeemable preferred stock was issued at a
stated value of $5.84 per share, the average closing price of STRS common
stock during the 30 trading days ended March 2, 1998. STRS used the
proceeds from the sale of these securities to repay debt. For further
discussion about mandatorily redeemable preferred stock see Note 6 below.
The $10 million convertible debt facility is available to STRS in
whole or in part until May 22, 2004 and is intended to fund STRS' equity
investment in new STRS/Olympus joint venture opportunities involving
properties not currently owned by STRS. On September 30, 1998, STRS
borrowed $2.0 million on this convertible debt facility to fund its
investment in the Oly Walden General Partnership (see Note 8). Interest
under this facility accrues at 12 percent and is payable quarterly or added
to principal at Olympus' option. Outstanding principal under the facility
is convertible at any time by the holder into STRS common stock at a
conversion price of $7.31, which is 125 percent of the average closing
price of STRS common stock during the 30 trading days ended March 2, 1998.
If not converted into common stock, the convertible debt matures on May
22, 2004. If the combination of interest at 12 percent and the value of
the conversion right does not provide Olympus with at least a 15 percent
annual return on the convertible debt, STRS must pay Olympus additional
interest upon retirement of the convertible debt in an amount necessary to
yield a 15 percent annual return. The convertible debt is nonrecourse to
STRS and will be secured solely by STRS' interest in STRS/Olympus joint
venture opportunities financed with the proceeds of the convertible debt.
Through May 22, 2001, Olympus has agreed to make available up to $50
million for its share of capital for direct investments in STRS/Olympus
joint acquisition and development activities. In return, STRS has provided
Olympus with a right of first refusal to participate for no less than a 50
percent interest in all new acquisition and development projects on
properties not currently owned by STRS, as well as development
opportunities on existing properties in which STRS seeks third-party equity
participation.
6. MANDATORILY REDEEMABLE PREFERRED STOCK
STRS has outstanding 1,712,328 shares of mandatorily redeemable preferred
stock, stated value of $5.84 per share. Each share of preferred stock will
share dividends and distributions, if any, ratably with STRS common stock.
The preferred stock is redeemable at the holder's option at any time after
May 22, 2001, for cash in an amount per share equal to 95 percent of the
average closing price per share of common stock for the 10 trading days
preceding the redemption date (the "common stock equivalent value") or, at
STRS' option, after May 22, 2003 for the greater of the common stock
equivalent value or their stated value per share, plus accrued and unpaid
dividends, if any. The preferred stock must be redeemed no later than May
22, 2004. STRS has the option to satisfy the redemption with shares of its
common stock on a one-for-one share basis, subject to certain limitations.
<PAGE> 7
7. LITIGATION
STRS is involved in numerous pending litigation matters with the City of
Austin and others, which may affect its property development entitlements
and ability to secure reimbursement of approximately $25 million relating
to development of its Circle C property. Refer to Item 3 "Legal
Proceedings" and Note 3 "Real Estate" in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 for a detailed discussion of
such litigation matters. For discussion of litigation events subsequent to
the Annual Report on Form 10-K refer to "Capital Resources and Liquidity"
and Part II - Other Information, "Legal Proceedings" included elsewhere in
this interim report on Form 10-Q.
8. INVESTMENT IN JOINT VENTURE/GENERAL PARTNERSHIP
On September 30, 1998, STRS entered into a joint venture with Olympus to
develop a 75 residential lots in the Barton Creek ABC West Phase I
subdivision. In the transaction STRS sold its entire interest in the
project to the Oly Stratus ABC West I Joint Venture (the joint venture) for
$3.3 million, of which $1.65 million was deferred and will be recognized
upon sale of the developed lots by the joint venture. STRS received $2.1
million in cash, a $1.2 million note and made an equity contribution of
$0.5 million representing its 50 percent ownership interest in the joint
venture. STRS will continue as developer and manager of the project
receiving management fees and commissions, as well as other incentives for
its services. STRS will account for its investment in the joint venture
using the equity method.
Also, on September 30, 1998, STRS acquired a 50 percent interest in
the Oly Walden General Partnership (the partnership), which owns the Walden
on Lake Houston project purchased by Olympus in April 1998. STRS paid
approximately $2.0 million for its investment in the general partnership,
borrowing funds available to it under its $10 million convertible debt
facility with Olympus (see Note 5). STRS will continue to manage this
property, which currently includes over 700 developed lots and 80 acres of
platted but undeveloped real estate. STRS will receive management fees and
commissions for its services. STRS will account for its investment in this
general partnership using the equity method.
On September 30, 1998, the partnership entered into an $8.2 million
project loan agreement with a commercial bank to fund the remaining
development of the Walden on Lake Houston project. The three year,
variable rate loan is nonrecourse to the partnership and is secured by the
property held by the partnership. Interest is payable monthly and at the
partnership's option accrues at either the bank's prime rate or the
Eurodollar rate. On October 1, 1998, the partnership borrowed $6.1 million
on this loan and used the proceeds to repay the outstanding land
acquisition and development costs incurred on the project through September
30, 1998. As required under the loan agreement, on October 1, 1998 a
wholly owned subsidiary of STRS deposited with the bank $2.5 million of
restricted cash as additional collateral for the loan. This restricted
cash balance may be reduced by $0.30 for every $1.00 in principal
reduction. Olympus will pay STRS interest at 12 percent per annum for its
50 percent share, net of interest earned on the deposit.
--------------------
Remarks
The information furnished herein should be read in conjunction with STRS'
financial statements contained in its 1997 Annual Report to stockholders
included in its Annual Report on Form 10-K. The information furnished
herein reflects all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods. All such
adjustments are, in the opinion of management, of a normal recurring
nature.
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Stratus Properties Inc.:
We have reviewed the accompanying condensed balance sheet of Stratus
Properties Inc. (the Company), a Delaware corporation, as of September 30,
1998, and the related statements of operations for the three and nine-month
periods ended September 30, 1998 and 1997, and the statements of cash flow
for the nine-month periods ended September 30, 1998 and 1997. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the financial statements referred to above for them to be
in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of Stratus Properties Inc. as of December 31,
1997, and the related statements of operations, stockholders' equity and
cash flow for the year then ended (not presented herein), and in our report
dated January 20, 1998, based on our audit, we expressed an unqualified
opinion on those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December 31, 1997,
is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
/s/ARTHUR ANDERSEN LLP
San Antonio, Texas
October 20, 1998
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
OVERVIEW
Stratus Properties Inc. (STRS or the Company) is engaged in the
acquisition, development and sale of commercial and residential real estate
properties. STRS' principal real estate holdings are in the Austin, Texas
area and consist of approximately 2,450 acres of undeveloped residential,
multifamily and commercial property within the Barton Creek development,
approximately 1,300 acres of undeveloped commercial and multi-family
property within the Circle C Ranch development, and approximately 500 acres
of undeveloped residential, multi-family and commercial property known as
the Lantana tract, south of and adjacent to the Barton Creek development.
STRS also owns approximately 160 developed lots, 200 acres of
undeveloped residential property and 75 acres of undeveloped commercial and
multi-family property located in Dallas, Houston and San Antonio, Texas
which are being actively marketed. These real estate interests are managed
by professional real estate developers who have been retained to provide
master planning, zoning, permitting, development, construction and
marketing services for the properties. Under the terms of these
agreements, operating expenses and development costs, net of revenues, are
funded by STRS, and the developers are entitled to a management fee and a
25 percent interest in the net profits, after recovery by STRS of its
investments and a stated return, resulting from the sale of properties
under their management.
TRANSACTIONS WITH OLYMPUS REAL ESTATE CORPORATION (OLYMPUS)
On September 30, 1998, STRS and Olympus agreed to enter into two
separate joint real estate transactions, pursuant to a strategic alliance
entered into on May 22, 1998 (see Note 5)
The first transaction involved the sale of STRS' ABC West Phase I
subdivision tract to a joint venture owned 50 percent each by STRS and
Olympus. The joint venture, Oly Stratus ABC West I Joint Venture, agreed
to pay $3.3 million for the 28 acre tract, which is expected to yield 75
developed single-family lots to be completed and marketed by early 1999.
STRS received cash of $2.1 million, a note for $1.2 million and made an
equity contribution of $0.5 million. Under terms of the joint venture,
STRS will continue as developer and manager of the project receiving
management fees and commissions, as well as other incentives for its
services. The joint venture has received a project loan commitment for
$3.4 million, which will be secured by the property held in the joint
venture. Upon closing of the project loan the joint venture will reimburse
STRS $1.6 million for development costs already incurred in the project and
for certain Travis County fiscal deposits previously funded by STRS.
The second transaction involved STRS acquiring a 50 percent interest
in the Oly Walden, General Partnership, which owns the Walden on Lake
Houston project that Olympus purchased in April 1998. STRS paid $2.0
million for its share of the general partnership, borrowing funds available
under its $10 million convertible debt facility with Olympus (see Note 5).
STRS will continue to manage this property, which currently includes over
700 developed lots and 80 acres of platted but undeveloped real estate.
STRS will receive management fees and commissions for its services. As of
September 30, 1998, STRS had negotiated agreements that provide for the
sale of approximately 90 percent of the developed lots. These agreements
require the purchasers to close on the lots pursuant to a specific
schedule, which STRS anticipates will result in the sale of all such lots
over a four year period. Approximately 200 lots have already closed and
funded under these agreements.
DEVELOPMENT ACTIVITIES
Development is progressing at several sections of the Barton Creek
project, including the construction of utility infrastructure which will
serve a significant portion of the 2,450 acres of undeveloped property at
Barton Creek, and preliminary development of approximately 200 new single-
family homesites surrounding a new Tom Fazio-designed golf course. STRS
expects these homesites to be available for sale by 2000. Permitting and
entitlement issues now being litigated, however, raise uncertainty about
the timing of completion of the projects in Barton Creek.
<PAGE> 10
At the Lantana project, STRS has completed construction of a water
system to serve the approximately 500 undeveloped acres remaining in the
project. The City of Austin over the next three years will reimburse STRS
$3.0 million for costs associated with the construction of the pump station
at Lantana, with the first $1.0 million payment anticipated in the first
quarter of 1999. The property is planned to accommodate up to 2.5 million
square feet of commercial space, 1,100 multi-family units, and 330 single-
family lots. STRS has commenced work on the 70,000 square foot first phase
of its 140,000 square foot Lantana Corporate Center. The project has
received all required permits and approvals from the City of Austin. STRS
is currently pursuing the final development permits for the 330 lots which
represent the residential component of the Lantana project.
<TABLE>
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RESULTS OF OPERATIONS
STRS' summary operating results follow (In Thousands):
Third Quarter Nine Months
---------------- ----------------
1998 1997 1998 1997
------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues:
Developed properties $ 4,311 $ 4,037 $ 10,104 $ 9,227
Undeveloped properties and other 1,928 - 2,198 15,071
------- ------- -------- -------
Total revenues 6,239 4,037 2,302 24,298
Operating income (loss) 1,044 (637) (45) 3,610
Net income (loss) 566 3,455 (1,477) 7,171
</TABLE>
Revenues from developed properties represented the sale of 46 and 154
single-family units during the third-quarter and nine-month periods of
1998, respectively, compared with the sale of 66 and 151 single-family
homesites, respectively, during the 1997 periods. Undeveloped property
revenue for the third-quarter and nine month periods of 1998 reflect the
sale of 45 and 47 acres of undeveloped property, respectively, compared
with zero and 194 acres of undeveloped commercial and multi-family property
during the same periods last year. The 45 acres of undeveloped property
sold in the third quarter of 1998 reflects the sale of 28 acres of Barton
Creek residential property to the Oly Stratus ABC West I joint venture (see
Note 8) and 17 acres of additional undeveloped property within the ABC
Midsection subdivision of Barton Creek for a total of $3.6 million, of
which $1.65 million was deferred. (See "Transactions with Olympus" above.)
STRS remains committed to its business strategy of developing single-
family homesites and evaluating commercial development opportunities rather
than selling undeveloped tracts of property, despite the sale of these two
sections. The tract STRS sold in the ABC Midsection subdivision had limited
development potential and STRS will continue as developer of the property
held by the ABC West I joint venture. Revenues from sales of developed
properties during the third quarter of 1998 reflect the sale of 5 lots in
Barton Creek and 41 lots in Houston, Dallas and San Antonio.
Cost of sales decreased to $9.2 million for the nine months ended
September 30, 1998 from $18.6 million for the same period last year. The
decrease resulted primarily from the reduction in sales of the Company's
undeveloped properties from 194 acres during the 1997 nine-month period to
47 acres during the comparable 1998 period. Reimbursement of certain
infrastructure costs, which were previously charged to expense, relating to
properties previously sold of approximately $0.8 million and $3.1 million
during the 1998 and 1997 nine-month periods, respectively, together with
proceeds from the sale of 41 Barton Creek club memberships for
approximately $1.1 million in the third-quarter and nine-month periods of
1998, also contributed to the decrease in cost of sales. The Company has
fewer than 25 Barton Creek club memberships remaining, with an estimated
value of approximately $0.8 million. Sales of these memberships will
continue but the exact timing of the sales cannot be accurately estimated.
General and administrative expenses increased during the nine months
ended September 30, 1998, to $3.2 million from $2.1 million during the
comparable period last year. The increase resulted primarily from the
Company's ongoing efforts to resolve, through litigation, attempts by the
City of Austin to restrict the Company's development entitlements and to
secure reimbursements of approximately $25 million of infrastructure costs
incurred in the development of the Circle C property. Legal expenses for
the nine months of 1998 totaled approximately $1.2 million. General and
administrative expenses were $0.7 million and $0.6 million during the third
quarter of 1998 and 1997, respectively.
During 1995, legislation was enacted that enabled the Company to
create a series of municipal utility districts (MUDs) to serve the Barton
Creek development. Once established, the MUDs issue bonds, the proceeds of
which are used to reimburse the Company for costs related to the
installation of major utility, drainage and water quality infrastructure.
During the first nine months of 1998, the Company received approximately
$4.6 million in partial reimbursement of infrastructure costs relating to
the Barton Creek and Circle C developments. The proceeds were used in part
to fund current development expenditures and to repay debt. The Company
expects to receive additional reimbursements for previously incurred
infrastructure costs related to the Barton Creek development from the
proceeds of MUD bonds issued in the future. However, the timing and the
amount of future reimbursements are uncertain. See Part II, Item 1, "Legal
Proceedings" for information regarding litigation concerning Circle C
reimbursable costs.
Net interest expense totaled $495,000 and $1,480,000 in the 1998
third-quarter and nine-month periods, respectively, compared to $547,000
and $1,608,000 during the same periods one year ago. The decrease reflects
lower average debt outstanding in the current year. In addition,
capitalized interest for the third-quarter and nine-month periods of 1998
was $47,000 and $293,000, respectively, compared to $342,000 and $1,174,000
for the comparable periods of 1997.
Other income totaled $4.6 million and $5.4 million for the third-
quarter and nine-month periods of 1997. These amounts are primarily the
result of the Company's September 1997 sale of several working interests
and overriding royalty interests in oil and gas properties for $4.5
million, which resulted in a $4.5 million gain. In addition, the third-
quarter and nine-month periods included royalty income generated from these
properties, prior to their sale, of $0.1 million and $0.8 million,
respectively.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operations totaled $3.6 million during the nine
months ended September 30, 1998 compared with $24.5 million during the nine
months ended September 30, 1997. The decrease reflects the substantial
reduction of undeveloped commercial properties sold and the funding of
Travis County fiscal deposits and reimbursable infrastructure construction
costs of approximately $3.0 million during the first nine months of 1998.
Cash used in investing activities of $6.8 million for the nine months ended
September 30, 1998 reflects net real estate and facilities costs of $4.3
million and STRS' investment in two joint ventures of $2.5 million (see
Note 8). The nine-month period of 1997 reflects net, real estate and
facilities costs of $6.8 million. Financing activities provided cash of
$6.0 million during the nine months ended September 30, 1998 from the
issuance of the mandatorily redeemable preferred stock associated with the
Olympus transaction (see Note 6), drawing approximately $2.0 million on the
convertible debt facility (see Note 5) offset in part by net repayments of
$6.0 million on the credit facility (see Note 4). STRS used the excess
proceeds to fund real estate development expenditures. Higher revenues in
the prior year, mainly from the sale of undeveloped properties, allowed the
Company to repay $15.8 million of outstanding debt during the nine months
ended September 30, 1997.
STRS development expenditures during the first nine months of 1998
were funded largely from borrowings under its credit facility, which
provides aggregate available credit of $50 million through December 31,
1998, reducing to $35 million through December 31, 1999 and $15 million
through December 31, 2000. At September 30, 1998, outstanding debt on this
credit facility totaled $31.1 million and the amount available under the
facility, net of outstanding letters of credit and including available cash
was $22.3 million, which on January 1, 1999 would be reduced to $7.3
million. Anticipated capital expenditures for the remainder of 1998 are
expected to be funded by operating cash flow and additional borrowings,
with the level of such capital expenditures subject to change based on the
resolution of ownership of certain reimbursements of previously incurred
infrastructure costs and other legal and regulatory issues, as further
discussed in Part II, Item 1, "Legal Proceedings."
On September 30, 1998, the Oly Walden General Partnership, a 50
percent owned, unconsolidated subsidiary of STRS (see Note 8 and
Transaction with Olympus), entered into an $8.2 million project loan
agreement with a commercial bank to fund the remaining development of the
Walden on Lake Houston project. The three year, variable rate loan is
nonrecourse to the partnership and is secured by the property held by the
partnership. Interest is payable monthly and accrues at either the bank's
prime rate or the Eurodollar rate at the partnership's option. On October
1, 1998, the partnership borrowed $6.1 million on this loan and used the
proceeds to repay the outstanding land acquisition and development costs
incurred on the project through September 30, 1998. As required under the
loan agreement, on October 1, 1998 a wholly owned subsidiary of STRS
deposited with the bank $2.5 million of restricted cash as additional
collateral for the loan. This restricted cash balance may be reduced by
$0.30 for every $1.00 in principal reduction. Olympus will pay STRS
interest at 12 percent per annum for its 50 percent share, net of interest
earned on the deposit. STRS may be required to deposit additional
restricted cash for similar joint venture loans in the future.
The future performance of STRS continues to be dependent on future
cash flows from real estate sales, which will be significantly affected by
future real estate values, regulatory issues, development costs, the
ability of the Company to continue to protect its land use and development
entitlements, and interest rate levels. Significant development
expenditures remain to be incurred for STRS' Austin-area properties prior
to their eventual sale. These factors, combined with the debt reduction
requirements under the credit facility, could impede STRS' ability to
develop its properties and expand its business. The closing of the Olympus
transaction (see Note 5) improved the Company's capital resources by
providing the Company $10 million from equity proceeds and provides for up
to an additional $60 million of capital in the future, subject to certain
conditions. The Company is continuing to consider a number of other
capital raising alternatives, including various forms of debt financing,
joint venture/partnership arrangements with Olympus and other means. While
bank financing for development of the Company's existing properties is
available, obtaining land acquisition financing is generally expensive and
remains uncertain. Although STRS believes its efforts will successfully
address the capital resource needs discussed above, there can be no
assurance that STRS will generate sufficient cash flow or obtain sufficient
funds to make required interest and principal payments under the facility.
IMPACT OF YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") issue is the result of computerized systems being
written to store and process the year portion of dates using two digits
rather than four. Date-aware systems (i.e. any system or component that
performs calculations, comparisons, sequencing or other operations
involving dates) may fail or produce erroneous results on or before January
1, 2000 because the year 2000 will be interpreted as the year 1900.
STRS State of Readiness
STRS has been pursuing a strategy to ensure all its significant computer
systems will be Y2K compliant, i.e, able to process dates from and after
January 1, 2000, including leap years, without critical systems failure
(Y2K Compliant or Y2K Compliance). Certain computerized business systems
and related services are provided under contract by a services company
currently owned 10 percent by STRS (the Services Company) which is
responsible for ensuring Y2K Compliance for the systems it manages. The
Services Company has separately prepared a plan for its Y2K Compliance.
Progress of the Y2K plan is being monitored by STRS executive management
and reported to the Audit Committee of the STRS Board of Directors. In
addition, the independent accounting firm functioning as STRS' internal
auditors is assisting management in monitoring the progress of the Y2K
plan. STRS believes all critical components of the plan are on schedule for
completion by the end of the second quarter of 1999.
The majority of computerized date-sensitive hardware and software
components used by STRS or the Services Company are covered by maintenance
contracts with the vendors who originally implemented them. Almost all of
these vendors have already been contacted regarding Y2K Compliance of their
products. Where necessary, software modifications to ensure compliance
will be provided by the appropriate vendors under their maintenance
contracts.
Information Technology (IT) Systems. The major STRS system which is not
fully Y2K Compliant is its accounting system. By the end of 1998 the
Services Company will install, for an affiliated entity, a Y2K Compliant
version of the same accounting system used by STRS, allowing any
installation issues to be identified and rectified prior to installation of
this system at STRS in the second quarter of 1999. FMS also provides
payroll and cash disbursements processing for STRS. The Services Company
has implemented the Y2K version of the payroll interface software and will
conduct Y2K Compliance testing of third party-provided payroll services in
early 1999. The Services Company will also conduct Y2K testing of the
interfaces to its primary bank and bank-provided computerized disbursement
services in early 1999 after the bank has completed its internal Y2K
Compliance work.
Non-IT Systems. With a few minor exceptions involving water quality and
other environmental monitoring and associated laboratory analysis systems,
STRS does not rely upon process control, engineering, or other "Non-IT"
systems in its business. STRS expects to complete an assessment of its
risks in this area during the first quarter of 1999.
Third Party Risks. STRS computer systems are not widely integrated with
the systems of their suppliers or customers. The primary potential risk
attributable to third parties would be from a temporary disruption of STRS
operations due to a failure by a supplier to meet its contractual
obligations for services and/or materials (rather than a failure associated
with integrated computer systems). An assessment of third-party risk is
scheduled for completion in the fourth quarter of 1998. Based on
preliminary work performed to date, STRS does not believe overall risk from
third parties is significant.
The Costs to Address STRS Y2K Issues
Expenditures for the necessary modifications required during 1998 and
1999 will largely be funded by routine software and hardware maintenance
fees paid by STRS or the Services Company to the related software
providers. Based on current information, STRS believes that the cost of
Y2K Compliance will not be material and will be provided for through its
normal operating and capital budgets. If the software modifications and
conversions referred to above are not made, or are delayed, the Y2K issue
could have a material impact on STRS operations. Additionally, current
estimates are based on management's best estimates, which are derived using
numerous assumptions of future events including the continued availability
of certain resources, third party modification plans and other factors.
There also can be no assurance that the systems of other companies will be
converted on a timely basis or that failure to convert will not have a
material adverse effect on STRS.
The Risks of STRS Y2K Issues
Based on preliminary risk assessment work conducted thus far, STRS
believes the most likely Y2K-related failures would probably be temporary
disruption in certain materials and services provided by third parties,
which would not be expected to have a material adverse effect on STRS'
financial condition or results of operations. A more definitive assessment
of this risk will be available at the conclusion of the risk assessment
phase of the Y2K project, which is scheduled for completion in the fourth
quarter of 1998.
STRS Contingency Plans
Companies, including STRS, cannot make Y2K Compliance certifications
because the ability of any organization's systems to operate reliably after
midnight on December 31, 1999 is dependent upon factors that may be outside
the control of, or unknown to, the organization. In Securities and
Exchange Commission (SEC) Staff Legal Bulletin No. 5, the SEC opined that
"it is not, and will not, be possible for any single entity or collective
enterprise to represent that it has achieved complete Year 2000 compliance
and thus to guarantee its remediation efforts. The problem is simply too
complex for such a claim to have legitimacy. Efforts to solve Year 2000
problems are best described as `risk mitigation'."
Although STRS believes the likelihood of any or all of the above risks
occurring to be low, specific contingency plans are being developed to
address certain risk areas. The schedule for contingency plan development
has a projected completion date of March, 1999. While there can be no
assurances that STRS will not be materially adversely affected by Y2K
problems, it is committed to ensuring that it is fully Y2K ready and
believes its plans adequately address the above-mentioned risks.
CAUTIONARY STATEMENT
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements regarding future
reimbursement for infrastructure costs, future events related to financing
and the IGL guarantee, the anticipated outcome of the litigation and
regulatory matters, the expected results of STRS' business strategy, Y2K
Compliance and other plans and objectives of management for future
operations and activities. Important factors that could cause actual
results to differ materially from STRS' expectations include, economic and
business conditions, business opportunities that may be presented to and
pursued by the Company, changes in laws or regulations and other factors,
many of which are beyond the control of the Company and other factors that
as described in more detail under the heading "Cautionary Statements" in
STRS' Form 10-K for the year ended December 31, 1997.
----------------------------
The results of operations reported and summarized above are not necessarily
indicative of future operating results.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is involved in various regulatory matters and litigation
involving development of its Austin properties. For a detailed discussion
on these matters see Item 3, "Legal Proceedings" and Note 3, "Real Estate"
in STRS' 1997 Annual Report on Form 10-K.
Below is a partial list of the cases in which the Company is currently
involved. The current status is summarized and should be read in
conjunction with the above referenced sections of the STRS 1997 Annual
Report on Form 10-K.
Annexation Litigation: Circle C Land Corp. v. The City of Austin, Texas,
Cause No. 97-13994 (Travis County 53rd Judicial District Court, TX filed
12/19/97).
In December 1997, the City of Austin (the "City") enacted an
ordinance purporting to annex all land within the Southwest Travis County
Water District, including the Company's Circle C lands. The Company filed
suit seeking reimbursement of developer funded municipal utility districts
("MUD") infrastructure costs that the City is required to pay the Company
as a result of the annexation. A summary judgement hearing is currently set
for November 24, 1998 to establish the City's liability for developer
reimbursements. A jury trial, if necessary, is scheduled for January 20,
1999.
Circle C WQPZ Litigation: L.S. Ranch, Ltd. and Circle C Land Corp., v. The
City of Austin, Texas, Cause No. 97-1048 (Hays County 207th Judicial
District Court, TX filed 10/31/97).
In November 1997, the Company sought a declatory judgement in the
Hays County District Court confirming the validity of the Circle C Water
Quality Protection Zone ("WQPZ"), which includes approximately 553 acres
owned by the Company and located outside the boundaries of any MUD. The
City contested the Hays County District Court's jurisdiction but was denied
in its motion to transfer venue and all other requested relief. The City
appealed the trial court's decision to the Third Court of Appeals. The City
also requested that the Third Court of Appeals stay any action in the Hays
County District Court, including the Company's motion for summary judgment,
pending the Third Court of Appeals' review of the District Court's denial
of the plea to the jurisdiction. The Third Court of Appeals refused to
stay the summary judgment and, in response, the City filed a writ with the
Texas Supreme Court. The Supreme Court accepted the writ and stayed all
underlying litigation. Subsequently, the Third Court of Appeals confirmed
the trial court's denial of the plea to the jurisdiction. The Company then
filed a motion to lift the stay with the Supreme Court. The Supreme Court
issued an order lifting the stay allowing the Hays County District Court
litigation to proceed to summary judgment and resolution. On September 4,
1998, following summary judgment hearing, the Hays County District ruled
that the WQPZ enabling legislation was constitutional and the WQPZ validly
created. The City of Austin requested a stay of the Hays County District
Court's order, which was denied. Subsequently, the City filed for
injunctive relief in the Court of Appeals for the Third District of Texas,
which the appellate court denied. On October 1, 1998, the city filed a
petition for writ of injunction with the Supreme Court of Texas reiterating
its request to stay the Hays County District Court's ruling. On October
22, 1998, the Supreme Court granted a temporary stay. It is anticipated
that the Hays County District Court's ruling concerning the
constitutionality of the enabling legislation and the validity of the WQPZ
will be appealed or resolved in connection with the Supreme Court's
resolution of the City of Austin, Texas v. Horse Thief Hollow Ranch, Ltd.,
et al described below.
The City's WQPZ Action: The City of Austin, Texas v. Horse Thief Hollow
Ranch, Ltd. et al., Cause No. 98-00248 (Travis County 345th Judicial
District Court, TX filed 1/9/98).
On January 9, 1998, the City filed a lawsuit (the "Travis County
Suit") in the Travis County District Court against 14 water quality zones
and their owners, including the Barton Creek WQPZ. The City challenges the
constitutionally of the legislation authorizing the creation of water
quality zones. The Attorney General of Texas agreed to intervene in the
Travis County suit and the Circle C WPQZ litigation above, to defend the
legislation. The City filed a motion for partial summary judgement against
one defendant and against the State of Texas. All defendant parties filed
motions with regard to summary judgement. A summary judgment hearing was
conducted in the Travis County District Court on July 9, 1998. The Travis
County District Court entered an order granting the City of Austin's
summary judgment motion and declaring the water quality zone legislation
unconstitutional. All parties agreed to the form of an order which permits
an expedited appeal directly to the Supreme Court of Texas. The Company,
and other defendant parties, filed appeals. The Texas Supreme Court has
noted probable jurisdiction and set an expedited briefing and hearing
schedule. Oral argument will be presented to the Texas Supreme Court on
December 9, 1998.
MUD Reimbursement Litigation: Circle C Land Corp. v. Phoenix Holdings,
Ltd., Cause No. 97-01388 (Travis County 261st Judicial District Court, TX
filed 2/5/97).
During February 1997, STRS filed a petition for declaratory judgement
against Phoenix Holding Ltd. ("Phoenix") in order to secure its ownership
of approximately $25 million of MUD reimbursements that pertain to existing
infrastructure that serves the Circle C development. Phoenix filed a
counter claim against Circle C in June 1997. On February 20, 1998 the
District Court granted the Company's motion for summary judgement on the
primary case and Phoenix dismissed its counterclaims with prejudice, but
reserved the right to appeal the summary judgement of the primary case. On
April 10, 1998, Phoenix appealed the summary judgement on the primary case
to the Third Court of Appeals. A hearing has been scheduled for December
9, 1998 and a ruling is expected in the first half of 1999.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit Index
appearing on page E-1 hereof.
(b) One Current Report on Form 8-K, was filed by the registrant
reporting an event under Item 5 on September 9, 1998 during the
period covered by this Quarterly Report on Form 10-Q.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STRATUS PROPERTIES INC.
By: /s/ C. Donald Whitmire, Jr.
----------------------------
C. Donald Whitmire, Jr.
Vice President & Controller
(authorized signatory and
Principal Accounting Officer)
Date: November 13, 1998
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of
Incorporation of the Company. Incorporated
by reference to Exhibit 3.1 to the Company's
1992 Form 10-K.
3.2 By-laws of the Company, as amended.
Incorporated by reference to Exhibit 3.2 to
the Company's 1992 Form 10-K.
4.1 The Company's Certificate of Designations of
Series A Participating Cumulative Preferred
Stock. Incorporated by reference to Exhibit
4.1 to the Company's 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992
between the Company and Mellon Securities
Trust Company, as Rights Agent. Incorporated
by reference to Exhibit 4.2 to the Company's
1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as
of April 21, 1997 between the Company and the
Rights Agent. Incorporated by reference to
Exhibit 4 to the Company's Current Report on
Form 8-K dated April 21, 1997.
4.4 Amended, Restated and Consolidated Credit
Agreement dated as of December 15, 1997 among
the Partnership, Circle C Land Corp., certain
banks, and The Chase Manhattan Bank, as
Administrative Agent and Document Agent.
Incorporated by reference to Exhibit 4.4 to
the 1997 Form 10-K.
4.5 Certificate of Designations of the Series B
Participating Preferred Stock of Stratus
Properties Inc. Incorporated by reference to
Exhibit 4.1 to the Company's Current Report
on Form 8-K dated June 3, 1998.
4.6 Investor Rights Agreement, dated as of May
22, 1998, by and between Stratus Properties
Inc. and Oly/Stratus Equities, L.P.
Incorporated by reference to Exhibit 4.2 to
the Company's Current Report on Form 8-K
dated June 3, 1998.
4.7 Loan Agreement, dated as of May 22, 1998, by
and among Stratus Ventures I Borrower L.L.C.,
Oly Lender Stratus, L.P. and Stratus
Properties Inc. Incorporated by reference to
Exhibit 4.3 to the Company's Current Report
on Form 8-K dated June 3, 1998.
10.1 Third Amended and Restated Agreement of
General Partnership of FM Properties
Operating Co. dated as of December 15, 1997
between the Company and STRS L.L.C.
Incorporated by reference to Exhibit 10.1 to
the Company's 1997 Form 10-K.
10.2 Amended and Restated Services Agreement,
dated as of December 23, 1997 between FM
Services Company and the Company.
Incorporated by reference to Exhibit 10.2 to
the Company's 1997 Form 10-K.
10.3 Joint Venture Agreement between Freeport-
McMoRan Resource Partners, Limited
Partnership and the Partnership, dated June
11, 1992. Incorporated by reference to
Exhibit 10.3 to the Company's 1992 Form 10-K.
<PAGE> E-1
10.4 Development and Management Agreement dated
and effective as of June 1, 1991 by and
between Longhorn Development Company and
Precept Properties, Inc. (the _Precept
Properties Agreement_). Incorporated by
reference to Exhibit 10.8 to the Company's
1992 Form 10-K.
10.5 Assignment dated June 11, 1992 of the Precept
Properties Agreement by and among FTX
(successor by merger to FMI Credit
Corporation, as successor by merger to
Longhorn Development Company), the
Partnership and Precept Properties, Inc.
Incorporated by reference to Exhibit 10.9 to
the Company's 1992 Form 10-K.
10.6 STRS Guarantee Agreement dated as of December
15, 1997 by the Company. Incorporated by
reference to Exhibit 10.6 to the Company's
1997 Form 10-K.
10.7 Amended and Restated IGL Guarantee Agreement
dated as of December 22, 1997 by IMC Global
Inc. Incorporated by reference to Exhibit
10.7 to the Company's 1997 Form 10-K.
10.8 Master Agreement, dated as of May 22, 1998,
by and among Oly Fund II GP Investments,
L.P., Oly Lender Stratus, L.P., Oly/Stratus
Equities, L.P., Stratus Properties Inc. and
Stratus Ventures I Borrower L.L.C.
Incorporated by reference to Exhibit 99.1 to
the Company's Current Report on Form 8-K
dated June 3, 1998.
10.9 Securities Purchase Agreement, dated as of
May 22, 1998, by and between Oly/Stratus
Equities, L.P. and Stratus Properties Inc.
Incorporated by reference to Exhibit 99.2 to
the Company's Current Report on Form 8-K
dated June 3, 1998.
10.10 Oly Stratus ABC West I Joint Venture
Agreement between Oly ABC West I, L.P. and
Stratus West I.L.P. dated September 30, 1998.
10.11 Amendment No. 1 to the Oly Stratus ABC
West I Joint Venture Agreement dated November
9, 1998.
10.12 Management Agreement between Oly Stratus
ABC West I Joint Venture and Stratus
Management L.L.C. dated September 30, 1998.
10.13 Loan Agreement dated September 30, 1998
between Oly Stratus ABC West I Joint Venture
and Oly Lender Stratus, L.P.
10.14 General Partnership Agreement dated
April 8, 1998 by and between Oly/Houston
Walden, L.P. and Oly/FM Walden, L.P.
10.15 Amendment No. 1 to the General
Partnership Agreement dated September 30,
1998 by and among Oly/Houston Walden, L.P.,
Oly/FM Walden, L.P. and Stratus Ventures I
Walden, L.P.
10.16 Development Loan Agreement dated
September 30, 1998 by and between Oly Walden
General Partnership and Bank One, Texas, N.A.
10.17 Guaranty Agreement dated September 30,
1998 by and between Oly Walden General
Partnership and Bank One, Texas, N.A.
<PAGE> E-2
10.18 Management Agreement dated April 9, 1998
by and between Oly/FM Walden, L.P. and
Stratus Management, L.L.C.
Executive Compensation Plans and Arrangements
(Exhibits 10.20 through 10.23)
10.20 The Company's Performance Incentive
Awards Program, as amended. Incorporated by
reference to Exhibit 10.21 to the STRS Annual
Report on Form 10-K for the fiscal year ended
December 31, 1994.
10.21 STRS Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.9 to
the Company's 1997 Form 10-K.
10.22 STRS Stock Option Plan for Non-Employee Directors,
as amended. Incorporated by reference to Exhibit 10.10
to the Company's 1997 Form 10-K.
10.23 Stratus Properties Inc. 1998 Stock Option Plan.
15.1 Letter dated October 20, 1998 from Arthur
Andersen LLP regarding unaudited interim
financial statement.
27.1 Financial Data Schedule.
<PAGE> E-3
OLY STRATUS ABC WEST I JOINT VENTURE
(A Texas Joint Venture)
JOINT VENTURE AGREEMENT
__________________________________
Dated as of September 30, 1998
__________________________________
TABLE OF CONTENTS
Page
ARTICLE 1
Definitions
1.1 Definitions 1
ARTICLE 2
Organization
2.1 Formation of Joint Venture 6
2.2 Name 6
2.3 Character of Business 6
2.4 Registered Office and Agent 7
2.5 Fiscal Year 7
ARTICLE 3
Capital Contributions
3.1 Capital Contributions to the Partnership 7
3.2 Additional Capital Contributions 7
3.3 No Return of Capital Contributions 9
3.4 Interest 10
ARTICLE 4
Rights and Obligations of Partners
4.1 Management of Partnership 10
4.2 Management Committee 10
4.3 Major Decisions 12
4.4 Budgets and Reports 12
4.5 Powers of the Operating Partner 12
4.6 Liability of Partners 13
4.7 Other Activities of Partners 13
ARTICLE 5
Exculpation and Indemnity
5.1 Exculpation 13
5.2 Indemnity 13
ARTICLE 6
Distributions and Allocations
6.1 Distributions 14
6.2 Tax Allocations 14
ARTICLE 7
Admissions, Transfers and Withdrawals
7.1 Admission of New Partners 14
7.2 Transfer of Partnership Interests 15
7.3 Buy/Sell 15
7.4 No Substituted Partners 17
7.5 Withdrawal of Partners 18
ARTICLE 8
General Accounting Provisions and Books
8.1 Books of Account; Tax Returns 18
8.2 Place Kept; Inspection 18
8.3 Tax Matters Partner 18
ARTICLE 9
Amendments and Waivers
9.1 Amendments and Waivers 18
9.2 Certain Other Amendments 19
ARTICLE 10
Dissolution and Termination
10.1 Dissolution 19
10.2 Accounting on Dissolution 20
10.3 Termination 20
10.4 No Negative Capital Account Obligation 20
10.5 No Other Cause of Dissolution 21
10.6 Merger 21
ARTICLE 11
Miscellaneous
11.1 Waiver of Partition 21
11.2 Entire Agreement 21
11.3 Severability 21
11.4 Notices 21
11.5 Governing Laws 22
11.6 Successors and Assigns 22
11.7 Counterparts 22
11.8 Headings 22
11.9 Other Terms 22
11.10 Power of Attorney 22
11.11 Transfer and Other Restrictions 23
OLY STRATUS ABC WEST I JOINT VENTURE
JOINT VENTURE AGREEMENT
This Joint Venture Agreement (this "Agreement") of OLY
STRATUS ABC WEST I JOINT VENTURE, a Texas joint venture (the "
Partnership"), is made effective as of September 30, 1998 (the
"Effective Date"), by and between Oly ABC West I, L.P., a Texas
limited partnership, as the financial partner (the "Financial
Partner") and Stratus ABC West I, L.P., a Texas limited
partnership, as the operating partner (the "Operating Partner").
(The Financial Partner and the Operating Partner are collectively
referred to herein as the "Partners").
RECITALS
A. The parties hereto desire to form a joint venture under
the Act (as defined below).
B. The Partnership is being formed for the purpose of
acquiring, owning, developing and reselling that certain property
located in Travis County, Texas and known as Lots 1 through 26
and Lots 137 through 185, inclusive, Block A, Barton Creek ABC
West Phase I (the "Property").
C. The initial Partners hereto desire to enter into this
Agreement to establish their respective rights and obligations
with respect to the Partnership and to provide for the orderly
management of the affairs of the Partnership.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Partners hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. As used in this Agreement, the
follow-ing terms shall have the following meanings:
"Act" shall have the meaning set forth in Section 2.1.
"Affiliate" shall mean, when used with reference to a
specified Person, any other Person that directly or
indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the
specified Person. As used in this definition of Affiliate,
the term "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of
the management and policies of a Person, whether through
ownership of voting securities, by contract, or otherwise.
"Business" shall mean all tangible and intangible
property of the Partnership as of the date of the Buy/Sell
offer and any proceeds therefrom subject to all obligations
or liabilities associated therewith.
"Business Day" shall mean any day other than a
Saturday, Sun-day, or holiday on which national banking
associations in the State of Texas are authorized or
required to be closed.
"Business Plan" shall mean the business plan attached
hereto as Exhibit A and incorporated herein, and as may be
amended from time to time in accordance with the provisions
hereof or as may attached hereto within sixty (60) days of
the execution of this Agreement upon approval of the
Management Committee.
"Buy-Sell" shall have the meaning set forth in Section
7.3.
"Buy/Sell Closing Date" shall have the meaning set
forth in Section 7.3.
"Buy/Sell Election Period" shall have the meaning set
forth in Section 7.3.
"Buy/Sell Offer" shall have the meaning set forth in
Section 7.3.
"Buy/Sell Purchaser" shall have the meaning set forth
in Section 7.3 .
"Buy/Sell Seller" shall have the meaning set forth in
Section 7.3.
"Capital Account" shall mean a separate account
maintained for each Partner in accordance with the
provisions of Regulation section 1.704-1(b)(2)(iv). Each
Partner shall have only one Capital Account, regardless of
the number of classes of units or other interests in the
Partnership owned by such Partner. Initially, the Capital
Account of each Partner shall have a positive balance equal
to its initial Capital Contribution. Such Capital Account
shall thereafter be adjusted in accordance with the
following provisions:
(a) Additions. The Capital Account shall be
increased by the sum of (i) except as otherwise
provided in paragraph (f) below in the case of a
contribution of a promissory note, the amount of cash
and the fair market value (determined as of the date of
contribution, without regard to section 7701(g) of the
Code, including a constructive contribution resulting
from a termination and reconstitution of the
Partnership under section 708(b)(1)(B) of the Code) of
property contributed, or deemed to have been
contributed, to the capital of the Partnership by the
Partner, net of any liabilities assumed by the
Partnership in connection with such contribution or to
which the contributed property is subject under section
752 of the Code, plus (ii) the amount of any net income
or other item of income or gain allocated to the
Partner pursuant to Article 6 hereof.
(b) Subtractions. The Capital Account shall be
reduced by the sum of (i) the amount of any net loss or
other item of expense, loss or deduction allocated to
the Partner pursuant to Article 6 hereof, plus (ii) the
Distribution Value (determined without regard to
section 7701(g) of the Code) of any cash or other
property distributed, or deemed to have been
distributed, by the Partnership to the Partner, net of
any liabilities assumed by the distributee in
connection with the distribution or to which the cash
or other distributed property is subject under section
752 of the Code.
(c) Other Adjustments. The Capital Account shall
otherwise be adjusted by the Financial Partner in
accordance with the other capital account maintenance
rules of Regulation section 1.704-1(b)(2)(iv). In
connection with the foregoing:
(d) Determination of Fair Market Value. In
determining the balance of each Partner's Capital
Account, and for all other purposes of this Agreement,
the fair market value of an asset contributed to or
distributed by the Partnership shall be determined in
good faith by the Partners (which shall use their
reasonable efforts not to overstate or understate the
fair market value of any such asset). Notwithstanding
the preceding sentence, it is understood that no
Partner shall have any obligation to contribute any
real property asset to the Partnership unless all
Partners have agreed to the fair market value of the
asset.
(e) Capital Account of Transferee. A transferee of
all or part of an interest in the capital and profits
of the Partnership shall succeed to the Capital Account
of the transferor to the extent that such Capital
Account relates to the transferred interest.
(f) Contribution of Note. Notwithstanding any other
provision of this definition of Capital Account, if a
Partner has contributed his promissory note to the
capital of the Partnership and such note is not readily
traded on an established securities market, then the
principal of such note shall not be credited to the
Partner's Capital Account until and to the extent that
either (i) the Partnership makes a taxable disposition
of the note or (ii) principal payments are made on the
note, all in accordance with Regulation section
1.704-1(b)(2)(iv)(d)(2).
"Capital Contribution" shall mean the gross amount of
cash or the fair market value of other property contributed
or caused to be contributed to the capital of the
Partnership by a Partner with respect to such Partner's
capital account.
"Cash Flow" of the Partnership for any period shall
mean any and all cash revenues generated from the ownership,
sale of lots, sale of undeveloped parcels, lease and other
operation of the Partnership assets and any and all capital
transaction proceeds minus the sum of (i) any operating and
capital expenses incurred in the operation of the business
of the Partnership, including without limitation any
payments of interest and principal (other than payments of
principal that are refinanced by the Partnership) on
Partnership indebtedness required by the lender of such
indebtedness during the quarterly period in question, and
(ii) a reasonable reserve for necessary or desirable
operating and capital expenses of the Partnership that are
anticipated to be incurred or to become due and payable
within six (6) months as the Management Committee, in the
exercise of its reasonable discretion and as is consistent
with the Operating Budget and the Business Plan, shall
determine.
"Code" shall mean the Internal Revenue Code of 1986 and
any successor statute, as amended from time to time.
"Contribution Percentage" of a Partner shall be based
on the actual equity capital contributions of such Partner
in relation to the total equity capital contributions of all
Partners.
"Deadlock" shall mean the failure of the Partners to
agree with respect to any Major Decision or other issue with
respect to the Partnership which could have a material
adverse effect or impact to the Partnership if such issue
remains unresolved between the Partners.
"Deemed Recipient" shall have the meaning set forth in
Section 3.2.
"Default Amount" shall have the meaning set forth in
Section 3.2.
"Default Date" shall have the meaning set forth in
Section 3.2.
"Defaulting Partner" shall have the meaning set forth
in Section 3.2.
"Distribution Period" shall mean (i) the period
beginning on the Effective Date and ending on December 31,
1998 and (ii) each calendar quarter thereafter.
"Distribution Value" shall mean the dollar amount of
any cash distribution and the fair market value, as jointly
determined in good faith by the Partners (each of which
shall use its reasonable efforts not to overstate or
understate fair market value), of any non-cash property
distribution at the time of the distribution, net of the
distributee's share of any liabilities to which the
distributed property is subject and net of any liabilities
assumed by the distributee.
"Effective Date" shall have the meaning set forth in
the preamble to this Agreement.
"Escrow Agent" shall have the meaning set forth in
Section 7.3.
"Financial Partner" shall mean Oly ABC West I, L.P.,
together with its successors and assigns.
"Indemnified Parties" shall have the meaning set forth
in Section 7.3 .
"Loan" shall have the meaning set forth in Section 3.1.
"Lender" shall have the meaning set forth in Section
3.1.
"Major Decision" means any decision with respect to (1)
approval of the Business Plan, including the decision to
make additional Capital Contributions except as provided in
Section 3.2(a), (2) approval of the Operating Budget, (3)
approval of the plans and specifications for the Property,
and the subsequent approval of all material change orders or
amendments given in substitution for such approved plans and
specifications, (4) approval of any financing or
refinancing, whether secured or unsecured, unless previously
approved in the Business Plan or annual Operating Budget,
(5) approval of acquisition of any additional property, (6)
approval of admission or withdrawal of any Partners to the
Partnership, (7) approval of any sale, exchange or other
disposition of the Property unless pursuant to governance
deadlock provision in Section 7.3 below or in the Business
Plan or annual Operating Budget, (8) approval of any
amendments to the Agreement, (9) approval of any termination
or dissolution of the Partnership and (10) appointment of a
successor property manager pursuant to Section 4.1.
"Management Agreement" shall have the meaning set forth
in Section 4.1.
"Management Committee" shall have the meaning set forth
in Section 4.2.
"Mandatory Additional Contribution " shall have the
meaning set forth in Section 3.2.
"Non-Defaulting Partners" shall have the meaning set
forth in Section 3.2.
"Offer Amount" shall have the meaning set forth in
Section 7.3.
"Offer Deposit" shall mean the sum of Five Hundred
Thousand and No/100 Dollars ($500,000.00) in cash.
"Offeree" shall have the meaning set forth in Section
7.3.
"Offeror" shall have the meaning set forth in Section
7.3.
"Olympus" shall have the meaning set forth in the
preamble of this Agreement.
"Olympus Representative" shall have the meaning set
forth in Section 4.2.
