SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From .......... to ..........
Commission file number 0-19989
Stratus Properties Inc.
(Exact name of Registrant as specified in Charter)
Delaware 72-1211572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
98 San Jacinto Blvd., Suite 220
Austin, Texas 78701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512)478-5788
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $0.01 per Share
Preferred Stock Purchase Rights
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 _
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $43,880,000 on
March 16, 1999.
On March 16, 1999, 14,288,270 shares of Common Stock, par
value $0.01 per share, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be submitted
to the registrant's stockholders in connection with its 1999
Annual Meeting to be held on May 13, 1999, are incorporated by
reference into Part III of this Report.
TABLE OF CONTENTS
Page
Part I..........................................................1
Item 1 Business...............................................1
Overview...............................................1
Company Strategies.....................................1
Credit Facility and IGL Debt Guarantee.................2
Transactions with Olympus..............................2
Regulation and Environmental Matters...................3
Employees..............................................3
Cautionary Statements..................................3
Item 2. Properties.............................................5
Item 3 Legal Proceedings......................................5
Item 4. Submission of Matters to a Vote of Security Holders....7
Executive Officers of the Registrant .....................7
Part II.........................................................7
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters ......................................7
Item 6. Selected Financial Data................................8
Items 7. and 7A.
Management's Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures
about Market Risks .......................................8
Item 8. Financial Statements and Supplementary Data...........14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure .....................26
Part III.......................................................26
Item 10. Directors and Executive Officers of the Registrant...26
Item 11. Executive Compensation...............................26
Item 12.Security Ownership of Certain Beneficial Owners and
Management..............................................26
Item 13. Certain Relationships and Related Transactions ......26
Part IV........................................................26
Item 14.Exhibits, Financial Statement Schedules and Reports on
Form 8-K ............................................26
Signatures....................................................S-1
Financial Statement Schedules.................................F-1
Exhibits......................................................E-1
PART I
Item 1. Business
Overview
Stratus Properties Inc., a Delaware corporation (STRS), was
organized in March 1992 by the former parent company, Freeport-
McMoRan Inc. (FTX), and operates through Stratus Properties
Operating Co., a Delaware general partnership (the Partnership),
which is owned by STRS and a wholly owned subsidiary of STRS.
STRS was formed to hold, operate and develop substantially all
domestic oil and gas properties of, and substantially all
domestic real estate then held for development by, FTX and
certain of its subsidiaries. STRS also assumed substantially all
of the liabilities related to such assets, including
approximately $500 million of indebtedness, substantially all of
which was guaranteed by FTX (see "Credit Facility and IGL Debt
Guarantee" below). STRS sold all of its oil and gas properties
and currently is engaged solely in the development and marketing
of real estate in the Austin, Dallas, Houston and San Antonio,
Texas areas.
STRS' principal real estate holdings are currently in the Austin,
Texas area and consist of approximately 2,450 acres of
undeveloped residential, multi-family and commercial property
within the Barton Creek development, 1,300 acres of undeveloped
property within the Circle C Ranch development, and 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 99 developed lots, 169 acres of undeveloped
residential property and 75 acres of undeveloped commercial and
multi-family property located in Dallas, Houston and San Antonio,
Texas that are being actively marketed. See Item 2,
"Properties." These real estate interests are managed by
unaffiliated 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, STRS funds
operating expenses and development costs, net of revenues, 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.
Pursuant to a joint venture agreement between STRS and IMC-Agrico
Company (IMC-Agrico), a joint venture between Phosphate Resource
Partners Limited Partnership, an affiliate of IMC Global Inc.
(IGL), and IGL, STRS may also participate in the potential future
development of up to approximately 171,000 acres of land in
Florida owned by IMC-Agrico that has been or will be reclaimed
following completion of IMC-Agrico's phosphate mining activities
on the properties. No significant development activity is
expected in Florida in the near future.
Company Strategies
Since the formation of STRS, the primary objective of managing,
developing and operating its assets has been the reduction of its
indebtedness and the elimination of the debt guarantee. During
1996 and 1997, STRS was able to sell a substantial number of
properties in the Austin area because of several positive
legislative and judicial developments. As a result, STRS
generated significantly higher operating cash flows, which
enabled it to reduce its debt by $63 million during 1996 and
$21.2 million during 1997. Outstanding debt totaled $29.2
million at December 31, 1998.
In December 1997 in connection with the merger of FTX and IGL,
STRS restructured its credit agreement and purchased the portion