"Operating Budget" shall mean the budget attached
hereto as Exhibit B and incorporated herein, as may be
amended from time to time in accordance with the provisions
hereof, or to be attached hereto within sixty (60) days of
the execution of this Agreement upon approval by the
Management Committee in accordance with this Agreement.
"Operating Partner" shall mean Stratus ABC West I,
L.P., together with its successors or assigns.
"Partner" shall mean any Person executing this
Agreement as of the Effective Date as a partner or hereafter
admitted to the Partnership as a partner as provided in this
Agreement, but does not include any Person who has ceased to
be a Partner of the Partnership.
"Partnership" shall have the meaning set forth in the
preamble to this Agreement.
"Partnership Interest" shall have the meaning set forth
in Section 7.3 .
"Person" shall mean an individual, partnership, joint
venture, limited part-nership, limited liability company,
foreign limited liability company, trust, business trust,
estate, corporation, custodian, trustee, exec-utor,
administrator, nominee, association, cooperative or entity
in a representative capacity.
"Property " shall have the meaning set forth in the
preamble of this Agreement.
"Receipt Amount" shall have the meaning set forth in
Section 7.3.
"Regulation" shall mean Treasury Regulations
promulgated under Title 26 of the United States Code.
"Replacement Loan" shall have the meaning set forth in
Section 3.2.
"Representative" shall have the meaning set forth in
Section 4.2.
"Required Capital Contributions" shall have the meaning
set forth in Section 3.1.
"Required Interest" shall mean both of the Partners.
"Sharing Ratio" shall have the meaning set forth on
Schedule I attached hereto.
"Stratus" shall have the meaning set forth in the
preamble of this Agreement.
"Stratus Representative" shall have the meaning set
forth in Section 4.2.
ARTICLE 2
Organization
2.1 Formation of Joint Venture. The Partners have
formed a joint venture pursuant to and in accordance with the
provisions of the Texas Revised Partnership Act, as amended from
time to time (the "Act").
2.2 Name. The name of the Partnership is Oly Stratus
ABC West I Joint Venture. The Management Committee may change
the name of the Partnership from time to time and shall give
prompt written notice thereof to the Operating Partner; provided,
however, that such name may not contain any portion of the name
or mark of the Operating Partner without the Operating Partner's
consent.
2.3 Character of Business. The purpose of the
Partnership shall be (i) to acquire, hold, develop, sell,
encumber, or otherwise act with respect to investments, direct or
indirect, in the Property, and (ii) to engage in such other
business as may be conducted by a joint venture organized under
the laws of the State of Texas.
2.4 Registered Office and Agent. The name and address
of the Partnership's initial registered agent are Olympus Real
Estate Corporation, 200 Crescent Court, Suite 1650, Dallas, Texas
75201. The Partnership's initial principal place of business
shall be 200 Crescent Court, Suite 1650, Dallas, Texas 75201.
The Financial Partner may change such registered agent,
registered office, or principal place of business from time to
time. The Financial Partner shall give prompt written notice of
any such change to the Operating Partner. The Partnership may
from time to time have such other place or places of business
within or without the State of Texas as may be determined by the
Financial Partner.
2.5 Fiscal Year. The fiscal year of the Partnership
shall end on December 31 of each calendar year unless, for United
States federal income tax purposes, another fiscal year is
required. The Partnership shall have the same fiscal year for
United States federal income tax purposes and for accounting
purposes.
ARTICLE 3
Capital Contributions
3.1 Capital Contributions to the Partnership. The
Partners shall contribute or be deemed to have contributed
capital to the Partnership in the amounts respectively set forth
opposite their names on Schedule I to this Agreement on the
Effective Date (collectively, the "Required Capital
Contributions"). Also, in addition to the Required Capital
Contributions, the Partners acknowledge that in order to purchase
and develop the Property, the Partnership will need to secure
from a third party lender (the "Lender") a term loan, which shall
be in the amount set forth in the Business Plan and on terms and
conditions satisfactory to the Management Committee and approved
in accordance with this Agreement (the "Loan").
3.2 Additional Capital Contributions.
(a) After the funding of the Required Capital
Contribution set forth above (including any amounts deemed
to have been contributed), and to the extent not available
from proceeds of the Loan, either (i) the Partners may agree
to make additional Capital Contributions to the Partnership
as are deemed advisable by the Partners (each exercising
their independent discretion) and by amendment to the
Business Plan, or (ii) if either (A) there has been a
default or an event of default under the Loan or (B)
additional capital is necessary to complete any capital
improvement program approved in the Business Plan, or
(C) funds are necessary for continued operation of the
Property consistent with the Business, then the Financial
Partner may elect to call or not call for additional Capital
Contributions (in each case, the "Mandatory Additional
Contribution") to be made to the Partnership to cure any
default or event of default under the Loan or to complete
such capital improvement program or fund operations. The
Mandatory Additional Contribution in question shall be made
by the Partners pro rata, based on the Contribution
Percentages of the Partners. This Section 3.2 is solely for
the benefit of the Partners, and shall not, nor shall it be
deemed to, create any rights in, or provide any benefit to,
any other person or entity, and the decision to make
additional contributions to the Partnership shall be made in
the sole and absolute discretion of the Financial Partner,
except as may be provided in the Business Plan.
(b) Each Partner shall be required to make its
Mandatory Additional Contribution to the Partnership on or
before twenty-one (21) days after written notice to such
Partner ("Default Date"). In the event any Partner fails to
make a Mandatory Additional Contribution as required by this
Section 3.2 within the time period set forth herein (such
Partner, being herein referred to as the "Defaulting
Partner"), then, the "Non-Defaulting Partners" (herein so
called) shall be entitled, as their sole and exclusive
remedy for such failure, by giving written notice to the
Defaulting Partner to make a loan (the "Replacement Loan")
to the Defaulting Partner in the amount of such Mandatory
Additional Contribution, which Replacement Loan (i) shall be
applied solely to fund the delinquent Mandatory Additional
Contribution, (ii) shall have a term of one hundred twenty
(120) days from the date of such loan and (iii) shall bear
interest at the lesser of (A) eighteen percent (18%) per
annum and (B) the maximum rate of interest which may be
charged, collected or contracted for under applicable law,
with accrued interest due at the maturity of such loan (each
such Replacement Loan together with all accrued interest
thereon from time to time, the "Default Amount"). Anything
contained in this Agreement to the contrary notwithstanding,
any Partner who becomes a Defaulting Partner shall
immediately and without any further demand, notice or cure
period (time being of the essence herein) automatically
cease to have a right to vote on all Partnership decisions
from and after the Default Date for any purposes hereunder
for the remainder of the life of the Partnership (unless
reinstated as described below); provided, however, if a
Defaulting Partner shall pay the Default Amount in full to
the Non-Defaulting Partners who elected to make such loan,
on or before the expiration of the 120-day term of the
Replacement Loan to such Defaulting Partner, such Defaulting
Partner's voting rights hereunder shall be automatically re-
instated (effective as of the date such Default Amount is
paid in full) for all purposes including voting rights. If
the Default Amount is not paid in full on or before the
expiration of the 120-day period, the Defaulting Partner's
voting rights shall not be reinstated upon the subsequent
payment of the Default Amount.
(c) The Partners further agree that if the
Default Amount is not repaid to the Non-Defaulting Partners
within the 120-day term, then, without demand, notice or
cure period (time being of the essence herein), such Default
Amount shall for all purposes hereunder be deemed to be a
Capital Contribution by the Non-Defaulting Partners to the
Partnership effective as of the expiration of such 120-day
term of such Replacement Loan, which deemed Capital
Contribution shall be credited as an amount equal to the
product of 200% times the Default Amount, and the Capital
Account of the Defaulting Partner shall for all purposes be
appropriately reduced to reflect such treatment; provided,
however, with respect to any Default Amount attributable to
a Replacement Loan made more than one hundred twenty (120)
days after the initial Replacement Loan (which is not repaid
during its 120-day term) is made by one or more Non-
Defaulting Partner, the deemed Capital Contribution shall be
credited as an amount equal to the product of 300% times the
Default Amount, and in each case the distribution
percentages of the Defaulting Partner (i.e., the pro rata
share of the particular distribution which such Partner
would otherwise receive under such sections) shall be
reduced by, and the distribution percentages of each Non-
Defaulting Partner who makes its pro rata share of such loan
shall be increased by an amount equal to the quotient of (i)
200% (or 300%, as the case may be) times the Default Amount,
divided by (ii) the aggregate Capital Contributions made by
the Partners to the Partnership prior to the date of
calculation (including the Mandatory Additional
Contributions of all Non-Defaulting Partners but excluding
the Default Amount then in question).
(d) The new distribution percentages computed in
accordance with this Section 3.2 shall remain in effect
under this Agreement unless and until there is a subsequent
adjustment to the distribution percentages. Notwithstanding
the foregoing, no Partner's distribution percentage shall be
reduced under any circumstance to less than zero, nor shall
any Partner's distribution percentage be increased under any
circumstance to more than 100%. Mandatory Additional
Contributions shall be made pro rata, based on the relative
Contribution Percentages of the Partners.
(e) Each Partner which becomes a Defaulting
Partner hereby irrevocably grants to the other Partners a
continuing, first priority, perfected security interest in
the Partnership Interest of such Defaulting Partner to
secure the prompt payment of each Replacement Loan made to
such Defaulting Partner until such time, if ever, as the
Default Amount with respect to the Replacement Loan under
consideration has been converted to a deemed Capital
Contribution pursuant to Section 3.2(c). On or before
fifteen (15) days after any written request of any Non-
Defaulting Partner, the Defaulting Partner shall execute and
deliver a UCC-1 financing statement in form and substance
acceptable to such Non-Defaulting Partner to evidence such
security interest, the failure of which shall constitute a
default under the Replacement Loan. Prior to a default or
maturity of a Replacement Loan, and without limiting the
remedies of the Non-Defaulting Partners, at the election of
the Non-Defaulting Partners, all distributions payable to
any Defaulting Partner under this Agreement shall be payable
directly to the Non-Defaulting Partners (pro rata based on
the relative amount of the Replacement Loan made by such
Non-Defaulting Partner) until the Replacement Loan(s) of
such Defaulting Partner are paid in full (or converted to a
deemed Capital Contribution), shall be paid directly to the
Non-Defaulting Partners until the entire amount of the
Replacement Loan is paid in full. Any amounts paid directly
to a Non-Defaulting Partner pursuant to the terms of the
preceding sentence shall be treated as paid to the person
(the "Deemed Recipient") entitled to receive the amount of
the distribution in the absence of the requirements of the
preceding sentence (thereby discharging the Partnership's
obligation to make the payment in question to the Deemed
Recipient) and then as applied by the Deemed Recipient on
behalf of the Defaulting Partner to the repayment of the
Defaulting Partner's loan.
(f) EXCEPT AS SET FORTH IN SECTION 3.1 OR THIS
SECTION 3.2, NO ADDITIONAL CAPITAL CONTRIBUTIONS SHALL BE
REQUIRED BY ANY PARTNER UNLESS AN EXPRESS WRITTEN CALL FOR A
CAPITAL CONTRIBUTION IS MADE BY THE MANAGEMENT COMMITTEE TO
EACH OF THE PARTNERS.
3.3 No Return of Capital Contributions. No Partner is
entitled to a return of its Capital Contribution, but shall look
solely to distributions from the Partnership as provided for in
Article 6 of this Agreement.
3.4 Interest. No Partner shall be entitled to
interest on its Capital Contribution or its Capital Account,
provided that each Partner's Capital Contribution shall accrue
the Preferred Return (which shall not be deemed to be interest)
as set forth herein. Any interest actually received by reason of
temporary investment of any part of the Partnership's funds shall
be included in the Partnership's funds.
ARTICLE 4
Rights and Obligations of Partners
4.1 Management of Partnership. The management,
control and direction of the Partnership and its operations,
business and affairs shall be vested exclusively in the
Management Committee, which shall have the right, power and
authority, acting solely by itself and without the necessity of
approval by any Partner or any other person, to carry out any and
all of the purposes of the Partnership and to perform or refrain
from performing any and all acts that the Management Committee
may deem necessary, desirable, appropriate or incidental thereto,
except as otherwise provided in this Agreement; provided,
however, that the Operating Partner shall manage the Partnership
and its operations, business and affairs solely as described in
Section 4.5. The Management Committee may assume the management
duties and responsibilities of the Operating Partner as set forth
in Section 4.5 at any time in the event the Management Committee
determines in its good faith discretion that either (i) the
Operating Partner has acted negligently or with willful
misconduct in performing its duties or (ii) the monthly financial
reports of the Partnership reveal a material adverse deviation
from the Business Plan more than three (3) times within any
twelve (12) month period. The Management Committee agrees that
prior to its exercise of its right to assume the management
duties and responsibilities of the Operating Partner as result of
either default by the Operating Partner, the Management Committee
shall first deliver written notice of said default to the
Operating Partner and give the Operating Partner ten (10) days
thereafter in which to cure said default, the Operating Partner
so elects. Notwithstanding anything to the contrary provided
herein, the Property shall be managed in accordance with the
terms and conditions of that certain Management Agreement (the
"Management Agreement") dated of even date herewith by and
between the Partnership and Stratus Management L.L.C.
4.2 Management Committee.
(a) The "Management Committee" (herein so called)
shall consist of four (4) representatives, two (2) of which
shall be designated by Stratus (jointly, the "Stratus
Representative") and two (2) of which shall be designated by
Olympus (jointly, the "Olympus Representative")
(individually, a "Representative and collectively, the
"Representatives"). The initial Representatives designated
by Stratus and Olympus are set forth opposite such Partner's
name below:
Partner Initial Representative
------- --------------------------
Stratus William H. Armstrong, III
Stratus J.B. Brown
Olympus Hal R. Hall
Olympus Greg Adair
Olympus and Stratus may appoint alternates for the
Representatives appointed by it, which alternates shall have
all the powers of the Representatives in their absence or
inability to serve. Olympus hereby appoints Timothy B.
Smith as an alternate Representative. Olympus and Stratus
may change its designated Representatives effective upon
written notice from Olympus or Stratus designating such
Representative to the other Partners. One of the Olympus
Representatives shall serve as Chairman of the Management
Committee and shall set the agenda for such meetings.
(b) The Representatives shall meet quarterly (or
more often as the Management Committee may reasonably
determine) in the offices of the Partnership or by telephone
conference, unless the Representatives jointly agree that
the meeting is unnecessary or that a different schedule or
location for the meeting is appropriate, to discuss current
material management issues (but not day-to-day operations
matters which are in accordance with the operation
parameters set forth in the Business Plan, Operating Budget
or otherwise set forth in writing) or Major Decisions. At
each meeting the Representatives shall each receive one (1)
vote. All action taken by the Management Committee shall
require the approval or consent of at least three (3)
Representatives except Major Decisions which require
unanimous consent as described in Section 4.3 below.
Representatives may bring to any meeting such employees,
agents, professionals and advisors as they deem necessary or
appropriate to assist them at such meeting. A quorum shall
consist of at least one Stratus Representative and one
Olympus Representative unless both Olympus Representatives
have declined to attend two (2) consecutive meetings, which
are scheduled with at least seventy-two (72) hours prior
notice for each meeting at the offices of the Partnership,
in which event the quorum may be two (2) Stratus
Representatives, and vice versa.
(c) The Financial Partner, at the direction of
the Management Committee, shall be authorized and empowered
to (i) make all day-to-day management decisions (provided
that such decisions are consistent with the operation
parameters set forth in the Business Plan, Operating Budget
or otherwise in writing) except for Major Decisions, (ii)
direct the Operating Partner, (iii) perform all acts and
enter into and perform all contracts and other undertakings
that the Financial Partner may, in the exercise of its
reasonable discretion, deem necessary, advisable,
appropriate or incidental thereto and (provided that the
performance of such acts are consistent with the operation
parameters set forth in the Business Plan, Operating Budget
or otherwise in writing), (iv) terminate the property
manager in the event of a default in the Management Standard
(as that term is defined in the Management Agreement),
provided, if the property manager is terminated, then the
Partnership (as a Major Decision) shall designate a
successor property manager.
4.3 Major Decisions. All Major Decisions shall be made by
both the Stratus Representative and the Olympus Representative.
Accordingly, neither Stratus nor Olympus, on behalf of the
Management Committee, shall have the right or the power to make
any binding commitment on behalf of the Partnership in respect of
a Major Decision unless and until all of the Representatives have
authorized the same in writing.
4.4 Budgets and Reports.
(a) By January 31st of each calendar year
hereafter during the term hereof, the Operating Partner
shall prepare a revised Operating Budget and the Business
Plan for the operation of the Partnership. The Management
Committee shall have thirty (30) days after receipt thereof
to either approve the submitted Business Plan and Operating
Budget or respond with required changes to same.
(b) The Operating Partner agrees to use diligence
and to employ all reasonable efforts to ensure that the
actual costs of operating the Partnership shall not exceed
the Operating Budget, either in total or for any one
accounting category. The Operating Partner shall secure the
written approval of the Management Committee for any
expenditure that (i) exceeds fifteen percent (15%) of the
annual budgeted amount for the Partnership in any one
accounting category on such Operating Budget or (ii) exceeds
ten percent (10%) of the annual budgeted amount for the
Partnership in all accounting categories of the Operating
Budget. During each applicable calendar year, the Operating
Partner agrees to promptly inform the Management Committee
of any major increases in costs and expenses or any major
decreases in revenue that were not foreseen during the
budget preparation period and thus were not reflected in the
Operating Budget.
(c) The Operating Partner shall also submit any
additional financial or operational reports as the Financial
Partner may from time to time reasonably request.
4.5 Powers of the Operating Partner. Subject to
Section 4.3, the Operating Partner shall have the duties, rights
and obligations to implement the operations of the Partnership as
described in the Business Plan, Operating Budget or approved in
writing by the Management Committee. Without limiting the
generality of Section 4.1, but subject to Section 4.3 , the
Operating Partner, acting on behalf of the Partnership, shall
oversee the activities of property manager, or, if the Management
Agreement is terminated, until a successor property manager is
appointed, perform the duties, rights and obligations of the
property manager; provided, however, neither the Operating
Partner nor the property manager shall take any action that has a
material economic affect on the Partnership without the prior
approval of the Management Committee, including, without
limitation, approving the form and substance of all contracts,
loan documents or other documents necessary to operate the
business of the Partnership.
4.6 Liability of Partners. The Partners shall be
personally liable for the debts and obligations of the
Partnership if (but solely to the extent) required by applicable
law; provided, however, that all such debts and obligations shall
be paid or discharged first with the property of the Partnership
(including insurance proceeds) before the Partners shall be
obligated to pay or discharge any such debt or obligation with
its personal assets. Notwithstanding the preceding sentence, the
Partners shall not be personally liable for any debts or
obligations which are nonrecourse or which, under the terms
thereof, do not create or impose such liability.
4.7 Other Activities of Partners. Except as otherwise
agreed in writing, each Partner (i) may carry on and conduct in
any way or in any capacity, including, but not limited to, for
such Partner's own right and for such Partner's own personal
account, as a partner in any other partnership, as a venturer in
any joint venture, as a member or manager in any limited
liability company, as an employee, officer, director or
stockbroker of any corporation, or as a participant in any
syndicate, pool, trust, association or other business
organization, a business that competes, directly or indirectly,
with the business of the Partnership, (ii) will be free in any
capacity to conduct business activities the same or similar as
conducted by the Partnership and (iii) may make investments in
any kind of property. The Partnership will have absolutely no
claim or right to any such business or assets thereof. Further,
the Partnership will have claim to and will own only those assets
contributed to the Partnership or acquired with Partnership funds
or credit. Neither this Agreement nor any principle of law or
equity shall preclude or limit, in any respect, the right of any
Partner or any affiliate thereof to engage in or derive profit or
compensation from any activities or investments, nor give any
other Partner any right to participate or share in such
activities or investments or any profit or compensation derived
therefrom.
ARTICLE 5
Exculpation and Indemnity
5.1 Exculpation. Neither the Partners nor any
affiliate of the Partners, nor any officer, director, manager,
member, employee, agent, stockholder, or partner of the Partners
or any of its affiliates, shall be liable, responsible, or
accountable in damages or otherwise to the Partnership or any
Partner by reason of, or arising from or relating to the
operations, business, or affairs of, or any action taken or
failure to act on behalf of, the Partnership, except to the
extent that any of the foregoing is determined, by a final,
nonappealable order of a court of competent jurisdiction, to have
been primarily caused by the gross negligence, willful
misconduct, or bad faith of the person claiming exculpation.
5.2 Indemnity. The Partnership shall indemnify the
Partners, each affiliate of the Partners, and each officer,
director, stockholder, manager, member, and partner of the
Partners or any of its affiliates, and if so determined by the
Partners, each employee or agent of the Partners or any of its
affiliates, against any claim, loss, damage, liability, or
expense (including reasonable attorneys' fees, court costs, and
costs of investigation and appeal) suffered or incurred by any
such indemnitee by reason of, or arising from or relating to the
operations, business, or affairs of, or any action taken or
failure to act on behalf of, the Partnership, except to the
extent any of the foregoing (i) is determined by final,
nonappealable order of a court of competent jurisdiction to have
been primarily caused by the gross negligence, willful
misconduct, or bad faith of the person claiming indemnification
or (ii) is suffered or incurred as a result of any claim (other
than a claim for indemnification under this Agreement) asserted
by the indemnitee as plaintiff against the Partnership. Unless a
determination has been made (by final, nonappealable order of a
court of competent jurisdiction) that indemnification is not
required, the Partnership shall, upon the request of any
indemnitee, advance or promptly reimburse such indemnitee's
reasonable costs of investigation, litigation, or appeal,
including reasonable attorneys' fees; provided, however, that the
affected indemnitee shall, as a condition of such indemnitee's
right to receive such advances and reimbursements, undertake in
writing to repay promptly the Partnership for all such
advancements or reimbursements if a court of competent
jurisdiction determines that such indemnitee is not then entitled
to indemnification under this Section 5.2. No Partner shall be
required to contribute capital in respect of any indemnification
claim under this Section 5.2 unless otherwise provided in any
other written agreement to which such Partner is a party.
ARTICLE 6
Distributions and Allocations
6.1 Distributions. No later than thirty (30) days
after the end of each Distribution Period during which the
Partnership has Cash Flow, such Cash Flow shall be distributed,
after the payment of all third party obligations, to each Partner
in proportion to the Sharing Ratios.
6.2 Tax Allocations. For United States federal income
tax purposes, allocations of items of income, gain, loss,
deduction, expense, and credit for each fiscal year of the
Partnership shall be in accordance with each Partner's economic
interest in the respective item, as determined by the Management
Committee pursuant to Section 704(b) of the Code, and the
regulations promulgated thereunder and subject to the
requirements of Section 704(c) of the Code and the regulations
promulgated thereunder. Unless the Management Committee
determines otherwise, allocations shall be made to each Partner
in the same manner as such Partner (i) would be required to
contribute to the Partnership or (ii) would receive as
distributions if the Partnership were to liquidate the assets of
the Partnership at their book value and distribute the proceeds
in accordance with Section 6.1; provided, however, that if any
such allocation is not permitted by applicable law, the
Partnership's subsequent income, gain, loss, deduction, expense
and credit shall be allocated among the Partners so as to reflect
as nearly as possible the allocation used in computing capital
accounts.
ARTICLE 7
Admissions, Transfers and Withdrawals
7.1 Admission of New Partners. After the Effective
Date, new Partners may be admitted to the Partnership only with
the written consent of, and upon such terms and conditions as are
approved by the unanimous approval of the Management Committee.
No admission of any new Partner shall cause the Partner's
interest in Partnership allocations, distributions and capital to
be less than one percent (1%), and no Partner's Sharing Ratio in
the Partnership shall be reduced or diluted unless approved in
writing by such Partner or unless otherwise provided in any other
written agreement to which such Partner is a party.
7.2 Transfer of Partnership Interests. No Partner may
transfer or encumber all or any portion of such Partner's
interest in the Partnership without the prior written consent of
the Management Committee; provided, however, that Olympus may
transfer all or any portion of its interest in the Partnership to
an Affiliate of Olympus Real Estate Corporation without the
consent of Stratus, and provided, further, that Stratus may
transfer all or any portion of its interest in the Partnership to
a wholly owned subsidiary of Stratus Properties Inc. without the
consent of Olympus. Additionally, any interest in the
Partnership held by Olympus or its Affiliates may be transferred
in the exercise of rights of the limited partners of Olympus Real
Estate Fund II, L.P. ("Fund II") to remove the general partner
under the limited partnership agreement of Fund II.
7.3 Buy/Sell Option.
(a) In the event of a Deadlock at any time during
the term of the Partnership, either Partner may exercise a
"buy-sell" right (the "Buy-Sell") as follows: either
Partner (the "Offeror") exercising such Buy-Sell (A) shall
deliver to the other Partner (the "Offeree") a written
notice (the "Buy/Sell Offer") stating the Offeror's exercise
of such right and setting forth the Buy/Sell Offer and a
description of any negotiations or discussions with third
parties that Offeror may have had with respect to the sale
of the Partnership Interest and the Business, which Buy/Sell
Offer shall represent the dollar amount (without reduction
for any deemed or imputed expenses of sale) that the Offeror
would be willing to pay to the Partnership in cash for the
Business (the "Offer Amount") and (B) simultaneously with
the delivery of the Buy/Sell Offer, shall deliver into
escrow with a title insurance company located in Dallas,
Texas selected by the Offeror (the "Escrow Agent"), a good
faith deposit in the amount of the Offer Deposit. The
Offeror hereby instructs the Escrow Agent that the Escrow
Agent shall either (i) in the event the Offeree elects to
sell its interest in the Partnership (the "Partnership
Interest") in accordance with the terms hereof, apply such
Offer Deposit to the purchase price as of the Buy/Sell
Closing Date (as hereinafter defined) or if the Offeror
fails to timely purchase the Offeree's Partnership Interest
in accordance with the terms hereof, disburse such Offer
Deposit in accordance with Section 7.3(g), or (ii) in the
event the Offeree elects to purchase the Offeror's
Partnership Interest, disburse such Offer Deposit in
accordance with Section 7.3(e).
(b) The notice transmitting the Buy/Sell Offer
shall be deemed to constitute an offer by the Offeror to
purchase the Offeree's Partnership Interest for a price
equal to the Receipt Amount. "Receipt Amount" shall mean
the aggregate amount which the Partner whose Partnership
Interest is to be transferred, whether Offeror or Offeree,
would receive as a Partnership distribution if (i) the
Business were sold for cash for the Offer Amount, (ii) all
debts and liabilities of the Partnership but without taking
into account any deemed or imputed expenses which would
occur for the sale to third parties (e.g. imputed brokerage
fees, etc.) were paid in full from such proceeds and
(iii) prorations were made with respect to all current
assets and current liabilities of the Partnership.
(c) The Offeree shall have forty-five (45) days
from the date of the Buy/Sell Offer to elect, by written
notice to the Offeror signed by the Partner constituting the
Offeree, whether to sell such Offeree's Partnership Interest
to the Offeror or whether to purchase (or cause its designee
to purchase) the Offeror's Partnership Interest in the
Partnership (the "Buy/Sell Election Period").
(d) If the Offeree fails to make an election
within such forty-five (45) day period, or fails to comply
with subsection (e) below, such Offeree shall be
conclusively deemed to have elected to sell its Partnership
Interest in the Partnership to the Offeror according to the
terms of this Section 7.3.
(e) If the Offeree makes an election to purchase
within such forty-five (45) day period by sending written
notice to the Offeror as required by subsection (c), and by
delivering into escrow with the Escrow Agent a good faith
deposit in the amount of the Offer Deposit, then , the
original Offeror shall be conclusively deemed to have
elected to sell its Partnership Interest in the Partnership
to the Offeree for a price equal to the applicable Receipt
Amount. In the event the Offeree timely makes an election
to purchase, the Offeree hereby instructs the Escrow Agent
that the Escrow Agent shall (i) return the Offeror's Offer
Deposit to the Offeror and (ii) hold the Offeree's Offer
Deposit and shall either apply such Offeree's Offer Deposit
to the purchase price or disburse such Offeree's Offer
Deposit in accordance with Section 7.3(g).
(f) The Partner (the "Buy/Sell Purchaser") that
is obligated to purchase the Partnership Interest in the
Partnership of the other Partner (the "Buy/Sell Seller")
pursuant to this Section 7.3 shall fix a closing date (the "
Buy/Sell Closing Date") for such purchase that is not a
Business Day that is not later than forty-five (45) days
after the expiration of the Buy/Sell Election Period, by
written notice to the Buy/Sell Seller at least fifteen (15)
days in advance of Buy/Sell Closing Date. The closing of
such purchase shall take place on the Buy/Sell Closing Date
at the address of the Escrow Agent. At such closing, the
Partner constituting the Buy/Sell Seller shall execute and
deliver to the Buy/Sell Purchaser (or its designee) such
instruments of assignment, bills of sale, amendments to this
Agreement and other instruments and documents as the
Buy/Sell Purchaser and the Buy/Sell Seller (or such
designee) may reasonably require for the conveyance to such
Buy/Sell Purchaser (or such designee) of all of the Buy/Sell
Seller's right, title and interest in and to the Buy/Sell
Seller's Partnership Interest in the Partnership against
receipt by the Buy/Sell Seller of a wire transfer of
immediately available funds in an amount equal to the
applicable Receipt Amount; and the Buy/Sell Seller hereby
irrevocably constitutes and appoints the Buy/Sell Purchaser
as its attorney-in-fact to execute, acknowledge and deliver
any of such instruments or documents. Each of the Buy/Sell
Seller and Buy/Sell Purchaser shall each bear their
respective closing costs and expenses (including, but not
limited to, all attorney's fees and costs and all applicable
transfer and income taxes) incurred in the purchase or sale
of the Buy/Sell Seller's Partnership Interest in the
Partnership hereunder. Such sale of such Partnership
Interest shall be made without representation, warranty or
recourse, except for representations and warranties in form
and substance reasonably acceptable to the Buy/Sell
Purchaser and the Buy/Sell Seller with respect to existence,
good standing, title, no encumbrance, authority,
authorization, no conflicts, and such other customary
matters as may be reasonably requested by the Buy/Sell
Purchaser. If the Buy/Sell Offer or the closing of the
purchase contemplated thereby causes the maturity of any
Partnership indebtedness to be accelerated, the Buy/Sell
Seller shall be released from liability resulting from such
accelerated indebtedness and the Buy/Sell Purchaser shall
pay such indebtedness in full (including without limitation,
any accrued but unpaid interest and any prepayment premiums
or penalties) at Buy/Sell Purchaser's sole cost and expense
and shall indemnify and hold Buy/Sell Seller harmless from
and against any losses, damages, costs or expenses
(including attorneys' fees) incurred by Buy/Sell Seller, or
the Buy/Sell Seller's Affiliates, employees, agents,
representatives, consultants, attorneys, fiduciaries,
servants, officers, directors, partners, predecessors,
successors and assigns and Affiliates of the foregoing (the
"Indemnified Parties"), as a direct or indirect result
thereof, other than any losses, damages, costs or expenses
(including attorneys' fees) incurred by any of the
Indemnified Parties as a direct result of such Indemnified
Party's bad conduct. As a precondition to the closing of
the Buy/Sell transaction, the Buy/Sell Seller shall be
released from liability from any indebtedness of the
Partnership, including, without limitation, the release of
any guaranty and collateral pledged to secure any guaranty
debt. Anything contained in this Agreement to the contrary
notwithstanding, in the event the sale of the Partnership
Interest is not consummated because of a default on the part
of Buy/Sell Seller or if a condition precedent cannot be
fulfilled because Buy/Sell Seller frustrated such
fulfillment, Buy/Sell Purchaser may, at its election, pursue
an action for specific performance and/or costs and
expenses.
(g) In the event that the Buy/Sell Purchaser
defaults in its obligation to purchase the Partnership
Interest of the Buy/Sell Seller in the Partnership on the
Buy/Sell Closing Date, the Buy/Sell Seller shall have the
right to (i) solicit third party offers on behalf of the
Partnership for the purchase of the Business, to accept the
best such offer, as determined by the Buy/Sell Seller in its
sole and absolute discretion, and to consummate the sale of
the Business to such third party pursuant to such offer,
(ii) purchase the Partnership Interest of the Buy/Sell
Purchaser for a purchase price equal to ninety percent (90%)
of the aggregate Partnership distributions that the Buy/Sell
Purchaser would be entitled to receive under this Agreement
if the Business were sold for cash for the Offer Amount and
all debts and liabilities of the Partnership (excluding
imputed sale expenses) were paid in full from such proceeds
and proration were made with respect to all current assets
and current liabilities of the Partnership, (iii)
specifically enforce the Buy/Sell Purchaser's obligation to
purchase the Partnership interest of the Buy/Sell Seller,
and (iv) notify the Escrow Agent holding the Offer Deposit
of the Buy/Sell Purchaser immediately to deliver such Offer
Deposit to the Buy/Sell Seller as liquidated damages for the
breach by such Buy/Sell Purchaser (and the Buy/Sell
Purchaser covenants and agrees to cause, and hereby
instructs, the Escrow Agent to deliver such Offer Deposit to
the Buy/Sell Seller). The delivery of the Offer Deposit to
the Buy/Sell Seller shall not constitute a return of
capital. The Buy/Sell Purchaser hereby constitutes and
appoints the Buy/Sell Seller as its attorney-in-fact to
execute and deliver on behalf of the Buy/Sell Purchaser all
documents as may be reasonably required in connection with
the delivery by the Escrow Agent of the Offer Deposit to the
Buy/Sell Seller.
7.4 No Substituted Partners. Except as permitted by
Section 7.1, no transferee of any partnership interest in the
Partnership may become a substituted Partner. Rather, any
transferee of any Partnership interest of a Partner shall be
entitled solely to rights as assignee of the rights to receive
all or part of the share of the income, gains, losses,
deductions, expenses, credits, distributions, or returns of
capital to which his or its transferor would otherwise be
entitled with respect to the Partnership interest so transferred.
7.5 Withdrawal of Partners. Except as permitted by
Section 7.2 hereof, no Partner shall have any right to withdraw
or resign from the Partnership without the unanimous consent of
the Management Committee.
ARTICLE 8
General Accounting Provisions and Books
8.1 Books of Account; Tax Returns. The Financial
Partner shall prepare and file, or shall cause to be prepared and
filed, all United States federal, state, and local income and
other tax returns required to be filed by the Partnership and
shall keep or cause to be kept complete and appropriate records
and books of account in which shall be entered all such
transactions and other matters relative to the Partnership's
operations, business and affairs as are usually entered into
records and books of account that are maintained by persons
engaged in business of like character or are required by the Act.
Except as otherwise expressly provided herein, such books and
records shall be maintained in accordance with the basis utilized
in preparing the Partnership's United States federal income tax
returns, which returns, if allowed by applicable law, may upon
the approval of the Management Committee be prepared on an
accrual basis.
8.2 Place Kept; Inspection. The books and records
shall be maintained at the principal place of business of the
Partnership, and all such books and records shall be available
for inspection and copying at the reasonable request, and at the
expense, of any Partner during the ordinary business hours of the
Partnership.
8.3 Tax Matters Partner. The Financial Partner shall
be the tax matters partner of the Partnership and, in such
capacity, shall exercise all rights conferred, and perform all
duties imposed, upon a tax matters partner under Sections 6221
through 6233 of the Code and the regulations promulgated
thereunder; provided, however, that the Operating Partner shall
have the right to review and approve any actions taken by the
Financial Partner in its capacity as the tax matters partner.
Notwithstanding the foregoing, the Financial Partner shall have
the right to select the methodology to be used pursuant to
Section 704(c) of the Code subject to the Operating Partner's
consent, which consent shall not be unreasonably withheld.
ARTICLE 9
Amendments and Waivers
9.1 Amendments and Waivers. Except as expressly
provided in Section 9.3 of this Agreement, the Management
Committee may amend or waive any provision of this Agreement
which merely (i) corrects an error or clarifies an ambiguity in
this Agreement, (ii) does not adversely affect the Financial
Partner or the Operating Partner in any material respect or
(iii) changes Schedule I to this Agreement to reflect the Sharing
Ratios or Partnership Interests of the Partners as from time to
time amended in accordance with this Agreement. The Management
Committee shall amend Schedule I to this Agreement to reflect any
additional Capital Contributions. The Partners agree to look to
the books and records of the Partnership for determination of the
actual amount of Capital Contributions made to the Partnership,
as provided in Section 3.1 of this Agreement.
9.2 Certain Other Amendments. Notwithstanding any
provision to the contrary contained herein, no amendment to or
waiver of any provision of this Agreement shall be effective
against a given Partner without the consent or vote of such
Partner if such amendment or waiver would (i) cause the
Partnership to fail to be treated as a joint venture under the
Act, (ii) change Section 3.1 of this Agreement to increase a
Partner's obligation to contribute to the capital of the
Partnership, (iii) change Section 5.1 or 5.2 of this Agreement to
affect adversely any Partner's rights to exculpation or
indemnification, (iv) change Section 6.1 or 6.2 of this Agreement
to affect adversely the participation of such Partner in the
income, gains, losses, deductions, expenses, credits, capital or
distributions of the Partnership (including any amendments to
admit one or more new Partner or Partners), (v) change Section
7.1 of this Agreement to affect adversely the anti-dilution
rights of such Partner, (vi) change the percentage of Partners
necessary for any consent or vote required hereunder to the
taking of any action or (vii) amend Section 9.2 of this
Agreement.
ARTICLE 10
Dissolution and Termination
10.1 Dissolution. The Partnership shall be dissolved
upon the first to occur of the following events:
(i) the election of the both Partners to
dissolve the Partnership;
(ii) the election of the Financial Partner
to dissolve the Partnership if all or substantially all
Partnership assets shall have been sold or disposed of
or shall consist of cash;
(iii) both the Partners shall have
withdrawn from the Partnership within the meaning of
the Act, or any other dissolution event specified in
the Act shall have occurred;
(iv) the Financial Partner shall have
(A) made a general assignment for the benefit of
creditors, (B) filed a voluntary petition in
bankruptcy, (C) filed a petition or answer seeking for
itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief under any bankruptcy or debtor relief law,
(D) filed an answer or other pleading admitting or
failing to contest the material allegations of a
petition filed against it in any bankruptcy or
insolvency proceeding brought against it or (E) sought,
consented to, or acquiesced in the appointment of a
trustee, receiver or liquidator of the Financial
Partner or of all or any substantial part of its
property;
(v) if within sixty (60) days after the
commencement of any proceeding against the Financial
Partner seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or
similar relief under any bankruptcy or debtor relief
law, the proceeding shall not have been dismissed; or
(vi) if within sixty (60) days after the
appointment (without the Financial Partner's consent or
acquiescence) of a trustee, receiver or liquidator of
the Financial Partner or of all or any substantial part
of its property, the appointment shall not have been
vacated or stayed if within sixty (60) days after the
expiration of any such stay, the appointment shall not
have been vacated.
Notwithstanding the foregoing, the Partnership shall not be
dissolved upon the occurrence of an event specified in (iii)
through (vi) of this Section 10.1 if within ninety (90) days
after such occurrence a majority in interest (under applicable
federal income tax principles) of the remaining Partners agree in
writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a
successor Financial Partner.
10.2 Accounting on Dissolution. Following the
dissolution of the Partnership pursuant to Section 10.1 of this
Agreement, the books of the Partnership shall be closed, and a
proper accounting of the Partnership's assets, liabilities and
operations shall be made by the Financial Partner, all as of the
most recent practicable date. The Financial Partner shall serve
as the liquidator of the Partnership unless it has been removed
or unless it otherwise fails or refuses to serve. If the
Financial Partner does not serve as the liquidator, one or more
other persons or entities may be selected to serve by the
Operating Partner. The expenses incurred by the liquidator in
connection with the dissolution, liquidation and termination of
the Partnership shall be borne by the Partnership.
10.3 Termination. As expeditiously as practicable, but
in no event later than one year (except as may be necessary to
realize upon any material amount of property that may be
illiquid), after the dissolution of the Partnership pursuant to
Section 10.1 of this Agreement, the liquidator shall cause the
Partnership to pay the current liabilities of the Partnership and
(i) establish a reserve fund (which may be in the form of cash or
other property, as the liquidator shall determine) for any and
all other liabilities, including contingent liabilities, of the
Partnership in a reasonable amount determined by the liquidator
to be appropriate for such purposes or (ii) otherwise make
adequate provision for such other liabilities. To the extent
that cash required for the foregoing purposes is not otherwise
available, the liquidator may sell property, if any, of the
Partnership for cash. Thereafter, all remaining cash or other
property, if any, of the Partnership shall be distributed to the
Partners in accordance with the provisions of Section 6.1 of this
Agreement. The Partners must agree on the value and distributee
for all in-kind distributions or else all property must be sold
and the proceeds distributed in accordance herewith. At the time
final distributions are made in accordance with Section 6.1 of
this Agreement, a certificate of cancellation shall be filed in
accordance with the Act, and the legal existence of the
Partnership shall terminate, but if at any time thereafter any
reserved cash or property is released because in the judgment of
the liquidator the need for such reserve has ended, then such
cash or property shall be distributed in accordance with Section
6.1 of this Agreement.
10.4 No Negative Capital Account Obligation.
Notwithstanding any other provision of this Agreement to the
contrary, in no event shall any Partner who has a negative
capital account upon final distribution of all cash and other
property of the Partnership be required to restore such negative
account to zero.
10.5 No Other Cause of Dissolution. The Partnership
shall not be dissolved, or its legal existence terminated, for
any reason whatsoever except as expressly provided in this
Article 10.
10.6 Merger. Subject to the rights of the Partners
pursuant to Section 9.2, the Partnership may, with the written
consent of the Financial Partner acting with the unanimous
approval of the Management Committee, adopt a plan of merger and
engage in any merger permitted by applicable law.
ARTICLE 11
Miscellaneous
11.1 Waiver of Partition. Each Partner hereby
irrevocably waives any and all rights that he or it may have to
maintain an action for partition of any of the Partnership's
property.
11.2 Entire Agreement. This Agreement constitutes the
entire agreement among the Partners with respect to the subject
matter hereof and supersedes any prior agreement or understanding
among them with respect to such subject matter.
11.3 Severability. If any provision of this Agreement,
or the application of such provision to any person or
circumstance, shall be held invalid under the applicable law of
any jurisdiction, the remainder of this Agreement or the
application of such provision to other persons or circumstances
or in other jurisdictions shall not be affected thereby. Also,
if any provision of this Agreement is invalid or unenforceable
under any applicable law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such law. Any provision
hereof that may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other
provision hereof.
11.4 Notices. All notices, requests, demands, and
other communications hereunder shall be in writing and shall be
deemed to have been duly given if sent by overnight courier, hand
delivered, mailed (first class registered mail or certified mail,
postage prepaid), or sent by telex or telecopy if to the
Partners, at the addresses or telex or facsimile numbers set
forth on Schedule I hereto, and if to the Partnership, at the
address of its principal place of business at 200 Crescent Court,
Suite 1650, Dallas, Texas 75201 (fax 214/740-7340), or to such
other address as the Partnership or any Partner shall have last
designated by notice to the Partnership and all other parties
hereto in accordance with this Section 11.4. Notices sent by
hand delivery shall be deemed to have been given when received;
notices mailed in accordance with the foregoing shall be deemed
to have been given three days following the date so mailed;
notices sent by telex or telecopy shall be deemed to have been
given when electronically confirmed; and notices sent by
overnight courier shall be deemed to have been given on the next
business day following the date so sent.
11.5 Governing Laws. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of Texas (without regard to principles of conflicts of
laws).
11.6 Successors and Assigns. Except as otherwise
specifically provided, this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective
successors and permitted assigns.
11.7 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall constitute one and
the same instrument.
11.8 Headings. The section and article headings in
this Agreement are for convenience of reference only and shall
not be deemed to alter or affect the meaning or interpretation of
any provision hereof.
11.9 Other Terms. All references to "Articles" and
"Sections" contained in this Agreement are, unless specifically
indicated otherwise, references to articles, sections,
subsections, and paragraphs of this Agreement. Whenever in this
Agreement the singular number is used, the same shall include the
plural where appropriate (and vice versa), and words of any
gender shall include each other gender where appropriate. As
used in this Agreement, the following words or phrases shall have
the meanings indicated: (i) "or" shall mean "and/or", (ii) "day"
shall mean a calendar day, (iii) "including" or "include" shall
mean "including without limitation", and (iv) "law" or "laws"
shall mean statutes, regulations, rules, judicial orders, and
other legal pronouncements having the effect of law. Whenever
any provision of this Agreement requires or permits a Partner to
take or omit to take any action, or make or omit to make any
decision, unless the context clearly requires otherwise, such
provision shall be interpreted to authorize an action taken or
omitted, or a decision made or omitted, by the Partner acting
alone and in good faith.
11.10 Power of Attorney. By execution of this
Agreement, the Operating Partner hereby makes, constitutes and
appoints the Financial Partner, with full power of substitution
and re-substitution in the Financial Partner (in its sole
discretion), such Partner's true and lawful attorney-in-fact (the
"Attorney") for and in the Operating Partner's name, place and
stead and for its use and benefit, to prepare, execute, certify,
acknowledge, swear to, file, deliver or record any or all of the
following, authorized pursuant to the terms of this Agreement:
(i) any agreement, certificate, report,
consent, instrument, filing or writing made by or
relating to the Partnership that the Attorney deems
necessary, desirable, or appropriate for the lawful
purpose of (A) organizing the Partnership under the
Act, (B) admitting Partners with respect to the
Partnership, (C) pursuing or effecting any rights or
remedies available under this Agreement or otherwise
with respect to a defaulting Partner, (D) qualifying
the Partnership to do business in any jurisdiction and
(E) complying with any law, agreement or obligation
applicable to the Partnership;
(ii) any agreement, certificate, report,
consent, instrument, filing or writing made by or
relating to the Partnership necessary, desirable or
appropriate to effectuate the business purposes of, or
the dissolution, termination or liquidation of, the
Partnership pursuant to applicable law or the
respective terms of this Agreement; and
(iii) any amendment to or modification
or restatement of this Agreement or any other
agreement, certificate, report, consent, instrument,
filing or writing of any type described in subsection
(i) or (ii) of this Section 11.10, provided that any
amendment of or modification to this Agreement shall
first have been adopted in accordance with Article 9 of
this Agreement.
11.11 Transfer and Other Restrictions. INTERESTS
IN THE PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD UNLESS
SUCH INTERESTS HAVE BEEN REGISTERED UNDER SUCH ACT OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. INTERESTS IN THE
PARTNERSHIP ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER,
VOTING AND OTHER TERMS AND CONDITIONS SET FORTH IN (1) ARTICLE 7
AND (2) VARIOUS INVESTMENT AGREEMENTS BETWEEN OR AMONG CERTAIN
PARTNERS. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED FROM THE
PARTNERSHIP OR THE FINANCIAL PARTNER AT THEIR PRINCIPAL EXECUTIVE
OFFICES.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have executed this
instrument effective as of the Effective Date.
FINANCIAL PARTNER:
OLY ABC WEST I, L.P.,
a Texas limited partnership
By: Oly Texas GP II, LLC,
a Texas limited liability company,
its sole general partner
By:/S/ Hal R. Hall
---------------
Name: Hal R. Hall
Title:Vice President
OPERATING PARTNER:
STRATUS ABC WEST I, L.P.,
a Texas limited partnership
By: STRS L.L.C.,
a Delaware limited liability company,
General Partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
----------------------------
William H. Armstrong, III,
President & CEO
EXHIBIT A
Business Plan
[ATTACHED]
EXHIBIT B
Operating Budget
[To be attached within sixty (60) days of the Effective Date
and to encompass the 1999 Operating Budget]
SCHEDULE I
Partnership Capital Contributions and Sharing Ratios
Initial Capital Sharing
Partner and Address Contribution Ratios
Financial Partner:
Oly ABC West I, L.P. $494,250.00 50.01%
200 Crescent Court, Suite 1650
Dallas, Texas 75201
(214) 740-7340
Operating partner:
Stratus ABC West I, L.P. $494,250.00 49.99%
98 San Jacinto Blvd., Suite 2200
Austin, Texas 78701
(512) 478-6340
------------ --------
Total All Partners $988,500.00 100.00%
Exhibit 10.11
FIRST AMENDMENT TO JOINT VENTURE AGREEMENT
OF
OLY STRATUS ABC WEST I JOINT VENTURE
THIS FIRST AMENDMENT TO JOINT VENTURE AGREEMENT OF OLY STRATUS
ABC WEST I JOINT VENTURE (this "Amendment") is entered into this 9th day
of November, 1998 by and among Oly ABC West I, L.P., a Texas limited
partnership ("Olympus") and Stratus ABC West I, L.P., a Texas limited
partnership ("Stratus").
W I T N E S S E T H
WHEREAS, Oly Stratus ABC West I Joint Venture, a Texas joint
venture (the "Partnership") was formed on September 30, 1998, pursuant to
that certain Joint Venture Agreement of Oly Stratus ABC West I Joint
Venture (the "Joint Venture Agreement"), with Olympus as the Financial
Partner and Stratus as the Operating Partner.
WHEREAS, Olympus and Stratus desire to amend the Joint Venture
Agreement in certain respects.
NOW, THEREFORE, Olympus, FM and Stratus hereby agree as follows:
1. Definitions. The following terms hereby replace or are hereby
inserted as definitions in Section 1.1 of the Joint Venture Agreement:
"Development Loan Agreement" shall mean that certain
Development Loan Agreement dated November 9, 1998, by and between
Oly Stratus ABC West I Joint Venture and Bank One, Texas,
National Association.
"Escrow Deposit" shall have the meaning set forth in the
Development Loan Agreement.
2. Escrow Deposit. The following is hereby inserted as the new
Section 3.3 of the Joint Venture Agreement and the current
Section 3.3 and 3.4 are renumbered Section 3.4 and 3.5,
respectively:
3.3 Escrow Deposit. Pursuant to the Development Loan
Agreement, the Escrow Deposit was delivered by an affiliate of
the Operating Partner (the "Guarantor") on behalf of the
Partnership to Bank One, Texas. In consideration of the payment
of the Escrow Deposit by the Guarantor, the Partnership agrees to
pay to the Guarantor an amount equal to twelve percent (12%) per
annum, minus the interest accruing on the outstanding portion of
the Escrow Deposit compounded at the rate of return on the Escrow
Deposit held by Bank One, Texas (the "Interest Spread"), until
the Escrow Deposit has been released or applied to the loan
evidenced by the Development Loan Agreement. In the event the
Escrow Deposit is applied to the loan evidenced in part by the
Development Loan Agreement, the Financial Partner shall elect to
call a Mandatory Additional Contribution in an amount necessary
to reimburse the Guarantor for the portion of the Escrow Deposit
and the Interest Spread which has not been paid by the
Partnership to the Guarantor.
4. Distributions. Section 6.1 of the Joint Venture Agreement
is hereby deleted in its entirety and the following is inserted
in its place:
6.1 Distributions. No later than thirty (30) days after
the end of each Distribution Period during which the Partnership
has Cash Flow, such Cash Flow shall be distributed as set forth
below and in the order of priority as set forth below.
(i) First, to the payment of debt pursuant to the terms of the Development
Loan Agreement; then
(ii) Second, to the payment of the Escrow Deposit and the Interest Spread;
then
(iii) Third, to the payment of the Mezzanine Financing pursuant to the
terms of the Mezzanine Loan Agreement; then
(iv) Fourth, to the return, pari passu of the Capital Contributions to each
Partner; then
(v) Fifth, to each Partner in proportion to the Sharing Ratios.
Notwithstanding anything to the contrary contained in this Section
6.1, to the extent there is available Cash Flow, the Partners agree to
make distributions to the Financial Partner in the amount of its
federal income tax liability; provided, however, before any future
distributions of Cash Flow are made for items (iii) through (v) above,
the Operating Partner shall receive a proportionate distribution based
on the Sharing Ratio.
5. Release from Liability Under the Buy/Sell. The following is
hereby inserted to the end of Section 7.3(f) of the Joint Venture
Agreement:
Notwithstanding anything to contrary contained in this Agreement, in
the event the closing of the Buy/Sell transaction occurs, at such
closing the Escrow Deposit shall be paid in full by the Partnership.
6. Confirmation of the Joint Venture Agreement. Except as modified
by this Amendment, the Joint Venture Agreement is hereby confirmed.
7. Counterparts. This Amendment may be executed in several
counterparts, all of which, when taken together, shall constitute one
and the same agreement. An executed copy of this Amendment
transmitted by telecopy shall be sufficient as an original for all
purposes.
8. Captions. The captions preceding the various provisions of this
Amendment have been inserted solely for convenience of reference and
shall not be used in construing this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Olympus and Stratus have executed this Amendment
the day and year first set forth above.
OLYMPUS:
OLY ABC WEST I, L.P.,
a Texas limited partnership
By: Oly Texas GP II, LLC,
a Texas limited liability company,
its sole general partner
By:/s/ Ron J. Hoyl
------------------
Name: Ron J. Hoyl
Title: Vice President
STRATUS:
STRATUS ABC WEST I, L.P.,
a Texas limited partnership
By: STRS L.L.C.,
a Delaware limited liability company,
its general partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
-------------------------------
William H. Armstrong, III
President and CEO
Exhibit 10.12
MANAGEMENT AGREEMENT
(ABC WEST I)
THIS MANAGEMENT AGREEMENT (this "Agreement") is executed as of
the 30th day of September, 1998, to be effective conditioned upon and as of
the date of the acquisition of the Property by Owner, by and between Oly
Stratus ABC West I Joint Venture, a Texas joint venture (hereinafter called
"Owner"), and Stratus Management L.L.C., a Delaware limited liability
company (hereinafter called "Property Manager").
W I T N E S S E T H:
WHEREAS, Owner is acquiring that certain real property located in
Travis County, Texas, more particularly described on Exhibit A attached
hereto and made a part hereof for all purposes, together with all of the
improvements located thereon (collectively, the "Property"), consisting of
seventy five (75) individual lots (individually, a "Lot" and collectively,
the "Lots").
WHEREAS, Owner desires to engage Property Manager to develop, manage,
maintain and operate the Property and Property Manager desires to accept
such engagement, upon the terms and conditions hereinafter set forth.
WHEREAS, Owner has provided to Property Manager, Owner's current
Business Plan (hereinafter defined) and the operating and capital budgets
approved by Owner as of the date hereof.
NOW, THEREFORE, for and in consideration of the premises and mutual
covenants and agreements contained in this Agreement and the compensation
to be paid hereunder, Owner and Property Manager hereby agree as follows:
ARTICLE I
ENGAGEMENT OF PROPERTY MANAGER
Owner hereby engages Property Manager and Property Manager hereby
accepts such engagement on the terms and conditions hereinafter provided as
manager for the Property. Property Manager shall develop, manage, maintain
and operate the Property in an efficient and first class manner consistent
with the Business Plan and Budget (hereinafter defined) and shall exercise
due diligence in all of its endeavors. All of Property Manager's duties
under this Agreement shall be subject to funds being made available to
Property Manager by Owner for the Property Manager to perform its duties.
ARTICLE II
SERVICES TO BE PERFORMED BY PROPERTY MANAGER
2.1 Expenses. All reasonable obligations or reasonable expenses
approved by Owner in writing and incurred by Property Manager in the
performance of its duties hereunder in accordance with the provisions
hereof shall be at the expense of Owner except as otherwise specifically
provided in this Agreement. Without Owner's prior written consent or as
authorized in the Business Plan or Budget, Property Manager shall not incur
any cost not specifically set forth in the most recently approved Budget.
2.2 Contracts. To the extent necessary to fulfill its obligations
under this Agreement, Property Manager shall (i) identify and, with the
prior written approval of Owner or as set forth in the Business Plan or
Budget, enter into, in Owner's name, contracts with engineers, tradesmen
and other independent contractors to perform services necessary or
advisable for the development, operation, maintenance or repair of the
Property; and (ii) with the prior written approval of Owner or as set forth
in the Business Plan or Budget, place orders, in Property Manager's name on
behalf of Owner, for such equipment, tools, appliances, materials and
supplies as are reasonable and necessary to properly develop, maintain,
manage, operate or repair the Property. Except with the prior written
consent of Owner, every contract entered into by Property Manager for or in
connection with the Property shall include as a condition thereof the right
by Owner to terminate, with or without cause, on thirty (30) days prior
written notice, without the payment of a cancellation fee. Owner shall be
obligated to pay the cost of any contract or agreement described in this
section only if such cost is provided for in the Preliminary Budget or the
most recently approved Budget or is otherwise approved by Owner in writing.
2.3 Maintenance, Repair and Sale of Property. Property Manager shall
supervise the development and sale of the Property and shall maintain the
improvements, appurtenances and grounds of the Property in accordance with
the "Management Standard" (as defined in Section 4.1hereof), including
within such maintenance, without limitation thereof, such normal
maintenance and repair work as may be necessary or, with Owner's prior
written consent, desirable.
2.4 Insurance.
(a) Owner Obligations. Owner shall cause to be placed and kept
in force all forms of insurance as Owner deems prudent and reasonable
given the nature of the Property. All insurance coverage shall be
placed with such companies, in such amounts, and with such beneficial
interests appearing therein as Owner deems prudent and reasonable
given the nature of the Property. Owner shall procure appropriate
clauses in, or endorsements on, all of the policies whereby the
insurer names Property Manager as an additional insured, and the
insurer waives subrogation and agrees to not terminate any such policy
or reduce coverage or amount without giving Owner at least thirty (30)
days prior written notice.
(b) Property Manager Obligations. Property Manager shall
promptly investigate and make a full and timely written report to
Owner and, if Owner requests, to Owner's insurance company as to all
accidents, claims for damages relating to the ownership, operation and
maintenance of the Property and any damage or destruction to the
Property and the estimated cost of repair thereof and shall prepare
any and all reports required by Owner and, if Owner requests, by its
insurance company in connection therewith. All such reports shall be
timely filed with the insurance company as required under the terms of
the insurance policy involved. Without obtaining the prior written
approval of Owner, which may be granted or withheld in Owner's sole
discretion, Property Manager shall not settle any claims against
insurance companies arising out of any policies or take any other
action in connection with such settlements, including the execution of
proofs of loss, the adjustment of losses, signing of receipts and
collection of money. The cost of the insurance and the payment of all
premiums therefor shall be the sole responsibility of, and at the sole
expense of, Owner. Property Manager shall assist Owner in completing
any insurance applications, questionnaires, etc. reasonably requested
by Owner or Owner's insurance agent or insurance company.
2.5 Operating Budgets; Business Plans. Notwithstanding the delivery
of the approved Budget and Business Plan, unless some or all of the
obligations of this Section 2.5 are specifically waived in writing by
Owner, Property Manager shall prepare the items described herein.
(a) Preliminary Budgets. Within thirty (30) days of the date
this Agreement is fully executed, Property Manager shall prepare and
deliver to Owner, for Owner's approval, a proposed budget and
operating plan for the upcoming one hundred twenty (120) days, which
budget and operating plan shall reflect thereon projections of all
receipts (if any) and operating costs and expenses, capital
expenditures and reserves that Property Manager, in the exercise of
good business judgment, believes will be received or necessary to be
incurred, as the case may be, to develop and maintain the Property
during such one hundred twenty (120) days. Within ninety (90) days of
the date this Agreement is fully executed, Property Manager shall
further prepare and deliver to Owner an additional proposed budget and
operating plan (such proposed budget and operating plan, together with
the foregoing budget and operating plan, the "Preliminary Budget" and
the "Preliminary Plan", respectively), for the upcoming calendar year,
which budget and operating plan shall reflect thereon projections of
all receipts (if any) and operating costs and expenses, capital
expenditures and reserves that Property Manager, in the exercise of
good business judgment, believes will be received or necessary to be
incurred, as the case may be, to develop and maintain the Property
during such calendar year.
(b) Annual Budgets. Thereafter, on or prior to October 31st of
each calendar year during the Term (as defined in Section 4.4) hereof,
beginning on the first October 31st, after the date hereof, Property
Manager shall submit to Owner, for Owner's approval, proposed budgets
and operating plans for the Property on an annual basis for the
upcoming calendar year, which proposed budgets and operating plans
shall reflect thereon projections of all receipts (if any) and
operating costs and expenses, capital expenditures and reserves that
Property Manager, in the exercise of good business judgment, believes
will be received or necessary to be incurred, as the case may be, to
develop and maintain the Property during such calendar year. Such
proposed budgets and operating plans (including the Preliminary Budget
and the Preliminary Plan) shall be submitted by Property Manager
solely as good faith estimates, without warranty of their accuracy or
attainability; provided, however, that, except as otherwise expressly
provided in this Agreement, Property Manager shall not be reimbursed
by Owner for, and Property Manager hereby expressly indemnifies Owner
against, any loss, expense or claim in connection with any
unauthorized expenditure or liability incurred by any action taken by
Property Manager. Property Manager shall use its best efforts to
manage the development of the Property in a manner consistent with,
and subject to, both the total cost limitations and categories in the
most recently approved Budget.
(c) Contents. Without limiting the foregoing, each Budget and
Business Plan (including the Preliminary Budget and the Preliminary
Plan) shall include between them: (i) a projected income statement
for the Property, (ii) a projected balance sheet for the Property,
(iii) a schedule of projected operations and cash flow, (iv) a
reasonable estimate and projected budget of gross receipts and
operating expenses, itemized in a manner acceptable to Owner, (v) a
projected budget for capital expenditures and replacements, (vi) an
identification of staffing to be employed, (vii) a separate estimate
of the Property Management Fee (as defined in Section 31.), (viii) a
narrative description of the program for the development and marketing
of the Property, and (ix) any and all other matters reasonably
requested by Owner.
(d) Owner Approval. Owner shall, within thirty (30) days after
receipt of a proposed Budget and Business Plan (including the
Preliminary Budget and the Preliminary Plan), approve or disapprove
such Budget and Business Plan in its sole discretion. As used herein,
the terms "Business Plan" and "Budget" shall refer to the currently
approved Budget and Business Plan approved by Owner as amended and/or
modified from time to time. Owner shall provide Manager written
notice of its approval or disapproval; provided, that in the event
Owner fails to do so, the Budget or Business Plan, as the case may be,
from the previous year shall control until a new budget or business
plan is approved. Within fifteen (15) days after Owner submits any
objection to the proposed budget or business plan, Manager will submit
a revised budget or business plan to Owner, as the case may be. If
Owner does not approve such revised budget or business plan within
fifteen (15) days of its submission to Owner, the budget or business
plan as the case may be, from the previous year shall control until a
new budget or business plan is approved.
2.6 Property Account and Owner Account.
(a) Owner Account. Property Manager shall establish and
maintain in a banking or other financial institution approved by Owner
or set forth in the Business Plan from time to time throughout the
term of this Agreement, a separate bank or similar account in the name
of Owner for the deposit of moneys of Owner received, if any, with
respect to the Property (the "Owner Account"). Property Manager shall
also establish such other special bank or similar accounts as may be
approved by Owner. All revenue from the Property shall be promptly
deposited in the Owner Account.
(b) Property Account. Operating expenses of the Property shall
be paid by the Property Manager from an account established in a
financial institution approved by Owner to process funds as described
in Section 2.7 (the "Property Account")
2.7 Disbursements by Owner to Property Manager.
(a) Monthly Payments. On or before the twentieth (20th) day of
each calendar month, Property Manager shall deliver to Owner a written
request for disbursement, setting forth, in reasonable detail, the
costs and expenses reasonably estimated to be paid by Property Manager
for the upcoming calendar month, together with any other working
capital needs of the Property for the upcoming calendar month, in each
case, in accordance with the Budget (the "Required Monthly Funds").
Property Manager shall also submit reasonable substantiation as
requested by Owner for all requested disbursements. In the event that
any requested disbursement is not consistent with, or in compliance
with, the Budget, Property Manager shall set forth such requested
disbursements in a separate report and shall set forth a brief
explanation for the reason for such discrepancy. On or before the
first day of the month for which the particular request for the
Required Monthly Funds is made, Owner shall transfer, via wire
transfer, from the Owner Account to the Property Account designated by
Property Manager the Required Monthly Funds approved by Owner.
(b) Emergency Withdrawals. Property Manager shall only be
entitled to make withdrawals from the Property Account in accordance
with the Budget or the Business Plan or in connection with a bona fide
emergency due to casualty or act of God under circumstances in which
it would be unreasonable to seek to obtain Owner's approval, in which
case Property Manager shall be entitled to exceed, by a reasonable
amount, the amounts set forth in the Budget in order to address such
bona fide emergency situation; provided that as soon as practicable
after such emergency, Property Manager shall fully inform Owner of the
circumstances surrounding such situation and obtain, on a "going-
forward" basis only, Owner's approval with respect to Property
Manager's handling of similar emergency events at the Property in the
future. It is understood that any action taken by Property Manager
under this Section 2.7(b) in connection with any particular emergency
event shall be considered as being within Property Manager's scope of
authority under this Agreement but shall not create any precedent or
duty on the part of Property Manager or Owner to take any action in
connection with any future event. Nothing contained in this Section
2.7(b) or elsewhere in this Agreement is intended to provide any
benefit to any third parties who are not parties hereto or successors
or permitted assigns of parties hereto or impose upon Property Manager
or Owner any duty or obligation to any third parties who are not
parties hereto or successors or permitted assigns of parties hereto,
nor shall it have the effect of giving, any enforceable rights to any
third parties who are not parties hereto or successors or permitted
assigns of parties hereto, whether such claims are asserted as third
party beneficiary rights or otherwise. The Owner and Property Manager
hereby acknowledge and agree that, if the Owner fails to deposit funds
in the Property Account in an amount sufficient to fund the expenses
authorized in the Budget, Property Manager shall not be required to
incur any out of pocket costs in order to perform Property Manager's
obligations under this Agreement.
2.8 Costs Not Reimbursed to Property Manager. Unless otherwise
provided herein, Owner shall not be obligated to reimburse Property Manager
for the payment by Property Manager of (a) any expense for office equipment
or office supplies of Property Manager other than those used on the
Property and approved in writing by Owner; (b) any overhead expenses of
Property Manager incurred in its general offices; (c) unless otherwise
consented to by Owner in writing, any salaries, wages and expenses for any
personnel, including, without limitation, personnel spending all or a
portion of their working hours at or providing services to the Property
specifically performing Property Manager's duties hereunder; (d) the cost
of fidelity insurance; (e) any accounting costs or overhead costs incurred
in connection with the preparation and delivery of the statements and
reports required hereunder; or (f) any travel costs incurred by Property
Manager not specifically provided for in the Budget.
2.9 Records; Reporting.
(a) Records. All statements, receipts, invoices, checks,
leases, contracts, worksheets, financial statements, books and
records, and all other instruments and documents relating to or
arising from the development, operation or management of the Property
shall be the property of Owner; provided, that throughout the term of
this Agreement, all of such items shall be maintained by Property
Manager in a manner consistent with the terms of this Agreement and
with books and records customarily maintained by managing agents of
properties similar in location, size and revenue to the Property.
Owner and Property Manager shall have the right to inspect and to copy
all such items, at such party's expense, at all reasonable times, and
from time to time, during the term of this Agreement. Upon the
termination of this Agreement, all of such books, records and all
other information relating to the Property promptly shall be delivered
to Owner; provided, however, that at Property Manager's sole expense,
Property Manager or its representatives shall have the right, for a
reasonable period of time not to exceed three (3) years following such
termination, to inspect such books, records and other information for
data that directly relates to the period during which Property Manager
managed the Property and to make copies thereof, at the offices of
Owner upon reasonable advance notice to Owner.
(b) Statements. Property Manager shall prepare and deliver to
Owner on a monthly and on a calendar quarterly basis, Property
Manager's written estimates of the amounts, if any, by which any
categories of the Preliminary Budget or the Budget must be adjusted to
adequately fund the development, operation and maintenance of the
Property for the then current month or quarter as the case may be,
although Owner shall be under no obligation to change the Preliminary
Budget or the Budget. Such reports shall include the following
information: (i) a statement of operations on the Property during such
month or quarter as the case may be, and the cost thereof, (ii) a
statement of year-to-date operations on the Property, and the cost
thereof, (iii) a statement of the actual cost of operations on the
Property during such month or quarter as the case may be compared to
the Preliminary Budget or the Budget which identifies any variance
between such costs and the Preliminary Budget or the Budget, and (iv)
a description and explanation of such variances. Property Manager
also shall furnish Owner, within thirty (30) days after Owner's
request, such further information covering the operation and
maintenance of the Property as Owner may reasonably require,
including, but not limited to, the following: (i) income statement
(accrual basis for taxes and insurance), month and year-to-date versus
Budget; (ii) variance report (narrative form, month and year-to-date),
(iii) balance sheet, (iv) general ledger, (v) rent roll (including
security deposit listing), (vi) accounts receivable aging report,
(vii) bank reconciliation for each account, (viii) calculation of
Property Management Fee, (ix) schedule of reserve and escrow accounts,
(x) schedule of capital expenditures, (xi) a re-forecast report, on a
quarterly basis, of current full year operations compared to the
Budget with explanations for all material variances, (xii) a marketing
qualitative summary of property operations for the preceding month
including comments on revenues, expenses, marketing, leases,
competition, legal and other issues affecting the Property, and (xiii)
any and all other reports reasonably requested by Owner.
(c) Annual Accounting Report. Property Manager agrees (i) to
deliver to owner, within twenty (20) days after the end of each fiscal
year, an annual accounting report (including balance sheet, income
statement and other financial statements), showing the results of
gross receipts, gross operating expenses, net operating income, net
cash flow and the Property Management Fee which would be payable if
the Agreement were terminated as of the end of such fiscal year and
any other information necessary to make the computations required
hereby or which may be requested by Owner, all for such fiscal year
and (ii) to cooperate fully with Owner, at no additional expense to
Property Manager, but without limiting Property Manager's obligations
under Section 2.9(e), in supplying all of the information and
documentation necessary for a nationally recognized firm of certified
public accountants selected by Owner (the "Auditor") to prepare and
deliver to Owner an audit of the annual accounting report provided by
Property Manager to Owner pursuant to this Section 2.9(c) within
forty-five (45) days after the end of each fiscal year.
(d) Additional Fiscal Reports. Property Manager shall, upon the
request of Owner, prepare for Owner or assist Owner in the preparation
of such additional financial reports with respect to the Owner or the
Property as Owner may reasonably request or may be required in the
preparation of the audited annual accounting to be prepared pursuant
to this Section 2.9. Property Manager acknowledges and agrees that
the Property Management Fee to be paid under this Agreement includes
compensation to Property Manager for the preparation of papers and
schedules reasonably necessary for the Auditor to conduct its review
of the Property's books and records. To the extent such papers and
schedules are not properly prepared, Property Manager agrees to
reimburse Owner for the reasonable additional cost and expense
incurred by Owner for the Auditor to prepare such papers or schedules.
(e) No Liability for Returns Required by Law. Property Manager
shall be responsible for preparing and filing any forms, reports or
returns (except Owner's tax returns) that may be required by law
relating to the Property. Property Manager shall also be responsible
for any forms, reports or returns that may be required by law relating
to any of Property Manager's employees.
2.10 Compliance with Legal Requirements. Property Manager shall take
such action as may be necessary to comply with any and all orders or
requirements affecting the Property by any federal, state, county or
municipal authority having jurisdiction thereover. Property Manager,
however, shall not take any such action as long as Owner is contesting, or
has affirmed Owner's intention to contest and institutes proceedings
contesting, any such order or requirement, except that if failure to comply
promptly with any such order or requirement would or might expose Property
Manager to criminal liability, Property Manager shall comply with same.
Property Manager shall promptly notify Owner in writing of all such orders
and notices or requirements. Nothing contained herein shall require
Property Manager to employ counsel to represent Owner in any such
proceeding or suit.
2.11 Taxes. Property Manager shall timely render the Property for
taxation, and obtain and verify bills for real estate, personal property,
and all other taxes and assessments, if any, against the Property and
promptly pay such tax bills and any other Impositions (as defined below),
and assist and cooperate with Owner in connection with all such taxes and
assessments in all ways reasonably requested by Owner including
applications or petitions of Owner for reduction of taxes or assessments.
Owner shall have the option but not obligation to employ a third party
consultant to accomplish the foregoing, in which event, Property Manager
shall assist and cooperate with such consultant. As used herein,
"Impositions" shall mean all taxes, assessments, special assessments, rents
and charges for any easement or agreement maintained as part of or for the
benefit of the Property, use and occupancy taxes and charges, water and
sewer for public and private utilities, excises, levies, license and permit
fees and other governmental charges, general and special, ordinary and
extraordinary, unforeseen and foreseen, of any kind and nature whatsoever
which at any time prior to or during the term of this Agreement may be
assessed, levied, confirmed, imposed upon or grow or become due and payable
out of or in respect of, or become a lien on (i) the Property or any part
thereof or any appurtenances thereto, or upon any personal property
located, or used in connection with, the Property, (ii) the rent, income or
other payments (if any) received by or for the account of Owner or anyone
claiming by, through or under Owner, (iii) any use or occupation of the
Property, (iv) such franchises, licenses and permits as may be appurtenant
to the use of the Property and (v) any document to which Owner is a party
transferring an interest or estate in the Property.
ARTICLE III
FEES TO PROPERTY MANAGER
In consideration for the performance of Property Manager's duties and
responsibilities under this Agreement, in exchange for its services
provided to Owner and the Property, Owner shall pay to Property Manager (i)
a management fee (the "Management Fee") equal to One Thousand Two Hundred
and No/100 Dollars ($1,200.00) for each Lot sold, which shall be payable
monthly in arrears, (ii) a sales commission (the "Sales Commission") in an
amount equal to six percent (6%) of the purchase price for each Lot sold,
if, as and when the purchase and sale of such Lot is closed, which shall be
payable at the closing of the purchase and sale of each such Lot, and (iii)
a property development fee (the "Development Fee") in an amount equal to
Sixty Thousand and No/100 Dollars ($60,000.00), which shall be payable in
installments of Five Thousand and No/100 Dollars ($5,000.00) for twelve
months to be paid on the first day of each month following the execution of
this Agreement; provided, however, that in the event all Lots within the
Property are sold prior to the expiration of the 12-month period, any
unpaid portion of the $60,000 shall be payable upon closing of the sale of
the last Lot.
ARTICLE IV
RELATIONSHIP OF PROPERTY MANAGER TO OWNER
4.1 Use and Maintenance of Premises. Property Manager shall employ
its best efforts to develop, operate and maintain the Property in a manner
(referred to herein as the "Management Standard") consistent with (i) first
class standards (consistent with the Business Plan), (ii) prudent business
and management practices applicable to the development, operation,
management and maintenance of the Property and (iii) the requirements of
any deeds of trust, certificates of occupancy, permits, licenses, consents
or other recorded or unrecorded agreements now or hereafter affecting the
Property or as required by the joint venture agreement of Owner
(collectively referred to herein as the "Key Documents"). Property Manager
shall use all contacts, discount programs and cost-savings measures at its
disposal to obtain services, products and tax and insurance rates for the
Property at the lowest cost, without sacrificing the quality of such
services or products. Property Manager shall perform such other acts and
deeds as are reasonable, necessary and proper in the discharge of its
duties under this Agreement. Property Manager may with prior written
approval of Owner obtain goods or services for the Property from direct or
indirect affiliates of Property Manager, its officers, directors,
shareholders or employees, but only if such goods and services are of at
least equal quality and of no higher prices than comparable goods and
services obtainable from unaffiliated parties and such goods and services
are otherwise competitive with comparable goods and services.
4.2 Sale or Refinancing of the Property. Upon the express request of
Owner but not otherwise, Property Manager shall assist and cooperate in any
attempt(s) by Owner to sell, finance or refinance all or any portion of the
Property. Such assistance and cooperation by Property Manager and Property
Manager's personnel shall not be deemed to create a broker-principal or
similar relationship unless Owner and Property Manager enter into a
separate written agreement engaging Property Manager as broker with respect
to all or any portion of the Property. Such assistance and cooperation
shall include, without limitation, answering prospective purchasers' or
lenders' questions about the Property or any portion thereof, preparing
rent rolls, notifying tenants about the sale of the Property and obtaining
estoppel certificates and other documents from all tenants of the Property
in the form required by the prospective purchaser or lender. Property
Manager shall also provide, promptly upon request by Owner, (a) an estoppel
certificate executed by Property Manager certifying that no uncured default
by the Owner exists under this Agreement or, if such a default(s) exists,
stating the nature thereof, (b) a certificate in favor of Owner and any
lender executed by Property Manager confirming, to the best of Property
Manager's actual knowledge, that any representations and warranties made
(or to be made) by Owner with respect to the Property, or the condition or
operation thereof, in any loan documents executed (or to be executed) by
Owner in connection with any sale, financing or refinancing of the
Property, are substantially true, correct and complete, or, if not
substantially true, correct or complete, stating with particularity why
such representations and warranties are not substantially true, correct or
complete, and (c) a subordination and attornment agreement executed by
Property Manager in accordance with the provisions of Section 5.9 of this
Agreement.
4.3 Approvals and Consents to Property Manager. Owner and Property
Manager hereby acknowledge and agree that William H. Armstrong, III is
authorized by Owner to grant approvals and consents required under this
Agreement to Property Manager, and otherwise instruct Property Manager with
respect to Property Manager's obligations and performance under this
Agreement.
4.4 Term. This Agreement shall commence on the date hereof and
continue until such time as it is terminated as provided herein (a) for
Cause (as herein defined) or (b) upon the mutual agreement of the parties.
The entire term of this Agreement is sometimes herein referred to as the
"Term".
4.5 Termination by Owner. Owner, at its option, may terminate this
Agreement for "Cause" at any time upon giving written notice thereof. The
term Cause shall include (a) the failure of Property Manager to cure any
fraud, misrepresentation, misappropriation of funds, furnishing any
statement, report, notice, writing or schedule to Owner that Property
Manager knows, or reasonably should have known, is untrue or misleading in
any material respect on the date as of which the facts set forth therein
are stated or certified or the date such statement, report, notice, writing
or schedule is furnished to Owner, and such failure continues for a period
of ten (10) days after written notice thereof by Owner to Property Manager,
(b) the failure of Property Manager to comply with any term or condition of
this Agreement (except for breach of the Management Standard) and such
failure continues for a period of thirty (30) days after written notice
thereof by Owner to Property Manager, provided that if such default is not
reasonably susceptible of cure within thirty (30) days, then such
reasonable time so long as Property Manager is diligently prosecuting the
cure of the default, but in no event longer than ninety (90) days, (c) the
bankruptcy or insolvency of, the assignment for the benefit of creditors
by, or the appointment of a receiver for any of the property of, Property
Manager, (d) the sale of all or part of the Property; provided that in the
case of a partial sale, termination will only apply to those portions of
the Property sold, (e) the failure of Property Manager to cure an
intentional or grossly negligent or illegal act committed by Property
Manager against Owner and such failure continues for a period of ten (10)
days after written notice thereof by Owner to Property Manager, (f) the
failure of Property Manager to cure Property Manager's willful and/or
reckless misconduct that causes damage to Owner and such failure continues
for a period of ten (10) days after written notice thereof by Owner to
Property Manager, or (g) upon thirty (30) days written notice from Owner to
Property Manager in the event Property Manager fails to perform its duties
consistent with the Management Standard as determined by the management
committee of Owner.
4.6 Termination by Property Manager. Property Manager, at its
option, may terminate this Agreement for the failure of Owner to comply
with any term or condition of this Agreement and such failure continues for
a period of thirty (30) days after written notice thereof by Owner to
Property Manager, provided that if such default is not reasonably
susceptible of cure within thirty (30) days, then such reasonable time so
long as Owner is diligently prosecuting the cure of the default, but in no
event longer than ninety (90) days.
4.7 Obligations Upon Termination.
(a) Upon termination of this Agreement, each party shall
continue to be fully liable for their respective obligations which
have accrued up to and including the termination date and shall
promptly pay to the other all amounts due to the other party under the
terms of this Agreement. Such payment shall be made as soon after the
effective date of termination as such amounts are determinable. Upon
such payment, neither party shall have any further claim or right
against the other, except as expressly provided herein.
(b) In the event of termination of this Agreement, upon the
effective date of such termination, Property Manager shall (i)
surrender and deliver to Owner all income of the Property, if any, and
other monies of Owner then held by Property Manager and/or in any bank
account (including, without limitation, the Owner Account and the
Property Account) in excess of the reimbursements due and payable to
Property Manager up to and including the effective date of such
termination, (ii) deliver to Owner as received by Property Manager any
monies or other property due Owner under this Agreement but received
after such termination, and (iii) deliver to Owner everything then
held by Property Manager pertaining to the Property, including,
without limitation copies of all books, records, keys and all other
materials, property and supplies pertaining to the Property and/or
this Agreement.
4.8 Negation of Partnership, Joint Venture or Lease. Nothing in this
Agreement shall constitute, or be construed to be or to create, a
partnership, joint venture or lease between Owner and Property Manager with
respect to the Property. In the performance of this Agreement, Property
Manager shall act solely as an independent contractor. Neither this
Agreement nor any agreements, instruments, documents or transactions
contemplated hereby shall in any respect be interpreted, deemed or
construed as making either party a partner, joint venturer, principal or
agent with, or with respect to, the other party or as creating any similar
relationship or entity, and each party hereto agrees that it will not make
any contrary assertion, contention, claim or counterclaim in any action,
suit or other legal proceedings involving Property Manager and Owner.
4.9 Indemnification. Property Manager shall be liable for and shall
indemnify and hold harmless Owner (and each partner, venturer, employee,
agent, shareholder, director and officer of Owner) from any loss, damage,
liability, cost or expense (including reasonable attorneys' fees) arising
out of (i) any actions of Property Manager not within the scope of Property
Manager's duties hereunder, (ii) any breach by Property Manager of Property
Manager's obligations hereunder or (iii) the gross negligence or willful
misconduct of Property Manager. Owner shall indemnify and hold harmless
Property Manager (and each employee, agent, director, shareholder are
officer of Property Manager) from any loss, damage, liability, cost or
expense (including reasonable attorneys' fees) arising out of (x) a breach
by Owner of Owner's obligations hereunder, (y) Owner's gross negligence or
willful misconduct or (z) actions taken by Property Manager within the
scope of Property Manager's responsibilities under this Agreement.
4.10 Owner's Limited Liability. No general or limited partner in or
of Owner, whether direct or indirect, or any disclosed or undisclosed
officers, shareholders, principals, directors, employees, partners,
servants or agents of Owner or any of the foregoing or any investment
advisor of Owner (including any assignee or successor of Owner) or other
holder of any equity interest in Owner, shall be personally liable for the
performance of Owner's obligations under this Agreement. The liability of
Owner (including any assignee or successor of Owner) for Owner's
obligations hereunder shall be limited to the equity interest of Owner in
the Property.
4.11 Property Manager's Limited Liability. No general or limited
partner in or of Property Manager, whether direct or indirect, or any
disclosed or undisclosed officers, shareholders, principals, directors,
employees, partners, servants or agents of Property Manager or any of the
foregoing or any investment advisor of Property Manager (including any
assignee or successor of Property Manager) or other holder of any equity
interest in Property Manager, shall be personally liable for the
performance of Property Manager's obligations under this Agreement.
ARTICLE V
MISCELLANEOUS
5.1 No Assignment by Property Manager Etc. Without the prior written
consent of Owner, which consent may be granted or withheld in Owner's sole
discretion, Property Manager shall not have the right to assign, transfer
or convey any of Property Manager's right, title or interest hereunder, nor
shall Property Manager have the right to delegate any of the obligations or
duties required to be kept or performed by Property Manager hereunder.
5.2 Notices. All notices, demands, consents, approvals and requests
given by either party to the other hereunder shall be in writing and sent
via the U.S. Postal Service by registered or certified mail, postage
prepaid or via a nationally recognized overnight delivery service (e.g.
Federal Express) and addressed to the appropriate party at the respective
addresses shown below. All such notices shall be deemed given on the
earlier of actual receipt or refusal of receipt by the addressee. The
respective addresses and additional notice parties are as follows:
If to Owner: Oly Stratus ABC West I Joint Venture
c/o Olympus Real Estate Corporation
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Attention: Hal R. Hall
and to: Robert C. Feldman
Weil, Gotshal & Manges, LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
If to Property Manager: Stratus Management L.L.C.
98 San Jacinto Blvd., Suite 220
Austin, Texas 78701
Attention: Mr. William H. Armstrong, III
With a copy to: Kenneth N. Jones
Armburst, Brown & Davis, L.L.P.
100 Congress, Suite 1350
Austin, Texas 78701
Any party may at any time change its respective address by sending written
notice to the other parties of the change in the manner hereinabove
prescribed.
5.3 GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED AND
IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE TERMS AND
PROVISIONS HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS. THIS AGREEMENT IS PERFORMABLE IN, AND THE
EXCLUSIVE VENUE FOR ANY ACTION BROUGHT WITH RESPECT HERETO SHALL LIE IN,
DALLAS COUNTY, TEXAS.
5.4 Not a Third Party Beneficiary Contract. Neither this Agreement
nor any part hereof nor any service, relationship or other matter alluded
to herein shall inure to the benefit of any third party (specifically
including any lender, tenants or contractors), to any trustee in
bankruptcy, to any assignee for the benefit of creditors, to any receiver
by reason of insolvency, to any other fiduciary or officer representing a
bankruptcy or insolvent estate of either party or to the creditors or
claimants of such an estate. In addition, this Agreement shall terminate
and be of no further force or effect upon the filing of any bankruptcy
petition by or against Property Manager.
5.5 Validity. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and be enforced to the fullest extent permitted by law.
5.6 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the matters herein contained and
any agreement hereafter made shall be ineffective to effect any change or
modification, in whole or in part, unless such agreement is in writing and
signed by the party against whom enforcement of the change or modification
is sought. This Agreement shall bind, and inure to the benefit of, the
parties hereto and their respective successors, legal representatives and
assigns.
5.7 Attorneys' Fees. If either Owner or Property Manager employs an
attorney to enforce or defend its rights hereunder, the prevailing party
shall be entitled to recover its reasonable attorneys' fees, costs and
expenses incurred in connection with such enforcement or defense.
5.8 INDEMNIFICATION PROVISIONS. THIS AGREEMENT CONTAINS
INDEMNIFICATION PROVISIONS SPECIFICALLY DESCRIBED IN SECTIONS 2.5 AND 4.7
HEREOF.
5.9 Subordination. This Agreement and any extension hereof shall be
subordinate to any mortgage or similar security instrument now or hereafter
affecting the Property, and all renewals, modifications, consolidations,
replacements and extensions thereof (a "Mortgage"). Property Manager
further agrees to attorn to the holder of any Mortgage or similar security
instrument affecting the Property, and any successor or assignee thereof,
upon Owner's being dispossessed by such holder of Owner's interest in all
or any portion of the Property. The provisions of this Section 5.9 shall
be sellf-operative and no further instrument of subordinatiion or attornment
shall be required. Property Manager shall execute promptly any certificate
or other document that Owner or any mortgagee or other security holder may
request as to such subordination and/or attornment, which certificate or
document may include such customary and normal provisions as Owner may
determine in its sole discretion. In the event that Property Manager fails
to execute and deliver such certificate or document on or before five (5)
business days after written notice to Property Manager by Owner, then
without any further notice and opportunity to cure, such failure by
Property Manager shall be deemed to be an event for Cause hereunder.
5.10 Representations, Warranties and Covenants of Property Manager.
In order to induce Owner to enter into this Agreement, Property Manager
does hereby make the following representations, warranties and covenants:
(a) Property Manager represents and warrants to Owner that
Property Manager is a Delaware limited liability company, is duly
formed and legally existing under the laws of the state of its
formation and is duly qualified to do business in the State of Texas.
(b) Property Manager represents and warrants to Owner that
Property Manager has full power and authority to enter into this
Agreement and to carry out the transactions herein contemplated, and
that the undersigned officers of Property Manager have all necessary
authority to execute and deliver this Agreement on behalf of Property
Manager.
(c) Property Manager represents and warrants to Owner that this
Agreement has been duly executed and delivered by Property Manager and
constitutes the legal, valid and binding obligations of Property
Manager enforceable in accordance with their terms, subject to laws
applicable generally to creditor's rights.
(d) Property Manager shall deliver to Owner, upon the effective
date hereof (i) a good standing certificate from the State of Texas,
and (ii) an incumbency certificate and resolutions of Property Manager
authorizing the execution and delivery by Property Manager of this
Agreement, certified by an authorized officer of Property Manager as
being true, correct and complete.
(e) There is no claim, litigation, proceedings or governmental
investigation pending, or as far as is known to Property Manager,
threatened, against Property Manager or relating to the Property or
the transactions contemplated by this Agreement which does, or may
reasonably be expected to, affect the ability of Property Manager to
enter into this Agreement or to carry out its obligations hereunder,
and, to Property Manager's actual knowledge, there is no basis for any
such claim, litigation, proceedings or governmental investigation.
(f) Neither the consummation of the actions contemplated by this
Agreement on the part of Property Manager to be performed, nor the
fulfillment of the terms, conditions and provisions of this Agreement,
conflicts with or will result in the breach of any of the terms,
conditions or provisions of, or constitute a default under, any
agreement, indenture, instrument or undertaking to which Property
Manager is a party or by which it is bound.
(g) Property Manager has and will continue to have during the
term of this Agreement qualified personnel to implement Property
Manager's obligations hereunder.
5.11 Publicity and Public Relations. Owner shall have the exclusive
right to control, manage and monitor all publicity and public relations
with respect to the Property or Owner's ownership thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]OWNER:
OLY STRATUS ABC WEST I JOINT VENTURE,
a Texas joint venture
By: Oly ABC West I, L.P.,
a Texas limited partnership,
its general partner
By: Oly Texas GP II, LLC,
a Texas limited liability company,
its sole general partner
By:/s/ Hal R. Hall
--------------------
Name:Hal R. Hall
Title: Vice President
By: Stratus ABC West I, L.P.,
a Texas limited partnership,
its general partner
By: STRS L.L.C.,
a Delaware limited liability company,
General Partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
-----------------------------
William H. Armstrong, III
President and CEO
PROPERTY MANAGER:
STRATUS MANAGEMENT L.L.C.,
a Delaware limited liability company
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
----------------------------
William H. Armstrong III
President and CEO
EXHIBIT A
LEGAL DESCRIPTION OF THE PROPERTY
Exhibit 10.13
MEZZANINE LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is dated as of September 30,
1998 and is by and between Oly Stratus ABC West I Joint Venture, a Texas
joint venture ("Borrower") and Oly Lender Stratus, L.P., a Texas limited
partnership ("Lender").
RECITALS
A. WHEREAS, Borrower was formed to acquire and develop certain real
property in Travis County, Texas commonly known as ABC West I (the
"Property") pursuant to that certain Agreement of Sale and Purchase (ABC
West Phase 1; 75 Lots) between Stratus Properties Operating Co. and Oly
Stratus ABC West I Joint Venture dated of even date herewith (the "Purchase
Agreement").
B. WHEREAS, Borrower desires to borrow from Lender, and Lender
agrees to loan to Borrower, the amounts described below.
NOW THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1. Defined Terms. The following capitalized terms generally used in
this Agreement shall have the meanings defined or referenced below.
Certain other capitalized terms used only in specific sections of this
Agreement are defined in such sections.
(a) "Affiliated" or "Affiliate" means, with respect to any
Person, (i) any other Person directly or indirectly controlling,
controlled by, or under common control with such Person, or (ii) any
other Person owning or controlling 10% or more of the outstanding
voting interests of such Person, or (iii) any officer, director,
general partner or managing member of such Person, or (iv) any other
Person which is an officer, director, general partner, managing member
or holder of 10% or more of the voting interests of any other Person
described in clauses (i) through (iii) of this definition. The term
"control" as used herein (including the terms "controlling,"
"controlled by" and "under common control with") means the possession,
direct or indirect, of the power (a) to vote 10% or more of the
outstanding voting securities of such person or entity; or (b) to
otherwise direct management policies of such person or entity by
contract or otherwise.
(b) "Agreement" shall mean this Loan Agreement as described in
the preamble.
(c) "Bankruptcy Code" means Title 11 of the United States Code
as amended from time to time, and any state law relating to creditor's
rights, reorganization or insolvency generally.
(d) "Borrower" shall have the meaning set forth in the preamble
hereto.
(e) "Borrower Joint Venture Agreement" means that Joint Venture
Agreement of Borrower of even date herewith, as the same may be
amended from time to time with the prior consent of the Lender.
(f) "Business Day" means a day of the week (other than any
Saturday or Sunday) on which banks are not authorized or required to
close in the State of Texas. Unless specifically referenced in this
Agreement as a Business Day, all references to "days" shall be to
calendar days.
(g) "Business Plan" has the meaning ascribed thereto in the
Borrower Joint Venture Agreement.
(h) "Claims" shall have the meaning set forth in Section 8.1.
(i) "Closing Date" means the Closing Date under the Purchase
Agreement.
(j) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(k) "Default" has the meaning set forth in Section 7.1.
(l) "Lender" shall have the meaning set forth in the preamble.
(m) "Loan" shall have the meaning set forth in Section 2.1.
(n) "Loan Amount" shall have the meaning set forth in 2.1.
(o) "Loan Documents" means the Notes and any documents
pertaining to Lender's rights thereunder.
(p) "Management Committee" means the Management Committee of
Borrower.
(q) "Maturity Date" means September 29, 2001.
(r) "Notes" shall have the meaning set forth in Section 2.1.
(s) "Person" means any individual, partnership, corporation,
limited liability company, limited liability partnership, trust or
other entity.
(t) "Potential Default" means any event, condition, omission or
circumstance that, with the giving of notice or the lapse of time, or
both, would constitute a "Default" hereunder or under any of the Loan
Documents.
(u) "Property" means the property purchased pursuant to the
Purchase Agreement.
(v) "Purchase Agreement" means that certain agreement of
purchase and sale as defined in the recitals.
ARTICLE II
LOANS
2.1. Loans. On the date hereof, Lender shall make a loan (the "Loan")
to the Borrower in an amount equal to ONE MILLION ONE HUNDRED FIFTY
THREE THOUSAND TWO HUNDRED FIFTY AND NO/100 DOLLARS ($1,153,250). The Loan
shall be evidenced by two Promissory Notes (the "Notes") in the form of
that attached hereto as Exhibit A, and each Note shall bear interest at the
rate of fifteen percent per annum (15%). The Loan shall be funded by wire
transfer to accounts designated by the Management Committee.
2.2. Interest; Payments. Interest on the Loan shall accrue upon the
outstanding principal balance thereof at the rate and in the amounts
provided therein, and such interest shall be payable as required therein.
Interest on the Loan shall be computed on the basis of actual days elapsed
in a year of 360 days (including the first day but excluding the last day)
occurring in the period for which payable.
2.3. Optional Prepayments. Borrower may at any time pay the full
amount or any part of the Loan without the payment of any premium or fee.
2.4. No Revolving Loan. The Loan is not a revolving loan, and amounts
repaid from time to time may not be reborrowed.
2.5. Repayment of Principal; Maturity Date. Any principal amount of
the Loan outstanding at the Maturity Date shall be repaid on the Maturity
Date. On the Maturity Date, the Loan shall mature and all sums due and
owing under this Agreement and the other Loan Documents, to the extent the
same have not previously become due, shall be payable in full. All
payments due to Lender under this Agreement, whether at the Maturity Date
or otherwise, shall be paid in immediately available funds.
2.6. Late Payments. If any amount required to be paid to Lender under
any Loan Document shall not be paid on the date it is due (taking into
account any applicable grace period), Borrower shall pay to Lender, in
addition to all other amounts payable hereunder or under the Notes, a late
fee equal to four percent (4%) of the delinquent amount.
2.7. Payments on Non-Business Days; Calculations. If any payment to
be made under any Loan Document shall be stated to be due on a day which is
not a Business Day, then the date for payment thereof shall be extended to
the next following Business Day.
2.8. Use of Proceeds. The proceeds of the Loan shall be used solely
to pay the cost of Borrower's acquisition of the Property and the other
costs of development of the Property. Lender shall have no responsibility
with respect to the use of any proceeds of the Loan.
ARTICLE III
CONDITIONS PRECEDENT TO CLOSING
3.1. Conditions Precedent to Closing. Lender's obligation to make any
disbursements or take any other action under the Loan Documents shall be
subject at all times to satisfaction or waiver, in Lender's sole and
absolute discretion, of each of the following conditions precedent on or
prior to the date of any loan hereunder.
(a) Acquisition. Borrower shall have acquired the Property
pursuant to the terms of the Purchase Agreement.
(b) Compliance. Each of the representations and warranties
contained in Article 4hereof shall be true and correct on and as of
such date, and no Default or Potential Default shall exist.
(c) Loan Documents. Borrower shall have delivered to Lender all
Loan Documents pertaining to the Loan and all other documents,
instruments, and forms of evidence or other materials requested by
Lender under the terms of this Agreement or any of the other Loan
Documents, in form and substance satisfactory to Lender in its sole
and absolute discretion, duly executed by Borrower and each other
party thereto (other than Lender).
(d) Initial Equity. Lender shall have received evidence
satisfactory to it that Borrower has received the initial capital
contribution pursuant to Borrower's Joint Venture Agreement.
(e) Other Documents. Lender shall have received such other
documents, instruments, agreements, certificates, forms of evidence
and other materials relating to the transactions contemplated hereby
as Lender may reasonably require.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
As a material inducement to Lender's entry into this Agreement,
Borrower represents and warrants to Lender as of the date hereof and
continuing thereafter that:
4.1. Organization, Powers and Good Standing. Borrower (i) is duly
organized as a joint venture under the laws of the Sate of Texas, (ii) is
validly existing in good standing under the laws of the State of Texas and
(iii) has all requisite organizational power and authority and the legal
right to own and operate its properties, to carry on its business as
heretofore conducted and as proposed to be conducted, to enter into the
Loan Documents to which it is or may become a party and to carry out the
transactions contemplated thereby. Borrower possesses all governmental
approvals, in full force and effect, that are necessary for the ownership,
maintenance and operation of its properties and conduct of its business as
now conducted and proposed to be conducted, and is not in material
violation thereof.
4.2. Authorization, Binding Effect.
(a) The execution, delivery and performance by Borrower of each
Loan Document to which it is or may be a party have been duly
authorized by all necessary corporate, limited liability company or
other organizational action on the part of Borrower.
(b) Each Loan Document to which Borrower is a party has been
duly executed and delivered by Borrower.
(c) Each Loan Document to which Borrower is a party is the
legal, valid and binding obligation of Borrower, enforceable against
it in accordance with its terms.
4.3. No Conflict. The execution, delivery and performance by Borrower
of each Loan Document to which it is party, and the consummation of the
transactions contemplated thereby, do not and will not (i) violate any
provision of the charter or other organizational documents of Borrower,
(ii) conflict with, result in a breach of or constitute (or, with the
giving of notice or lapse of time or both, would constitute) a default
under, or except for consents that have been obtained and are in full force
and effect, require the approval or consent of any Person pursuant to, any
Contractual Obligation of Borrower, (iii) violate any applicable law
binding on Borrower or (iv) result in the creation or imposition of any
lien upon any asset of Borrower.
4.4. Agreements, Applicable Law. Borrower is not in violation of any
applicable law and is not in material default under any contractual
obligations to which it is a party or by which its property is bound.
4.5. Indebtedness. Except for indebtedness to Lender hereunder,
amounts payable under debt secured by the Property or trade debt and any
other indebtedness approved in writing by the Lender, Borrower does not
have and will not have any indebtedness of any kind or nature whatsoever.
4.6. No Defaults. No Default or Potential Default has occurred and is
continuing.
4.7. Formation and Organizational Documents. Borrower has delivered
to Lender all formation and organizational documents of Borrower, and all
such formation and organizational documents remain in full force and effect
and as of the date hereof have not been amended or modified since they were
delivered to Lender.
4.8. No Subordination. Except as provided herein, there is no
agreement, indenture, contract or instrument to which Borrower is subject
or by which Borrower may be bound that requires the subordination in right
of payment of any of Borrower's obligations under this Agreement or the
Notes to any other obligation of Borrower.
4.9. Permits; Franchises. Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade names, trade name rights, patents, patent rights and
fictitious name rights necessary to enable it to conduct the business in
which it is now engaged without conflict with the rights of others.
ARTICLE V
COVENANTS OF BORROWER
Borrower covenants that until the Loan has been fully discharged:
5.1. Records and Inspection. Borrower shall maintain adequate books,
records and accounts as may be required or necessary to permit the
preparation of financial statements in accordance with sound business
practices. Borrower shall permit such Persons as Lender may designate, at
reasonable times and as often as may be reasonably requested, under
reasonable circumstances, to (i) visit and inspect the Property, (ii)
inspect and copy Borrower's books and records and (iii) discuss with its
officers and employees and its independent accountants, its business,
assets, liabilities, prospects, results of operation or financial
condition; provided, however, that Lender shall make reasonable efforts to
avoid disruption of the tenants at the Property during any such inspection.
Borrower acknowledges that Lender's inspection of such books, records and
accounts once in each sixty (60) day period shall be presumed to be
reasonable under the foregoing provision of this Agreement.
5.2. Corporate Existence, Etc.Borrower shall, at all times preserve
and keep in full force and effect its company, corporate or partnership
existence and all material rights and franchises.
5.3. Payment of Taxes. Borrower shall pay and discharge all taxes
imposed upon it or any of its properties or in respect of any of its
franchises, business, income or property before any penalty shall be
incurred with respect to such Taxes.
5.4. Conduct of Business. Borrower shall conduct its business in
compliance in all material respects with all applicable laws and all of its
contractual obligations.
5.5. Expenses. Borrower shall immediately pay Lender upon demand all
reasonable costs and expenses incurred by Lender in connection with (i) the
preparation of this Agreement and all other Loan Documents contemplated
hereby, (ii) the administration of this Agreement and the other Loan
Documents for the term of the Loan and (iii) the enforcement or
satisfaction by Lender of any of Borrower's obligations under this
Agreement and the Other Loan Documents.
5.6. Business Plan. Borrower shall, from time to time, submit to
Lender a true and correct copy of the Business Plan, including a copy of
such operating budgets within ten Business Days following any amendment
thereof.
5.7. ERISA Compliance. Borrower shall at all times comply with the
provisions of ERISA with respect to any retirement or other employee
benefit plan to which it is a party as employer, and as soon as possible
after Borrower knows, or has reason to know, that any Reportable Event (as
defined in ERISA) with respect to any such plan of Borrower has occurred,
it shall furnish to Lender a written statement setting forth details as to
such Reportable Event and the action, if any, which Borrower proposes to
take with respect thereto, together with a copy of the notice of such
Reportable Event furnished to the Pension Benefit Guaranty Corporation.
5.8. Taxes. Borrower shall pay and discharge when due any and all
taxes, both real and personal, owed by or relating to Borrower and
Borrower's properties (including federal and state income taxes), except
such as Borrower may in good faith contest or as to which a bona fide
dispute may arise, provided provision is made to the satisfaction of Lender
for eventual payment thereof in the event that it is found in a final, non-
appealable judgment that the same is an obligation of Borrower.
5.9. Notice. Borrower shall promptly give notice in writing to Lender
of (i) any litigation pending or threatened against Borrower or the
Property, (ii) the occurrence of any Default, (iii) any change in the name
of Borrower and any change in the identity or organizational structure of
Borrower, (iv) as soon as it becomes aware, any uninsured or partially
uninsured material loss of the Property or any material portion thereof or
(v) as soon as it becomes aware, any termination or cancellation of any
insurance policy which Borrower is required herein to maintain.
5.10. Single Purpose Entity. Borrower at all times will continue
to be a duly formed and existing joint venture and a single-purpose entity.
Borrower will continue to comply with the provisions of the Borrower Joint
Venture Agreement and the laws of the State of Texas relating to joint
ventures. All customary formalities regarding the existence of Borrower as
a joint venture will continue to be observed. Borrower will continue to
accurately maintain its financial statements, accounting records and other
corporate documents separate from those of any Affiliate of Borrower and
any other Person.
ARTICLE VI
NEGATIVE COVENANTS
Borrower covenants that until all of the Loan have been fully
discharged:
6.1. Debt. Borrower shall not, directly or indirectly, create, incur,
assume, guarantee or otherwise become or remain liable with respect to, any
material indebtedness other than indebtedness described in Section 4.5
hereof.
6.2. Restriction on Fundamental Changes. Borrower shall not, directly
or indirectly, enter into any merger, consolidation, reorganization or
recapitalization, liquidate, wind up or dissolution without the written
consent of Lender.
6.3. Distributions to Members. Except as provided herein, no
distribution shall be made to the partners of Borrower, whether under the
Borrower Joint Venture Agreement or otherwise, while any amount remains
outstanding under the Notes.
6.4. Amendments of Certain Documents. Borrower shall not amend its
formation and organizational documents in any respect without obtaining the
prior written consent of each Lender.
6.5. Other Indebtedness; Transfer of Interests. Without the prior
written consent of Lender, and except as otherwise expressly permitted by
this Agreement or the Borrower Joint Venture Agreement, Borrower shall not
create, incur or permit to exist any liabilities resulting from borrowings,
loans or advances, whether secured or unsecured, or any other obligation of
any kind whatsoever, except (i) the liabilities of Borrower to Lender for
money borrowed hereunder and the liabilities of Borrower under the Loan
Documents, (ii) debt secured by a first lien on the Property and
(iii) unsecured trade payables incurred in the ordinary course of business.
Borrower shall not directly or indirectly create, incur, assume or permit
to exist any lien, pledge, encumbrance or other security interest or
preferential arrangement of any kind or nature with respect to the
membership or partnership interests in Borrower.
6.6. Merger, Consolidation, Sale of Assets, Amendments. Borrower
shall not merge into or consolidate with any corporation or other entity,
or sell, lease, assign, transfer or otherwise dispose of all or
substantially all of its assets. Borrower shall not amend or modify any
portion of Borrower's Joint Venture Agreement without Lender's prior
written consent.
6.7. Guarantees. Without the prior written consent of Lender,
Borrower shall not guarantee or become liable in any way as a surety,
endorser (other than as endorser of negotiable instruments in the ordinary
course of business) or accommodation endorser or otherwise for debt or
obligations of any other person or entity.
6.8. No Sale, Transfer, Liens, Etc. Without the prior written consent
of Lender and except as otherwise expressly permitted by this Agreement,
Borrower's Joint Venture Agreement, the Business Plan or in the ordinary
course of business operations of the Borrower's joint venture, Borrower
shall not suffer or permit any disposition or encumbrance of, or lien upon,
the Property or any portion thereof or any interest therein.
6.9. Assignment. Without the prior written consent of Lender,
Borrower shall not assign Borrower's interest under any of the Loan
Documents, or in any monies due or to become due thereunder, and any
assignment without such consent shall be void.
6.10. Compliance with Laws. Borrower shall comply in all material
respects with all laws, ordinances, governmental rules and regulations to
which it is subject, and obtain and keep in force any and all licenses,
permits, franchises, or other governmental authorizations necessary to the
ownership of its assets or to the conduct of its business.
ARTICLE VII
DEFAULTS AND REMEDIES
7.1. Default. The occurrence of any one or more of the following
shall constitute an event of default (hereinafter, "Default") under this
Agreement and the other Loan Documents:
(a) Payment; Performance. (i) Borrower fails to pay as and when
due hereunder or under the Notes or (ii) Borrower fails to pay when
due any other amount due hereunder, under the Notes or any of the
other Loan Documents; provided, however, that Borrower shall not be in
Default if Borrower fails to pay when due any payment that is not
regularly scheduled until ten (10) days after notice from any Lender
of such failure to pay; or
(b) Performance of Obligations. Borrower's failure to perform
any other obligation under any of the Loan Documents (other than those
referred to in Section 7.1(a) above) for a period of ten (10) days
after receipt of written notice of such failure (or, if delivery of
such notice is stayed or prohibited by applicable law, for a period of
ten (10) days after such failure to perform), or, if Borrower is
diligently pursuing cure and Lender's is reasonably satisfied that
such cure can, with reasonable diligence, be completed in an
additional thirty (30) day period, then such initial ten (10) day
period shall be extended for such additional time during which
Borrower shall be diligently pursuing such cure, not to exceed an
additional thirty (30) days; or
(c) Representations and Warranties. The failure of any
representation or warranty of Borrower in any of the Loan Documents to
be true in all material respects on each date made or deemed made; or
(d) Voluntary Bankruptcy; Insolvency; Dissolution. (i) The
filing of a petition by Borrower for relief under the Bankruptcy Code,
or under any other present or future state or federal law regarding
bankruptcy, reorganization or other debtor relief law, (ii) the filing
of any pleading or an answer by Borrower in any involuntary proceeding
under the Bankruptcy Code or other debtor relief law which admits the
jurisdiction of the court or the petition's material allegations
regarding Borrower's insolvency, (iii) a general assignment by
Borrower for the benefit of creditors or (iv) Borrower applying for,
or the appointment of, a receiver, trustee, custodian or liquidator of
Borrower or any of its assets; or
(e) Involuntary Bankruptcy. The failure of Borrower to effect a
full dismissal of any involuntary petition under the Bankruptcy Code
or under any other debtor relief law that is filed against Borrower or
in any way restrains or limits Borrower or Lender regarding the Loan
prior to the earlier of (i) the entry of any court order granting
relief sought in such involuntary petition or (ii) sixty (60) days
after the date of filing of such involuntary petition; or
7.2. Acceleration Upon Default. Upon the occurrence and during the
continuance of a Default specified in Section 7.1(d) or (e), all sums owing
to Lender under the Loan Documents immediately shall be due and payable.
Upon the occurrence and during the continuance of any Default specified in
this Article VII (other than those referred to in the immediately preceding
sentence) Lender may, at their sole option, declare all sums owing to
Lender under the Loan Documents immediately due and payable.
7.3. Disbursements to Third Parties. Upon the occurrence and during
the continuance of a Default occasioned by Borrower's failure to pay money
to a third party as required by this Agreement, Lender may, but shall not
be obligated to, make such payment from the Loan proceeds or other funds of
Lender. If such payment is made from proceeds of the Loan, Borrower shall
immediately deposit with Lender, upon written demand, an amount equal to
such payment. If such payment is made from funds of Lender, Borrower shall
immediately repay such funds upon written demand of Lender. In either
case, the Default with respect to which any such payment has been made by
Lender shall not be deemed cured until such deposit or repayment (as the
case may be) has been made by Borrower to Lender.
7.4. Repayment of Funds Advanced. Any funds expended by Lender in the
exercise of its rights or remedies under this Agreement and the other Loan
Documents shall be payable to Lender upon demand, together with interest at
the rate applicable to the principal balance of the Notes from the date the
funds were expended.
7.5. Rights Cumulative; No Waiver. All of Lender's rights and
remedies provided in this Agreement and the other Loan Documents, together
with those granted by law or at equity, are cumulative and may be exercised
by Lender at any time. Lender's exercise of any right or remedy shall not
constitute a cure of any Default unless all sums then due and payable to
Lender under the Loan Documents are repaid and Borrower has cured all other
Defaults. No waiver shall be implied from any failure of Lender to take,
or any delay by Lender in taking, action concerning any Default or failure
of condition under the Loan Documents, or from any previous waiver of any
similar or unrelated Default or failure of condition. Any waiver or
approval under any of the Loan Documents must be in writing and shall be
limited to its specific terms.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1. Indemnity. Borrower hereby agrees to defend, indemnify and hold
harmless Lender, and its directors, officers, employees, agents, successors
and assigns from and against any and all losses, damages, liabilities,
claims, actions, judgments, costs and reasonable legal or other expenses
(including, without limitation, reasonable attorneys' fees and expenses)
(collectively, "Claims") such indemnified party may incur as a direct or
indirect consequence of (i) the negotiation, documentation or
administration of the transactions contemplated hereby, (ii) the
transactions contemplated hereby, (iii) the purpose to which Borrower
applies the proceeds of the Loan, (iv) the failure of Borrower to perform
any obligations as and when required by this Agreement or any of the other
Loan Documents, (v) any failure at any time of any of Borrower's
representations or warranties to be true and correct or (vi) any act or
omission by Borrower, or any constituent shareholders/partners/members in
Borrower. Borrower shall immediately pay to Lender upon demand any amounts
owing under this indemnity, together with interest from the date the
indebtedness arises until paid at the rate of interest applicable to the
principal balance of the Notes. BORROWER'S DUTY TO INDEMNIFY LENDER
HEREUNDER SHALL SURVIVE THE REPAYMENT OF THE LOAN WITH RESPECT TO CLAIMS
ARISING PRIOR TO THE REPAYMENT OF THE LOAN IN FULL.
8.2. Form of Documents. The form and substance of all documents,
instruments and forms of evidence to be delivered to Lender under the terms
of this Agreement any of the other Loan Documents shall be subject to
Lender's approval and shall not be modified, superseded or terminated in
any respect without Lender's prior written approval.
8.3. Notices. All notices, demands or other communications under this
Agreement and the other Loan Documents shall be in writing and shall be
delivered via confirmed facsimile, overnight courier, by hand delivery or
by certified mail, return receipt requested, to the appropriate party at
the address set forth on the signature page of this Agreement (subject to
change from time to time by written notice to all other parties to this
Agreement). All communications shall be deemed served upon delivery of, or
if mailed, upon the first to occur of receipt or the expiration of three
(3) days after the deposit in the United States Postal Service mail,
postage prepaid and addressed to the address of Borrower or Lender at the
address specified or, if transmitted via facsimile, upon electronic
confirmation of receipt; provided, however, that non-receipt of any
communication as the result of any change of address or facsimile number of
which the sending party was not notified or as the result of a refusal to
accept delivery shall be deemed receipt of such communication.
8.4. Relationship of Parties. The relationship of Borrower and Lender
under the Loan Documents is, and shall at all times remain, solely that of
Borrower and Lender and not that of partners or joint venturers, and Lender
does not undertake or assume any responsibility or duty to Borrower or to
any third party with respect to the Loan, except as expressly provided in
this Agreement and the other Loan Documents. Borrower hereby irrevocably
waives and disclaims any right, privilege or defense hereunder or under any
of the Loan Documents to the contrary. This Agreement does not constitute
a partnership agreement or any other association between Lender and
Borrower.
8.5. Attorneys' Fees and Expenses; Enforcement. If any attorney is
engaged by Lender to interpret, administer, enforce or defend any provision
of this Agreement or any of the other Loan Documents, or as a consequence
of any Default under the Loan Documents, with or without the filing of any
legal action or proceeding, Borrower shall immediately pay to Lender, upon
demand, the amount of all reasonable attorneys' fees and expenses and all
costs incurred by Lender in connection therewith, together with interest
thereon from the date of such demand until paid at the rate of interest
applicable to the principal balance of the Notes as specified therein.
8.6. Immediately Available Funds. Unless otherwise expressly provided
for in this Agreement, all amounts payable by Borrower to Lender shall be
payable only in United States currency, in immediately available funds.
8.7. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective permitted
successors and permitted assigns.
8.8. Severability. If any provision or obligation under this
Agreement and the other Loan Documents shall be determined by a court of
competent jurisdiction to be invalid, illegal or unenforceable, that
provision shall be deemed severed from the Loan Documents and the validity,
legality and enforceability of the remaining provisions or obligations
shall remain in full force as though the invalid, illegal or unenforceable
provision had never been a part of the Loan Documents; provided, however,
that if the rate of interest or any other amount payable under the Notes or
this Agreement or any other Loan Document, or the right of collectability
therefor, are declared to be or become invalid, illegal or unenforceable,
Lender's obligations to make advances under the Loan Documents shall not be
enforceable by Borrower.
8.9. No Waiver; Successors. No waiver shall be implied from any
failure of Lender to take, or any delay by Lender in taking, action
concerning any default or failure of condition, or from any previous wavier
of any similar or unrelated Default or failure of condition. Any waiver or
approval hereunder must be in writing and shall be limited to its specific
terms. No amendment of any provision of this Agreement or any other Loan
Document (including a waiver thereof or consent relating thereto) shall be
effective unless the same shall be in writing and signed by Borrower and
Lender.
8.10. Time. Time is of the essence of each and every term of this
Agreement.
8.11. Headings. All article, section or other headings appearing
in this Agreement and any of the other Loan Documents are for convenience
of reference only and shall be disregarded in construing this Agreement and
any of the other Loan Documents.
8.12. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with the laws of the State of Texas.
Borrower and all persons and entities in any manner obligated to Lender
under the Loan Documents consent to the jurisdiction of any Federal or
State Court within the State of Texas and also consent to service of proces
by any means authorized by Texas or Federal Law.
8.13. Usury Savings. It is the intention of the parties hereto to
conform strictly to the usury and other laws relating to interest from time
to time in force, and all agreements between Borrower and Lender, whether
now existing or hereafter arising and whether oral or written, are hereby
expressly limited so that in no contingency or event whatsoever, whether by
acceleration or maturity or otherwise, shall the amount paid or agreed to
be paid to Lender, or collected by Lender for the use, forbearance or
detention of the money to be loaned under the Notes, this Agreement or
otherwise, or for the payment or performance of any covenant or obligation
contained herein or in any of the other Loan Documents, exceed the maximum
amount of interest allowable under applicable law (the "Maximum Amount").
If under any circumstances whatsoever fulfillment of any provision hereof
or any other Loan Document, at the time performance of such provision shall
be due, shall involve transcending the Maximum Amount, then ipso facto, the
obligation to be fulfilled shall be reduced to the Maximum Amount. For the
purposes of calculating the actual amount of interest paid or agreed to be
paid to the holder of the Notes for the use, forbearance or detention of
the Loan shall, to the extent permitted by applicable law, be amortized,
allocated and spread from the date of disbursement of the proceeds of the
Loan until payment in full of the Loan, so that the actual rate of interest
on account of the Loan is uniform throughout the term hereof. If under any
circumstances Lender shall ever receive an amount deemed interest by
applicable law, which would exceed the Maximum Amount, such amount that
would be excessive interest under applicable usury laws shall be deemed a
payment in reduction of the principal amount owing under the Notes and
shall be so applied to principal and not to the payment of interest, or if
such excessive interest exceeds the outstanding principal balance of the
Loan, such excessive interest shall be deemed to have been a payment made
by mistake and shall be refunded to Borrower or to any other person making
such payment on Borrower's behalf.
8.14. Revival. To the extent Borrower makes a payment to Lender,
which payment or the proceeds of any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or
required to be repaid to a trustee, receiver or any other party having
requisite authority under the Bankruptcy Code or any bankruptcy law, state
or federal law, common law or equitable cause, then, to the extent of such
payment or proceeds received, the obligation hereunder or part thereof
intended to be satisfied shall be revived and continue in full force and
effect, as if such payment or proceeds had not been received.
8.15. Notes Freely Transferable. The Notes issued hereunder may
be freely transferred by the Lender holding such Notes.
LENDER:
OLY LENDER STRATUS, L.P.,
a Texas limited partnership
By: Oly Fund II GP Investments, L.P.,
a Texas limited partnership,
its general partner
By: Oly Real Estate Partners II, L.P.,
a Texas limited partnership,
its general partner
By: Oly REP II, L.P.,
a Texas limited partnership,
its general partner
By: Oly Fund II, LLC,
a Texas limited liability company,
its general partner
By:/s/ Hal R. Hall
------------------
Name: Hal R. Hall
Title:Vice President
BORROWER:
OOLY STRATUS ABC WEST I JOINT VENTURE,
a Texas joint venture
Financial Partner:
Oly ABC West I, L.P.,
a Texas limited partnership
By: Oly Texas GP II, LLC,
a Texas limited liability company,
its sole general partner
By:/s/ Hal R. Hall
------------------
Name: Hal R. Hall
Title: Vice President
Operating Partner:
Stratus ABC West I, L.P.,
a Texas limited partnership
By: STRS L.L.C.,
a Delaware limited liability company,
General Partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
-----------------------------
William H. Armstrong III,
President and CEO
EXHIBIT A
Form of Promissory Note
[ATTACHED]
Exhibit 10.14
OLY WALDEN GENERAL PPARTNERSHIP
(A Texas General Partnership)
GENERAL PARTNERSHIP AGREEMENT
_____________________
Dated as of April 8, 1998
____________________
TABLE OF CONTENTS
Page
ARTIC Definitions
1.1 Definitions 1
ARTICLE 2
Organization
2.1 Formation of General Partnership 7
2.2 Name 7
2.3 Character of Business 7
2.4 Registered Office and Agent 7
2.5 Fiscal Year 7
ARTICLE 3
Capital Contributions
3.1 Capital Contributions to the Partnership 7
3.2 Additional Capital Contributions 7
3.3 No Return of Capital Contributions 9
3.4 Interest 9
ARTICLE 4
Rights and Obligations of Partners
4.1 Management of Partnership 10
4.2 Management Committee 10
4.3 Major Decisions 11
4.4 Budgets and Reports 11
4.5 Powers of the Operating Partner 11
4.6 Liability of Partners 12
4.7 Other Activities of Partners 12
ARTICLE 5
Exculpation and Indemnity
5.1 Exculpation 12
5.2 Indemnity 12
ARTICLE 6
Distributions and Allocations
6.1 Distributions 13
6.2 Tax Allocations 13
ARTICLE 7
Admissions, Transfers and Withdrawals
7.1 Admission of New Partners 13
7.2 Transfer of Partnership Interests 14
7.3 Buy/Sell 14
7.4 No Substituted Partners 16
7.5 Withdrawal of Partners 16
ARTICLE 8
General Accounting Provisions and Books
8.1 Books of Account; Tax Returns 16
8.2 Place Kept; Inspection 16
8.3 Tax Matters Partner 16
ARTICLE 9
Amendments and Waivers
9.1 Amendments and Waivers 17
9.2 Certain Other Amendments 17
ARTICLE 10
Dissolution and Termination
10.1 Dissolution 17
10.2 Accounting on Dissolution 18
10.3 Termination 18
10.4 No Negative Capital Account Obligation 19
10.5 No Other Cause of Dissolution 19
10.6 Merger 19
ARTICLE 11
Miscellaneous
11.1 Waiver of Partition 19
11.2 Entire Agreement 19
11.3 Severability 19
11.4 Notices 19
11.5 Governing Laws 19
11.6 Successors and Assigns 20
11.7 Counterparts 20
11.8 Headings 20
11.9 Other Terms 20
11.10 Power of Attorney 20
11.11 Transfer and Other Restrictions 21
OLY WALDEN GENERAL PARTNERSHIP
GENERAL PARTNERSHIP AGREEMENT
This General Partnership Agreement (this "Agreement") of Oly Walden
General Partnership, a Texas general partnership (the "Partnership"), is
made effective as of April 8, 1998 (the "Effective Date"), by and between
Oly/Houston Walden, L.P., a Texas limited partnership, as the financial
partner (the "Financial Partner") and Oly/FM Walden, L.P., a Texas limited
partnership, as the operating partner (the "Operating Partner"). (The
Financial Partner and the Operating Partner are collectively referred to
herein as the "Partners" and individually referred to as a "Partner".) The
Operating Partner is additionally referred to as "FM." The Financial
Partner is additionally referred to as "Olympus."
R E C I T A L S:
A. The parties hereto desire to form a general partnership under the
Act (as defined below).
B. The Partnership is being formed for the purpose of acquiring,
owning, developing and reselling that certain property located in Harris
County, Texas and known as "Walden on Lake Houston" (the "Property")
pursuant to that certain Agreement of Purchase and Sale, as amended, by and
between Addison Wilson III, Trustee, as purchaser and BP Walden on Lake
Houston, Ltd. as seller dated January 26, 1998, and that certain Contract
for Sale of Unimproved Property, as amended, by and between Addison Wilson
III, Trustee, as purchaser and Baruch Properties as seller dated March 4,
1998 (collectively, the "Purchase Agreements").
C. The initial Partners hereto desire to enter into this Agreement
to establish their respective rights and obligations with respect to the
Partnership and to provide for the orderly management of the affairs of the
Partnership.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the Partners hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. As used in this Agreement, the follow-ing
terms shall have the following meanings:
"Act" shall have the meaning set forth in Section 2.1.
"Affiliate" shall mean, when used with reference to a specified
Person, any other Person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common
control with, the specified Person. As used in this definition of
Affiliate, the term "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through ownership of
voting securities, by contract, or otherwise.
"Business" shall mean all tangible and intangible property of the
Partnership as of the date of the Buy/Sell offer and any proceeds
therefrom subject to all obligations or liabilities associated
therewith.
"Business Day" shall mean any day other than a Saturday, Sun-day, or
holiday on which national banking associations in the State of Texas
are authorized or required to be closed.
"Business Plan" shall mean the business plan attached hereto as
Exhibit A and incorporated herein, and as may be amended from time to
time in accordance with the provisions hereof.
"Buy-Sell" shall have the meaning set forth in Section 7.3 .
"Buy/Sell Closing Date" shall have the meaning set forth in Section
7.3.
"Buy/Sell Election Period" shall have the meaning set forth in
Section 7.3.
"Buy/Sell Offer" shall have the meaning set forth in Section 7.3.
"Buy/Sell Purchaser" shall have the meaning set forth in Section
7.3 .
"Buy/Sell Seller" shall have the meaning set forth in Section
7.3.
"Capital Account" shall mean a separate account maintained for each
Partner in accordance with the provisions of Regulation section 1.704-
1(b)(2)(iv). Each Partner shall have only one Capital Account,
regardless of the number of classes of units or other interests in the
Partnership owned by such Partner. Initially, the Capital Account of
each Partner shall have a positive balance equal to its initial
Capital Contribution. Such Capital Account shall thereafter be
adjusted in accordance with the following provisions:
(a) Additions. The Capital Account shall be increased by the
sum of (i) except as otherwise provided in paragraph (f) below in
the case of a contribution of a promissory note, the amount of
cash and the fair market value (determined as of the date of
contribution, without regard to section 7701(g) of the Code,
including a constructive contribution resulting from a
termination and reconstitution of the Partnership under section
708(b)(1)(B) of the Code) of property contributed, or deemed to
have been contributed, to the capital of the Partnership by the
Partner, net of any liabilities assumed by the Partnership in
connection with such contribution or to which the contributed
property is subject under section 752 of the Code; plus (ii) the
amount of any net income or other item of income or gain
allocated to the Partner pursuant to Article 6 hereof.
(b) Subtractions. The Capital Account shall be reduced by the
sum of (i) the amount of any net loss or other item of expense,
loss or deduction allocated to the Partner pursuant to Article 6
hereof; plus (ii) the Distribution Value (determined without
regard to section 7701(g) of the Code) of any cash or other
property distributed, or deemed to have been distributed, by the
Partnership to the Partner, net of any liabilities assumed by the
distributee in connection with the distribution or to which the
cash or other distributed property is subject under section 752
of the Code.
(c) Other Adjustments. The Capital Account shall otherwise be
adjusted by the Financial Partner in accordance with the other
capital account maintenance rules of Regulation section 1.704-
1(b)(2)(iv). In connection with the foregoing:
(d) Determination of Fair Market Value. In determining the
balance of each Partner's Capital Account, and for all other
purposes of this Agreement, the fair market value of an asset
contributed to or distributed by the Partnership shall be
determined in good faith by the Financial Partner (which shall
use its reasonable efforts not to overstate or understate the
fair market value of any such asset).
(e) Capital Account of Transferee. A transferee of all or part
of an interest in the capital and profits of the Partnership
shall succeed to the Capital Account of the transferor to the
extent that such Capital Account relates to the transferred
interest.
(f) Contribution of Note. Notwithstanding any other provision
of this definition of Capital Account, if a Partner has
contributed his promissory note to the capital of the Partnership
and such note is not readily traded on an established securities
market, then the principal of such note shall not be credited to
the Partner's Capital Account until and to the extent that either
(i) the Partnership makes a taxable disposition of the note or
(ii) principal payments are made on the note, all in accordance
with Regulation section 1.704-1(b)(2)(iv)(d)(2).
"Capital Contribution" shall mean the gross amount of cash or the
fair market value of other property contributed or caused to be
contributed to the capital of the Partnership by a Partner with
respect to such Partner's capital account.
"Cash Flow" of the Partnership for any period shall mean any and all
cash revenues generated from the ownership, sale of lots, sale of
undeveloped parcels, lease and other operation of the Partnership
assets and any and all capital transaction proceeds minus the sum of
(i) any operating and capital expenses incurred in the operation of
the business of the Partnership, including without limitation any
payments of interest and principal (other than payments of principal
that are refinanced by the Partnership) on Partnership indebtedness
(expressly excluding the Mezzanine Financing) required by the lender
of such indebtedness during the quarterly period in question, and
(ii) a reasonable reserve for necessary or desirable operating and
capital expenses of the Partnership that are anticipated to be
incurred or to become due and payable within six (6) months as the
Management Committee, in the exercise of its reasonable discretion and
as is consistent with the Operating Budget and the Business Plan,
shall determine.
"Code" shall mean the Internal Revenue Code of 1986 and any
successor statute, as amended from time to time.
"Contribution Percentage" of a Partner shall be based on the actual
equity capital contributions of such Partner in relation to the total
equity capital contributions of all Partners.
"Deadlock" shall mean the failure of the Partners to agree with
respect to any Major Decision or other issue with respect to the
Partnership which could have a material adverse effect or impact to
the Partnership if such issue remains unresolved between the Partners.
"Deemed Recipient" shall have the meaning set forth in Section 3.2.
"Default Amount" shall have the meaning set forth in Section 3.2.
"Defaulting Partner" shall have the meaning set forth in Section
3.2.
"Distribution Period" shall mean (i) the period beginning on the
Effective Date and ending on June 30, 1998 and (ii) each calendar
quarter thereafter.
"Distribution Value" shall mean the dollar amount of any cash
distribution and the fair market value, as jointly determined in good
faith by the Partners (each of which shall use its reasonable efforts
not to overstate or understate fair market value), of any non-cash
property distribution at the time of the distribution, net of the
distributee's share of any liabilities to which the distributed
property is subject and net of any liabilities assumed by the
distributee.
"Effective Date" shall have the meaning set forth in the preamble to
this Agreement.
"Escrow Agent" shall have the meaning set forth in Section 7.3.
"Financial Partner" shall mean Oly/Houston Walden, L.P., together
with its successors and assigns.
"FM" shall have the meaning set forth in the preamble of this
Agreement.
"FM Representative" shall have the meaning set forth in Section 4.2.
"Indemnified Parties" shall have the meaning set forth in Section
7.3 .
"Loan" shall have the meaning set forth in Section 3.1.
"Lender" shall have the meaning set forth in Section 3.1.
"Major Decision" means any decision with respect to (1) approval of
the Business Plan; (2) approval of the annual Operating Budget; (3)
approval of the plans and specifications for the Property, and the
subsequent approval of all material change orders or amendments given
in substitution for such approved plans and specifications; (4)
approval of any third party financing or refinancing for the Property,
whether secured or unsecured, unless previously approved in the
Business Plan or annual Operating Budget; (5) approval of acquisition
of any additional property, (6) approval of incurring indebtedness
that has recourse for the Partners, (7) approval of any sale, exchange
or other disposition of the Property; (8) approval of any amendments
to the Agreement; (9) approval of any termination or dissolution of
the Partnership; and (10) appointment of a successor manager pursuant
to Section 4.1.
"Management Committee" shall have the meaning set forth in Section
4.2.
"Mandatory Additional Contribution" shall have the meaning set
forth in Section 3.2.
"Mezzanine Financing" shall mean, the unsecured loan obtained by the
Partnership in the original principal amount of $3,400,000.00 from Oly
Lender Walden, L.P., a Texas limited partnership, or one or more of
its Affiliates, in connection with the capitalization of the
Partnership, together with any amendments, modifications,
substitutions, replacements or refinancings thereof.
"Mezzanine Financing Notes" shall mean those certain Promissory
Notes dated as of the date hereof, as governed by the Mezzanine Loan
Agreement evidencing the Mezzanine Financing, and executed by the
Partnership, as maker, and payable to the order of Oly Lender Walden,
L.P., a Texas limited partnership, together with any amendments,
modifications, substitutions, replacements or refinancings thereof.
"Non-Defaulting Partners" shall have the meaning set forth in
Section 3.2.
"Offer Amount" shall have the meaning set forth in Section 7.3.
"Offer Deposit" shall mean the sum of Five Hundred Thousand and
No/100 Dollars ($500,000.00) in cash.
"Offeree" shall have the meaning set forth in Section 7.3.
"Offeror" shall have the meaning set forth in Section 7.3.
"Olympus" shall have the meaning set forth in the preamble of
this Agreement.
"Olympus Representative" shall have the meaning set forth i
Section 4.2.
"Operating Budget" shall mean the budget attached hereto as Exhibit
B and incorporated herein, as may be amended from time to time in
accordance with the provisions hereof.
"Operating Partner" shall mean Oly/FM Walden, L.P., together with
its successors or assigns.
"Partner" shall mean any Person executing this Agreement as of the
Effective Date as a partner or hereafter admitted to the Partnership
as a partner as provided in this Agreement, but does not include any
Person who has ceased to be a Partner of the Partnership.
"Partnership" shall have the meaning set forth in the preamble to
this Agreement.
"Partnership Interest" shall have the meaning set forth in
Section 7.3 .
"Person" shall mean an individual, partnership, joint venture,
limited part-nership, limited liability company, foreign limited
liability company, trust, business trust, estate, corporation,
custodian, trustee, exec-utor, administrator, nominee, association,
cooperative or entity in a representative capacity.
"Property" shall have the meaning set forth in the preamble of this
Agreement.
"Preferred Return" shall mean the following:
(a) With respect to the first Distribution Period, the
Preferred Return of a Partner shall be the product of (i) the
Unreturned Capital of such Partner from time to time during such
Distribution Period, times (ii) fifteen percent (15.0%), times
(iii) a fraction, the numerator of which is the number of days in
such Distribution Period and the denominator of which is three
hundred and sixty-five (365).
(b) With respect to each Distribution Period following the
first Distribution Period, the Preferred Return of a Partner
shall be the sum of (i) the excess (if any) of such Partner's
Preferred Return determined as of the last day of the
Distribution Period immediately preceding the Distribution Period
under consideration over any distribution made to such Partner
pursuant to Section 6.1 hereof with respect to such immediately
preceding Distribution Period, plus (ii) the product of (A) the
sum of (1) the excess (if any) of such Partner's Preferred Return
determined as of the last day of the Distribution Period
immediately preceding the Distribution Period under consideration
over any distribution made to such Partner pursuant to Section
6.1 hereof with respect to such immediately preceding
Distribution Period, plus (2) the Unreturned Capital (if any) of
such Partner from time to time during the Distribution Period
under consideration, ttimes (B(B) fifteen percent (15.0%), times
(C) a fraction, the numerator of which is the number of days in
the Distribution Period under consideration and the denominator
of which is three hundred and sixty-five (365).
"Receipt Amount" shall have the meaning set forth in Section 7.3.
"Regulation" shall mean Treasury Regulations promulgated under Title of
26 the United States Code.
"Replacement Loan" shall have the meaning set forth in Section
3.2.
"Representative" shall have the meaning set forth in Section 4.2.
"Required Capital Contributions" shall have the meaning set forth
in Section 3.1.
"Required Interest" shall mean both of the General Partners.
"Sharing Ratio" shall have the meaning set forth on Schedule I
attached hereto.
"Tax Matters Partner" shall have the meaning set forth in Section
8.3.
"Unreturned Capital" as of a date shall mean the following:
(a) In the case of each of the Partners, its Unreturned
Capital shall be the excess, if any, of the total Capital
Contributions made by such Partner over the total distributions
received by such Partner under Section 6.1(ii) hereof prior to the
date as of which such Partner's Unreturned Capital is determined.
(b) In the case of a transferee of an interest in the
Partnership, the transferee's Unreturned Capital shall be the
Unreturned Capital as of the date of the transfer of the transferor
times a fraction, the numerator of which is the Contribution
Percentage attributable to the interest in Partnership capital and
profits transferred by the transferor to the transferee, and the
denominator of which is the sum of the Contribution Percentages
attributable to both the interest in Partnership capital and profits
retained by the transferor (if any) and the interest in Partnership
capital and profits transferred by the transferor to the transferee.
Likewise, the Unreturned Capital of the transferor shall be reduced by
the Unreturned Capital of the transferee to whom all or part of the
transferor's interest in Partnership capital and profits has been
transferred.
ARTICLE 2
Organization
2.1 Formation of General Partnership. The Partners have
formed a general partnership pursuant to and in accordance with the
provisions of the Texas Revised Partnership Act, as from time to time
amended ("Act").
2.2 Name. The name of the Partnership is Oly Walden General
Partnership. The Financial Partner may, in its sole discretion, change the
name of the Partnership from time to time and shall give prompt written
notice thereof to the Operating Partner; provided, however, that such name
may not contain any portion of the name or mark of the Operating Partner
without the Operating Partner's consent.
2.3 Character of Business. The purpose of the Partnership
shall be (i) to acquire, hold, develop, sell, encumber, or otherwise act
with respect to investments, direct or indirect, in the Property, and
(ii) to engage in such other business as may be conducted by a general
partnership organized under the laws of the State of Texas.
2.4 Registered Office and Agent. The name and address of the
Partnership's initial registered agent are Olympus Real Estate Corporation,
200 Crescent Court, Suite 1650, Dallas, Texas 75201. The Partnership's
initial principal place of business shall be 200 Crescent Court, Suite
1650, Dallas, Texas 75201. The Financial Partner may change such
registered agent, registered office, or principal place of business from
time to time. The Financial Partner shall give prompt written notice of
any such change to the Operating Partner. The Partnership may from time to
time have such other place or places of business within or without the
State of Texas as may be determined by the Financial Partner.
2.5 Fiscal Year. The fiscal year of the Partnership shall end
on December 31 of each calendar year unless, for United States federal
income tax purposes, another fiscal year is required. The Partnership
shall have the same fiscal year for United States federal income tax
purposes and for accounting purposes.
ARTICLE 3
Capital Contributions
3.1 Capital Contributions to the Partnership. The Partners
shall contribute or be deemed to have contributed capital to the
Partnership in the amounts respectively set forth opposite their names on
Schedule I to this Agreement on the Effective Date (collectively, the
"Required Capital Contributions"). Additionally, the Financial Partner
shall obtain the Mezzanine Loan on behalf of the Partnership. Also, in
addition to the Required Capital Contributions, the Partners acknowledge
that in order to purchase and develop the Property, the Partnership will
need to secure from a third party lender (the "Lender") a term loan, which
shall be in the amount set forth in the Business Plan and on terms and
conditions satisfactory to the Partners and which shall be non-recourse to
the Partners (the "Loan").
3.2 Additional Capital Contributions.
(a) After the funding of the Required Capital Contribution set forth
above (including any amounts deemed to have been contributed), and to the
extent not available from proceeds of the Loan, either (i) the Partners may
agree to make additional Capital Contributions to the Partnership as are
deemed advisable by the Partners (each exercising their independent
discretion), or (ii) if either (A) there has been a default or an event of
default under the Loan or (B) additional capital is necessary to complete
any capital improvement program approved in the Business Plan, or (C) funds
are necessary for continued operation of the Property then the Financial
Partner may elect to call or not call for additional Capital Contributions
(in each case, the "Mandatory Additional Contribution") to be made to the
Partnership to cure any default or event of default under the Loan or to
complete such capital improvement program or fund operations. The
Mandatory Additional Contribution in question shall be made by the Partners
pro rata, based on the Contribution Percentages of the Partners. This
Section 3.2 is solely for the benefit of the Partners, and shall not, nor
shall it be deemed to, create any rights in, or provide any benefit to, any
other person or entity, and the decision to make additional contributions
to the Partnership shall be made in the sole and absolute discretion of the
Financial Partner.
(b) Each Partner shall be required to make its Mandatory Additional
Contribution to the Partnership on or before twenty-one (21) days after
written notice to such Partner. In the event any Partner fails to make a
Mandatory Additional Contribution as required by this Section 3. within
the time period set forth herein (such Partner(s), being herein referred to
as the "Defaulting Partner"), then, the "Non-Defaulting Partners" (herein
so called) shall be entitled, as their sole and exclusive remedy for such
failure, by giving written notice to the Defaulting Partner to make a loan
(the "Replacement Loan") to the Defaulting Partner in the amount of such
Mandatory Additional Contribution, which Replacement Loan (i) shall be
applied solely to fund the delinquent Mandatory Additional Contribution,
(ii) shall have a term of one hundred twenty (120) days from the date of
such loan and (iii) shall bear interest at the lesser of (A) eighteen
percent (18%) per annum, compounded quarterly and (B) the maximum rate of
interest which may be charged, collected or contracted for under applicable
law, with accrued interest due at the maturity of such loan (each such
Replacement Loan together with all accrued interest thereon from time to
time, the "Default Amount"). Anything contained in this Agreement to the
contrary notwithstanding, any Partner who becomes a Defaulting Partner
shall immediately and without any further demand, notice or cure period
(time being of the essence herein) automatically cease to have a right to
vote on all Partnership decisions for any purposes hereunder for the
remainder of the life of the Partnership; provided, however, if a
Defaulting Partner shall pay the Default Amount in full to the Non-
Defaulting Partner who elected to make such loan, on or before the
expiration of the 120-day term of the Replacement Loan to such Defaulting
Partner, such Defaulting Partner's voting rights hereunder shall be
automatically re-instated (effective as of the date such Default Amount is
paid in full) for all purposes. If the Default Amount is not paid in full
on or before the expiration of the 120-day period, the Defaulting Partner's
voting rights shall not be reinstated upon the subsequent payment of the
Default Amount.
(c) The Partners further agree that if the Default Amount is not
repaid to the Non-Defaulting Partner within the 120-day term, then, without
demand, notice or cure period (time being of the essence herein), such
Default Amount shall for all purposes hereunder be deemed to be a Capital
Contribution by the Non-Defaulting Partner to the Partnership effective as
of the expiration of such 120-day term of such Replacement Loan, which
deemed Capital Contribution shall be credited as an amount equal to the
product of 200% times the Default Amount, and the Capital Account of the
Defaulting Partner shall for all purposes be appropriately reduced to
reflect such treatment; provided, however, with respect to any Default
Amount attributable to a Replacement Loan made more than one hundred twenty
(120) days after the initial Replacement Loan (which is not repaid during
its 120-day term) is made by a Non-Defaulting Partner, the deemed Capital
Contribution shall be credited as an amount equal to the product of 300%
times the Default Amount, and in each case the distribution percentages of
the Defaulting Partner (i.e., the pro rata share of the particular
distribution which such Partner would otherwise receive under such
sections) shall be reduced by, and the distribution percentages of the Non-
Defaulting Partner who makes its pro rata share of such loan shall be
increased by an amount equal to the quotient of (i) 200% (or 300%, as the
case may be) times the Default Amount, divided by (ii) the aggregate
Capital Contributions made by the Partners to the Partnership prior to the
date of calculation (including the Mandatory Additional Contributions of
the Non-Defaulting Partner but excluding the Default Amount then in
question).
(d) The new distribution percentages computed in accordance with this
Section 3.2 shall remain in effect under this Agreement unless and until
there is a subsequent adjustment to the distribution percentages.
Notwithstanding the foregoing, no Partner's distribution percentage shall
be reduced under any circumstance to less than zero, nor shall any
Partner's distribution percentage be increased under any circumstance to
more than 100%. Mandatory Additional Contributions shall be made pro rata,
based on the relative Contribution Percentages of the Partners.
(e) Each Partner which becomes a Defaulting Partner hereby
irrevocably grants to the other Partner a continuing, first priority,
perfected security interest in the Partnership Interest of such Defaulting
Partner to secure the prompt payment of each Replacement Loan made to such
Defaulting Partner until such time, if ever, as the Default Amount with
respect to the Replacement Loan under consideration has been converted to a
deemed Capital Contribution pursuant to Section 3.2(c). On or before 15
days after any written request of the Non-Defaulting Partner, the
Defaulting Partner shall execute and deliver a UCC-1 financing statement in
form and substance acceptable to the Non-Defaulting Partner to evidence
such security interest, the failure of which shall constitute a default
under the Replacement Loan. Prior to a default or maturity of a
Replacement Loan, and without limiting the remedies of the Non-Defaulting
Partner, at the election of the Non-Defaulting Partner all distributions
payable to the Defaulting Partner under this Agreement shall be payable
directly to the Non-Defaulting Partner (pro rata based on the relative
amount of the Replacement Loan made by the Non-Defaulting Partner) until
the Replacement Loan(s) of the Defaulting Partner are paid in full (or
converted to a deemed Capital Contribution), shall be paid directly to the
Non-Defaulting Partner until the entire amount of the Replacement Loan is
paid in full. Any amounts paid directly to the Non-Defaulting Partner
pursuant to the terms of the preceding sentence shall be treated as paid to
the person (the "Deemed Recipient") entitled to receive the amount of the
distribution in the absence of the requirements of the preceding sentence
(thereby discharging the Partnership's obligation to make the payment in
question to the Deemed Recipient) and then as applied by the Deemed
Recipient on behalf of the Defaulting Partner to the repayment of the
Defaulting Partner's loan.
(f) EXCEPT AS SET FORTH IN SECTION 3.1 OR THIS SECTION 3.2, NO
ADDITIONAL CAPITAL CONTRIBUTIONS SHALL BE REQUIRED BY ANY PARTNER UNLESS AN
EXPRESS WRITTEN CALL FOR A CAPITAL CONTRIBUTION IS MADE BY THE FINANCIAL
PARTNER TO EACH OF THE PARTNERS.
3.3 No Return of Capital Contributions. No Partner is
entitled to a return of its Capital Contribution, but shall look solely to
distributions from the Partnership as provided for in Article 6 of this
Agreement.
3.4 Interest. No Partner shall be entitled to interest on its
Capital Contribution or its Capital Account, provided that each Partner's
Capital Contribution shall accrue the Preferred Return (which shall not be
deemed to be interest) as set forth herein. Any interest actually received
by reason of temporary investment of any part of the Partnership's funds
shall be included in the Partnership's funds.
ARTICLE 4
Rights and Obligations of Partners
4.1 Management of Partnership. The management, control, and
direction of the Partnership and its operations, business, and affairs
shall be vested exclusively in the Financial Partner, which shall have the
right, power, and authority, acting solely by itself and without the
necessity of approval by any Partner or any other person, to carry out any
and all of the purposes of the Partnership and to perform or refrain from
performing any and all acts that the Financial Partner may deem necessary,
desirable, appropriate, or incidental thereto, except as otherwise provided
in this Agreement; provided, however, that the Operating Partner shall
manage the Partnership and its operations, business, and affairs solely as
described in Section 4.5. The Management Committee may replace the
Operating Partner at any time in the event the Management Committee
determines in its good faith discretion that either (i) the Operating
Partner has acted negligently or with willful misconduct in performing its
duties or (ii) the monthly financial reports of the Partnership reveal a
material adverse deviation from the Business Plan more than three (3) times
within any twelve (12) month period.
4.2 Management Committee.
(a) The "Management Committee" (herein so called) shall consist of
three (3) representatives, one (1) of which shall be designated by FM
(collectively, the "FM Representative") and two (2) of which shall be
designated by Olympus (jointly, the "Olympus Representative")
(individually, a "Representative" and collectively, the "Representatives");
The initial Representatives designated by Olympus and FM are set forth
opposite such Partner's name below:
Partner Initial Representative
Olympus Hal Hall
Olympus Greg Adair
FM Tim Smith
Olympus and FM may appoint alternates for the Representatives appointed by
it, which alternates shall have all the powers of the Representatives in
their absence or inability to serve. Olympus and FM may change its
designated Representatives effective upon written notice from Olympus or FM
designating such Representative to the other Partners. One of the Olympus
Representatives shall serve as Chairman of the Management Committee and
shall set the agenda for such meetings.
(b) The Representatives shall meet quarterly (or more often, as the
Financial Partner may reasonably determine) in the offices of the
Partnership or by telephone conference, unless the Representatives jointly
agree that the meeting is unnecessary or that a different schedule or
location for the meeting is appropriate, to discuss current material
management issues (but not day-to-day operations matters which are in
accordance with the operation parameters set forth in the Business Plan,
Operating Budget or otherwise set forth in writing) or Major Decisions. At
each meeting the Representatives shall each receive one (1) vote. All
action taken by the Management Committee shall require the approval or
consent of at least two (2) Representatives. Representatives may bring to
any meeting such employees, agents, professionals and advisors as they deem
necessary or appropriate to assist them at such meeting. A quorum shall
consist of at least one FM Representative and one Olympus Representative
unless the FM Representative has declined to attend two (2) consecutive
meetings which are scheduled with at least seventy-two (72) hours prior
notice for each meeting at the offices of the Partnership, in which event
the quorum may be two Olympus Representatives.
(c) The Financial Partner shall be authorized and empowered to (i)
make all day-to-day management decisions (provided that such decisions are
consistent with the operation parameters set forth in the Business Plan,
Operating Budget or otherwise in writing) except for Major Decisions on
behalf of the Management Committee, (ii) direct the Operating Partner,
(iii) perform all acts and enter into and perform all contracts and other
undertakings that the Financial Partner may, in the exercise of its
reasonable discretion, deem necessary, advisable, appropriate or incidental
thereto and (iv) terminate Stratus or a successor property manager in the
event of a default in the Management Standard (as that term is defined in
the Management Agreement), provided, if Stratus is terminated as property
manager, then the Partnership (as a Major Decision) shall designate a
successor manager.
4.3 Major Decisions. All Major Decisions shall be made by both the
Financial Partner and the Operating Partner. Accordingly, neither FM nor
Olympus, on behalf of the Management Committee, shall have the right or the
power to make any binding commitment on behalf of the Partnership in
respect of a Major Decision unless and until all of the Representatives
have authorized the same in writing.
4.4 Budgets and Reports.
(a) By January 31st of each calendar year hereafter during the term
hereof, the Operating Partner shall prepare a revised Operating Budget and
the Business Plan for the operation of the Partnership. The Management
Committee shall have thirty (30) days after receipt thereof to either
approve the submitted Business Plan and Operating Budget or respond with
required changes to same.
(b) The Operating Partner agrees to use diligence and to employ all
reasonable efforts to ensure that the actual costs of operating the
Partnership shall not exceed the Operating Budget, either in total or for
any one accounting category. The Operating Partner shall secure the
written approval of the Management Committee for any expenditure that
(i) exceeds fifteen percent (15%) of the annual budgeted amount for the
Partnership in any one line item on such Operating Budget or (ii) exceeds
ten percent (10%) of the annual budgeted amount for the Partnership in all
accounting categories of the Operating Budget. During each applicable
calendar year, the Operating Partner agrees to immediately inform the
Management Committee of any major increases in costs and expenses that were
not foreseen during the budget preparation period and thus were not
reflected in the Operating Budget.
(c) The Operating Partner shall also submit any additional financial
or operational reports as the Financial Partner may from time to time
reasonably request.
4.5 Powers of the Operating Partner. Subject to Section 4.3
the Operating Partner shall have the duties, rights and obligations to
implement the operations of the Partnership as described in the Business
Plan, Operating Budget or approved in writing by the Management Committee.
The Operating Partner may initially delegate its duties to manage the
Property to Stratus Management, L.L.C. ("Stratus") in accordance with the
terms and conditions of that certain Management Agreement dated of even
date herewith (the "Management Agreement") by and between Oly/FM Walden,
L.P. and Stratus. The Management Agreement will terminate upon (among
other things) the exercise of Stratus' option rights (the "Option") under
that certain Option Agreement dated of even date herewith by and between
Oly/FM Walden, L.P. and Stratus unless ratified by the Management Committee
as of the closing of the Option. Without limiting the generality of
Section 4.1 but subject to Section 4.3, the Operating Partner, acting on
behalf of the Partnership, shall oversee the activities of Stratus or, if
the Management Agreement is terminated, perform the duties, rights and
obligations of Stratus; provided, however, neither the Operating Partner
nor Stratus shall take any action that has a material economic affect on
the Partnership without the prior approval of the Management Committee,
including, without limitation, approving the form and substance of all
contracts, loan documents or other documents necessary to operate the
business of the Partnership.
4.6 Liability of Partners. The Partners shall be personally
liable for the debts and obligations of the Partnership if (but solely to
the extent) required by applicable law; provided, however, that all such
debts and obligations shall be paid or discharged first with the property
of the Partnership (including insurance proceeds) before the Partners shall
be obligated to pay or discharge any such debt or obligation with its
personal assets. Notwithstanding the preceding sentence, the Partners
shall not be personally liable for any debts or obligations which are
nonrecourse or which, under the terms thereof, do not create or impose such
liability.
4.7 Other Activities of Partners. Except as otherwise agreed
in writing, each Partner (i) may carry on and conduct in any way or in any
capacity, including, but not limited to, for such Partner's own right and
for such Partner's own personal account, as a partner in any other
partnership, as a venturer in any joint venture, as a member or manager in
any limited liability company, as an employee, officer, director or
stockbroker of any corporation, or as a participant in any syndicate, pool,
trust, association or other business organization, a business that
competes, directly or indirectly, with the business of the Partnership,
(ii) will be free in any capacity to conduct business activities the same
or similar as conducted by the Partnership and (iii) may make investments
in any kind of property. The Partnership will have absolutely no claim or
right to any such business or assets thereof. Further, the Partnership
will have claim to and will own only those assets contributed to the
Partnership or acquired with Partnership funds or credit. Neither this
Agreement nor any principle of law or equity shall preclude or limit, in
any respect, the right of any Partner or any affiliate thereof to engage in
or derive profit or compensation from any activities or investments, nor
give any other Partner any right to participate or share in such activities
or investments or any profit or compensation derived therefrom.
ARTICLE 5
Exculpation and Indemnity
5.1 Exculpation. Neither the Partners nor any affiliate of
the Partners, nor any officer, director, manager, member, employee, agent,
stockholder, or partner of the Partners or any of its affiliates, shall be
liable, responsible, or accountable in damages or otherwise to the
Partnership or any Partner by reason of, or arising from or relating to the
operations, business, or affairs of, or any action taken or failure to act
on behalf of, the Partnership, except to the extent that any of the
foregoing is determined, by a final, nonappealable order of a court of
competent jurisdiction, to have been primarily caused by the gross
negligence, willful misconduct, or bad faith of the person claiming
exculpation.
5.2 Indemnity. The Partnership shall indemnify the Partners,
each affiliate of the Partners, and each officer, director, stockholder,
manager, member, and partner of the Partners or any of its affiliates, and
if so determined by the Partners, each employee or agent of the Partners or
any of its affiliates, against any claim, loss, damage, liability, or
expense (including reasonable attorneys' fees, court costs, and costs of
investigation and appeal) suffered or incurred by any such indemnitee by
reason of, or arising from or relating to the operations, business, or
affairs of, or any action taken or failure to act on behalf of, the
Partnership, except to the extent any of the foregoing (i) is determined by
final, nonappealable order of a court of competent jurisdiction to have
been primarily caused by the gross negligence, willful misconduct, or bad
faith of the person claiming indemnification or (ii) is suffered or
incurred as a result of any claim (other than a claim for indemnification
under this Agreement) asserted by the indemnitee as plaintiff against the
Partnership. Unless a determination has been made (by final, nonappealable
order of a court of competent jurisdiction) that indemnification is not
required, the Partnership shall, upon the request of any indemnitee,
advance or promptly reimburse such indemnitee's reasonable costs of
investigation, litigation, or appeal, including reasonable attorneys' fees;
provided, however, that the affected indemnitee shall, as a condition of
such indemnitee's right to receive such advances and reimbursements,
undertake in writing to repay promptly the Partnership for all such
advancements or reimbursements if a court of competent jurisdiction
determines that such indemnitee is not then entitled to indemnification
under this Section 5.2. No Partner shall be required to contribute capital
in respect of any indemnification claim under this Section 5.2 unless
otherwise provided in any other written agreement to which such Partner is
a party.
ARTICLE 6
Distributions and Allocations
6.1 Distributions. No later than thirty (30) days after the
end of each Distribution Period during which the Partnership has Cash Flow,
such Cash Flow shall be distributed as set forth below and in the order of
priority as set forth below. The Partnership shall receive 78.4314% of all
Cash Flow until the special distribution interest to be paid to Richard A.
Gray, Jr. pursuant to that certain Profits Participation letter agreement
dated April 9, 1998 has been paid in full. The Partnership shall then
receive 98.0392% of all Cash Flow.
(i) First, to the payment of the Mezzanine Financing
pursuant to the terms of the Mezzanine Loan Agreement; then
(ii) Second, to the payment of the Preferred Return on the
Unreturned Capital of each Partner in proportion to each Partner's
Capital Contribution; then
(iii) Third, to the return, pari passu of Capital
Contributions to each Partner; then
(iv) Fourth, to each Partner in proportion to the Sharing
Ratios.
6.2 Tax Allocations. For United States federal income tax
purposes, allocations of items of income, gain, loss, deduction, expense,
and credit for each fiscal year of the Partnership shall be in accordance
with each Partner's economic interest in the respective item, as determined
by the Financial Partner pursuant to Section 704(b) of the Code, and the
regulations promulgated thereunder and subject to the requirements of
Section 704(c) of the Code and the regulations promulgated thereunder.
Unless the Financial determines otherwise, allocations shall be made to
each Partner in the same manner as such Partner (i) would be required to
contribute to the Partnership or (ii) would receive as distributions if the
Partnership were to liquidate the assets of the Partnership at their book
value and distribute the proceeds in accordance with Section 6.1; provided,
however, that if any such allocation is not permitted by applicable law,
the Partnership's subsequent income, gain, loss, deduction, expense and
credit shall be allocated among the Partners so as to reflect as nearly as
possible the allocation used in computing capital accounts.
ARTICLE 7
Admissions, Transfers and Withdrawals
7.1 Admission of New Partners. After the Effective Date, new
Partners may be admitted to the Partnership only with the written consent
of, and upon such terms and conditions as are approved by the Financial
Partner. No admission of any new Partner shall cause the Partner's
interest in Partnership allocations, distributions and capital to be less
than one percent (1%), and no Partner's Sharing Ratio in the Partnership
shall be reduced or diluted unless approved in writing by such Partner or
unless otherwise provided in any other written agreement to which such
Partner is a party.
7.2 Transfer of Partnership Interests. No Partner may
transfer or encumber all or any portion of such Partner's interest in the
Partnership without the prior written consent of the Partners; provided,
however, that Olympus may transfer all or any portion of its interest in
the Partnership to an Affiliate of Olympus Real Estate Corporation without
the consent of FM. Additionally, any interest in the Partnership held by
Olympus or its Affiliates may be transferred in the exercise of rights of
the limited partners of Olympus Real Estate Fund II, L.P. ("Fund II") to
remove the general partner under the limited partnership agreement of Fund
II.
7.3 Buy/Sell Option.
(a) In the event of a Deadlock at any time during the term of
the Partnership, either Partner may exercise a "buy-sell" right (the "Buy-
Sell") as follows: either Partner (the "Offeror") exercising such Buy-Sell
(A) shall deliver to the other Partner (the "Offeree") a written notice
(the "Buy/Sell Offer") stating the Offeror's exercise of such right and
setting forth the Buy/Sell Offer and a description of any negotiations or
discussions with third parties that Offeror may have had with respect to
the sale of the Partnership Interest and the Business, which Buy/Sell Offer
shall represent the dollar amount (without reduction for any deemed or
imputed expenses of sale) that the Offeror would be willing to pay to the
Partnership in cash for the Business (the "Offer Amount") and (B)
simultaneously with the delivery of the Buy/Sell Offer, shall deliver into
escrow with a title insurance company located in Dallas, Texas selected by
the Offeror (the "Escrow Agent"), a good faith deposit in the amount of the
Offer Deposit. The Offeror hereby instructs the Escrow Agent that the
Escrow Agent shall either (i) in the event the Offeree elects to sell its
interest in the Partnership (the "Partnership Interest") in accordance with
the terms hereof, apply such Offer Deposit to the purchase price as of the
Buy/Sell Closing Date (as hereinafter defined) or if the Offeror fails to
timely purchase the Offeree's Partnership Interest in accordance with the
terms hereof, disburse such Offer Deposit in accordance with Section
7.3(g), or (ii) in the event the Offeree elects to purchase the Offeror's
Partnership Interest, disburse such Offer Deposit in accordance with
Section 7.3(e).
(b) The notice transmitting the Buy/Sell Offer shall be deemed
to constitute an offer by the Offeror to purchase the Offeree's Partnership
Interest for a price equal to the Receipt Amount. "Receipt Amount" shall
mean the aggregate amount which the Partner whose Partnership Interest is
to be transferred, whether Offeror or Offeree, would receive as a
Partnership distribution if (i) the Business were sold for cash for the
Offer Amount, (ii) all debts and liabilities of the Partnership but without
taking into account any deemed or imputed expenses which would occur for
the sale to third parties (e.g. imputed brokerage fees, etc.) were paid in
full from such proceeds and (iii) prorations were made with respect to all
current assets and current liabilities of the Partnership.
(c) The Offeree shall have forty-five (45) days from the date
of the Buy/Sell Offer to elect, by written notice to the Offeror signed by
the Partner constituting the Offeree, whether to sell such Offeree's
Partnership Interest to the Offeror or whether to purchase (or cause its
designee to purchase) the Offeror's Partnership Interest in the Partnership
(the "Buy/Sell Election Period ").
(d) If the Offeree fails to make an election within such
forty-five (45) day period, or fails to comply with subsection (e) below,
such Offeree shall be conclusively deemed to have elected to sell its
Partnership Interest in the Partnership to the Offeror according to the
terms of this Section 7.3.
(e) If the Offeree makes an election to purchase within such
forty-five (45) day period by sending written notice to the Offeror as
required by subsection (c), and by delivering into escrow with the Escrow
Agent a good faith deposit in the amount of the Offer Deposit, then, the
original Offeror shall be conclusively deemed to have elected to sell its
Partnership Interest in the Partnership to the Offeree for a price equal to
the applicable Receipt Amount. In the event the Offeree timely makes an
election to purchase, the Offeree hereby instructs the Escrow Agent that
the Escrow Agent shall (i) return the Offeror's Offer Deposit to the
Offeror and (ii) hold the Offeree's Offer Deposit and shall either apply
such Offeree's Offer Deposit to the purchase price or disburse such
Offeree's Offer Deposit in accordance with Section 7.3(g).
(f) The Partner (the "Buy/Sell Purchaser") that is obligated
to purchase the Partnership Interest in the Partnership of the other
Partner (the "Buy/Sell Seller") pursuant to this Section 7.3 shall fix a
closing date (the " Buy/Sell Closing Date") for such purchase that is not a
Business Day that is not later than forty-five (45) days after the
expiration of the Buy/Sell Election Period, by written notice to the
Buy/Sell Seller at least fifteen (15) days in advance of Buy/Sell Closing
Date. The closing of such purchase shall take place on the Buy/Sell
Closing Date at the address of the Escrow Agent. At such closing, the
Partner constituting the Buy/Sell Seller shall execute and deliver to the
Buy/Sell Purchaser (or its designee) such instruments of assignment, bills
of sale, amendments to this Agreement and other instruments and documents
as the Buy/Sell Purchaser and the Buy/Sell Seller (or such designee) may
reasonably require for the conveyance to such Buy/Sell Purchaser (or such
designee) of all of the Buy/Sell Seller's right, title and interest in and
to the Buy/Sell Seller's Partnership Interest in the Partnership against
receipt by the Buy/Sell Seller of a wire transfer of immediately available
funds in an amount equal to the applicable Receipt Amount; and the Buy/Sell
Seller hereby irrevocably constitutes and appoints the Buy/Sell Purchaser
as its attorney-in-fact to execute, acknowledge and deliver any of such
instruments or documents. Each of the Buy/Sell Seller and Buy/Sell
Purchaser shall each bear their respective closing costs and expenses
(including, but not limited to, all attorney's fees and costs and all
applicable transfer and income taxes) incurred in the purchase or sale of
the Buy/Sell Seller's Partnership Interest in the Partnership hereunder.
Such sale of such Partnership Interest shall be made without
representation, warranty or recourse, except for representations and
warranties in form and substance reasonably acceptable to the Buy/Sell
Purchaser and the Buy/Sell Seller with respect to existence, good standing,
title, no encumbrance, authority, authorization, no conflicts, and such
other customary matters as may be reasonably requested by the Buy/Sell
Purchaser. If the Buy/Sell Offer or the closing of the purchase
contemplated thereby causes the maturity of any Partnership indebtedness to
be accelerated, the Buy/Sell Seller shall be released from liability
resulting from such accelerated indebtedness and the Buy/Sell Purchaser
shall pay such indebtedness in full (including without limitation, any
accrued but unpaid interest and any prepayment premiums or penalties) at
Buy/Sell Purchaser's sole cost and expense and shall indemnify and hold
Buy/Sell Seller harmless from and against any losses, damages, costs or
expenses (including attorneys' fees) incurred by Buy/Sell Seller, or the
Buy/Sell Seller's Affiliates, employees, agents, representatives,
consultants, attorneys, fiduciaries, servants, officers, directors,
partners, predecessors, successors and assigns and Affiliates of the
foregoing (the "Indemnified Parties"), as a direct or indirect result
thereof, other than any losses, damages, costs or expenses (including
attorneys' fees) incurred by any of the Indemnified Parties as a direct
result of such Indemnified Party's bad conduct. The Buy/Sell Seller shall
be released from liability from any indebtedness of the Partnership.
Anything contained in this Agreement to the contrary notwithstanding, in
the event the sale of the Partnership Interest is not consummated because
of a default on the part of Buy/Sell Seller or if a condition precedent
cannot be fulfilled because Buy/Sell Seller frustrated such fulfillment,
Buy/Sell Purchaser may, at its election, pursue an action for specific
performance and/or costs and expenses.
(g) In the event that the Buy/Sell Purchaser defaults in its
obligation to purchase the Partnership Interest of the Buy/Sell Seller in
the Partnership on the Buy/Sell Closing Date, the Buy/Sell Seller shall
have the right to (i) solicit third party offers on behalf of the
Partnership for the purchase of the Business, to accept the best such
offer, as determined by the Buy/Sell Seller in its sole and absolute
discretion, and to consummate the sale of the Business to such third party
pursuant to such offer, (ii) purchase the Partnership Interest of the
Buy/Sell Purchaser for a purchase price equal to ninety percent (90%) of
the aggregate Partnership distributions that the Buy/Sell Purchaser would
be entitled to receive under this Agreement if the Business were sold for
cash for the Offer Amount and all debts and liabilities of the Partnership
(excluding imputed sale expenses) were paid in full from such proceeds and
proration were made with respect to all current assets and current
liabilities of the Partnership, (iii) specifically enforce the Buy/Sell
Purchaser's obligation to purchase the Partnership interest of the Buy/Sell
Seller, and (iv) notify the Escrow Agent holding the Offer Deposit of the
Buy/Sell Purchaser immediately to deliver such Offer Deposit to the
Buy/Sell Seller as liquidated damages for the breach by such Buy/Sell
Purchaser (and the Buy/Sell Purchaser covenants and agrees to cause, and
hereby instructs, the Escrow Agent to deliver such Offer Deposit to the
Buy/Sell Seller). The delivery of the Offer Deposit to the Buy/Sell Seller
shall not constitute a return of capital. The Buy/Sell Purchaser hereby
constitutes and appoints the Buy/Sell Seller as its attorney-in-fact to
execute and deliver on behalf of the Buy/Sell Purchaser all documents as
may be reasonably required in connection with the delivery by the Escrow
Agent of the Offer Deposit to the Buy/Sell Seller.
7.4 No Substituted Partners. Except as permitted by Section
7.1, no transferee of any partnership interest in the Partnership may
become a substituted Partner. Rather, any transferee of any Partnership
interest of a Partner shall be entitled solely to rights as assignee of the
rights to receive all or part of the share of the income, gains, losses,
deductions, expenses, credits, distributions, or returns of capital to
which his or its transferor would otherwise be entitled with respect to the
Partnership interest so transferred.
7.5 Withdrawal of Partners. Except as permitted by Section
7.2 hereof, no Partner shall have any right to withdraw or resign from the
Partnership without the consent of the Financial Partner.
ARTICLE 8
General Accounting Provisions and Books
8.1 Books of Account; Tax Returns. The Financial Partner
shall prepare and file, or shall cause to be prepared and filed, all United
States federal, state, and local income and other tax returns required to
be filed by the Partnership and shall keep or cause to be kept complete and
appropriate records and books of account in which shall be entered all such
transactions and other matters relative to the Partnership's operations,
business and affairs as are usually entered into records and books of
account that are maintained by persons engaged in business of like
character or are required by the Act. Except as otherwise expressly
provided herein, such books and records shall be maintained in accordance
with the basis utilized in preparing the Partnership's United States
federal income tax returns, which returns, if allowed by applicable law,
may upon the approval of the Management Committee be prepared on an accrual
basis.
8.2 Place Kept; Inspection. The books and records shall be
maintained at the principal place of business of the Partnership, and all
such books and records shall be available for inspection and copying at the
reasonable request, and at the expense, of any Partner during the ordinary
business hours of the Partnership.
8.3 Tax Matters Partner. The Financial Partner shall be the
tax matters partner of the Partnership and, in such capacity, shall
exercise all rights conferred, and perform all duties imposed, upon a tax
matters partner under Sections 6221 through 6233 of the Code and the
regulations promulgated thereunder; provided, however, that the Operating
Partner shall have the right to review and approve any actions taken by the
Financial Partner in its capacity as the tax matters partner.
Notwithstanding the foregoing, the Financial Partner shall have the right
to select the methodology to be used pursuant to Section 704(c) of the Code
subject to the Operating Partner's consent, which consent shall not be
unreasonably withheld.
ARTICLE 9
Amendments and Waivers
9.1 Amendments and Waivers. Except as expressly provided in
Section 9.3 of this Agreement, the Financial Partner may amend or waive any
provision of this Agreement which merely (i) corrects an error or clarifies
an ambiguity in this Agreement, (ii) does not adversely affect the
Operating Partner in any material respect or (iii) changes Schedule I to
this Agreement to reflect the Sharing Ratios or Partnership Interests of
the Partners as from time to time amended in accordance with this
Agreement. The Financial Partner shall amend Schedule I to this Agreement
to reflect any additional Capital Contributions. The Partners agree to
look to the books and records of the Partnership for determination of the
actual amount of Capital Contributions made to the Partnership, as provided
in Section 3.1 of this Agreement.
9.2 Certain Other Amendments. Notwithstanding any provision
to the contrary contained herein, no amendment to or waiver of any
provision of this Agreement shall be effective against a given Partner
without the consent or vote of such Partner if such amendment or waiver
would (i) cause the Partnership to fail to be treated as a general
partnership under the Act, (ii) change Section 3.1 of this Agreement to
increase a Partner's obligation to contribute to the capital of the
Partnership, (iii) change Section 5.1 or 5.2 of this Agreement to affect
adversely any Partner's rights to exculpation or indemnification, (iv)
change Section 6.1 or 6.2 of this Agreement to affect adversely the
participation of such Partner in the income, gains, losses, deductions,
expenses, credits, capital or distributions of the Partnership (including
any amendments to admit one or more new Partners), (v) change Section 7.1
of this Agreement to affect adversely the anti-dilution rights of such
Partner, (vi) change the percentage of Partners necessary for any consent
or vote required hereunder to the taking of any action or (vii) amend
Section 9.2 of this Agreement.
ARTICLE 10
Dissolution and Termination
10.1 Dissolution. The Partnership shall be dissolved upon the
first to occur of the following events:
(i) the election of the both Partners to dissolve the
Partnership;
(ii) the election of the Financial Partner to dissolve the
Partnership if all or substantially all Partnership assets shall have
been sold or disposed of or shall consist of cash;
(iii) both the Partners shall have withdrawn from the
Partnership within the meaning of the Act, or any other dissolution
event specified in the Act shall have occurred;
(iv) the Financial Partner shall have (A) made a general
assignment for the benefit of creditors, (B) filed a voluntary
petition in bankruptcy, (C) filed a petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any bankruptcy or
debtor relief law, (D) filed an answer or other pleading admitting or
failing to contest the material allegations of a petition filed
against it in any bankruptcy or insolvency proceeding brought against
it or (E) sought, consented to, or acquiesced in the appointment of a
trustee, receiver or liquidator of the Financial Partner or of all or
any substantial part of its property;
(v) if within sixty (60) days after the commencement of any
proceeding against the Financial Partner seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any bankruptcy or debtor relief law, the
proceeding shall not have been dismissed; or
(vi) if within sixty (60) days after the appointment
(without the Financial Partner's consent or acquiescence) of a
trustee, receiver or liquidator of the Financial Partner or of all or
any substantial part of its property, the appointment shall not have
been vacated or stayed if within sixty (60) days after the expiration
of any such stay, the appointment shall not have been vacated.
Notwithstanding the foregoing, the Partnership shall not be dissolved upon
the occurrence of an event specified in (iii) through (vi) of this Section
10.1 if within ninety (90) days after such occurrence a majority in
interest (under applicable federal income tax principles) of the Partners
agree in writing to continue the business of the Partnership and to the
appointment, effective as of the date of withdrawal, of a successor
Financial Partner.
10.2 Accounting on Dissolution. Following the dissolution of
the Partnership pursuant to Section 10.1 of this Agreement, the books of
the Partnership shall be closed, and a proper accounting of the
Partnership's assets, liabilities and operations shall be made by the
Financial Partner, all as of the most recent practicable date. The
Financial Partner shall serve as the liquidator of the Partnership unless
it has been removed or unless it otherwise fails or refuses to serve. If
the Financial Partner does not serve as the liquidator, one or more other
persons or entities may be selected to serve by the Operating Partner. The
expenses incurred by the liquidator in connection with the dissolution,
liquidation and termination of the Partnership shall be borne by the
Partnership.
10.3 Termination. As expeditiously as practicable, but in no
event later than one year (except as may be necessary to realize upon any
material amount of property that may be illiquid), after the dissolution of
the Partnership pursuant to Section 10.1 of this Agreement, the liquidator
shall cause the Partnership to pay the current liabilities of the
Partnership and (i) establish a reserve fund (which may be in the form of
cash or other property, as the liquidator shall determine) for any and all
other liabilities, including contingent liabilities, of the Partnership in
a reasonable amount determined by the liquidator to be appropriate for such
purposes or (ii) otherwise make adequate provision for such other
liabilities. To the extent that cash required for the foregoing purposes
is not otherwise available, the liquidator may sell property, if any, of
the Partnership for cash. Thereafter, all remaining cash or other
property, if any, of the Partnership shall be distributed to the Partners
in accordance with the provisions of Section 6.1 of this Agreement. The
Partners must agree on the value and distributee for all in-kind
distributions or else all property must be sold and the proceeds
distributed in accordance herewith. At the time final distributions are
made in accordance with Section 6.1 of this Agreement, a certificate of
cancellation shall be filed in accordance with the Act, and the legal
existence of the Partnership shall terminate, but if at any time thereafter
any reserved cash or property is released because in the judgment of the
liquidator the need for such reserve has ended, then such cash or property
shall be distributed in accordance with Section 6.1 of this Agreement.
10.4 No Negative Capital Account Obligation. Notwithstanding
any other provision of this Agreement to the contrary, in no event shall
any Partner who has a negative capital account upon final distribution of
all cash and other property of the Partnership be required to restore such
negative account to zero.
10.5 No Other Cause of Dissolution. The Partnership shall not
be dissolved, or its legal existence terminated, for any reason whatsoever
except as expressly provided in this Article 10.
10.6 Merger. Subject to the rights of the Partners pursuant to
Section 9.2, the Partnership may, with the written consent of the Financial
Partner acting with the unanimous approval of the Management Committee,
adopt a plan of merger and engage in any merger permitted by applicable
law.
ARTICLE 11
Miscellaneous
11.1 Waiver of Partition. Each Partner hereby irrevocably
waives any and all rights that he or it may have to maintain an action for
partition of any of the Partnership's property.
11.2 Entire Agreement. This Agreement constitutes the entire
agreement among the Partners with respect to the subject matter hereof and
supersedes any prior agreement or understanding among them with respect to
such subject matter.
11.3 Severability. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid under the applicable law of any jurisdiction, the remainder of this
Agreement or the application of such provision to other persons or
circumstances or in other jurisdictions shall not be affected thereby.
Also, if any provision of this Agreement is invalid or unenforceable under
any applicable law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to
conform with such law. Any provision hereof that may prove invalid or
unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.
11.4 Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if sent by overnight courier, hand delivered, mailed (first
class registered mail or certified mail, postage prepaid), or sent by telex
or telecopy if to the Partners, at the addresses or telex or facsimile
numbers set forth on Schedule I hereto, and if to the Partnership, at the
address of its principal place of business at 200 Crescent Court, Suite
1650, Dallas, Texas 75201 (fax 214/740-7340), or to such other address as
the Partnership or any Partner shall have last designated by notice to the
Partnership and all other parties hereto in accordance with this Section
11.4. Notices sent by hand delivery shall be deemed to have been given
when received; notices mailed in accordance with the foregoing shall be
deemed to have been given three days following the date so mailed; notices
sent by telex or telecopy shall be deemed to have been given when
electronically confirmed; and notices sent by overnight courier shall be
deemed to have been given on the next business day following the date so
sent.
11.5 Governing Laws. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas
(without regard to principles of conflicts of laws).
11.6 Successors and Assigns. Except as otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of
the Partners and their respective successors and permitted assigns.
11.7 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall constitute one and the same
instrument.
11.8 Headings. The section and article headings in this
Agreement are for convenience of reference only and shall not be deemed to
alter or affect the meaning or interpretation of any provision hereof.
11.9 Other Terms. All references to "Articles" and "Sections"
contained in this Agreement are, unless specifically indicated otherwise,
references to articles, sections, subsections, and paragraphs of this
Agreement. Whenever in this Agreement the singular number is used, the
same shall include the plural where appropriate (and vice versa), and words
of any gender shall include each other gender where appropriate. As used
in this Agreement, the following words or phrases shall have the meanings
indicated: (i) "or" shall mean "and/or"; (ii) "day" shall mean a calendar
day; (iii) "including" or "include" shall mean "including without
limitation"; and (iv) "law" or "laws" shall mean statutes, regulations,
rules, judicial orders, and other legal pronouncements having the effect of
law. Whenever any provision of this Agreement requires or permits a
Partner to take or omit to take any action, or make or omit to make any
decision, unless the context clearly requires otherwise, such provision
shall be interpreted to authorize an action taken or omitted, or a decision
made or omitted, by the Partner acting alone and in good faith.
11.10 Power of Attorney. By execution of this Agreement, the
Operating Partner hereby makes, constitutes and appoints the Financial
Partner, with full power of substitution and re-substitution in the
Financial Partner (in its sole discretion), the Operating Partner's true
and lawful attorney-in-fact (the "Attorney") for and in the Operating
Partner's name, place and stead and for its use and benefit, to prepare,
execute, certify, acknowledge, swear to, file, deliver or record any or all
of the following, authorized pursuant to the terms of this Agreement:
(i) the Partnership's certificate of general partnership or
any other agreement, certificate, report, consent, instrument, filing
or writing made by or relating to the Partnership that the Attorney
deems necessary, desirable, or appropriate for any lawful purpose,
including (A) organizing the Partnership under the Act, (B) admitting
Partners with respect to the Partnership, (C) pursuing or effecting
any rights or remedies available under this Agreement or otherwise
with respect to a defaulting Partner, (D) qualifying the Partnership
to do business in any jurisdiction and (E) complying with any law,
agreement or obligation applicable to the Partnership;
(ii) any agreement, certificate, report, consent,
instrument, filing or writing made by or relating to the Partnership
that the Attorney deems necessary, desirable or appropriate to
effectuate the business purposes of, or the dissolution, termination
or liquidation of, the Partnership pursuant to applicable law or the
respective terms of this Agreement; and
(iii) any amendment to or modification or restatement of
this Agreement, the Partnership's certificate of general partnership,
or any other agreement, certificate, report, consent, instrument,
filing or writing of any type described in subsection (i) or (ii) of
this Section 11.10, provided that any amendment of or modification to
this Agreement shall first have been adopted in accordance with
Article 9 of this Agreement.
11.11 Transfer and Other Restrictions. INTERESTS IN THE
PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE OFFERED OR SOLD UNLESS SUCH INTERESTS HAVE BEEN
REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. INTERESTS IN THE PARTNERSHIP ARE SUBJECT TO CERTAIN
RESTRICTIONS ON TRANSFER, VOTING AND OTHER TERMS AND CONDITIONS SET FORTH
IN (1) ARTICLE 7 AND (2) VARIOUS INVESTMENT AGREEMENTS BETWEEN OR AMONG
CERTAIN PARTNERS. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED FROM THE
PARTNERSHIP OR THE FINANCIAL PARTNER AT THEIR PRINCIPAL EXECUTIVE OFFICES.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK].
IN WITNESS WHEREOF, the undersigned have executed this instrument
effective as of the Effective Date.
FINANCIAL PARTNER:
Oly/Houston Walden, L.P.,
a Texas limited partnership
By: Oly Fund II GP Investments, L.P.,
a Texas limited partnership,
its general partner
By: Oly Real Estate Partners II, L.P.,
a Texas limited partnership,
its general partner
By: Oly REP II, L.P.,
a Texas limited partnership,
its general partner
By: Oly Fund II, LLC,
a Texas limited liability company,
its general partner
By:/s/ Hal R. Hall
------------------
Name: Hal R. Hall
Title: Vice President
OPERATING PARTNER:
Oly/FM Walden, L.P.,
a Texas limited partnership
By: Oly Fund II GP Investments, L.P.,
a Texas limited partnership,
its general partner
By: Oly Real Estate Partners II, L.P.,
a Texas limited partnership,
its general partner
By: Oly REP II, L.P.,
a Texas limited partnership,
its general partner
By: Oly Fund II, LLC,
a Texas limited liability company,
its general partner
By:/s/ Hal R. Hall
---------------
Name:Hal R. Hall
Title:Vice President
EXHIBIT A
Business Plan
The Partners shall finalize the Business Plan on or before June 8,
1998 and upon completion shall attach it to this Agreement.
EXHIBIT B
Operating Budget
The Partners shall finalize the Operating Budget on or before June 8,
1998 and upon completion shall attach it to this Agreement.
SCHEDULE I
Partnership Capital Contributions and Sharing Ratios
Initial
Partner and Address Capital Sharing
Contributions Ratios
Financial Partner:
Oly/Houston Walden, L.P. $300,600.00 50.10%
200 Crescent Court,Suite 1650
Dallas, Texas 75201
Fax: (214) 740-7355
Operating Partner:
Oly/FM Walden, L.P. $299,400.00 49.90%
200 Crescent Court,Suite 1650
Dallas, Texas 75201
FAX: (214) 740-7355
____________________________
Total All Partners $600,000.00 100.00%
FIRST
AMENDMENT TO GENERAL PARTNERSHIP AGREEMENT
OF
OLY WALDEN GENERAL PARTNERSHIP
THIS FIRST AMENDMENT TO GENERAL PARTNERSHIP AGREEMENT OF OLY
WALDEN GENERAL PARTNERSHIP (this "Amendment") is entered into this 30th day
of September, 1998 by and among Oly/Houston Walden, L.P., a Texas limited
partner ("Olympus"), Oly/FM Walden, L.P., a Texas limited partnership
("FM") and Stratus Ventures I Walden, L.P., a Texas limited partnership
("Stratus").
W I T N E S S E T H
WHEREAS, Oly Walden General Partnership, a Texas general
partnership (the "Partnership") was formed on April 8, 1998, pursuant to
that certain General Partnership Agreement of Oly Walden General
Partnership (the "Partnership Agreement"), with Olympus as the initial
Financial Partner and FM as the initial Operating Partner.
WHEREAS, pursuant to that certain Assignment of Partnership
Interest dated of even date herewith, FM assigned its partnership interest
in the Partnership to Stratus.
WHEREAS, Olympus, FM and Stratus desire to amend the Partnership
Agreement in certain respects.
NOW, THEREFORE, Olympus, FM and Stratus hereby agree as follows:
1. Consent. Olympus hereby consents to (i) the assignment by FM to
Stratus of FM's interests in the Partnership, and acknowledges the
withdrawal of FM from the Partnership. Olympus hereby acknowledges and
agrees that from and after the date hereof, Stratus shall be deemed to be a
partner of the Partnership. In connection therewith, Stratus hereby
assumes all of the obligations of FM under the Partnership Agreement and is
hereby entitled to all of the rights and benefits of FM under the
Partnership Agreement. Effective from the date hereof, (i) all references
in the Partnership Agreement to "FM" shall become "Stratus" and (ii) all
references to "Partner" or "Partners" in the Partnership Agreement shall be
deemed to include Stratus instead of FM.
2. Definitions. The following terms hereby replace or are hereby
inserted as definitions in Section 1.1 of the Partnership Agreement:
"Development Loan Agreement" shall mean that certain
Development Loan Agreement dated September 30, 1998, by and
between Oly Walden General Partnership and Bank One, Texas,
National Association.
"Escrow Deposit" shall have the meaning set forth in the
Development Loan Agreement.
"Operating Partner" shall mean Stratus Ventures I Walden,
L.P., a Texas limited partnership, together with its successors
or assigns.
3. Escrow Deposit. The following is hereby inserted as the new
Section 3.3 of the Partnership Agreement and the current Section
3.3 and 3.4 are renumbered Section 3.4 and 3.5, respectively:
3.3 Escrow Deposit. Pursuant to the Development Loan
Agreement, the Escrow Deposit was delivered by an affiliate of
the Operating Partner (the "Guarantor") on behalf of the
Partnership to Bank One, Texas. In consideration of the payment
of the Escrow Deposit by the Guarantor, the Partnership agrees to
pay to the Guarantor an amount equal to twelve percent (12%) per
annum, minus the interest accruing on the outstanding portion of
the Escrow Deposit compounded at the rate of return on the Escrow
Deposit held by Bank One, Texas (the "Interest Spread"), until
the Escrow Deposit has been released or applied to the loan
evidenced by the Development Loan Agreement. In the event the
Escrow Deposit is applied to the loan evidenced in part by the
Development Loan Agreement, the Financial Partner shall elect to
call a Mandatory Additional Contribution in an amount necessary
to reimburse the Guarantor for the portion of the Escrow Deposit
and the Interest Spread which has not been paid by the
Partnership to the Guarantor.
4. Distributions. Section 6.1 of the Partnership Agreement is
hereby deleted in its entirety and the following is inserted in
its place:
6.1 Distributions. No later than thirty (30) days after
the end of each Distribution Period during which the Partnership
has Cash Flow, such Cash Flow shall be distributed as set forth
below and in the order of priority as set forth below.
(i) First, to the payment of debt pursuant to the terms of the Development
Loan Agreement; then
(ii) Second, to the payment of the Escrow Deposit and the Interest Spread.
Then, the Partnership shall receive 78.4314% of all Cash Flow until
the special distribution interest to be paid to Richard A. Gray, Jr.
pursuant to that certain Profits Participation letter agreement dated
April 9, 1998 has been paid in full, at which time the Partnership
shall receive 98.0392% of all Cash Flow, to be distributed as set
forth below and in the order of priority as set forth below.
(iii) Third, to the payment of the Mezzanine Financing pursuant to the
terms of the Mezzanine Loan Agreement; then
(iv) Fourth, to the payment of the Preferred Return on the Unreturned
Capital of each Partner in proportion to each Partner's Capital
Contribution; then
(v) Fifth, to the return, pari passu of the Capital Contributions to each
Partner; then
(vi) Sixth, to each Partner in proportion to the Sharing Ratios.
Notwithstanding anything to the contrary contained in this Section
6.1, the extent there is available Cash Flow, the Partners agree to
make distributions to the Financial Partner in the amount of its
federal income tax liability; provided, however, before any future
distributions of Cas h Flow are made for items (iii) through (vi)
above, the Operating Partner shall receive a proportionate
distribution based on the Sharing Ratio.
5. Release from Liability Under the Buy/Sell. The following is
hereby inserted to the end of Section 7.3(f) of the Partnership
Agreement:
Notwithstanding anything to contrary contained in this Agreement, in
the event the closing of the Buy/Sell transaction occurs, at such
closing the Escrow Deposit shall be paid in full by the Partnership.
6. Confirmation of the Partnership Agreement. Except as modified by
this Amendment, the Partnership Agreement is hereby confirmed.
7. Counterparts. This Amendment may be executed in several
counterparts, all of which, when taken together, shall constitute one
and the same agreement. An executed copy of this Amendment
transmitted by telecopy shall be sufficient as an original for all
purposes.
8. Captions. The captions preceding the various provisions of this
Amendment have been inserted solely for convenience of reference and
shall not be used in construing this Amendment.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Olympus and FM have executed this
Amendment the day and year first set forth above.
OLYMPUS:
OLY/HOUSTON WALDEN, L.P.,
a Texas limited partnership
By: Oly PF Village GP, LLC,
a Texas limited liability company,
its sole general partner
By:/s/ Hal R. Hall
---------------
Name:Hal R. Hall
Title:Vice President
FM:
OLY/FM WALDEN, L.P.,
a Texas limited partnership
By: Oly Fund II GP Investments, L.P.,
a Texas limited partnership,
its general partner
By: Oly Real Estate Partners II, L.P.,
a Texas limited partnership,
its general partner
By: Oly REP II, L.P.,
a Texas limited partnership,
its general partner
By: Oly Fund II, LLC,
a Texas limited liability company,
its general partner
By:/s/ Hal R. Hall
------------------
Name:Hal R. Hall
Title:Vice President
STRATUS:
:
STRATUS VENTURES I WALDEN, L.P.,
a Texas limited partnership
By: STRS L.L.C.,
a Delaware limited liability company,
its general partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
-------------------------------
William H. Armstrong, III
President and CEO
Exhibit 10.16
DEVELOPMENT LOAN AGREEMENT
PREAMBLE
THIS DEVELOPMENT LOAN AGREEMENT is made and entered into effective as
of September 30, 1998, by and between OLY WALDEN GENERAL PARTNERSHIP, a
Texas general partnership (herein called the "Borrower"), and BANK ONE,
TEXAS, NATIONAL ASSOCIATION, a national banking association (herein called
the "Lender").
The Borrower has applied to the Lender for a loan to refinance a
portion of the acquisition costs of certain real property and to finance
the construction of certain improvements to real property and certain other
expenses incurred or to be incurred by the Borrower, and the Lender is
willing to make such loan upon the terms and conditions herein set forth.
In consideration of the mutual covenants and agreements herein contained,
the Lender and the Borrower agree as follows:
ARTICLE I
DEFINITIONS AND TERMS GENERALLY
Section 1.1 Definitions. As used in this Agreement, the following terms
shall have the respective meanings indicated:
Agreement shall mean this Development Loan Agreement, as it may be
amended or supplemented from time to time in writing.
Appraisal shall mean a written appraisal of the Premises by an
appraiser (who may be an employee of the Lender or of a related entity)
satisfactory to the Lender in all respects and reflecting a fair market
value of the Premises of not less than $13,193,000 (the Developed Lots
shall have a fair market value of not less than $12,263,000, and the
Undeveloped Land shall have a fair market value of not less than $930,000).
The values for the Developed Lots and the Premises have been revised from
the amounts set forth in the Appraisal to reflect the sale of 29 Developed
Lots since the date of the Appraisal.
Approved Budget shall mean a schedule prepared by the Borrower and
approved by the Lender, and any and all amendments or supplements thereto
approved in writing by the Lender, reflecting the cost of each item of work
or material required to complete the Improvements and the Off-Site
Improvements, together with all other related costs and expenses, including
interest, commitment fees, professional fees, and other costs. The initial
Approved Budget is attached as Exhibit A hereto.
Business Day shall mean any day other than a Saturday, Sunday or other
day on which the Lender's main banking offices in Dallas, Texas are not
open for regular commercial banking business.
Certificates of Good Standing shall mean original certificates issued
by appropriate Governmental Authority reflecting that a corporation,
limited liability company or limited partnership (or other similar entity)
exists in the state of its organization and is in good standing in the
State of Texas and that (as to corporations and limited liability
companies) all franchise taxes are currently paid. With respect to a
corporation, limited liability company or limited partnership organized in
a state other than the State of Texas, such term shall include a copy of
the certificate of authority to do business in the State of Texas for such
corporation, limited liability company or limited partnership certified to
a current date by the Secretary of State of the State of Texas.
Completion shall mean the performance of all work required to fully
construct the Improvements and the Off-Site Improvements in accordance with
all Development Requirements.
Completion Date shall mean the date on which the Evidence of Completion
has been duly furnished to the Lender.
Construction Contracts shall mean each construction contract which the
Borrower will enter into with each Contractor for construction of all or
any part of the Improvements and the Off-Site Improvements, as the same may
be amended in accordance with this Agreement.
Consulting Architect/Engineer shall mean an architectural or
engineering firm(s) or other Person (and if there is more than one, all
such firms and other Persons) who or which shall be retained by the Lender
at the Borrower's expense for the purpose of performing certain functions
for the Lender if the Lender reasonably elects, including: approving any
Plans and Specifications and Construction Contracts; verifying the Approved
Budget, performing inspections as construction progresses so that the
Improvements are completed in a manner satisfactory to the Lender and in
accordance with the approved Plans and Specifications; certifying that each
draw request is not in excess of the work completed less prior advances and
required Retainage; and certifying that the Loan proceeds remaining
undisbursed are sufficient to complete the Improvements and the Off-Site
Improvements; and performing such other consulting tasks as the Lender
shall reasonably direct from time to time.
Contractor shall mean each "original contractor" (as defined in Section
53.001(7) of the Texas Property Code) selected by the Borrower and
satisfactory to and approved by the Lender to construct all or any portion
of the Improvements.
Contractor/Lender Agreement shall mean a written agreement duly
executed by a Contractor (or if there is more than one Contractor, a
separate written agreement duly executed by each Contractor) in favor of
the Lender by which such Contractor (i) acknowledges that the Borrower has
granted the Lender a security interest in all of the Borrower's right,
title and interest in, under and to the Construction Contract executed by
or otherwise binding upon such Contractor; (ii) subordinates all of such
Contractor's existing and future liens, claims and security interests
against the Premises to all liens and security interests securing the Debt;
and (iii) agrees to continue performance under such Construction Contract
if the Borrower defaults under this Agreement or such Construction Contract
and such continuation is requested by the Lender or by a purchaser of the
Premises at judicial or nonjudicial foreclosure (or by deed in lieu of
foreclosure) or by the successors or assigns of either the Lender or such
purchaser.
Debt shall mean all indebtedness to the Lender incurred under or
evidenced by the Loan Documents, including without limitation all
indebtedness owing to Lender under any interest rate agreements, interest
rate swap agreements, interest rate caps or similar agreements.
Deed of Trust shall mean that certain Deed of Trust, Security Agreement
and Assignment of Rents and Leases dated on or about the date of this
Agreement to Christopher T. Klimko, Trustee for the benefit of the Lender,
and in favor of the Lender, upon and covering the Premises, duly executed
by the Borrower and such other Persons (if any) as shall be required to
vest in the Lender a perfected first priority lien and security interest in
all of the Premises and the other collateral described therein to secure
payment of the Note and all of the Debt, together with all supplements and
amendments thereto.
Default shall have the meaning provided in the definition of Event of
Default below.
Developed Lots shall mean and include each of the 731 existing
single-family residential lots constructed upon the Land, which includes
the Lake Lots.
Development Agreements shall mean and include each Off-Site Agreement,
each Sales Contract and any Utility Agreements applicable to the Land.
Development Plan shall mean an outline prepared in reasonable detail of
the proposed timing, order of development, expenses and sources of funds
associated with the development and sale of the Premises. If requested by
Lender, the Borrower shall provide the Lender with revised outlines as to
such matters as the Premises is developed and sold. Each such outline
shall be subject to the approval of the Lender and the latest such outline
approved by the Lender shall be the Development Plan then in effect
hereunder.
Development-Related Entities shall mean and include each purchaser
under each Sales Contract, each Utility Developer and each party to an
Off-Site Agreement.
Development Requirements shall mean the contractually and legally
established requirements by all Sales Contracts, all Utility Agreements,
all Legal Requirements and all Off-Site Agreements.
District shall mean each municipal utility district now or hereafter
organized under the laws of the State of Texas which has jurisdiction over
all or any portion of the Premises and shall include, without limitation,
Harris County Municipal Utility District No. 153.
Engineering Reports shall mean all soil analysis, construction,
structural and mechanical feasibility reports; all field notes and maps of
surveys; all construction plans and specifications; all topographic,
drainage and contour maps and all other reports, maps, studies and surveys
of engineers, architects and others regarding the Improvements, the
Off-Site Improvements and the Land as shall be required by the Lender,
including without limitation, all Engineering Reports necessary to
determine the load-bearing capacity of the Land, the types of soil
contained in the Land and the amount and type of filling or other remedial
work, if any, that will be necessary to render the Land suitable for the
Premises.
Escrow Deposit shall mean the $3,000,000 cash to be deposited by
Guarantor with Lender and securing the Guaranty in the event the Borrower
does not obtain the Letter of Credit.
Event of Default shall mean any of the events specified in Section 6.1
hereof provided that there has been satisfied or met any requirement or
condition specified in this Agreement for the giving notice, or the lapse
of time, or the happening of any other or further condition, event or act
in respect of such specified event, and Default shall mean any of the
events specified in such Section, whether or not any other requirement or
condition has been satisfied or met.
Evidence of Completion shall mean all of the following:
(a) Engineering drawings and plans required by Harris County, Texas
and any other applicable Governmental Authority, shall have been
delivered to the Lender showing the location of the Improvements
and the Off-Site Improvements;
(b) An affidavit of bills paid executed by each Contractor and, if
requested by Lender, such other subcontractors, laborers and
suppliers as the Lender may require to satisfy itself that the
construction of Improvements (and all other improvements to the
Land completed through the date of any such affidavit) have been
completed lien-free;
(c) There being no outstanding and unpaid conditional sales contracts
(excluding bona fide contracts to sell developed land to
builders, developers, investors or users) or indebtedness secured
by security agreements and financing statements (except only
those securing the Debt) upon the Improvements or any of the
personal property covered by the Deed of Trust or any of the
other Loan Documents;
(d) Evidence that the Improvements, the Off-Site Improvements and
their use comply fully with any and all applicable zoning (if
any), subdivision, building, and environmental requirements and
other Legal Requirements, such evidence to include the recorded
plat of the Land approved by all required Governmental
Authorities and material to establish subdivision approval is
based on no requirement or condition involving any real property,
or rights appurtenant thereto, other than the Land;
(e) Evidence that the Premises has the sewage capacity required by
the Sales Contracts and all Development Agreements and copies of
all sewage permits and commitments from the District establishing
the same, if any;
(f) Copies of all other Governmental Permits, licenses and
rights-of-way in any manner pertaining to the Premises; and
(g) All other evidence required to satisfy the Lender that the
Premises are fully developed in accordance with the Development
Requirements and ready for sale to builders and users for
construction of residences and related improvements.
Financing Statements shall mean and include all such Uniform Commercial
Code financing statements and continuation statements as the Lender shall
require, duly executed by the Borrower and by such other Persons (if any)
as, in the Lender's judgment, shall be necessary to give notice of and to
perfect, or continue perfection of, the Lender's security interest in all
personal property and fixtures constituting a part of the Premises or other
security for the Debt.
Good Accounting Practice shall mean such accounting practice as, in the
opinion of independent accountants of recognized national standing
regularly retained by the Borrower or other Person (as the case may be) and
acceptable to and approved by the Lender, conforms at the time to generally
accepted accounting principles, consistently applied. Generally accepted
accounting principles mean those principles and practices which are
(a) recognized as such by the Financial Accounting Standards Board,
(b) applied after the date of the Borrower's or other Person's (as the case
may be) most recently audited financial statements furnished to the Lender
in a manner consistent with the manner in which such principles and
practices were applied to such statements, and (c) consistently applied for
all periods after the date of such most recent audited financial statements
so as to reflect properly the financial condition, and results of
operations and changes in the financial position, of such Person. If any
change in any accounting principle or practice is required by the Financial
Accounting Standards Board in order for such principle or practice to
continue as a generally accepted accounting principle, all reports and
financial statements required hereunder may be prepared in accordance with
such change only after written notice of such change is given to the
Lender.
Governmental Authority shall mean the United States, the State of
Texas, the County of Harris, the City of Houston, each District, the Texas
Natural Resource Conservation Commission, the Department of Housing and
Urban Development, the Environmental Protection Agency, any political
subdivision of any of the foregoing and any agency, department, commission,
board, bureau, court or instrumentality of any of them which now or
hereafter has jurisdiction over the Lender, the Borrower or any part of the
Premises or construction on the Premises.
Governmental Permits shall mean all certificates, licenses, zoning
variances, permits and "no action" letters from each Governmental Authority
required to evidence full compliance by the Borrower and conformance of the
planned Improvements and the Off-Site Improvements, with all Legal
Requirements applicable to the Premises, complete construction of the
Improvements and the Off-Site Improvements and development of the Land as a
residential subdivision as contemplated hereby and by the Development Plan.
Guaranty shall mean the Guaranty to be executed by STRS Guaranty
Company, L.L.C., a Delaware limited liability company ("Guarantor") in
favor of Lender, which Guaranty is to be secured by the pledge of the
Letter of Credit and/or the Escrow Deposit provided for in this Agreement.
Highest Lawful Rate shall mean the maximum nonusurious rate of interest
permitted by whichever of applicable federal or Texas law from time to time
permits the higher maximum nonusurious interest rate. On each day, if any,
that applicable Texas law establishes the Highest Lawful Rate, the Highest
Lawful Rate shall be the "weekly ceiling" (as defined in S303 of the Texas
Finance Code and Chapter 1D of Title 79, Texas Revised Civil Statutes,
1925, as amended) for that day.
Improvements shall mean all improvements constructed on the Land or
contemplated in the Plans and Specifications, if any, including all
streets, curbs, gutters, drainage facilities, sanitary collection
facilities, water storage and treatment facilities, water supply and
distribution systems, paving, landscaping, street lighting and utilities
and all other improvements necessary or appropriate (in the reasonable
judgment of the Lender) or as shall be required by any Development
Agreement to prepare the Premises for the construction and use of
residential homes and related improvements by builders and users thereof.
Indebtedness shall mean and include (1) all items which in accordance
with Good Accounting Practice would be included on the liability side of a
balance sheet on the date as of which Indebtedness is to be determined
(excluding capital stock, surplus, surplus reserves and deferred credits),
(2) guaranties, endorsements and other contingent obligations in respect of
Indebtedness of others, or any obligations to purchase or otherwise acquire
any such Indebtedness of others, and (3) Indebtedness secured by any
mortgage, pledge, security interest or lien existing on property owned
subject to or burdened by such mortgage, pledge, security interest or lien
whether or not the Indebtedness secured thereby shall have been assumed;
provided, however, that such term shall not mean or include any
Indebtedness monies sufficient to fully pay and discharge which (either on
its stated final maturity date or on such earlier date as such Indebtedness
may be duly called for redemption and payment) are on deposit with a
depositary, agency or trustee in trust for the payment of such
Indebtedness.
Insurance Policies shall mean and include each and every insurance
policy, insurance certificate and other evidence of insurance which is
required by the Deed of Trust.
Lake Lots means the 65 single-family Developed Lots with frontage on
Lake Houston and which are not presently subject to any Sales Contract.
Land shall mean the land described on Exhibit B hereto.
Legal Requirements shall mean any law, ordinance, order, rule or
regulation of a Governmental Authority and any requirements, terms or
conditions contained in any restrictions or restrictive covenants affecting
the Premises.
Letter of Credit shall mean that unconditional and irrevocable letter
of credit obtained by Borrower in the face amount of $2,500,000, issued by
a financial institution acceptable to Lender and naming Lender as the
beneficiary thereof, and having a term of at least 12 months (i.e., the
expiry date shall be at least 12 months after the date of issuance) or such
other expiry date reasonably acceptable to Lender; provided that in any
event, if Guarantor provides a Letter of Credit to Lender that has an
expiry date which is before the maturity date of the Note, then Borrower
shall provide a replacement Letter of Credit (or an Escrow Deposit
complying with the terms of this Agreement) at least thirty (30) days prior
to the expiry date of the Letter of Credit, failing which Lender shall have
the right to present the Letter of Credit and hold the proceeds thereof as
an Escrow Deposit under this Agreement in which event Guarantor shall
execute a Pledge Agreement with respect to such deposit if required by
Lender in the same form as previously executed by Guarantor in favor of
Lender.
Loan shall mean the loans contemplated by this Agreement.
Loan Documents shall include this Agreement, the Note (including all
renewals, extensions and rearrangements thereof), the Deed of Trust, the
Pledge Agreement, the Guaranty, each Request for Advance, each Application
and Certificate for Payment, and all other instruments executed (i)
pursuant hereto or in connection with the Debt or (ii) as security for
either or both payment of the Debt of performance of the Borrower's
obligations under this Agreement and under all other Loan Documents.
Net Sales Proceeds shall mean, with respect to each Developed Lot, the
gross sales proceeds received by or payable to Borrower in connection with
the sale of such Developed Lot pursuant to a Sales Contract, minus normal
and customary closing costs, provided that the Net Sales Proceeds for each
Developed Lot shall in no event be less than the greater of (i)
ninety-three percent (93%) of the gross sales price of such Developed Lot
under the applicable Sales Contract or (ii) 125% of the Par Lot Amount.
Note shall mean the promissory note in the principal amount of
$8,160,000.00, executed by Borrower and payable to the order of Lender, and
all renewals, extensions and rearrangements thereof provided for in this
Agreement or otherwise permitted by the Lender.
Obligors shall mean the Borrower, the Guarantor and the Partners.
Officer's Certificate shall mean a certificate signed in the name of
the Borrower by either (a) any individual Partner of the Borrower, (b) by
the president, a vice president, the treasurer, the secretary or an
assistant treasurer or assistant secretary of a corporate Partner of the
Borrower, or (c) an individual general partner or joint venturer of any
Partner of the Borrower.
Off-Site Agreement shall mean each instrument relating to the ownership
of right of the Borrower to use any Off-Site Improvements or related
improvements including but not limited to any deed, easement, license,
permit, contract, joint venture agreement or partnership agreement,
together with the consent of each landowner on whose property the Off-Site
Improvements are to be located and all rights-of-way and easements,
necessary to allow such use.
Off-Site Improvements shall mean that portion of the Improvements not
intended to be located on the Land and shall also include all other
improvements which are not intended to be located on the Land but which are
necessary or appropriate to the proper development and marketing of the
Premises for sale to builders and users for the construction and use of
residential housing. At the time of execution of this Agreement, it is not
anticipated that there will be any Off-Site Improvements.
Opinion of Borrower's Counsel shall mean an opinion rendered to the
Lender by Borrower's counsel in a form acceptable to the Lender and its
counsel.
Organizational Agreement shall mean (a) in respect of a corporation,
the Articles of Incorporation certified to a current date by the Secretary
of State in which such corporation is incorporated and the Bylaws of a
corporation certified to a current date as true and correct by the
secretary or assistant secretary of a corporation; (b) in respect of a
general partnership, a partnership agreement; (c) in respect of a joint
venture, a joint venture agreement; (d) in respect of a limited
partnership, a partnership agreement and the certificate of limited
partnership certified to a current date by an appropriate Governmental
Authority of the state in which the limited partnership is organized;
(e) in respect of a trust, a trust agreement; and (f) in respect of a
limited liability company, the Articles of Organization certified to a
current date by the Secretary of State in which such limited liability
company is organized and the Operating Agreement of the limited liability
company certified to a current date as true and correct by the manager of
the limited liability company.
Par Lot Amount shall mean $11,163, which is the amount of the Loan
divided by the number of Developed Lots.
Partners shall mean all current general partners of the Borrower and
shall include all additional and substitute general partners, if any,
admitted to such general partnership pursuant to such Organizational
Agreement as it may be amended or supplemented in accordance with this
Agreement.
Past Due Rate shall mean the per annum rate provided in the Note for
interest on past due principal and interest. Without notice to the
Borrower or any other Person, the Past Due Rate shall automatically
fluctuate upward and downward as and in the amount by which such rate
provided in the Note shall fluctuate.
Person shall mean and include a natural person, a partnership, a joint
venture, a corporation, a limited liability company, a trust, an
unincorporated organization, a government and any department or agency
thereof.
Plans and Specifications shall mean all plans and specifications for
the construction of the Improvements and the Off-Site Improvements and
approved by Lender.
Pledge Agreement shall mean the Pledge Agreement executed by Guarantor
in favor of Lender (in the event Guarantor does not deliver the Letter of
Credit to Lender), granting a first and prior security interest to Lender
in and to the Escrow Deposit held by Lender in a deposit account with
Lender.
Premises shall mean the Land, the Improvements, the Off-Site
Improvements now or hereafter owned by the Borrower, all fixtures,
equipment, leases, rentals, accounts, general intangibles and other
personal property of any kind or character now or hereafter related to,
situated on or used or acquired for use, on or in connection with the Land
or any Improvements now or hereafter constructed thereon and all related
parts, accessions and accessories thereto and all replacements or
substitutions therefor, as well as all other improvements, benefits and
appurtenances now or hereafter placed thereon or accruing thereto.
Request for Advance shall mean a written request for an advance under
this Agreement or any of the other Loan Documents in the form of Exhibit C
hereto, true and correct in all respects, completed in all material
respects and signed by the Borrower. Each Request for Advance shall be
accompanied by copies of billing statements, vouchers and invoices relating
to the costs of the items to be paid from the advance requested and upon
request of the Lender, shall also be accompanied by such affidavits of the
Contractor and such other Persons as the Lender shall reasonably require to
satisfy itself that all bills for labor and materials and other goods and
services required to complete the Improvements are being currently paid, if
applicable. In those instances where a Request for Advance covers amounts
to be paid to a Contractor, such Request for Advance shall also be
accompanied by an Application and Certificate for Payment (herein so
called) in the form of Exhibit D hereto, true and correct in all respects,
completed in all material respects, accompanied by all supporting documents
required thereby.
Sales Contracts shall mean each lot sale contract, earnest money
contract, option contract and other agreement now existing or hereafter
executed between the Borrower and any other Person which contemplates a
sale, exchange or other conveyance of all or any part of the Land, and each
other document or instrument executed in connection therewith, together
with each modification thereof or amendment thereto approved by the Lender
in writing, including without limitation, that (i) Earnest Money Contract
between Borrower and Ashton Houston Residential, L.L.C., a Texas limited
liability company, (ii) Earnest Money Contract between Borrower and BTH,
Inc., a Texas corporation, d/b/a Brighton Homes, (iii) Earnest Money
Contract between Borrower and Dover Homes, Inc., (iv) Earnest Money
Contract between Borrower and Holigan Homes Texas, Ltd., a Texas limited
partnership and (v) Earnest Money Contract between Borrower and Perry
Homes, a Texas joint venture, and all rights, title and interest of
Borrower thereunder, including without limitation, all earnest money
deposits thereunder. All sales contracts enumerated in clauses (i) through
(v) of this subparagraph have been approved by the Lender.
Scheduled Completion Date shall mean December 31, 1999.
Subordination Agreements shall mean agreements executed by each
Contractor, subcontractor and any other Person who has supplied or
furnished (or will supply or furnish) labor, materials or both in
connection with the construction of any Improvements on the Premises,
pursuant to which such Person, for himself, his heirs, legal
representatives, successors and assigns, waives and releases any and all
then-present liens, rights, claims, security interests and other interests
owned, claimed or held in the Premises and any Improvements then or
thereafter placed thereon, or any part thereof, and subordinates any and
all present and future liens against all or any part of the Premises and
Improvements thereon to all liens and security interests securing the Debt.
Title Company shall mean Chicago Title Insurance Company and shall also
include its agent, Heritage Title Company of Austin, Inc.
Title Instruments shall mean true and correct copies of all instruments
of record in the Office of the County Clerk of Harris County, Texas or of
any other Governmental Authority affecting title to all or any part of the
Premises, including but not limited to those (if any) which impose
restrictive covenants, easements, rights-of-way or other encumbrances on
all or any part of the Premises.
Title Insurance Policy shall mean a mortgagee policy of title insurance
in the form promulgated by the State Board of Insurance of the State of
Texas, in the face amount of $8,160,000.00 issued by the Title Company to
the Lender insuring that the fee simple absolute title to the Land is
vested in the Borrower and that the Deed of Trust is a valid first lien on
the Land, subject only to such exceptions, if any, as may be acceptable to
and approved in writing by the Lender. Schedule A of the Title Insurance
Policy shall contain a complete and accurate description of the Deed of
Trust, shall specify the recording and filing information applicable to the
Deed of Trust and shall describe the Land identically to the description
thereof in the Deed of Trust.
Title Status Certificate shall mean a certificate issued by the Title
Company to the Lender reflecting all changes (if any) in title to the Land
that have occurred since the date of issuance of the Title Insurance
Policy.
Undeveloped Land shall mean that portion of the Land which is not a
part of the Developed Lots, and which consists of (i) a tract of land
containing approximately 7.28 acres and (ii) a tract of land containing
approximately 71 acres. The Undeveloped Land is not subject to any of the
Sales Contracts and thus will not be available for partial releases as
provided in Article 9 of this Agreement except pursuant to a purchase and
sales agreement acceptable to Lender in Lender's reasonable discretion
(provided that in any event, the gross sales price of the Undeveloped Land
being sold shall be acceptable to Lender in Lender's sole discretion, and
shall be payable in cash at the closing of such sale).
Utility Agreement shall mean each agreement between each Utility
Developer and the Borrower, if any, providing for the planning and
construction of all or a portion of the utility Improvements or the utility
Off-Site Improvements, and the sharing and payment of the costs thereof,
and all other similar agreements with any Governmental Authority or other
Person pertaining to the Land.
Utility Developer shall mean all of the parties to each Utility
Agreement, including the Borrower and the District.
Section 1.2 Terms Generally. Each definition contained in this or any
other Article of this Agreement shall apply equally to both the singular
and plural form of the term defined. Each pronoun shall include the
masculine, the feminine and neuter form, whichever is appropriate to the
context. The words "included", "includes" and "including" shall each be
deemed to be followed by the phrase "without limitation". The words
"herein", "hereby", "hereof" and "hereunder" shall each be deemed to refer
to this entire Agreement and not to any particular Article or Section
hereof. The defined term "Lender" shall be deemed to refer to this entire
Agreement and not to any particular Article or Section hereof. The defined
term "Lender" shall be deemed to include all authorized agents of the
Lender and its successors and assigns. The defined term "Borrower" shall
be deemed to include its heirs, legal representatives, successors and
assigns.
The following terms shall have the respective meanings ascribed to them
in the Uniform Commercial Code as enacted and in force in the State of
Texas:
accessions, continuation statement, equipment,
inventory, financing statement, fixtures, general
intangibles, personal property, proceeds, security
interest and security agreement.
Unless the context otherwise requires or unless otherwise provided, the
terms defined in Section 1.1 which mean or refer to a particular
agreement, instrument, or document shall also mean, refer to and include
all amendments, renewals, extensions, substitutions, and modifications of
such agreement, instrument or document, provided that nothing contained in
this Section 1.2 shall be construed to authorize the execution or entering
into by any Person of any such renewal, extension, substitution, or
modification, except as may be permitted by other provisions of this
Agreement.
ARTICLE II
AGREEMENT TO MAKE SECURED AND GUARANTEED LOAN; PROCEDURES AND
REQUIREMENTS FOR FUNDING AND USE OF LOAN ADVANCES
Section 2.1 The Loan. Lender shall advance such amounts against the
Note as the Borrower may request up to but not more than the amount of the
Note, such sums all to be applied in payment of items set forth in the
Approved Budget. Payment of the Note shall be secured by the Deed of
Trust, and the liens, security interests and collateral assignments created
or evidenced by the other Loan Documents.
Section 2.2 The Note and Security. The Borrower shall execute and
deliver to the Lender the Note to evidence the Loan. Advances of Loan
proceeds made under this Agreement shall be conclusively deemed and
considered to have been made against the Note. The Lender shall make an
appropriate notation on its records reflecting each amount advanced against
the Note and the date of the advance. Interest on the amounts of Loan
proceeds advanced hereunder shall be computed on the amount of each advance
and from the date of each advance.
Section 2.3 Purpose. Funds shall be advanced by the Lender under the
provisions of this Agreement for the purpose of paying the costs of the
items set forth in the Approved Budget. In no event shall the Lender be
required to make (but in its discretion, the Lender may make) any advance
for payment of any item in excess of the amount budgeted for such item in
the Approved Budget or for payment of any item not included in the Approved
Budget; provided, however, that any such excess may, at the Lender's
option, be paid from the "contingency" item set forth in the Approved
Budget. In addition to the foregoing, Borrower may submit a Request for
Advance for an advance from the "other" contingency line item in the
Approved Budget to pay income taxes due by Borrower or its partner in
connection with the Premises. To the extent that Borrower achieves any cost
savings in any Capital Expenditure or Operating Expense line item which is
verified by Lender in Lender's sole discretion, such cost savings may be
reallocated to the "other" contingency line item and thereafter used by
Borrower to pay for costs or expenses associated with the Premises as
provided in this Agreement, including the purposes set forth in the
preceding sentence.
Section 2.4 Request for Advance. Each time the Borrower desires to
receive an advance of Loan proceeds, the Borrower shall deliver to the
Lender a Request for Advance in respect thereto. Each item to be paid from
such advance shall be fully described, itemized and categorized on the
continuation page or pages of such Request for Advance. Within five (5)
Business Days after receipt of a proper Request for Advance and the
satisfaction of all other terms and conditions of this Agreement, the
Lender shall advance the amount set forth in such Request for Advance.
Section 2.5 Advances to Pay Contractors. Each time a Request for
Advance includes amounts to be paid to a Contractor, the amount to be
advanced by the Lender to pay such Contractor shall not exceed a sum equal
to the aggregate amount of the "current payment due" as shown in the
Application and Certificate for Payment executed by such Contractor and
submitted with the Request for Advance.
Section 2.6 Direct and Indirect Advances. All sums advanced to pay a
Contractor shall be advanced directly to the Borrower (or, at the option of
the Lender after the occurrence of a Default, to such Contractor), as part
of the Loan proceeds. All advances made pursuant to a Request for Advance
for payment of any other items set forth in the Approved Budget shall be
advanced to or for the account of the Borrower.
Section 2.7 Application of Sums Advanced. Each time the Borrower
receives Loan proceeds or other sums pursuant to this Agreement or any of
the other Loan Documents, the Borrower shall promptly apply the same toward
the payment of the items covered by the applicable Request for Advance
submitted to the Lender and promptly thereafter shall furnish evidence
reasonably satisfactory to the Lender that all such items have been paid.
Without the prior written consent of the Lender, the Borrower shall not
apply or permit application of any sums advanced hereunder in payment of
any item not included in the Approved Budget.
Section 2.8 Funding Frequency. The Lender shall in no event be
obligated to fund advances more than once each calendar month, but may do
so at its election.
Section 2.9 Debt Absolutely Due at Maturity. The Borrower will pay the
Debt or cause it to be paid to the Lender on a date not later than the
maturity of the Note, whether such maturity occurs on account of lapse of
time until its stated final maturity or by acceleration. The Borrower's
obligation to pay the Debt in accordance with the Note and the other Loan
Documents is absolute and unconditional.
ARTICLE III
BORROWER'S REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that:
Section 3.1 Due Organization, Existence and Authority of the Borrower.
The Borrower is a duly organized, validly existing Texas general
partnership and has the power and authority to carry on its business as
presently conducted and to enter into and perform its obligations under
this Agreement, the Note, the Deed of Trust and the other Loan Documents to
which the Borrower is a party.
Section 3.2 Due Organization, Existence and Authority of Partners. Each
of the Partners of Borrower are duly organized and valid existing Texas
limited partnerships in good standing under the laws of the State of Texas
and have the power and authority to carry on their business as presently
conducted, to be a Partner and to enter into and perform, and bind the
Borrower, to perform, their respective obligations under this Agreement,
the Note, the Deed of Trust and the other Loan Documents to which the
Partners and the Borrower, respectively, are parties in the capacities
therein stated.
Section 3.3 Loan Documents Authorized. The execution and delivery by
the Borrower and the Partners of this Agreement, the Note, the Deed of
Trust, and the other Loan Documents to which the Borrower and the Partners
are parties in the capacities therein stated and the full and timely
performance of all obligations thereunder have been duly authorized by all
necessary action under the Borrower's Organizational Agreement and under
the Organizational Agreements of its Partners and otherwise.
Section 3.4 Loan Documents Valid, Binding and Enforceable. This
Agreement, the Note, the Deed of Trust and the other Loan Documents to
which the Borrower is a party have been duly and validly executed, issued
and delivered by the Borrower and constitute the valid and legally binding
obligations of the Borrower and the Partners, enforceable in accordance
with their respective terms in all material respects.
Section 3.5 Other Agreements Not Violated by the Borrower. Compliance
by the Borrower and the Partners with this Agreement, the Note, the Deed of
Trust and the other Loan Documents to which the Borrower and the Partners
are parties in the capacities therein stated will not violate any law, the
Borrower's Organizational Agreement or the Organizational Agreement of any
Partner, any Construction Contract, any Development Agreement or any other
instrument or agreement binding upon the Borrower or any Partner.
Section 3.6 Loan Documents Signed by Other Persons. To the best of the
Borrower's knowledge, each Loan Document, each Development Agreement or
other written instrument contemplated in or required by this Agreement
executed or to be executed by any Person other than the Borrower has been
or will be duly authorized by all necessary action and constitutes, or when
executed and delivered to the Lender will constitute, the valid and legally
binding obligation of such Person, enforceable against such Person in
accordance with its terms.
Section 3.7 Permits Effective. The Borrower has obtained (or has
verified the timely availability of and will obtain when required) all
Governmental Permits necessary for the construction of the Improvements and
the Off-Site Improvements and all Governmental Permits necessary for the
development of the Premises as a residential subdivision and all such
Governmental Permits are or will timely be in full force and effect.
Section 3.8 Taxes Paid. The Borrower and each Obligor has filed all tax
returns required to be filed and paid all taxes shown thereon to be due,
including interest and penalties, except for taxes being contested in good
faith and for which such taxpayer has provided adequate reserves for the
payment thereof.
Section 3.9 Suits. There are no actions, suits or proceedings pending,
or to the knowledge of the Borrower threatened, against or affecting the
Borrower, any Obligor, or the Premises, or involving the validity or
enforceability of the Loan Documents or the priority of the liens, security
interests and collateral assignments created or evidenced thereby, at law
or in equity, or before or by any Governmental Authority, except actions,
suits and proceedings which have been fully disclosed to the Lender in
writing.
Section 3.10 Financial Statements Complete and Accurate. All
information supplied and statements made to the Lender by or on behalf of
the Borrower or any Obligor in any financial statement furnished or
application for credit made prior to, contemporaneously with or subsequent
to the execution of this Agreement are and shall be true, correct,
complete, valid and genuine in all material respects; such financial
statements and applications for credit have been prepared in accordance
with Good Accounting Practice and fully and accurately present the
financial condition of the subject thereof as of the date thereof and no
material adverse change has occurred in the financial condition reflected
therein since the respective dates thereof; and no additional borrowings
have been made by the Borrower or any Obligor since the respective dates
thereof other than the borrowing contemplated hereby or other borrowings of
which the Lender has been notified in writing.
Section 3.11 No Other Defaults (Governmental Order). Neither the
Borrower nor any Obligor is in default with respect to any order, writ,
injunction, decree or demand of any court or any Governmental Authority.
Section 3.12 Utilities, Road Access and Drainage. The Land, other
than the Undeveloped Land, has adequate rights of access to public streets
and roads and there is constructed on the Land adequate rights of access to
all water, sanitary sewer and storm facilities necessary for the intended
use of the Developed Lots, and all roads necessary for the intended use of
the Developed Lots have been completed in accordance with the Plans and
Specifications therefor and all Development Requirements.
Section 3.13 Tests and Studies. The Borrower has conducted such
tests and studies as are necessary to determine the flow of surface and
storm waters and the drainage thereof, upon, across, and from the Land and
has prepared appropriate reports showing what grading, sloping, channeling
or construction of artificial drains or retention ponds is necessary to
provide adequate drainage and to prevent accumulation of such waters on the
Land at all times during its development and after Completion.
Section 3.14 Flood Plain. No portion of the Land will be located
in any area designated by the Secretary of Housing and Urban Development or
any other Governmental Authority as being in the 100-year flood plain or as
having special flood or mud slide hazards, except as disclosed by FEMA Maps
or other engineering documentation provided to Lender.
Section 3.15 Legal Requirements Met. No violation of any Legal
Requirement exists with respect to the Premises; the anticipated use
thereof complies with all Legal Requirements and all Legal Requirements as
of the date hereof have been satisfied.
Section 3.16 No Mechanics' Lien Inception. As of the date hereof,
no construction has commenced and is in progress on the Land, nor has any
material been delivered to the Land, nor has the Borrower made any verbal
or written contract or arrangement of any kind, the occurrence, performance
or recordation of which would give rise to a lien on the Premises having
priority equal to or greater than the liens and security interests of the
Deed of Trust.
Section 3.17 Ownership. As of the date hereof, the Borrower owns
all of the Premises.
Section 3.18 Approved Budget Correct. The Approved Budget is true,
correct, complete, valid and genuine and reflects the Borrower's best good
faith estimate of all of the direct and indirect costs of completing the
Improvements and the Off-Site Improvements in accordance with the Plans and
Specifications, all Development Requirements and the Loan Documents.
Section 3.19 No Default. No Default under this Agreement or the
other Loan Documents has occurred and is continuing.
Section 3.20 No Other Default. Neither the Borrower nor any Obligor
is in default under any instrument evidencing any indebtedness or any
agreement thereto or any indenture, mortgage, deed of trust, security
agreement, lease, franchise or other agreement or other instrument to which
such Person is a party or by which it or he is bound.
Section 3.21 Securities Act of 1933. Neither the Borrower nor any
agent acting for it has offered the Note or any similar obligation of the
Borrower for sale to or solicited any offers to buy the Note or any similar
obligation of the Borrower from any Person other than the Lender, and
neither the Borrower nor any agent acting for it will take any action which
would subject the sale of the Note to the provisions of Section 5 of the
Securities Act of 1933, as amended.
Section 3.22 Regulations U and T. The Borrower does not own any
"margin stock" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System. None of the proceeds of the Loan will be
used for the purpose of purchasing or carrying any such margin stock or for
the purpose of reducing or retiring any Indebtedness which was originally
incurred to purchase or carry any such margin stock or which would
constitute this transaction a "purpose credit" within the meaning of such
Regulation U, as now in effect or as it may hereafter be in effect. None
of the proceeds of the Loan will be used for the purpose of extending or
arranging for the extension of credit secured directly or indirectly, in
whole or in part, by collateral that includes any such margin stock. The
Borrower and its Partners will not take or permit any action which would
involve the Lender in a violation of Regulation U, Regulation T or any
regulation of the Board of Governors of the Federal Reserve System or
violation of the Securities and Exchange Act of 1934, in each case as now
in effect or as the same may hereafter be in effect.
Section 3.23 Representations Not Misleading. No representation or
statement made to the Lender by or on behalf of the Borrower or any Obligor
in connection with the transactions contemplated by this Agreement or made
in any of the other Loan Documents is (or shall be) false or misleading or
fails (or will fail) to state any matter necessary to make such statements
not misleading.
Section 3.24 No Known Material Adverse Fact. The Borrower knows of
no fact which materially and adversely affects the business, operations,
prospects or condition, financial or otherwise, of the Borrower or of any
Obligor.
Section 3.25 Borrower's Place of Business. The principal place of
business of the Borrower is c/o Stratus Management, L.L.C., 98 San Jacinto
Boulevard, Suite 220, Austin, Texas 78701.
Section 3.26 Survival of Representations and Warranties. All
representations and warranties made by or on behalf of the Borrower or any
Obligor herein shall survive the delivery of the Note and the making of the
Loan and any investigation at any time made by or on behalf of the Lender
shall not diminish its rights to rely thereon.
Section 3.27 Business Loans. All loans evidenced by the Note are
and shall be "business loans" as such term is used in the Depository
Institutions Deregulation and Monetary Control Act of 1980, as amended, and
such loans are for business, commercial, investment or other similar
purpose and not primarily for personal, family, household or agricultural
use, as such terms are used in Chapter 1D of the Texas Finance Code.
Section 3.28 Guaranty. The Guaranty and the Pledge Agreement have
each been duly and validly executed, issued and delivered by Guarantor and
constitute the valid and legally binding obligation of the Guarantor,
enforceable in accordance with their respective terms. Compliance by the
Guarantor with the Guaranty and the Pledge Agreement will not violate any
law or any other instrument or agreement binding upon the Guarantor.
ARTICLE IV
BORROWER'S COVENANTS AND AGREEMENTS
The Borrower covenants and agrees with the Lender as follows:
Section 4.1 Prosecution of Construction. The Borrower will prosecute
the construction of the Improvements in accordance with all Development
Requirements and this Agreement with reasonable diligence and dispatch, and
in any event will complete the construction of the Improvements on or
before the Scheduled Completion Date.
Section 4.2 Completion Evidence. As soon as reasonably possible after
Borrower is of the opinion that Completion has occurred, the Borrower shall
deliver the Evidence of Completion to the Lender.
Section 4.3 Off-Site Improvements. The Borrower shall promptly commence
and complete, or cause to be commenced and completed, any and all Off-Site
Improvements as and when required for the construction and operation of the
Improvements and by all Development Requirements. The Borrower shall
notify the Lender in writing of the commencement and keep the Lender fully
advised of the progress of all negotiations relating to the use by the
Borrower of any Off-Site Improvements or of any rights to use the property
of third Persons which may be necessary or desirable in connection with the
construction by the Borrower of any such Off-Site Improvements.
Immediately upon receipt, the Borrower shall furnish the Lender with copies
of required approvals and Governmental Permits for all such Off-Site
Improvements.
Section 4.4 Encroachments. Except as disclosed to the Lender in
writing, all Improvements necessary to prepare the Premises for the
construction of residential housing are or shall be entirely within the
boundary lines of the Land and do not and will not encroach upon any
set-back line, easement, right-of-way or adjoining property or breach or
violate any covenant, condition or restriction affecting the Land or any
Legal Requirement.
Section 4.5 Correcting Defects. The Borrower will, upon demand of the
Lender, correct or cause to be corrected:
(a) any structural defect in the Improvements or the Off-Site
Improvements;
(b) any material departure from the Plans and Specifications not
approved by Lender and any applicable Development-Related Entity;
(c) any encroachment by any part of the Improvements, the Off-Site
Improvements or any other structures or improvements over or on any
set-back line, easement, adjoining property or other restricted area; and
(d) any encroachment of any adjoining structure upon the Land which
any inspection reflects.
The advance of Loan proceeds or other sums hereunder shall not constitute a
waiver of the right of the Lender to require compliance with this covenant
with respect to any such defects, departures, encroachments or violations.
Section 4.6 Other Information. The Borrower will furnish to the Lender
such other information concerning the progress of the construction of the
Improvements and the Off-Site Improvements and the development of the Land
as the Lender may from time to time reasonably request.
Section 4.7 Proof of Payment. The Borrower will deliver and cause to be
delivered to the Lender from time to time as required by the Lender, all
such statements, receipts and other data and information as the Lender may
reasonably require reflecting payment of costs and expenses incurred in
connection with the construction of the Improvements, the Off-Site
Improvements or operation of the Premises.
Section 4.8 Free Access. The Borrower shall permit the Lender and its
duly authorized agents free access to the Premises and shall make available
for audit and inspection, at any reasonable time by Lender or its duly
authorized agents, all property, equipment, books, contracts, records and
other papers relating to the Premises and construction of the Improvements,
the Off-Site Improvements and the Development Agreements.
Section 4.9 Changes and Change Orders. No material change will be made
in any Plans and Specifications (including but not limited to the execution
of change orders) or in the Construction Contracts without the prior
written consent of the Lender. For purposes of this Section, a change
shall not be considered a material change unless:
(a) such change alone increases or decreases the contract price for
or other costs in respect of construction of the Improvements or the
Off-Site Improvements by more than $10,000.00, or together with all prior
changes on a "net" basis increases the contract price for or other costs in
respect of construction of the Improvements or the Off-Site Improvements by
more than $50,000.00;
(b) such change alone or together with all prior changes extends the
time to complete the Improvements or the Off-Site Improvements beyond the
Scheduled Completion Date; or
(c) such change alone or together with all prior changes constitutes
a change which would require the prior approval of any Development-Related
Entity so as not to affect or impair its obligations under the applicable
Development Agreement.
The Borrower shall deliver to the Lender true and correct copies of all
changes, amendments or supplements to the Plans and Specifications and the
Construction Contracts (whether material or not) within five (5) Business
Days after execution thereof or agreement thereto by the respective parties
to such changes.
Section 4.10 Title Status Certificates and Title Policies Required.
Until Completion, upon the request of the Lender, the Borrower will furnish
a Title Status Certificate to the Lender within twenty (20) Business Days
of the date which the request is made. After Completion, the Borrower will
furnish a Title Status Certificate to the Lender within twenty (20)
Business Days of the date after written request therefor made by the
Lender. Upon written request of the Lender, the Borrower shall forthwith
deliver to the Lender such endorsements to the Title Insurance Policy as
shall be legally available and as the Lender shall reasonably request from
time to time.
Section 4.11 Insurance Policies Required. Until the Debt is paid in
full, the Borrower shall furnish the Insurance Policies and comply with all
terms thereof.
Section 4.12 Casualty Damage. In case of any damage to or loss of
any of the Premises by fire, storm or other casualty whatever prior to the
payment of the Debt in full, the Borrower will promptly cause the damage to
be repaired and the Improvements and the Off-Site Improvements to be
restored all in accordance with this Agreement, the Plans and
Specifications and the Development Requirements. In such event, the
Borrower will cause all insurance proceeds to be delivered to Lender, and
Lender shall apply the insurance proceeds in the manner set forth in the
Deed of Trust.
Section 4.13 Approval of Contracts and Plans Segments. The Borrower
will not execute any contract or directly become a party to any arrangement
for the furnishing of labor, equipment, supplies or materials for the
Premises for more than $50,000.00 except with Persons approved by the
Lender; provided however, the Lender's approval shall not be unreasonably
withheld or delayed. No work shall be commenced with respect to
construction of any particular segment of the Improvements or the Off-Site
Improvements until the Plans and Specifications for such segment shall have
been submitted to and approved by the Contractor and the Lender, which
approval will not be unreasonably withheld or delayed. All construction
contracts shall provide by their terms that all liens to which the
Contractor is entitled are subordinate in all respects to the lien of the
Deed of Trust.
Section 4.14 Safe Storage. The Borrower will cause all equipment,
supplies and materials acquired or furnished in connection with the
construction of the Improvements but not affixed to or incorporated into
the Premises to be stored on the Land or at other locations approved by the
Lender in writing, in each case under adequate safeguards to minimize the
possibility of loss, theft, damage or commingling with other property.
Upon the reasonable request of the Lender, the Borrower will furnish an
inventory of all such equipment, supplies and materials stored off of the
Land, specifying the location thereof.
Section 4.15 Plans and Specifications Required. The Borrower will
furnish the Plans and Specifications to the Lender before commencement of
construction of the Improvements and the Off-Site Improvements. The Lender
shall have the right at all times to use, examine and copy the Plans and
Specifications. The Borrower assumes full responsibility for compliance of
the Plans and Specifications with all Legal Requirements and with sound
engineering practice and notwithstanding any approval by the Lender of the
Plans and Specifications, the Lender shall have no liability or
responsibility for such compliance or for any other defect or deficiency in
the Plans and Specifications, the Improvements or the Off-Site
Improvements.
Section 4.16 Separate Bank Accounts. The Borrower agrees to
maintain an account with the Lender into which all proceeds of the Loan
shall be deposited and against which checks shall be drawn only to pay the
items set forth in the Approved Budget.
Section 4.17 Sales Contract Approval and Copies Required. No Sales
Contract covering any part of the Land shall be executed by the Borrower
with any purchaser, unless by its terms it is conditional upon approval by
the Lender, which approval will not be unreasonably withheld or delayed
(provided that in any event, the gross sales price of the Land being sold
shall be acceptable to Lender in Lender's sole discretion, and shall be
payable in cash at closing) or unless prior to its execution the Lender has
approved it in writing. In either case, within five (5) Business Days
following the execution of any Sales Contract, the Borrower shall deliver
to the Lender a copy of the executed counterpart of such Sales Contract.
Section 4.18 Seller's Obligations. The Borrower shall faithfully
perform the seller's obligations under the Sales Contracts in all material
respects and in any event will not allow a default by seller to occur
thereunder, the Borrower shall not materially modify any of the Sales
Contracts and shall not terminate any of the Sales Contracts, or any
obligations of any Person thereunder, or take (or omit to take) any other
action, the effect of which may diminish or impair the value of any of the
Sales Contracts.
Section 4.19 Approval of All Development Agreements and Copies
deliver to the Lender for its review and approval the proposed form of such
Development Agreement. No Development Agreement pertaining to the Premises
shall be executed by the Borrower unless approved by the Lender in writing,
which approval shall not be unreasonably withheld or delayed. Within five
(5) Business Days of the execution of any Development Agreement, the
Borrower shall deliver to the Lender an original executed counterpart of
such Development Agreement.
Section 4.20 Security Interest in Development Agreements.
Concurrently with the execution of any Development Agreement, at the
request of the Lender, the Borrower shall execute and deliver to the Lender
an instrument or instruments, in form and substance reasonably satisfactory
to the Lender, creating in favor of the Lender a first priority lien upon
and security interest in, and/or assigning to the Lender, all of the
Borrower's rights in any such instrument together with, such related
financing statements and other instruments necessary to give notice of or
perfect such lien, security interest or assignment as the Lender may then
require.
Section 4.21 Lender's Sign. The Borrower shall permit the Lender to
place and maintain signs on the Premises at mutually agreeable locations
containing such information regarding the financing of the Premises as the
Lender may deem appropriate so long as the same comply with all Legal
Requirements.
Section 4.22 Lender May Fund. If the Borrower fails to satisfy any
covenant or condition set forth in any of the Loan Documents within fifteen
(15) days after written notice thereof from Lender, the Lender shall have
the right without waiving the Default to timely advance Loan proceeds to
satisfy same. Any Loan proceeds so advanced shall be evidenced by the Note
or at the option of the Lender (notwithstanding any contrary provision of
Article II of this Agreement) shall constitute indebtedness of the Borrower
to the Lender payable on demand, bearing interest at the Past Due Rate from
the date advanced by the Lender. All such demand indebtedness shall
constitute a part of the Debt and shall be secured by the liens and
security interests of the Loan Documents.
Section 4.23 Call for Funds. If the Lender reasonably determines at
any time in Lender's good faith judgment that the unadvanced Loan proceeds
will be insufficient to pay for (a) Completion of the Improvements or the
Off-Site Improvements in accordance with the Plans and Specifications and
the Development Requirements and (b) all other items set forth in the
Approved Budget, including but not limited to interest which the Lender
reasonably estimates may accrue on the Debt prior to its maturity, the
Borrower shall make arrangements satisfactory to the Lender to provide
sufficient funds to complete the Improvements and the Off-Site Improvements
in accordance with the Plans and Specifications and the Development
Requirements and to pay for all other items set forth in the Approved
Budget. The obligations of the Borrower under this Section 4.23 are in
addition to the Borrower's obligation to provide the Additional Equity (as
defined in Section 5.1(e) hereof) for the payment of the construction costs
incurred for the Improvements as budgeted in the Approved Budget.
Section 4.24 Call for Funds to Pay Overruns. If the amount budgeted
for any particular category of costs set forth in the Approved Budget
(taking into account the "contingency" line item in the Approved Budget) is
or will be insufficient to pay the actual or projected cost of such
category, at the Lender's reasonable election, the Borrower shall make
arrangements satisfactory to the Lender (which may include reallocation of
savings manifestly realized on other portions of the Improvements to other
Approved Budget categories) to provide sufficient funds to pay the
difference between such actual or projected costs and the amount budgeted
for such category in the Approved Budget. The obligations of the Borrower
under this Section 4.24 are in addition to the Borrower's obligation to
provide the Additional Equity as budgeted in the Approved Budget.
Section 4.25 Expenses of and Claims Against Lender. The Borrower
will pay on demand all expenses incurred by Lender in connection with the
transactions contemplated in the Loan Documents, including but not limited
to charges and disbursements of legal counsel for the Lender, taxes,
recording expenses, closing costs, fees and commissions due to brokers, the
Consulting Architect/Engineer and others, and the costs and expenses of the
Title Insurance Policy. THE BORROWER WILL INDEMNIFY THE LENDER FROM CLAIMS
ARISING IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED IN THE LOAN
DOCUMENTS, INCLUDING, WITHOUT LIMITATION, LOSSES, COSTS OR EXPENSES
INCURRED BY LENDER ON ACCOUNT OF BORROWER'S FAILURE TO COMPLY WITH THE
PROVISIONS OF THIS AGREEMENT AND ANY CLAIMS RESULTING FROM THE ALLEGED
NEGLIGENCE OF LENDER, BUT NOT INCLUDING CLAIMS RESULTING FROM THE LENDER'S
WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.
Section 4.26 Additional Instruments. The Borrower will execute such
additional instruments as may be requested by the Lender in order to carry
out the intent of the Loan Documents and to perfect or give further
assurances of any of the rights granted or provided for in any of the Loan
Documents.
Section 4.27 Notices from Development-Related Entities. The
Borrower will, upon the receipt or giving thereof, promptly furnish to the
Lender a copy of all notices and reports received by the Borrower from or
sent by the Borrower to each Development-Related Entity alleging a breach
or default or the possibility of the occurrence of a breach or default
under any Development Agreement.
Section 4.28 Documents to Comply with Law. All forms of Sales
Contracts for sale of all or any part of the Premises and any and all other
printed documents necessary to fulfill the Borrower's obligations hereunder
shall comply with all Legal Requirements.
Section 4.29 Collection of Development Agreement Proceeds. The
Borrower shall use its best efforts to collect the proceeds of each
Development Agreement as, when, and if they become due and payable and
shall take such steps as may be necessary or appropriate to enforce the
prompt payment and collection thereof.
Section 4.30 Maintenance Standards. The Borrower will keep and
maintain the Premises in good, orderly, clean, safe and sanitary repair and
condition and otherwise in accordance with the standards of property
management customary to developers of comparable subdivisions for
residential housing in the Houston, Texas area.
Section 4.31 Repairs. The Borrower shall cause to be performed and
completed all repairs and restoration of the Premises on a timely basis
after any and all loss and damage thereto.
Section 4.32 Legal Compliance. The Borrower shall operate the
Premises in full compliance with all Legal Requirements.
Section 4.33 Employees. The Borrower shall require the Borrower's
development manager for itself to, employ, supervise, direct, discharge and
compensate (including payment of any and all payroll taxes) such employees
as are necessary for the proper development, maintenance and operation of
the Premises and comply with all Development Requirements regarding the
employment and payment of Persons employed to develop, manage or operate
all or any part of the Improvements or the Off-Site Improvements.
Section 4.34 Operational Standards. The Borrower shall do and
perform any and all other acts and things relating to the development,
management, upkeep and operation of the Premises as are customarily
performed by developers of comparable subdivisions in the Houston, Texas
area.
Section 4.35 Indebtedness to be Paid. The Borrower and each Obligor
will pay punctually and discharge when due, or renew or extend, any
Indebtedness incurred by it when due, and will discharge, perform and
observe the covenants, provisions and conditions to be performed,
discharged and observed on the part of the Borrower or any Obligor in
connection therewith, or in connection with any agreement or other
instrument relating thereto or in connection with any mortgage, pledge or
lien existing at any time upon any of the property or assets of the
Borrower; provided, however, that nothing contained in this Section shall
require the Borrower or any Obligor to pay, discharge, renew or extend any
such Indebtedness or to discharge, perform or observe any such covenants,
provisions and conditions so long as the Borrower in good faith shall be
actively contesting any claims which may be asserted against it or them
with respect to any such Indebtedness or any such covenants, provisions and
conditions and shall set aside on its books reserves with respect thereto
deemed adequate by the Lender.
Section 4.36 Notice of Material Adverse Change. Promptly upon the
obtaining by the Borrower of knowledge or advice of any material adverse
change in the business or financial condition of the Borrower, any
Development-Related Entity or any Obligor, the Borrower shall notify the
Lender thereof.
Section 4.37 Notice of Other Liens. The Borrower shall notify the
Lender in writing within five (5) days of the time that the Borrower
becomes aware of the filing of any mortgage or lien or other security
device whatsoever against the Premises.
Section 4.38 Bonding Off Other Liens. The Borrower shall bond off
under the provisions of all Legal Requirements and to the satisfaction of
the Lender any lien or claim of lien filed for record within fifteen (15)
Business Days of the date of the Borrower's receipt of the notice of filing
of said lien or claim.
Section 4.39 Suitability of Soil. The conformation of the ground
and general and local conditions are suited to the nature of the work to be
performed in connection with the Premises.
Section 4.40 Promotional Standards. The Borrower shall advertise
and promote the project in the manner (expending such amounts) of
developers of other comparable residential developments in the Harris
County, Texas area.
Section 4.41 Reimbursement. Immediately upon receipt by the
Borrower of any money, property or other thing of value from any
Development-Related Entity pursuant to any Development Agreement, the
Borrower will pay or transfer to the Lender such portion of such money,
property or thing as is received by it on account of Loan proceeds financed
under this Agreement, for application by the Lender against the Debt.
Section 4.42 Construction Contract. The Borrower shall fully
observe and perform the requirements of each Construction Contract, shall
maintain them in full force and effect and shall not cause, suffer or
permit any modification or termination thereof without the prior written
consent of the Lender.
Section 4.43 Zoning; Platting. The portion of the Land consisting
of the Developed Lots is properly zoned for residential development (to the
extent any zoning is applicable). A plat or plats of the subdivision or
subdivisions of that portion of the Land consisting of the Developed Lots
has been filed of record showing the location of all lots, blocks, streets,
alleys, parks or other portions of the subdivision or subdivisions
dedicated to public use, or for the use of purchasers or owners of tracts
or lots in the subdivision. The Borrower shall submit any preliminary or
final plat or plats to the Lender for approval which shall not be
unreasonably withheld or delayed. Upon approval by the Lender of any
preliminary plat, final plat or revision thereof, the Borrower shall
prepare final subdivision plat or plats in the form required by all
Development Requirements. The Borrower shall use its best efforts to
obtain the approval by all appropriate Government Authorities of the final
subdivision plat or plats promptly after the Lender's approval thereof.
Section 4.44 Adjacent Properties. The Borrower shall take proper
means to protect the adjacent or adjoining property or properties in any
way encountered, which might be injured or adversely affected by any
process of construction to be undertaken under this Agreement, from any
damage or injury by reason of the construction; and it shall protect the
Lender from any and all claims for such damage on account of its failure to
fully protect all adjoining property.
Section 4.45 Sewer Capacity. If the Lender reasonably determines at
any time that inadequate sewer capacity has been allocated to the Land, the
Borrower shall make arrangements reasonably satisfactory to Lender to
obtain such sewage capacity for the Land as is necessary in the opinion of
Lender for the development of the Land in accordance with its intended use
as a single-family residential subdivision.
Section 4.46 Financial Statements of the Borrower. The Borrower
shall furnish to the Lender the following, within the times indicated:
(a) As soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Borrower, a copy of the annual
unaudited consolidated financial statements of the Borrower, which shall
include a consolidated balance sheet of the Borrower as of the close of
such financial year, a consolidated statement of income and a consolidated
statement of changes in the financial position of the Borrower for such
fiscal year, all setting forth in comparative form the corresponding
figures as at the end of the previous fiscal year, all prepared in
conformity with Good Accounting Practice and certified by a Partner of the
Borrower.
(b) As soon as available and in any event within fifty-five (55) days
after the end of each calendar quarter, a copy of the unaudited
consolidated financial statements of the Borrower, consisting of at least a
consolidated balance sheet as at the close of such quarter, a consolidated
statement of income and consolidated statement of changes in the financial
position of the Borrower for such quarter and for the period ending with
such quarter, all setting forth in comparative form the corresponding
figures for the corresponding period of the previous fiscal year, all
prepared in conformity with Good Accounting Practice and certified by a
joint venturer of the Borrower.
(c) As soon as available and in any event within thirty (30) calendar
days after the end of each calendar quarter, a report detailing sales of
the Premises to purchasers under the Sales Contracts for such quarter,
comparing the requirements of each Sales Contract to each purchaser's
actual performance during such period, and certified by a Partner of the
Borrower.
Section 4.47 Letter of Credit; Escrow Deposit. In connection with
the closing of the Loan, Borrower shall cause Guarantor to have either (i)
delivered the Letter of Credit to Lender or (ii) executed and delivered to
Lender the Guaranty and Pledge Agreement, and to secure its obligations
under the Guaranty by depositing the Escrow Deposit into a restricted
account with Lender. In the event Guarantor elects not to deliver the
Letter of Credit to Lender, then Guarantor shall execute and deliver to
Lender the Guaranty and Pledge Agreement, and shall deliver to Lender the
Escrow Deposit. The Letter of Credit or the Escrow Deposit shall be in
effect at all times during the term of the Loan; provided, however, that
Guarantor may qualify for reductions in the amount of the Letter of Credit
or the Escrow Deposit at the end of each calendar quarter as provided in
Section 9.3 of this Agreement. Guarantor may from time to time, replace
the Escrow Deposit with a Letter of Credit, or replace a Letter of Credit
with the Escrow Deposit, as the case may be, provided that Lender shall at
all times during the term of the Loan have in its possession either a valid
Letter of Credit or the Escrow Deposit, and in the event the Guarantor
delivers the Escrow Deposit to Lender, the Guarantor shall have executed
and delivered to Lender the Guaranty and Pledge Agreement as set forth
above. In addition to the foregoing, Guarantor may deliver to Lender a
combination of both a Letter of Credit and an Escrow Deposit (with the
Guaranty and Pledge Agreement) so long as the total of the face amount of
the Letter of Credit and the Escrow Deposit equals or exceeds the Required
Deposit (as defined in Section 9.3 hereof).
ARTICLE V
REQUIREMENTS FOR ADVANCES
Section 5.1 Conditions. The Lender shall not be obligated to make any
advance of Loan proceeds or other sums under this Agreement or the other
Loan Documents unless all of the following conditions shall be satisfied at
the time of such advance:
(a) no Default or Event of Default shall have occurred under this
Agreement which has not been waived by the Lender or cured to the
satisfaction of the Lender.
(b) the Premises shall not have been injured or damaged by fire or
other casualty; or if so damaged, provisions currently and reasonably
satisfactory to the Lender shall have been made to effect necessary repair
and restoration in accordance with the Loan Documents.
(c) the Deed of Trust shall have been recorded in the Real Property
Records of Harris County, Texas with all filing fees and taxes therefor
paid, all prior to the commencement of any construction on any part of the
Premises or the placing of any equipment, supplies or material on the
Premises.
(d) the Lender shall have received proof of due filing of the
Financing Statements and shall have received such other items and
instruments as are necessary and appropriate in the opinion of the Lender
to perfect a first priority security interest in all property covered by
the Deed of Trust and all of the other Loan Documents.
(e) with respect to any advance requested by Borrower to pay for
construction costs of the Improvements or Off-Site Improvements, there
shall have been delivered to the Lender evidence satisfactory to the Lender
that (i) after the date of this Agreement, the Borrower has expended not
less than an additional $500,000 of its own funds to pay for the
construction of such Improvements or Off-Site Improvements (the "Additional
Equity"), and (ii) the unadvanced Loan proceeds will be sufficient to pay
for completion of all of the Improvements and the Off-Site Improvements in
accordance with all Development Requirements; or if such proceeds are not
adequate, arrangements currently satisfactory to the Lender shall have been
made to provide sufficient funds to complete the Improvements and the
Off-Site Improvements in accordance with all Development Requirements.
(f) if requested by the Lender, the Borrower shall have furnished to
the Lender one or more Officer's Certificates, dated the date of such
advance and/or such other evidence as the Lender shall reasonably require,
that no Default or Event of Default has occurred which has not been waived
by the Lender or cured to the satisfaction of the Lender.
(g) if requested by the Lender, the Sales Contract Schedule and a
current Development Plan.
(h) the Lender shall have approved each Development Agreement
currently in existence and shall have received a security interest in each
Development Agreement currently in existence.
(i) the Lender shall have received the Required Deposit in accordance
with the terms and provisions of this Agreement, and Guarantor shall have
executed and delivered to Lender the Guaranty and the Pledge Agreement.
Section 5.2 Initial Advance. The Lender shall not be obligated to make
the initial advance (the "Initial Advance") in an amount not to exceed
$6,000,000.00 or any subsequent advance under this Agreement or the other
Loan Documents unless:
(a) the Lender shall have received all of the original Loan
Documents, including but not limited to the following:
a counterpart of this Agreement executed by the Borrower;
a Request for Advance;
the Note;
the Deed of Trust;
the Financing Statements;
the Letter of Credit or, in the alternative, the Escrow Deposit,
Guaranty and the Pledge Agreement;
a current Development Plan; and
(b) the Lender shall have received the following additional
instruments and evidence:
the Approved Budget;
the Appraisal;
the Organizational Agreement of the Borrower and each of its
Partners, and the Organizational Agreements for each general
partner of the Partners and their general partners;
the Commitment for the Title Insurance Policy in form and
substance acceptable to Lender;
the Title Instruments;
the Plans and Specifications;
the Governmental Permits, if any;
all Engineering Reports, then available;
the Builder's Consents executed by the applicable purchaser with
respect to each of the Sales Contract; and
the Opinion of Borrower's Counsel.
Section 5.3 Subsequent Advances. The Lender shall not be obligated to
make any advance under this Agreement or the other Loan Documents after the
Initial Advance unless:
(a) the Lender shall have received the following additional original
Loan Documents:
a Request for Advance;
with respect to any Request for Advance to pay for the
construction costs of any Improvements or Off-Site Improvements,
a Contractor/Lender Agreement from each Contractor then engaged
to furnish labor or materials for the Premises and who has not
theretofore executed such an agreement with the Lender;
(b) the Lender shall have received the following additional
instruments, to the extent not previously provided to Lender:
the Title Insurance Policy;
the Plans and Specifications then existing;
Builder Consent agreements in form and substance reasonably
satisfactory to the Lender with each Development-Related Entity
that is at that time a party to a Sales Contract;
a current Title Status Certificate;
all Construction Contracts then existing;
all Governmental Permits;
all Insurance Policies then required by the Deed of Trust;
all Sales Contracts then in existence;
a current Sales Contract Schedule;
all other Development Agreements then in existence; and
all remaining Engineering Reports available.
Section 5.4 Off-Site Improvements. The Lender shall not be obligated to
make any advance under this Agreement in payment of the costs of the
Off-Site Improvements, unless, in addition to satisfaction of all matters
set forth in Sections 5.1, 5.2 and 5.3 above the following conditions shall
have been satisfied in a manner acceptable to the Lender:
(a) the Plans and Specifications for such Off-Site Improvements;
(b) a Construction Contract providing for the construction of such
Off-Site Improvements;
(c) the Off-Site Agreement pertaining to the construction of the
Off-Site Improvements; and
(d) an assignment duly executed by the Borrower assigning to the
Lender all of the Borrower's right, title and interest in and to the
Off-Site Improvements together with the consent of all Persons reasonably
required by the Lender to such assignment.
Section 5.5 Equipment, etc. Stored Off-Site. The Lender shall not be
obligated to make any advance under this Agreement to be applied in payment
of costs of equipment, supplies and materials stored off the Land unless,
in addition to the satisfaction of all matters set forth in Sections 5.2
and 5.3 above, the following conditions shall have been satisfied in a
manner acceptable to the Lender:
(a) the aggregate amount of all advances in respect of such costs
shall not exceed at any time $25,000.00 at any time (which amount shall
include the aggregate total of all previous advances hereunder for payment
of such costs to the extent that such equipment, supplies and materials
continue to be stored off the Land);
(b) title to such equipment, supplies and materials shall be vested
in the Borrower, as evidenced by documentation satisfactory to the Lender,
provided that the possession thereof may be in a Contractor or his or its
subcontractors under an agreement of bailment satisfactory to the Lender so
long as such Contractor or subcontractors shall cause to be recorded an
informational financing statement in form satisfactory to the Lender,
evidencing the security interests of the Lender;
(c) if requested by the Lender, the Borrower shall execute and
deliver to the Lender a separate security agreement and financing statement
covering such equipment, supplies and materials, in form and substance
reasonably satisfactory to the Lender;
(d) the Borrower shall keep the Lender apprised in writing of each
location where any such equipment, supplies and materials are stored off
the Land and the value thereof at each location; and
(e) representatives of the Lender shall have the right to make
inspections of the storage area at any time.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.1 Events of Default. The occurrence (including the passage of
time if any is specified therefor) of any one or more of the following
shall constitute an Event of Default hereunder:
(a) failure of the Borrower to pay when due any accrued interest on
or principal of the Note or any other part of the Debt;
(b) failure of the Borrower to perform, observe or comply with any of
the terms, covenants, conditions or provisions contained in this Agreement,
the Note, the Deed of Trust or any of the other Loan Documents.
(c) failure of the Guarantor to perform, observe or comply with any
of the terms, covenants, conditions or provisions of the Guaranty or the
Pledge Agreement.
(d) failure of the Borrower or any Contractor to perform, observe or
comply with any of the terms, covenants, conditions or provisions of any
Construction Contracts in all material respects (but in any event Borrower
shall not allow a default by Borrower to occur thereunder).
(e) any representation or warranty made by the Borrower or other
Obligor in this Agreement, any Application and Certificate for Payment or
any Request for Advance or in any of the other Loan Documents or otherwise
proves to have been untrue or misleading in any material respect as of the
date made.
(f) any representation or warranty made by the Guarantor in the
Guaranty or the Pledge Agreement proves to have been untrue or misleading
in any material respect as of the date made.
(g) any substantial damage to or destruction of the Premises shall
occur and insurance proceeds, together with sums provided by the Borrower
shall not, in the opinion of the Lender, be sufficient to repair and
restore the Premises.
(h) the Deed of Trust shall not, in the reasonable opinion of counsel
for Lender, constitute a perfected first and prior lien on and security
interest in the Premises securing payment of the Debt.
(i) a survey shall show that any Improvement (other than an Off-Site
Improvements) to the Land is not entirely within the boundary lines of the
Land or encroaches upon any set-back line, easement, right-of-way, street
or any adjoining property, or that any Legal Requirement has been breached
or that any adjoining structure encroaches upon the Land.
(j) the Improvements shall not have been completed (for any reason
whatever) in accordance with the Plans and Specifications and the
Development Requirements by the Scheduled Completion Date.
(k) the Off-Site Improvements shall not have been completed (for any
reason whatever) in accordance with the Plans and Specifications and the
Development Requirements by the Scheduled Completion Date.
(l) the Consulting Architect/Engineer shall at any time certify to
the Lender in writing that the Improvements or the Off-Site Improvements
are not at the date of such certificate being constructed in substantial
accordance with the Plans and Specifications and the Development
Requirements by the Scheduled Completion Date.
(m) any Governmental Authority shall commence proceedings to condemn
all or any material part of the Premises.
(n) any present or future Legal Requirement shall prohibit or impair
the Borrower's intended use of any of the Premises as represented to the
Lender as a material inducement to make the Loan.
(o) any Person shall commence any action, suit or proceeding against
or affecting the Borrower, any Obligor or the Premises or involving the
validity or enforceability of the Loan Documents or the priority of the
liens created thereby, at law or in equity, or before any Governmental
Authority, which in the judgment of the Lender, impairs or would impair its
interest in the Premises, the enforceability of the Loan Documents, or its
ability to collect the Debt when due.
(p) the Borrower or any Guarantor shall be prevented or relieved by
any Governmental Authority from performing or observing any material term,
covenant or condition of any of the Loan Documents, any Utility Agreement
or any Sales Contract.
(q) the Borrower or any Obligor shall:
(1) voluntarily suspend transaction of business.
(2) become insolvent or unable to pay its or his debts as they
mature.
(3) file a voluntary petition in bankruptcy or a voluntary
petition seeking reorganization or to effect a plan or other
arrangement with creditors.
(4) make an assignment for the benefit of creditors.
(5) apply for or consent to the appointment of any receiver or
trustee for any such Person or of all or any substantial
portion of the property of any such Person.
(6) make an assignment to an agent authorized to liquidate any
substantial part of its or his assets.
(r) In respect of the Borrower or any Obligor:
(1) an involuntary petition shall be filed with any court or
other authority seeking reorganization or a creditors'
arrangement of any such Person or the adjudication of any
such Person as bankrupt or insolvent,
(2) an order of any court or other authority shall be entered
appointing any receiver or trustee for any such Person or
for all or any substantial portion of the property of any
such Person, or
(3) a writ or warrant of attachment or any similar petition
shall be issued by any court or other authority against all
or any substantial portion of the property of any such
Person
and such petition seeking reorganization, a creditor's arrangement or
adjudication or such order appointing a receiver or trustee is not vacated
or stayed, or such writ, warrant of attachment or similar process is not
vacated, released or bonded within sixty (60) days after its entry or levy.
(s) the Premises are at any time not operated or maintained in good,
orderly, clean, safe and sanitary repair and condition and otherwise in
accordance with the standards required by this Agreement and in accordance
with the highest standards of residential management in the Harris County,
Texas area.
(t) default shall occur under the terms of any of the Loan Documents
which is not cured within any applicable grace or cure period.
(u) failure of the Borrower or any Guarantor to pay principal or
interest on any valid Indebtedness or obligation in excess of $25,000.00
incurred in connection with or arising out of the development of the
Premises, when due (or within any applicable period of grace or cure) other
than Indebtedness to the Lender or if the holder of such other obligation
declares, such obligation due prior to its stated maturity because of such
party's default thereunder.
(v) any Utility Agreement shall be held to be void, voidable or an
ultra vires act of any Person executing the same, or any Person shall
assert that any Utility Agreement is not binding upon it for any reason and
no alternative arrangements satisfactory to the Lender can be made.
(w) the Borrower shall withdraw, terminate or modify any approved
Development Agreement without the written consent of the Lender; however,
Borrower may enter into non-material amendments to the Sales Contracts from
time to time without the consent of Lender, provided that in any event,
such amendments shall not reduce the number of lots to be sold, reduce the
sales price or materially increase the time for performance by the
purchaser thereunder without the prior written consent of Lender.
(x) a default by the Borrower or any Development-Related Entity
(other than Holigan Homes Texas, Ltd.) under any Development Agreement
which is not cured within any applicable grace or cure period.
(y) failure of the Borrower, within ten (10) days after receipt
thereof, to apply any proceeds received by the Borrower from any
Development Agreement (other than proceeds representing payments or
reimbursements of amounts under Utility Agreements) towards repayment of
the Debt in accordance with the terms of this Agreement.
(z) a default by Guarantor under the Guaranty or the Pledge
Agreement, if the Guarantor has delivered the Escrow Deposit to Lender in
lieu of the Letter of Credit.
(aa) if Borrower has delivered a Letter of Credit to Lender, the
Letter of Credit expires and Borrower fails to deliver to Lender on or
before the date of expiration a replacement Letter of Credit or Escrow
Deposit to replace such Letter of Credit, in accordance with the terms and
conditions set forth in this Agreement.
(bb) in addition, except as specifically provided for in the Loan
Documents or unless the Lender shall otherwise give its prior written
consent, if the Borrower does any of the following, then (without limiting
any other provisions of this Agreement) it will constitute an Event of
Default under this Agreement:
(1) except as provided in any approved Utility Agreement or in
any approved Off-Site Agreement, convey, transfer, lease or
encumber any of the Premises or any right to manage any of
the Premises or to receive any rents, profits, sales
proceeds or any insurance thereof;
(2) demolish any part of the Premises (except only to the
extent, if any, necessary to correct defective work);
(3) liquidate, terminate, consolidate, merge or dissolve;
(4) except to the extent permitted by the Deed of Trust, convey,
transfer, assign or pledge or permit a conveyance, transfer,
assignment or pledge of, a majority or otherwise controlling
interest in the Borrower or a Partner of the Borrower in a
single transaction or a series of transactions;
(5) cause or permit any Hazardous Substances (as defined in the
Environmental Indemnity Agreement between Borrower and
Lender) to be placed, held, used, located or disposed of on,
under or at any of the Premises or any part thereof by any
Person, in violation of any applicable Legal Requirements or
cause or permit any part of any of the Premises to be used
as a manufacturing, storage or dump site for Hazardous
Substances, or cause or suffer any liens to be recorded
against any of the Premises as a consequence of, or in any
way related to, the presence, remediation or disposal of
Hazardous Substances in or about any of the Premises,
including any so-called state, federal or local "Superfund"
lien relating to such matters;
(6) incur any Indebtedness in excess of $50,000.00 that is not
contemplated to be paid with Loan proceeds in accordance
with the Approved Budget;
(7) create or suffer to be created any lien, encumbrance,
easement, use or charge affecting any of the Premises except
for liens, encumbrances or easements approved in writing by
the Lender;
(8) modify or amend its Organizational Agreement;
(9) modify or amend the Development Plan in any material
respect; or
(10) the Borrower shall conceal, remove, or permit to be
concealed or removed, any part of Borrower's property, with
intent to hinder, delay or defraud any of Borrower's
creditors, or make or suffer a transfer of any of Borrower's
property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or shall make any
transfer of Borrower's property to or for the benefit of a
creditor at a time when other creditors similarly situated
have not been paid; or shall suffer or permit, while
insolvent, any creditor to obtain a lien upon any of
Borrower's property through legal proceedings or distraint
which is not vacated within thirty (30) days from the date
thereof.
Notwithstanding anything to the contrary contained in this Section 6.1,
with regard to non-monetary Defaults only (i.e., Defaults which cannot be
cured by payment of a liquidated sum of money to the Lender) where no other
cure period has been specified herein, if the Borrower shall fail to cure
any such non-monetary Default to the Lender's satisfaction within thirty
(30) days after written notice of such non-monetary Default from the Lender
or its agent to the Borrower, then such non-monetary Default shall
constitute an Event of Default under this Agreement.
Section 6.2 Substitute Contractor. Notwithstanding anything to the
contrary as set forth in Section 6.1 of this Agreement, the Lender shall
not accelerate the Debt or foreclose its liens solely by reason of the
occurrence of any event described therein with respect to a Contractor so
long as the Borrower substitutes an alternative Contractor reasonably
satisfactory to the Lender within forty-five (45) days after the occurrence
of the Default.
Section 6.3 Remedies for Default. At any time after the occurrence of
any Event of Default which has not been waived by the Lender in writing or
cured to the Lender's satisfaction, the Lender shall have the right, at its
option:
(a) to declare the unpaid balance of the Debt (including all
principal on the Note and all interest then accrued thereon) immediately
due and payable and thereupon the Debt (and all amounts outstanding under
the Note) shall be immediately due and payable without notice (including
but not limited to notice of acceleration and notice of intent to
accelerate), protest or demand or presentment for payment, all of which are
hereby expressly waived by the Borrower;
(b) to enter the Premises and take over the construction of the
Improvements and the Off-site Improvements, and manage the Premises;
(c) to exercise any rights which the Borrower may have under each and
every Construction Contract, Development Agreement and any other contract
or agreement under which the Borrower has rights which are, or are intended
to be, the subject of a security interest in favor of the Lender to secure
the Debt;
(d) to enforce or avail itself of any and all remedies provided in
any of the Loan Documents, including but not limited to foreclosure of all
the liens and security interests securing the Debt; and
(e) present the Letter of Credit for payment and apply the proceeds
thereof to the Debt outstanding under the Loan Documents or, in the
alternative, offset the funds in the Escrow Account to the Debt then
outstanding under the Loan Documents.
Section 6.4 Commitments Lapse. In addition to the rights and remedies
of the Lender set forth in this Agreement, upon the occurrence of any
Default, the commitment of the Lender (if then outstanding) to make
advances against the Note or otherwise, shall cease until the Lender shall
declare that all such Defaults have been cured to the satisfaction of the
Lender, or until the Lender shall have waived same; but the Lender may, at
its option, continue or at any time commence making one or more advances
and in any case all advances by the Lender shall be deemed to have been
made pursuant to commitment (as such term is used and defined in the
Uniform Commercial Code as enacted and in force in the State of Texas) and
pursuant to this Agreement.
Section 6.5 Lender's Options Regarding Contractors. If the Lender shall
exercise the option to take over the construction of the Improvements, the
Lender shall be authorized, at its option, to discontinue the services of
any Contractor and to employ one or more contractors of its choice to
perform the necessary work, and the Lender shall have no liability or
responsibility to the Borrower or any other Person with respect thereto so
long as the Lender exercises good faith in the selection of such contractor
or contractors.
Section 6.6 Lender's Options Regarding Developers and Managers. If the
Lender shall exercise its option to take over management of the Premises,
the Lender shall be authorized, at its option, to discontinue the services
of any developer, manager or other Person employed with respect to the
Improvements and to employ one or more independent managers, developers or
both to manage and/or develop the Premises and the Lender shall have no
liability or responsibility to the Borrower or any other Person with
respect to its or their management of the Premises so long as the Lender
exercises good faith in the selection of such independent developer or
developers, manager or managers.
Section 6.7 Costs Paid are Sums Lent. All costs and expenses incurred
by the Lender in taking over construction of the Improvements, managing the
Premises and/or developing the Premises shall, as paid, be deemed to be an
advance of Loan proceeds against the Note or at the option of the Lender
(notwithstanding any contrary provision of Section 2.1 or 2.2 of this
Agreement), shall constitute indebtedness of the Borrower to the Lender
payable on demand, bearing interest at the Past Due Rate from the date paid
by the Lender. All such demand indebtedness shall constitute a part of the
Debt and shall be secured by all liens and security interests of the Loan
Documents.
Section 6.8 Rights and Remedies Cumulative. All powers, rights and
remedies of the Lender set forth in this Article VI shall be cumulative and
not exclusive of any other power, right or remedy available to the Lender
under this Agreement, the other Loan Documents or law to enforce the
performance or observance of the covenants and agreements contained in this
Agreement and the other Loan Documents, and no delay or omission of the
Lender to exercise any power, right or remedy accruing to the Lender shall
impair any such power, right or remedy, or shall be construed to be a
waiver of the right to exercise any such power, right or remedy. Every
power, right and remedy of the Lender set forth in this Agreement, the
other Loan Documents or afforded by law may be exercised from time to time,
and as often as may be deemed expedient, by the Lender.
Section 6.9 Termination of this Loan Agreement. This Agreement shall
not terminate until payment of the Debt in full and full performance of the
Borrower's obligations hereunder.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Documentation Requirements; Sufficiency of Consents and
Approvals. Each written instrument and Loan Document required by this
Agreement or any of the other Loan Documents to be furnished to the Lender
shall be duly executed by the Person or Persons specified (or where no
particular Person is specified, by such Person as the Lender shall
require), duly acknowledged where required by the Lender and, in the case
of affidavits and similar sworn instruments, duly sworn to and subscribed
before a notary public duly authorized to act in the premises by
Governmental Authority; shall be furnished to the Lender in one or more
copies as required by the Lender; and shall in all respects be in form and
substance satisfactory to the Lender and to its legal counsel. All title
policies, surveys, appraisals, maps, development plans and other evidence,
information or documentation required by the Lender shall be in form and
substance satisfactory to the Lender and its legal counsel in all respects.
Section 7.2 Usury Savings Clause. Notwithstanding any provision to the
contrary contained in this Agreement or in any of the other Loan Documents,
it is expressly provided that in no case or event shall the aggregate of
(i) all interest on the unpaid balance of the Note, accrued or paid from
the date hereof and (ii) the aggregate of any other amounts accrued or paid
pursuant to the Note, the Deed of Trust or any of the other Loan Documents,
which under applicable laws are or may be deemed to constitute interest
upon the Debt from the date hereof, ever exceed the maximum rate of
interest which could lawfully be contracted for, charged or received on the
unpaid principal balance of the Debt. In this connection, it is expressly
stipulated and agreed that it is the intent of the Borrower and the Lender
to contract in strict compliance with the applicable usury laws of the
State of Texas and of the United States (whichever permit the higher rate
of interest) from time to time in effect. In furtherance thereof, none of
the terms of this Agreement, the Note, the Deed of Trust or any of the
other Loan Documents shall ever be construed to create a contract to pay,
as consideration for the use, forbearance or detention of money, interest
at a rate in excess of the Highest Lawful Rate. The Borrower or other
Persons now or hereafter becoming liable for payment of the Debt shall
never be liable for interest in excess of the Highest Lawful Rate. If
under any circumstances the aggregate amounts paid on the Debt include
amounts which by law are deemed interest which would exceed the Highest
Lawful Rate, the Borrower stipulates that such amounts will be deemed to
have been paid as a result of an error on the part of both the Borrower and
the Lender and the Person receiving such excess payment shall promptly,
upon discovery of such error or upon notice thereof from the Person making
such payment, refund the amount of such excess or at the Lender's option,
credit such excess against the unpaid principal balance of the Debt. In
addition, all sums paid or agreed to be paid to the holder or holders of
the Debt for the use, forbearance, or detention of the Debt shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of the Debt. The provisions of this
Section shall control all agreements, whether now or hereafter existing and
whether written or oral, between the Borrower and the Lender.
Section 7.3 Rights and Remedies Cumulative; Loan Agreement Controls.
The benefits, rights and remedies of the Lender and the security contained
herein or provided for in any of the other Loan Documents are cumulative;
provided, however, that to the extent of any conflict between any provision
of this Agreement and any provision contained in any of the other Loan
Documents, the provisions of this Agreement shall control.
Section 7.4 Unlawful Provisions. If any one or more of the provisions
of this Agreement or any of the other Loan Documents is declared or
adjudged by any Governmental Authority to be unenforceable or unlawful,
then each such unenforceable or unlawful provision shall be deemed excised
herefrom or therefrom and the remainder of the Loan Document so affected,
together with all rights and remedies granted thereby, shall continue and
remain in full force and effect.
Section 7.5 Survival, Republication and Binding Effect of Covenants,
Representations and Warranties. All covenants, agreements, representations
and warranties made by the Borrower or any Guarantor in this Agreement, the
Note, the Deed of Trust and the other Loan Documents, and in any
certificates or other documents or instruments delivered pursuant to this
Agreement or any of the other Loan Documents shall survive the execution
and delivery of this Agreement and the other Loan Documents and any
advances of Loan proceeds made by the Lender pursuant to this Agreement or
any of the other Loan Documents, and shall continue in full force and
effect until the Debt is paid in full. Further, each Request for Advance
shall constitute an affirmation that the representations and warranties
contained in this Agreement are true and correct as of the date such
Request for Advance is submitted to the Lender. All such covenants,
agreements, representations and warranties shall be binding upon any
successors and assigns of the Borrower.
Section 7.6 Notices. Any notice, request or other communication
required or permitted to be given hereunder shall be given in writing by
hand delivery or by depositing the same in the United States Mail, postage
prepaid, certified or registered mail, addressed to the respective parties
as follows:
If to the Borrower:
Oly Walden General Partnership
c/o Stratus Management, L.L.C.
98 San Jacinto Boulevard, Suite 220
Austin, Texas 78701
Attention: William H. Armstrong, III
With required copy to:
Ken Jones, Esq.
Armbrust, Brown & Davis
100 Congress Avenue
Suite 1350
Austin, Texas 78701
Oly/Houston Walden, L.P.
100 Crescent Court
Suite 1625
Dallas, Texas 75201
Attention: Timothy Smith
If to the Lender:
Bank One, Texas, National Association
1700 Pacific Avenue, Suite 2100
Dallas, Texas 75201
Attention: Dale Renner
or such other address as such party shall direct in writing sent in
accordance herewith and actually received by the other party hereto at
least thirty (30) days in advance of the date upon which such change of
address is to become effective. All notices and other communications shall
be deemed to have been effectively given when either delivered to such
address or on the date deposited in the United States Mail.
Section 7.7 Changes Requirement. This Agreement shall not be changed
orally but shall be changed only by agreement in writing signed by all
parties hereto.
Section 7.8 Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which when so executed and delivered
shall be an original, but such counterparts shall together constitute one
and the same instrument.
Section 7.9 Venue. Dallas County, Texas shall be a proper place of
venue to enforce payment or performance of this Agreement, the Note, the
Deed of Trust and the other Loan Documents, unless the Lender shall give
its prior written consent to a different venue. Moreover, the Borrower
hereby irrevocably agrees that any legal proceeding against the Lender
arising out of or in connection with this Agreement or the other Loan
Documents shall be brought in the district courts of Dallas County, Texas,
or the United States District Court for the Northern District of Texas,
Dallas Division.
Section 7.10 No Third Party Beneficiaries. It is expressly
understood and agreed that this Agreement and the other Loan Documents are
made and entered into for the sole protection and benefit of the Lender and
the Borrower and their respective successors and assigns (but in the case
of assigns of the Borrower, only with the prior express written consent of
the Lender) and, without the prior express written consent of the parties
hereto, no Person shall have any right to action hereon or rights to the
Loan proceeds at any time; the Loan proceeds do not constitute trust funds
for the benefit of any third party; and that no such third party shall
under any circumstances have or be entitled to a lien, equitable or
otherwise, or the impression of any trust on any undisbursed Loan proceeds.
Section 7.11 Number, Order and Captions Immaterial. The numbering,
order and captions or headings of the several articles, sections and
paragraphs of this Agreement, the Note, the Deed of Trust and the other
Loan Documents are for convenience of reference only and shall not be
considered in construing such instruments.
Section 7.12 Successors and Assigns. This Agreement and the rights,
obligations and benefits hereunder shall be binding upon and inure to the
parties hereto, their respective heirs, personal representatives,
successors and assigns; provided, however, notwithstanding anything
contained herein to the contrary, (i) the Borrower shall not be entitled to
assign its rights hereunder without the prior express written consent of
the Lender and (ii) Borrower shall not be required to pay any costs or
expenses of Lender in connection with any assignment by Lender of any of
its interest in the Loan or this Agreement.
Section 7.13 Choice of Law. This Agreement, the Note, the Deed of
Trust and the other Loan Documents have been negotiated, executed and
delivered in the State of Texas and shall be governed by the laws of the
State of Texas, including all applicable federal law, from time to time in
force in Texas.
Section 7.14 No Partnership or Agency Intended. Nothing in this
Agreement or the other Loan Documents is intended or shall in any way be
construed so as to create any form of partnership or agency relationship
between the Borrower and the Lender, the parties hereto having expressly
disclaimed any intention of any kind to create any partnership or agency
relationship between them.
Section 7.15 No Waiver. No failure to exercise and no delay on the
part of the Lender in exercising any power or right in connection herewith
or under any of the other Loan Documents shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No course of dealing between the Lender and the Borrower,
any Development-Related Entity or any other Person shall operate as a
waiver of any right of the Lender. No modification or waiver of any
provision of this Agreement or any other Loan Documents nor any consent to
any departure therefrom shall in any event be effective unless the same
shall be in writing and signed by the person against whom enforcement
thereof is to be sought, and then such waiver or consent shall be effective
only in the specific instance and for the purpose for which given.
Section 7.16 Entire Agreement. This Agreement embodies the entire
agreement and understanding between the Borrower and the Lender relating to
the subject matter hereof and supersedes all prior proposals, negotiations,
agreements and understandings relating to such subject matter. The
Borrower certifies that it is relying on no representation, warranty,
covenant or agreement except for those set forth in this Agreement and the
other Loan Documents of even date herewith. All written or oral
representations made by the Borrower to the Lender respecting the subject
matter hereof shall survive the execution of this Agreement.
Section 7.17 Set-Off. The Borrower hereby gives and confirms to the
Lender, after the occurrence of any Event of Default, a right of set-off of
all moneys, securities and other property of the Borrower (whether special,
general or limited) and the proceeds thereof, now or hereafter delivered to
remain with or in transit in any manner to the Lender, its correspondents
or its agents from or for the Borrower, whether for safekeeping, custody,
pledge, transmission, collection or otherwise or coming into possession of
the Lender in any way, and also, any balance of any deposit accounts and
credits of the Borrower with, and any and all claims of security for the
payment of the Note and of all other liabilities and obligations now or
hereafter owed by the Borrower to the Lender, contracted with or acquired
by the Lender, whether joint, several, absolute, contingent, secured,
unsecured, matured or unmatured, hereby authorizing the Lender at any time
or times, after the occurrence of an Event of Default, to apply such
balances, credits of claims or any part thereof, to such liabilities in
such amounts as it may select, whether contingent, unmatured or otherwise,
and whether any collateral security therefor is deemed adequate or not.
The rights described herein shall be in addition to any collateral security
described in any separate agreement executed by the Borrower. This
provision shall not imply any obligation of the Borrower to maintain any
deposit balances with the Lender.
Section 7.18 Sale or Assignment. The Lender reserves the right, in
its sole discretion, without notice to the Borrower, to sell participations
or assign its interest, or both, in all or any part of any Loan, the Notes
or any commitment evidenced by this Agreement or the other Loan Documents;
provided that Borrower shall not be required to pay any costs or expenses
of Lender in connection with any such assignment or participation.
Section 7.19 Commitment. The Lender has no commitment to lend sums
to the Borrower other than as specifically set forth herein.
Section 7.20 JURY WAIVER. THE BORROWER AND LENDER HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE PARTIES HERETO ARISING
OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS
OR ANY RELATIONSHIP BETWEEN BORROWER AND LENDER. THIS PROVISION IS A
MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE LOAN DESCRIBED HEREIN OR IN
THE OTHER LOAN DOCUMENTS.
Section 7.21 Arbitration. Lender and Borrower agree that upon the
written demand of either party. whether made before or after the
institution of any legal proceedings, but prior to the rendering of any
judgment in that proceeding, all disputes, claims, and controversies
between them, whether individual, joint, or class in nature, arising from
this Agreement, any other Loan Document, or otherwise, including, without
limitation, contract disputes and tort claims, shall be resolved by binding
arbitration pursuant to the Commercial Rules of the American Arbitration
Association (the "AAA"). Any arbitration proceeding held pursuant to this
arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by
mutual agreement of the parties. No act to take or dispose of any
collateral, whether real or personal, covered by the Deed of Trust or any
other Loan Document ("Collateral") shall constitute a waiver of this
arbitration provision or be prohibited by this arbitration provision. This
arbitration provision shall not limit the right of either party during any
dispute, claim, or controversy to seek, use, and employ ancillary or
preliminary rights and/or remedies, judicial or otherwise, for the purposes
of realizing upon, preserving, protecting, foreclosing upon, or proceeding
under forcible entry and detainer for possession of, any real or personal
property (including the Collateral) and any such action shall not be deemed
an election of remedies. Such remedies include, without limitation,
obtaining injunctive relief or a temporary restraining order, invoking a
power of sale under the Deed of Trust or any other deed of trust or
mortgage, obtaining a writ of attachment or imposition of a receivership,
or exercising any rights relating to personal property, including
exercising the right of set-off, or taking or disposing of such property
with or without judicial process pursuant to Article 9 of the Uniform
Commercial Code. Any disputes, claims or controversies concerning the
lawfulness or reasonableness of an act, or exercise of any right or remedy
concerning the lawfulness or reasonableness of an act, or exercise of any
right or remedy concerning any Collateral, including any claim to rescind,
reform, or otherwise modify any agreement relating to such Collateral,
including any claim to rescind, reform, or otherwise modify any agreement
relating to such Collateral, shall also be arbitrated; provided, however,
that no arbitrator shall have the right or the power to enjoin or restrain
any act of either party. Judgment upon any award rendered by an arbitrator
may be entered in any court having jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of any action for these
purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
Section 7.22 Limitation of Liability. Reference is herein made to
Paragraph 21 of the Note limiting the liability of the Lower Tier Borrower
Parties (as defined in the Note), which provision is incorporated herein
for all purposes.
ARTICLE VIII
YEAR 2000 PROVISIONS
Section 8.1 Representations and Warranties Regarding Year 2000
Compliance. Borrower represents and warrants to Lender that as of the date
of this Agreement and any request for an Advance under this Agreement:
(a) All devices, systems, machinery, information technology,
computer software and hardware, and other data sensitive technology
(jointly and severally, the "Systems" necessary for Borrower to carry
on its business as presently conducted and as contemplated to be
conducted in the future are Year 2000 Compliant or will be Year 2000
Compliant within a period of time calculated to result in no material
disruption of any of Borrower's business operations. For purposes of
this Agreement, "Year 2000 Compliant" means that such Systems are
designed to be used prior to, during and after the Gregorian calendar
year 2000 A.D. and will operate during each such time period without
error relating to date data, specifically including any error relating
to, or the product of, date data which represents or references
different centuries or more than one century.
(b) In the event Borrower is not yet Year 2000 compliant,
Borrower has developed a detailed plan and time line for becoming
Year 2000 Compliant on a timely basis.
Section 8.2 Covenants Regarding Year 2000 Compliance. Borrower
covenants and agrees with Lender that, while any portion of the Loan is
outstanding, Borrower will:
(a) Furnish such information, statements and other reports with
respect to Borrower's activities, course of action and progress
towards becoming Year 2000 Compliant as Lender may reasonably request
from time to time.
(b) In the event of any change in circumstances that causes or
will likely cause any of Borrower's representations and warranties
with respect to its being or becoming Year 2000 Compliant to no longer
be true (hereinafter, referred to as a "Change in Circumstances"),
then Borrower shall promptly, and in any event within ten (10) days of
receipt of information regarding a Change in Circumstances, provide
Lender with written notice (the "Notice") that describes in reasonable
detail the Change in Circumstances and how such Change in
Circumstances caused or will likely cause Borrower's representations
and warranties with respect to being or becoming Year 2000 Compliant
to no longer be true. Borrower shall, within ten (10) days of a
request, also provide Lender with any additional information Lender
reasonably requests of Borrower in connection with the Notice and/or a
Change in Circumstances.
(c) give any representative of Lender access during all business
hours to, and permit such representative to examine, copy or make
excerpts from, any and all books, records and documents in the
possession of Borrower and relating to its affairs, and to inspect any
of the properties and Systems of Borrower, and to project test the
Systems to determine if they are Year 2000 Compliant in an integrated
environment, all at the sole cost and expense of Lender.
ARTICLE IX
PARTIAL RELEASES
Section 9.1 Partial Releases. Borrower shall be entitled to obtain
partial releases of the Developed Lots (but not the Undeveloped Land) from
the lien and security interest of the Deed of Trust upon and subject to the
following terms and conditions:
(1) No Event of Default or event which, with the passage of time or
the giving of notice, or both, would constitute an Event of
Default shall have occurred which has not been waived by Lender
or cured to the satisfaction of Lender;
(2) The Developed Lot which is the subject of the partial release
shall be sold pursuant to a Sales Contract approved by Lender,
and Lender shall have received a payment equal to the Net Sales
Proceeds received by or payable to Borrower from such sale of the
Developed Lot.
(3) Lender shall have received all such endorsements to the Title
Insurance Policy which Lender deems reasonably necessary or
appropriate as a result of such partial release, including
without limitation, a partial release endorsement; and
(4) Lender shall have been furnished with a legal description of the
Developed Lot to be released, together with a survey or recorded
plat covering the Developed Lot and delineating the portion of
the Land to be released, in form and substance reasonably
satisfactory to Lender.
(5) Borrower shall be permitted to obtain releases of up to a total
of five (5) Lake Lots during the term of the Loan without the
payment of any release price to Lender as provided in subsection
(b) above, subject, however, to the satisfaction of all other
conditions set forth in this Section 9.1, and provided that such
partial release is in connection with the sale by Borrower of the
Lake Lot in questiion to a home builder for the construction of a
single family residence thereon (provided, further, that Borrower
shall nott be required to obtain Lender's consent to the terms of
any sales contract with such home builder).
Borrower shall pay all costs and expenses of preparation and recordation of
each such partial release, as well as the cost of each endorsement to the
Title Insurance Policy which Lender deems necessary or appropriate as a
result of any such partial release, all of such expenses to be included in
the computation of Net Sales Proceeds.
Section 9.2 Minimum Semi-annual Amortization. From and after the date
of this Agreement, Borrower shall make total payments to Lender from the
sale of Developed Lots or other sources of not less than $1,250,000 (the
"Minimum Semi-annual Amortization") during each six month period ending on
September 30 and March 31 during the term of the Loan (each such six month
period is herein called a "Semi-annual Period"), which payments shall be
applied by Lender against the principal outstanding under the Note. In the
event that the Net Sales Proceeds paid to Lender for any Semi-annual Period
are less than the Minimum Semi-annual Amortization, Borrower shall pay to
Lender as a prepayment of principal under the Note such amount as is
necessary so that Borrower has paid to Lender the Minimum Semi-annual
Amortization for such Semi-annual Period. The first Minimum Semi-annual
Amortization shall occur no later than March 31, 1999, and the Minimum
Semi-annual Amortization shall occur by each September 30 and March 31
thereafter until such time as the Debt is repaid in full. In the event the
total principal payments made to Lender during any Semi-annual Period
exceed the Minimum Semi-annual Amortization for such Semi-annual Period
(the amount of such excess principal being herein called the "Excess
Principal Amortization") then such Excess of such Principal Amortization
shall be applied to the next Semi-annual Period and any subsequent
Semi-annual Periods until Borrower has received full credit for the Excess
Principal Amortization (i.e., Borrower shall receive credit for the Excess
Principal Amortization against the Minimum Semi-annual Amortization
required for the next Semi-annual Period).
Section 9.3 Reductions of Letter of Credit or Escrow Deposit. Guarantor
may qualify for reductions in the amount of the Letter of Credit or the
Escrow Deposit, as the case may be at the end of each calendar month as
hereinafter provided. At the end of each calendar month, the outstanding
balance of the Letter of Credit or the Escrow Deposit (the "Required
Deposit") shall be in an amount not less than the product of (A) thirty
percent (30%), multiplied by (B) the committed balance of the Loan (i.e.,
the stated principal of the Loan reduced by the total of all principal
payments made by Borrower under the Loan). At the end of each calendar
month, provided that no Event of Default is then existing under this
Agreement or any other Loan Document, Guarantor may obtain a replacement
Letter of Credit (which shall contain the same terms and conditions as the
original Letter of Credit except for the reduction in the face amount
thereof) or a release of funds from the Escrow Deposit with Lender, as the
case may be, in the amount necessary to reduce the face amount of the
Letter of Credit or the balance of the Escrow Deposit with Lender to the
amount of the then Required Deposit.
THIS AGREEMENT AND THE LOAN DOCUMENTS CONSTITUTE A WRITTEN LOAN
AGREEMENT AND REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS
OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
BORROWER:
OLY WALDEN GENERAL PARTNERSHIP, a Texas general partnership
By: Stratus Ventures I Walden, L.P., a Texas limited
partnership, its General Partner
By: STRS L.L.C., a Delaware limited liability company, its
General Partner
By: Stratus Properties Inc., a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
----------------------------
William H. Armstrong III
President and Chief Executive Officer
LENDER:
BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association
By:/s/ Douglas M. Ness
----------------------
Name:Douglas M. Ness
Title:Assitant Vice President
EXHIBITS:
Exhibit A - Approved Budget
Exhibit B - Land
Exhibit C - Request for Advance
Exhibit D - Application and Certificate for Payment
Exhibit 10.17
GUARANTY
THIS GUARANTY ("Guaranty") is made as of the 30th day of September,
1998, by Guarantor (as hereinafter defined) for the benefit of Bank (as
hereinafter defined).
1. Definitions. As used in this Guaranty, the following terms shall
have the meanings indicated below:
(a) The term "Bank" shall mean BANK ONE, TEXAS, NATIONAL
ASSOCIATION, whose address for notice purposes is the following:
Bank One, Texas, National Association
1700 Pacific Avenue, Suite 2100
Dallas, Dallas County, Texas 75201
Attn: Dale Renner, Commercial Real Estate
(b) The term "Borrower" (whether one or more) shall mean the
following: OLY WALDEN GENERAL PARTNERSHIP, a Texas general
partnership.
(c) The term "Guaranteed Indebtedness" shall mean (i) all
indebtedness, obligations and liabilities of Borrower to Bank of any
kind or character, now existing or hereafter arising, under or in
connection with the loan made by Bank to Borrower pursuant to that
Development Loan Agreement dated as of September 30, 1998 between
Borrower and Bank (the "Loan Agreement"), evidencing a loan in the
original principal amount of $8,160,000 (the "Loan"), (ii) all accrued
but unpaid interest on any of the indebtedness described in (i) above,
(iii) all obligations of Borrower to Bank under any documents
evidencing, securing, governing and/or pertaining to all or any part
of the indebtedness described in (i) and (ii) above (collectively, the
"Loan Documents"), (iv) all costs and expenses incurred by Bank in
connection with the collection and administration of all or any part
of the indebtedness and obligations described in (i), (ii) and (iii)
above or the protection or preservation of, or realization upon, the
collateral securing all or any part of such indebtedness and
obligations, including without limitation all reasonable attorneys'
fees, and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i),
(ii), (iii) and (iv) above.
(d) The term "Guarantor" shall mean STRS GUARANTY COMPANY,
L.L.C., a Delaware limited liability company, whose address for notice
purposes is the following:
STRS Guaranty Company, L.L.C.
98 San Jacinto Blvd., Suite 220
Austin, Texas 78701
2. Obligations. As an inducement to Bank to extend or continue to
extend credit and other financial accommodations to Borrower, Guarantor,
for value received, does hereby unconditionally and absolutely guarantee
the prompt and full payment and performance of the Guaranteed Indebtedness
when due or declared to be due and at all times thereafter.
Notwithstanding the foregoing or anything to the contrary contained in this
Guaranty or the Pledge Agreement of even date herewith executed by
Guarantor in favor of Bank (the "Pledge Agreement"), (i) Guarantor's
liability for the Guaranteed Indebtedness shall not exceed the sum of (A)
the Required Deposit (as defined in the Loan Agreement) which Guarantor is
required to have pledged to Bank, plus (B) all reasonable attorneys' fees
and expenses incurred by Bank in connection with the enforcement of this
Guaranty and the Pledge Agreement against Guarantor and (ii) Bank's
recourse against Guarantor for Guarantor's obligations under this Guaranty
and the Pledge Agreement shall be limited to the Required Deposit (provided
Guarantor has delivered the Required Deposit to Bank in accordance with the
terms and provisions of the Loan Agreement).
3. Character of Obligations. This is an absolute, continuing and
unconditional guaranty of payment and not of collection and if at any time
or from time to time there is no outstanding Guaranteed Indebtedness, the
obligations of Guarantor with respect to any and all Guaranteed
Indebtedness incurred thereafter shall not be affected. All Guaranteed
Indebtedness heretofore, concurrently herewith or hereafter made by Bank to
Borrower shall be conclusively presumed to have been made or acquired in
acceptance hereof. Guarantor shall be liable, jointly and severally, with
Borrower and any other guarantor of all or any part of the Guaranteed
Indebtedness.
4. Right of Revocation. Guarantor understands and agrees that
Guarantor may revoke its future obligations under this Guaranty at any time
by giving Bank written notice that Guarantor will not be liable hereunder
for any indebtedness or obligations of Borrower incurred on or after the
effective date of such revocation. Such revocation shall be deemed to be
effective on the day following the day Bank receives such notice delivered
either by: (a) personal delivery to the address and designated department
of Bank identified in subparagraph 1(a) above, or (b) United States mail,
registered or certified, return receipt requested, postage prepaid,
addressed to Bank at the address shown in subparagraph 1(a) above.
Notwithstanding such revocation, Guarantor shall remain liable on its
obligations hereunder until payment in full to Bank of (x) all of the
Guaranteed Indebtedness that is outstanding on the effective date of such
revocation, and any renewals and extensions thereof, and (y) all loans,
advances and other extensions of credit made to or for the account of
Borrower on or after the effective date of such revocation pursuant to the
obligation of Bank under a commitment or agreement made to or with Borrower
prior to the effective date of such revocation. The terms and conditions
of this Guaranty, including without limitation the consents and waivers set
forth in paragraph 7 hereof, shall remain in effect with respect to the
Guaranteed Indebtedness described in the preceding sentence in the same
manner as if such revocation had not been made by Guarantor.
5. Representations and Warranties. Guarantor hereby represents and
warrants the following to Bank:
(a) This Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor, and the members of Guarantor have
determined that this Guaranty may reasonably be expected to benefit,
directly or indirectly, Guarantor; and
(b) Guarantor is familiar with, and has independently reviewed
the books and records regarding, the financial condition of Borrower
and is familiar with the value of any and all collateral intended to
be security for the payment of all or any part of the Guaranteed
Indebtedness; provided, however, Guarantor is not relying on such
financial condition or collateral as an inducement to enter into this
Guaranty; and
(c) Guarantor has adequate means to obtain from Borrower on a
continuing basis information concerning the financial condition of
Borrower and Guarantor is not relying on Bank to provide such
information to Guarantor either now or in the future; and
(d) Guarantor has the power and authority to execute, deliver
and perform this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith, and the execution, delivery and
performance of this Guaranty and any other agreements executed by
Guarantor contemporaneously herewith do not and will not violate
(i) any agreement or instrument to which Guarantor is a party,
(ii) any law, rule, regulation or order of any governmental authority
to which Guarantor is subject, or (iii) its articles or certificate of
incorporation or bylaws, if Guarantor is a corporation, or its
partnership agreement, if Guarantor is a partnership; and
(e) Neither Bank nor any other party has made any
representation, warranty or statement to Guarantor in order to induce
Guarantor to execute this Guaranty; and
(f) The financial statements and other financial information
regarding Guarantor heretofore and hereafter delivered to Bank, if
any, are and shall be true and correct in all material respects and
fairly present the financial position of Guarantor as of the dates
thereof, and no material adverse change has occurred in the financial
condition of Guarantor reflected in the financial statements and other
financial information regarding Guarantor heretofore delivered to Bank
since the date of the last statement thereof; and
(g) As of the date hereof, and after giving effect to this
Guaranty and the obligations evidenced hereby, (i) Guarantor is and
will be solvent, (ii) Guarantor is and will continue to be able to pay
its debts as they mature, and (iii) if Guarantor is not an individual,
Guarantor has and will continue to have sufficient capital to carry on
its business and all businesses in which it is about to engage.
6. Covenants. Guarantor hereby covenants and agrees with Bank as
follows:
(a) Guarantor shall not, so long as its obligations under this
Guaranty continue, transfer or pledge any material portion of its
assets for less than full and adequate consideration; and
(b) Guarantor shall comply with all terms and provisions of the
Loan Documents that apply to Guarantor; and
(c) Guarantor shall promptly inform Bank of (i) any litigation
or governmental investigation against Guarantor or affecting any
security for all or any part of the Guaranteed Indebtedness or this
Guaranty which, if determined adversely, might have a material adverse
effect upon the financial condition of Guarantor or upon such security
or might cause a default under any of the Loan Documents, (ii) any
claim or controversy which might become the subject of such litigation
or governmental investigation, and (iii) any material adverse change
in the financial condition of Guarantor.
7. Consent and Waiver.
(a) Guarantor waives (i) promptness, diligence and notice of
acceptance of this Guaranty and notice of the incurring of any
obligation, indebtedness or liability to which this Guaranty applies
or may apply and waives presentment for payment, notice of nonpayment,
protest, demand, notice of protest, notice of intent to accelerate,
notice of acceleration, notice of dishonor, diligence in enforcement
and indulgences of every kind, and (ii) the taking of any other action
by Bank, including without limitation, giving any notice of default or
any other notice to, or making any demand on, Borrower, any other
guarantor of all or any part of the Guaranteed Indebtedness or any
other party.
(b) Guarantor waives any rights Guarantor has under, or any
requirements imposed by, Chapter 34 of the Texas Business and Commerce
Code, as in effect on the date of this Guaranty or as it may be
amended from time to time.
(c) Bank may at any time, without the consent of or notice to
Guarantor, without incurring responsibility to Guarantor and without
impairing, releasing, reducing or affecting the obligations of
Guarantor hereunder: (i) change the manner, place or terms of payment
of all or any part of the Guaranteed Indebtedness, or renew, extend,
modify, rearrange or alter all or any part of the Guaranteed
Indebtedness; (ii) change the interest rate accruing on any of the
Guaranteed Indebtedness (including, without limitation, any periodic
change in such interest rate that occurs because such Guaranteed
Indebtedness accrues interest at a variable rate which may fluctuate
from time to time); (iii) sell, exchange, release, surrender,
subordinate, realize upon or otherwise deal with in any manner and in
any order any collateral for all or any part of the Guaranteed
Indebtedness or this Guaranty or setoff against all or any part of the
Guaranteed Indebtedness, except that Bank will not exercise any
remedies with respect to the collateral pledged by Guarantor under the
Pledge Agreement except upon the occurrence of a default by Borrower
under any of the Loan Documents evidencing, securing and/or relating
to the Loan, except that Bank may present a Letter of Credit (as
defined in the Loan Agreement) as provided in the Loan Agreement in
the event Guarantor fails to deliver to Bank a renewal or replacement
Letter of Credit with respect to an existing Letter of Credit on or
before the date which is 30 days prior to the expiration date thereof;
(iv) neglect, delay, omit, fail or refuse to take or prosecute any
action for the collection of all or any part of the Guaranteed
Indebtedness or this Guaranty or to take or prosecute any action in
connection with any of the Loan Documents; (v) exercise or refrain
from exercising any rights against Borrower or others, or otherwise
act or refrain from acting; (vi) settle or compromise all or any part
of the Guaranteed Indebtedness and subordinate the payment of all or
any part of the Guaranteed Indebtedness to the payment of any
obligations, indebtedness or liabilities which may be due or become
due to Bank or others; (vii) apply any deposit balance, fund, payment,
collections through process of law or otherwise or other collateral of
Borrower to the satisfaction and liquidation of the indebtedness or
obligations of Borrower to Bank, if any, not guaranteed under this
Guaranty pursuant to the terms hereof; and (viii) apply any sums paid
to Bank by Guarantor, Borrower or others to the Guaranteed
Indebtedness in such order and manner as Bank, in its sole discretion,
may determine.
(d) Should Bank seek to enforce the obligations of Guarantor
hereunder by action in any court or otherwise, Guarantor waives any
requirement, substantive or procedural, that (i) Bank first enforce
any rights or remedies against Borrower or any other person or entity
liable to Bank for all or any part of the Guaranteed Indebtedness,
including without limitation that a judgment first be rendered against
Borrower or any other person or entity, or that Borrower or any other
person or entity should be joined in such cause, or (ii) Bank shall
first enforce rights against any collateral which shall ever have been
given to secure all or any part of the Guaranteed Indebtedness or this
Guaranty. Such waiver shall be without prejudice to Bank's right, at
its option, to proceed against Borrower or any other person or entity,
whether by separate action or by joinder.
(e) In addition to any other waivers, agreements and covenants
of Guarantor set forth herein, Guarantor hereby further waives and
releases all claims, causes of action, defenses and offsets for any
act or omission of Bank, its directors, officers, employees,
representatives or agents in connection with Bank's administration of
the Guaranteed Indebtedness, REGARDLESS OF THE NEGLIGENCE OF BANK OR
ANY STRICT LIABILITY, except for Bank's willful misconduct and gross
negligence.
8. Obligations Not Impaired.
(a) Guarantor agrees that its obligations hereunder shall not be
released, diminished, impaired, reduced or affected by the occurrence
of any one or more of the following events: (i) the death, disability
or lack of corporate power of Borrower, Guarantor or any other
guarantor of all or any part of the Guaranteed Indebtedness, (ii) any
receivership, insolvency, bankruptcy or other proceedings affecting
Borrower, Guarantor or any other guarantor of all or any part of the
Guaranteed Indebtedness, or any of their respective property;
(iii) the partial or total release or discharge of Borrower or any
other guarantor of all or any part of the Guaranteed Indebtedness, or
any other person or entity from the performance of any obligation
contained in any instrument or agreement evidencing, governing or
securing all or any part of the Guaranteed Indebtedness, whether
occurring by reason of law or otherwise; (iv) the taking or accepting
of any collateral for all or any part of the Guaranteed Indebtedness
or this Guaranty; (v) the taking or accepting of any other guaranty
for all or any part of the Guaranteed Indebtedness; (vi) any failure
by Bank to acquire, perfect or continue any lien or security interest
on collateral securing all or any part of the Guaranteed Indebtedness
or this Guaranty; (vii) the impairment of any collateral securing all
or any part of the Guaranteed Indebtedness or this Guaranty;
(viii) any failure by Bank to sell any collateral securing all or any
part of the Guaranteed Indebtedness or this Guaranty in a commercially
reasonable manner or as otherwise required by law; (ix) any invalidity
or unenforceability of or defect or deficiency in any of the Loan
Documents; or (x) any other circumstance which might otherwise
constitute a defense available to, or discharge of, Borrower or any
other guarantor of all or any part of the Guaranteed Indebtedness.
(b) This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of all or
any part of the Guaranteed Indebtedness is rescinded or must otherwise
be returned by Bank upon the insolvency, bankruptcy or reorganization
of Borrower, Guarantor, any other guarantor of all or any part of the
Guaranteed Indebtedness, or otherwise, all as though such payment had
not been made.
(c) In the event Borrower is a corporation, joint stock
association or partnership, or is hereafter incorporated, none of the
following shall affect Guarantor's liability hereunder: (i) the
unenforceability of all or any part of the Guaranteed Indebtedness
against Borrower by reason of the fact that the Guaranteed
Indebtedness exceeds the amount permitted by law; (ii) the act of
creating all or any part of the Guaranteed Indebtedness is ultra
vires; or (iii) the officers or partners creating all or any part of
the Guaranteed Indebtedness acted in excess of their authority.
Guarantor hereby acknowledges that withdrawal from, or termination of,
any ownership interest in Borrower now or hereafter owned or held by
Guarantor shall not alter, affect or in any way limit the obligations
of Guarantor hereunder.
9. Actions against Guarantor. In the event of a default in the
payment or performance of all or any part of the Guaranteed Indebtedness
when such Guaranteed Indebtedness becomes due, whether by its terms, by
acceleration or otherwise, (i) Guarantor shall, without notice or demand,
promptly pay the amount due thereon to Bank, in lawful money of the United
States, at Bank's address set forth in subparagraph 1(a) above, (ii) Bank
may exercise any of its rights and remedies set forth in the Pledge
Agreement or any other rights or remedies permitted at law or in equity
and/or (iii) Bank shall be entitled to offset the deposit account of
Guarantor held by Bank (and which has been pledged by Bank pursuant to the
Pledge Agreement) against the Guaranteed Indebtedness. One or more
successive or concurrent actions may be brought against Guarantor, either
in the same action in which Borrower is sued or in separate actions, as
often as Bank deems advisable. The exercise by Bank of any right or remedy
under this Guaranty or under any other agreement or instrument, at law, in
equity or otherwise, shall not preclude concurrent or subsequent exercise
of any other right or remedy. The books and records of Bank shall be
admissible in evidence in any action or proceeding involving this Guaranty
and shall be prima facie evidence of the payments made on, and the
outstanding balance of, the Guaranteed Indebtedness. In addition to the
foregoing, all property of Guarantor now or hereafter in the possession or
custody of or in transit to Bank for any purpose, including safekeeping,
collection or pledge, for the account of Guarantor, or as to which
Guarantor may have any right or power (including without limitation, the
deposit account described in the Pledge Agreement), shall be held by Bank
subject to a lien and security interest in favor of Bank to secure payment
and performance of all obligations and liabilities of Guarantor to Bank
hereunder. The balance of every account of Guarantor with, and each claim
of Guarantor against, Bank existing from time to time shall be subject to a
lien and subject to set-off against any and all liabilities of Guarantor to
Bank, and Bank may, at any time and from time to time at its option and
without notice, appropriate and apply toward the payment of any of such
liabilities the balance of each such account or claim of Guarantor against
Bank.
10. Payment by Guarantor. Whenever Guarantor pays any sum which is
or may become due under this Guaranty, written notice must be delivered to
Bank contemporaneously with such payment. Such notice shall be effective
for purposes of this paragraph when contemporaneously with such payment
Bank receives such notice either by: (a) personal delivery to the address
and designated department of Bank identified in subparagraph 1(a) above, or
(b) United States mail, certified or registered, return receipt requested,
postage prepaid, addressed to Bank at the address shown in subparagraph
1(a) above. In the absence of such notice to Bank by Guarantor in
compliance with the provisions hereof, any sum received by Bank on account
of the Guaranteed Indebtedness shall be conclusively deemed paid by
Borrower.
11. Notice of Sale. In the event that Guarantor is entitled to
receive any notice under the Uniform Commercial Code, as it exists in the
state governing any such notice, of the sale or other disposition of any
collateral securing all or any part of the Guaranteed Indebtedness or this
Guaranty, reasonable notice shall be deemed given when such notice is
deposited in the United States mail, postage prepaid, at the address for
Guarantor set forth in subparagraph 1(d) above, five (5) days prior to the
date any public sale, or after which any private sale, of any such
collateral is to be held; provided, however, that notice given in any other
reasonable manner or at any other reasonable time shall be sufficient.
12. Waiver by Bank. No delay on the part of Bank in exercising any
right hereunder or failure to exercise the same shall operate as a waiver
of such right. In no event shall any waiver of the provisions of this
Guaranty be effective unless the same be in writing and signed by an
officer of Bank, and then only in the specific instance and for the purpose
given.
13. Successors and Assigns. This Guaranty is for the benefit of
Bank, its successors and assigns. This Guaranty is binding upon Guarantor
and Guarantor's heirs, executors, administrators, personal representatives
and successors, including without limitation any person or entity obligated
by operation of law upon the reorganization, merger, consolidation or other
change in the organizational structure of Guarantor.
14. Costs and Expenses. Guarantor shall pay on demand by Bank all
costs and expenses, including without limitation, all reasonable attorneys'
fees incurred by Bank in connection with the preparation, administration,
enforcement and/or collection of this Guaranty. This covenant shall
survive the payment of the Guaranteed Indebtedness.
15. Severability. If any provision of this Guaranty is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Guaranty and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
16. No Obligation. Nothing contained herein shall be construed as an
obligation on the part of Bank to extend or continue to extend credit to
Borrower.
17. Amendment. No modification or amendment of any provision of this
Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by an officer of
Bank, and then shall be effective only in the specific instance and for the
purpose for which given.
18. Cumulative Rights. All rights and remedies of Bank hereunder are
cumulative of each other and of every other right or remedy which Bank may
otherwise have at law or in equity or under any instrument or agreement,
and the exercise of one or more of such rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of any other
rights or remedies.
19. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE FEDERAL
LAWS.
20. Venue. This Guaranty has been entered into in the county in
Texas where Bank's address for notice purposes is located, and it shall be
performable for all purposes in such county. Courts within the State of
Texas shall have jurisdiction over any and all disputes arising under or
pertaining to this Guaranty and venue for any such disputes shall be in the
county or judicial district where the Bank's address for notice purposes is
located.
21. Compliance with Applicable Usury Laws. Notwithstanding any other
provision of this Guaranty or of any instrument or agreement evidencing,
governing or securing all or any part of the Guaranteed Indebtedness,
Guarantor and Bank by its acceptance hereof agree that Guarantor shall
never be required or obligated to pay interest in excess of the maximum
nonusurious interest rate as may be authorized by applicable law for the
written contracts which constitute the Guaranteed Indebtedness. It is the
intention of Guarantor and Bank to conform strictly to the applicable laws
which limit interest rates, and any of the aforesaid contracts for
interest, if and to the extent payable by Guarantor, shall be held to be
subject to reduction to the maximum nonusurious interest rate allowed under
said law.
22. Descriptive Headings. The headings in this Guaranty are for
convenience only and shall not define or limit the provisions hereof.
23. Gender. Within this Guaranty, words of any gender shall be held
and construed to include the other gender.
24. Entire Agreement. This Guaranty contains the entire agreement
between Guarantor and Bank regarding the subject matter hereof and
supersedes all prior written and oral agreements and understandings, if
any, regarding same; provided, however, this Guaranty is in addition to and
does not replace, cancel, modify or affect any other guaranty of Guarantor
now or hereafter held by Bank that relates to Borrower or any other person
or entity.
25. JURY WAIVER. THE GUARANTOR AND BANK HEREBY VOLUNTARILY,
KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ALL RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) BETWEEN OR AMONG THE PARTIES HERETO ARISING OUT OF OR IN ANY WAY
RELATED TO THIS GUARANTY OR ANY OF THE LOAN DOCUMENTS OR ANY RELATIONSHIP
BETWEEN GUARANTOR AND BANK. THIS PROVISION IS A MATERIAL INDUCEMENT TO
BANK TO PROVIDE THE LOAN TO BORROWER DESCRIBED IN THE LOAN AGREEMENT.
26. Arbitration. Bank and Guarantor agree that upon the written
demand of either party. whether made before or after the institution of any
legal proceedings, but prior to the rendering of any judgment in that
proceeding, all disputes, claims, and controversies between them, whether
individual, joint, or class in nature, arising from this Guaranty any other
Loan Document, or otherwise, including, without limitation, contract
disputes and tort claims, shall be resolved by binding arbitration pursuant
to the Commercial Rules of the American Arbitration Association (the
"AAA"). Any arbitration proceeding held pursuant to this arbitration
provision shall be conducted in the city nearest the Guarantor's address
having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any collateral,
whether real or personal, covered by the Deed of Trust or any other Loan
Document ("Collateral") shall constitute a waiver of this arbitration
provision or be prohibited by this arbitration provision. This arbitration
provision shall not limit the right of either party during any dispute,
claim, or controversy to seek, use, and employ ancillary or preliminary
rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon, or proceeding
under forcible entry and detainer for possession of, any real or personal
property (including the Collateral) and any such action shall not be deemed
an election of remedies. Such remedies include, without limitation,
obtaining injunctive relief or a temporary restraining order, invoking a
power of sale under the Deed of Trust, the Pledge Agreement or any other
deed of trust or mortgage, obtaining a writ of attachment or imposition of
a receivership, or exercising any rights relating to personal property,
including exercising the right of set-off, or taking or disposing of such
property with or without judicial process pursuant to Article 9 of the
Uniform Commercial Code. Any disputes, claims or controversies concerning
the lawfulness or reasonableness of an act, or exercise of any right or
remedy concerning the lawfulness or reasonableness of an act, or exercise
of any right or remedy concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to such
Collateral, including any claim to rescind, reform, or otherwise modify any
agreement relating to such Collateral, shall also be arbitrated; provided,
however, that no arbitrator shall have the right or the power to enjoin or
restrain any act of either party. Judgment upon any award rendered by an
arbitrator may be entered in any court having jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of any action for these
purposes. The Federal Arbitration Act (Title 9 of the United States Code)
shall apply to the construction, interpretation, and enforcement of this
arbitration provision.
EXECUTED as of the date first above written.
GUARANTOR:
STRS GUARANTY COMPANY, L.L.C., a Delaware
limited liability company
By: Stratus Properties Inc., a Delaware limited company, its sole
member
By:/s/ William H. Armstrong III
Name:William H. Armstrong III
Title:President and Chief Executive Officer
Exhibit 10.18
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made and entered
into as of the 9th day of April, 1998, between OLY/FM Walden, L.P., a Texas
limited partnership (the "Operating Partner"), and STRATUS MANAGEMENT,
L.L.C., a Delaware limited liability company ("Manager").
W I T N E S S E T H
WHEREAS, the Operating Partner is the operating partner of Oly
Walden General Partnership, a Texas general partnership ("Owner"), and
Owner is engaged in the acquisition, ownership, development and sale of
certain tracts of land, more particularly described on Exhibit A attached
hereto, together with all improvements located thereon (collectively, the
"Property").
WHEREAS, the Operating Partner desires to appoint Manager to
manage and oversee the day to day operations and responsibilities of the
Operating Partner with respect to the management of the Property subject to
the terms and conditions herein.
NOW, THEREFORE, for and in consideration of the premises and
mutual covenants and agreements contained in this Agreement and the
compensation to be paid hereunder, the Operating Partner and Manager hereby
agree as follows:
ARTICLE I
ESTABLISHMENT OF AGENCY
The Operating Partner hereby appoints Manager and Manager hereby
accepts appointment on the terms and conditions hereinafter provided as
agent for Owner. Manager shall oversee and manage the day to day
operations of Owner pursuant to that certain Business Plan (as amended from
time to time and as attached as Exhibit B to the Partnership Agreement of
Owner) in an efficient and first class manner and shall exercise due
diligence in all of its endeavors.
ARTICLE II
SERVICES TO BE PERFORMED BY MANAGER
2.1 Expenses. Everything done by Manager under the provisions
of this Agreement shall be done as the agent of the Operating Partner and
Owner, and all obligations or expenses incurred by Manager in the
performance of its duties hereunder in accordance with the provisions
hereof shall be at the expense of Owner consistent with the Operating
Budget (as defined in Section 2.5 hereof), except as otherwise specifically
provided in this Agreement.
2.2 Contracts. To the extent necessary to fulfill its
obligations under this Agreement, Manager shall (i) identify contracts with
independent contractors to perform services necessary or advisable for the
oversight or management of the Property, and (ii) with the prior written
approval of Owner, place orders in Owner's name for such materials and
supplies as are reasonable and necessary to properly oversee, maintain,
manage, or operate the Property, in each case, consistent with the
Operating Budget. Any contracts or other agreements shall be entered into
in Owner's name and be executed by Owner. Except with the prior written
consent of Owner, every contract entered into by Manager for or in
connection with Owner shall include as a condition thereof the right by
Owner to terminate, with or without cause, on thirty (30) days prior
written notice, without the payment of a cancellation fee. Owner shall be
obligated to pay the cost of any contract or agreement described in this
section only if such cost is provided for in the Operating Budget or if
Owner otherwise approves such cost in writing.
2.3 Oversight and Management. Manager shall oversee and manage
the day to day operations of the Property and shall do so in accordance
with the "Management Standard" (as defined in Section 4.1 hereof),
including within such oversight and management without limitation thereof,
such normal business activities as may be necessary or, with Owner's prior
written consent, desirable.
2.4 Insurance. Upon the request of Owner, Manager shall
cause to be placed and kept in force, at Owner's sole cost and expense, all
forms of insurance requested by Owner. All insurance coverage to be placed
by Manager shall be placed with such companies, in such amounts, and with
such beneficial interests appearing therein as shall be requested by Owner.
2.5 Approved Operating Budgets: Projections. On or before
November 15th of each year, Manager shall submit to Owner, for Owner's
approval, proposed operating budgets for the Property for the immediately
succeeding calendar year, which proposed budgets shall reflect thereon
projections of all receipts (if any) and operating costs and expenses,
capital expenditures and reserves that Manager, in the exercise of good
business judgment, believes will be received or necessary to be incurred,
as the case may be, implement the Business Plan during such year. Owner
shall give Manager Owner's written approval or disapproval of the proposed
operating budget within thirty (30) days after receipt thereof by Owner.
In the event that Owner disapproves the proposed operating budget, it will
advise Manager of the items therein that are disapproved and the line items
and amounts, if any, that will replace the disapproved items. Thereafter,
the portions of the proposed operating budget approved by Owner, together
with the line items and amounts required by Owner to replace any
disapproved items, shall constitute the Operating Budget (herein so called)
for the following year. Exhibit B attached hereto contains the Operating
Budget (herein so called) for the remainder of calendar year 1998.
Except as otherwise expressly provided in this Agreement, Manager shall not
be reimbursed by Owner for, and Manager hereby expressly indemnifies Owner
against, any loss, expense or claim in connection with any expenditure,
liability or obligation incurred by Manager (without Owner's approval) not
reflected in the Operating Budget.
2.6 Manager Disbursement. Manager shall, from the available
good funds collected and deposited in the Operating Account (as defined in
Section 4.2 hereof), cause to be disbursed regularly and punctually (1) the
amounts from time to time payable to Manager pursuant to this Agreement;
and (2) amounts otherwise due and payable as operating expenses of the
Property authorized to be incurred under the terms of this Agreement.
Manager shall at all times use Manager's reasonable efforts to
obtain for Owner, and shall credit to the account of Owner in each case,
all discounts, rebates and other favorable financial terms which may be
available in connection with any costs or expenses Manager shall incur
under this Agreement. Any funds remaining at the end of each calendar
month during the term of this Agreement in the Operating Account (in excess
of the balance required to be maintained in such account) shall be
disbursed or transferred as generally or specifically directed from time to
time by Owner. Within fifteen (15) days after the end of each calendar
month, Manager shall provide Owner with a list of the disbursements made by
Manager during such month and, at the request of Owner, invoices supporting
the disbursements.
2.7 Records; Reporting.
(a) Records. All statements, receipts, invoices, checks,
leases, contracts, worksheets, financial statements, books and
records, and all other instruments and documents relating to or
arising from the operation or management of the Property shall be the
property of Owner; provided that, throughout the term of this
Agreement, all of such items shall be maintained by Manager in a
manner consistent with the terms of this Agreement and with books and
records customarily maintained by managing agents of businesses
similar in location, size and revenue to Owner. Owner and Manager
shall have the right to inspect and to copy all such items, at such
party's expense, at all reasonable times, and from time to time,
during the term of this Agreement. Upon the termination of this
Agreement, all of such books, records and all other information
relating to Owner promptly shall be delivered to Owner; provided,
however, that at Manager's sole expense, Manager or its
representatives shall have the right, for a reasonable period of time
not to exceed three (3) years following such termination, to inspect
such books, records and other information for data that directly
relates to the period during which Manager managed the Property and to
make copies thereof, at reasonable times at the offices of the
Operating Partner upon reasonable advance notice to the Operating
Partner.
(b) Monthly Statements. Manager shall prepare and deliver
to Owner on a calendar monthly basis, Manager's written estimates of
the amounts, if any, by which any categories of the Operating Budget
must be adjusted to adequately fund the day to day management and
oversight of the Property for the then current month, although the
Operating Partner and Owner shall be under no obligation to change the
Operating Budget. Such monthly reports shall include the following
information: (i) a statement of operations of the Property during such
month, and the cost thereof, (ii) a statement of year-to-date
operations on the Property, and the cost thereof, (iii) a statement of
the actual cost of operations of the Property during such month
compared to the Operating Budget which identifies any variance between
such costs and the Operating Budget, and (iv) a description and
explanation of such variances. Manager also shall furnish the
Operating Partner, within ten (10) days after the Operating Partner's
request, such further information covering the day to day oversight
and management of the Property as the Operating Partner may reasonably
require.
(c) Annual Accounting Report. Manager agrees (i) to
deliver to owner, within twenty (20) days after the end of each fiscal
year, an annual accounting report (including balance sheet, income
statement and other financial statements), showing the results of
gross receipts, gross operating expenses, net operating income, net
cash flow and the Management Fee which would be payable if the
Agreement were terminated as of the end of such Fiscal Year and any
other information necessary to make the computations required hereby
or which may be requested by Owner, all for such fiscal year and (ii)
to cooperate fully with Owner, at no additional expense to Manager,
but without limiting Manager's obligations under Section 2.7(e), in
supplying all of the information and documentation necessary for a
nationally recognized firm of certified public accountants selected by
Owner (the "Auditor") to prepare and deliver to Owner an audit of the
annual accounting report provided by Manager to Owner pursuant to this
Section 2.7(d) within forty-five (45) days after the end of each
fiscal year.
(d) Additional Fiscal Reports. Manager shall, upon the
request of Owner, prepare for Owner or assist Owner in the preparation
of such additional financial reports with respect to the Owner or te
Property as Owner may reasonably request or may be required in the
preparation of the audited annual accounting to be prepared pursuant
to this Section 2.7. Manager acknowledges and agrees that the
Management Fee to be paid under this Agreement includes compensation
to Manager for the preparation of papers and schedules reasonably
necessary for the Auditor to conduct its review of the Property's
books and records. To the extent such papers and schedules are not
properly prepared, Manager agrees to reimburse Owner for the
reasonable additional cost and expense incurred by Owner for the
Auditor to prepare such papers or schedules.
(e) Returns Required by Law. Manager shall be responsible
for preparing and filing any forms, reports or returns (except Owner's
tax returns) that may be required by law relating to the Property.
Manager shall also be responsible for any forms, reports or returns
that may be required by law relating to any of Manager's employees.
2.8 Compliance with Legal Requirements. Manager shall take such
action as may be necessary to comply with any and all orders or
requirements affecting the Property by any federal, state, county or
municipal authority having jurisdiction thereover. Manager, however, shall
not take any such action as long as the Operating Partner is contesting, or
has affirmed the Operating Partner's intention to contest and institutes
proceedings contesting, any such order or requirement, except that if
failure to comply promptly with any such order or requirement would or
might expose Manager to criminal liability, Manager shall comply with same.
Manager shall promptly notify the Operating Partner in writing of all such
orders and notices or requirements. The Operating Partner agrees to pay
all reasonable expenses incurred by Manager, including, without limitation,
reasonable attorneys' fees for counsel employed to represent Manager or the
Operating Partner, with respect to any proceeding or suit involving an
alleged violation by Manager or the Operating Partner, or both, of any
orders or requirements of any federal, state, county or municipal authority
(unless Manager is finally adjudicated to have personally and not in a
representative capacity violated such order or requirement), but nothing
contained herein shall require Manager to employ counsel to represent the
Operating Partner in any such proceeding or suit.
2.9 Independent Contractor. The parties hereby acknowledge that
the Manager is and shall be an independent contractor for all purposes.
ARTICLE III
FEES TO MANAGER
In consideration for the performance of Manager's duties and
responsibilities under this Agreement, in exchange for its services
provided to Owner and the Property, Manager shall be paid a management fee
to be computed as follows: Manager shall receive an annual fee (the
"Management Fee") equal to one percent (1%) of the Acquisition and
Development Costs (as defined hereinbelow) computed as follows:
(i) the Management Fee shall commence on the first day of
the month following the initial acquisition of the Property;
(ii) the monthly balance subject to the Management Fee shall
be the arithmetic average of the Acquisition and Development
Costs of the Property owned by Owner on the first day of the
month and on the last day of the month; and
(iii) the Management Fee shall be payable monthly in
arrears and shall be equal to 0.000833 multiplied by the balance
computed in (ii) above.
As used herein, "Acquisition and Development Costs" means the sum of (a)
purchase price, whether cash or credit, paid, or for which Owner is
obligated to pay (if on credit), for the Property, together with all
closing costs paid by Owner, including title insurance, recordation
charges, registration and transfer taxes, if any, and similar expenses, and
to the extent reflected on the closing statement executed by Owner in
connection with the acquisition of the Property, all fees and expenses paid
or incurred by or on behalf of Owner in connection with the acquisition of
the Property, including legal, engineering and consulting fees, any real
estate commissions or brokerage fees paid by Owner, or on behalf of Owner,
to anyone in connection with such acquisition (the "Acquisition Costs") and
(b) all costs and expenses incurred by Owner in connection with development
and marketing of the Property, including, without limitation, engineering,
legal, land planning and related expenses (the "Development Costs") as of
the date of this Agreement the Property consists of two (2) undeveloped
tracts (the "Undeveloped Tracts") and approximately nine hundred forty one
(941) developed residential lots (the Finished Lots") which will be
marketed and sold in accordance with the Business Plan. For purposes of
the monthly computation in (ii) above, the Acquisition Costs shall be
reduced by Thirteen Thousand Three Hundred Seventy Eight and No/100 Dollars
($13,378.00) for each Finished Lot closed and funded.
ARTICLE IV
RELATIONSHIP OF MANAGER TO THE OPERATING PARTNER
4.1 Standard of Care. Manager shall employ Manager's best
efforts to oversee and manage the day to day operations of the Property in
a manner (referred to herein as the "Management Standard") consistent with
(i) first class standards (consistent with the expressed plan of Owner,
including the Business); (ii) prudent business and management practices
applicable to the oversight and management of the Property; and (iii) the
requirements of any deeds of trust, certificates of occupancy, permits,
licenses, consents or other recorded or unrecorded agreements now or
hereafter affecting the Property, or as required by the Limited Partnership
Agreement (collectively referred to herein as the "Documents"). Manager
shall use all contacts, discount programs and cost-savings measures at its
disposal to obtain services, products and tax and insurance rates for the
Property at the lowest cost, without sacrificing the quality of such
services or products. Manager shall perform such other acts and deeds as
are reasonable, necessary and proper in the discharge of its duties under
this Agreement. Manager may, with the prior written consent of the
Operating Partner, obtain goods or services for the Property from direct or
indirect affiliates of Manager, its officers, directors, shareholders or
employees, but only if such goods and services are of at least equal
quality and of no higher prices than comparable goods and services
obtainable from unaffiliated parties and such goods and services are
otherwise competitive with comparable goods and services.
4.2 Separation of Owner's Moneys. Manager shall establish and
maintain in a banking or other financial institution identified by the
Operating Partner from time to time throughout the term of this Agreement,
a separate bank or similar account in the name of Owner for the deposit of
moneys of Owner received, if any, with respect to the Property (the
"Operating Account"). Manager shall also establish such other special bank
or similar accounts as may be required by the Operating Partner. Funds may
be withdrawn (i) from the Operating Account for the disbursement of any
individual item not exceeding $10,000 upon the sole signature of any duly
authorized representative of the Operating Partner on behalf of Owner; and
(ii) for all disbursements exceeding $10,000 or for the withdrawal of funds
from any account other than the Operating Account, upon the sole signature
of Oly/Houston Walden, L.P., (the "Financial Partner"), on behalf of Owner.
The Operating Partner and Manager hereby acknowledge and agree that, if the
Operating Partner fails to deposit funds in the Operating Account in an
amount sufficient to fund the expenses authorized in the Operating Budget,
Manager shall not be required to incur any out of pocket costs in order to
perform Manager's obligations under this Agreement.
4.3 Term/Termination. This Agreement shall commence on the date
hereof and shall thereafter continue until the dissolution of Owner.
Notwithstanding the foregoing, this Agreement may be terminated at any time
(i) for Manager's fraud, malfeasance, misfeasance or abandonment of its
responsibilities under this Agreement by the Operating Partner upon written
notice thereof to Manager, (ii) upon written notice from Owner to Manager
after Manager's default under this Agreement (except for breach of the
Management Standard) by the Operating Partner which is not cured after
thirty (30) days notice and opportunity to cure provided that if such
default is not reasonably susceptible of cure within thirty (30) days then
such reasonable time so long as Manager is diligently prosecuting the cure
of the default but in no event longer than ninety (90) days, (iii) for the
Operating Partner's default under this Agreement by Manager upon written
notice thereof to the Operating Partner, (iv) upon thirty (30) days written
notice from Owner to Manager in the event Manager fails to perform its
duties consistent with the Management Standard as determined by the
management committee of Owner or (v) by either Manager or Owner in the
event Stratus fails to exercise its option under that certain Option
Agreement by and between Stratus, the Operating Partner and Oly Lender
Walden, L.P., of even date herewith.
4.4 Obligations Upon Termination.
(a) Upon termination of this Agreement, each party shall
continue to be fully liable for their respective obligations which
have accrued up to and including the termination date and shall
promptly pay to the other all amounts due to the other party under the
terms of this Agreement. Such payment shall be made as soon after the
effective date of termination as such amounts are determinable. Upon
such payment, neither party shall have any further claim or right
against the other, except as expressly provided herein.
(b) In the event of termination of this Agreement, upon the
effective date of such termination, Manager shall (i) surrender and
deliver to the Operating Partner all income of the Property, if any,
and other monies of the Operating Partner or Owner then held by
Manager and/or in any bank account (including, without limitation, the
Operating Account) in excess of the reimbursements due and payable to
Manager up to and including the effective date of such termination,
(ii) deliver to the Operating Partner as received by Manager any
monies or other property due the Operating Partner under this
Agreement but received after such termination, and (iii) deliver to
the Operating Partner everything then held by Manager pertaining to
the Property, including, without limitation copies of all books,
records, keys and all other materials, property, and supplies
pertaining to the Property and/or this Agreement.
4.5 No Partnership. Nothing contained in this Agreement shall
be deemed or construed to create a partnership or joint venture between the
Operating Partner or Owner and Manager, it being the intention of the
parties that the only relationship hereunder is that of agent and
principal.
4.6 Indemnification. Manager shall be liable for and shall
indemnify and hold harmless the Operating Partner and Owner (and each
partner, venturer, employee, agent, shareholder, director or officer of the
Operating Partner and Owner) from any loss, damage, liability, cost or
expense (including reasonable attorneys' fees) arising out of (i) any
actions of Manager not within the scope of Manager's duties hereunder or
(ii) the gross negligence or willful misconduct of Manager. The Operating
Partner shall indemnify and hold harmless Manager (and each employee,
agent, director, shareholder or officer of Manager) from any loss, damage,
liability, cost or expense (including reasonable attorneys' fees) arising
out of (x) a breach by the Operating Partner of the Operating Partner's
obligations hereunder, (y) the Operating Partner's gross negligence or
willful misconduct or (z) actions taken by Manager within the scope of
Manager's responsibilities under this Agreement.
ARTICLE V
MISCELLANEOUS
5.1 No Assignment by Manager, Etc. Without the prior written
consent of the Operating Partner, which consent may be granted or withheld
in the Operating Partner's sole discretion, Manager shall not have the
right to assign, transfer or convey any of Manager's right, title or
interest hereunder, nor shall Manager have the right to delegate any of the
obligations or duties required to be kept or performed by Manager
hereunder.
5.2 Notices. All notices, demands, consents, approvals and
requests given by either party to the other hereunder shall be in writing
and sent via the U.S. Postal Service by registered or certified mail,
return receipt requested, postage prepaid or via an overnight delivery
service (e.g., Federal Express) and addressed to the appropriate party at
the respective addresses shown below. All such notices shall be deemed
given on the earlier of actual receipt or refusal of receipt by the
addressee. The respective addresses and additional notice parties are as
follows:
If to Operating Partner: Oly/FM Walden, L.P.
200 Crescent Court, Suite 1650
Dallas, Texas 75201
Attention: Hal Hall
with a copy to: Robert C. Feldman, Esq.
Weil, Gotshal & Manges LLP
100 Crescent Court, Suite 1300
Dallas, Texas 75201
If to Manager : Stratus Management, L.L.C.
c/o FM Properties Inc.
98 San Jacinto Blvd., Suite 2200
Austin, Texas 78701
Attn: Mr. William H. Armstrong, III
With a copy to: Kenneth N. Jones
Armburst, Brown & Davis, L.L.P.
100 Congress, Suite 1350
Austin, Texas
Any party may at any time change its respective address by sending written
notice to the other party of the change in the manner hereinabove
prescribed.
5.3 GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS, AND THE
TERMS AND PROVISIONS HEREOF SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
5.4 Not a Third Party Beneficiary Contract. Neither this
Agreement nor any part hereof nor any service, relationship or other matter
alluded to herein shall inure to the benefit of any third party
(specifically including any lender, tenants or contractors), to any trustee
in bankruptcy, to any assignee for the benefit of creditors, to any
receiver by reason of insolvency, to any other fiduciary or officer
representing a bankruptcy or insolvent estate of either party, or to the
creditors or claimants of such an estate. In addition, this Agreement
shall terminate and be of no further force or effect upon the filing of any
bankruptcy petition by or against Manager.
5.5 Validity. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and be enforced to the fullest extent permitted by law.
5.6 Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the matters herein
contained and any agreement hereafter made shall be ineffective to effect
any change or modification, in whole or in part, unless such agreement is
in writing and signed by the party against whom enforcement of the change
or modification is sought. This Agreement shall bind, and inure to the
benefit of, the parties hereto and their respective successors, legal
representatives and assigns.
5.7 Attorneys' Fees. If either the Operating Partner or Manager
employs an attorney to enforce or defend its rights hereunder, the
prevailing party shall be entitled to recover its reasonable attorneys'
fees, costs and expenses incurred in connection with such enforcement or
defense.
5.8 Confidentiality. Manager shall hold all information
regarding the Property confidential and shall not disclose any such
information to third parties without the prior written consent of Owner
unless legally compelled to make such disclosure. Without limiting the
generality of the foregoing, Manager shall not make any news releases or
other public disclosures without Owner's prior written consent.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]OPERATING PARTNER:
OLY/FM WALDEN, L.P.,
a Texas limited partnership
By: Oly Fund II GP Investments, L.P.,
a Texas limited partnership,
its general partner
By: Oly Real Estate Partners II, L.P.,
a Texas limited partnership,
its general partner
By: Oly REP II, L.P.,
a Texas limited partnership,
its general partner
By: Oly Fund II, LLC,
a Texas limited liability company,
its general partner
By:/s/ Hal R. Hall
-------------------
Name:Hal R. Hall
Title:Vice President
MANAGER:
STRATUS MANAGEMENT, L.L.C.,
a Delaware limited liability company
By: FM Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong III
----------------------------
William H. Armstrong, III,
President
EXHIBIT A
Property Description
The land referred to herein is situated in the State of Texas, County of
Harris, and is described as follows:
[ATTACHED]
EXHIBIT B
Operating Budget for Remainder of 1998
Operating Partner and Manager will attach the Operating Budget on or
before June 8, 1998.
Exhibit 15.1
October 20, 1998
Stratus Properties Inc.
98 San Jacinto Blvd.
Suite 220
Austin, TX 78701
Gentlemen:
We are aware that Stratus Properties Inc. has incorporated by
reference in its Registration Statements (File Nos. 33-78798 and
333-31059) its Form 10-Q for the quarter ended June 30, 1998,
which includes our report dated October 20, 1998 covering the
unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933 (the Act),
this report is not considered a part of the registration
statements prepared or certified by our firm or a report prepared
or certified by our firm within the meaning of Sections 7 and 11
of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informations extracted from Stratus
Properties Inc. financial statements at September 30, 1998 and the nine months
then ended, and is qualified in its entirety by reference to such statements.
The earning per share (EPS) data shown was prepared in accordance with FASB No.
128 "Earnings Per Share," basic and diluted EPS have been entered in place of
primary and fully-diluted EPS.
</LEGEND>
<CIK> 0000885508
<NAME> STRATUS PROPERTIES INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,724
<SECURITIES> 0
<RECEIVABLES> 843
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,133
<PP&E> 99,040
<DEPRECIATION> 100
<TOTAL-ASSETS> 117,757
<CURRENT-LIABILITIES> 3,366
<BONDS> 33,117
10,000
0
<COMMON> 143
<OTHER-SE> 64,987
<TOTAL-LIABILITY-AND-EQUITY> 117,757
<SALES> 12,302
<TOTAL-REVENUES> 12,302
<CGS> 9,165
<TOTAL-COSTS> 9,165
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,480
<INCOME-PRETAX> (1,477)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,477)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,477)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
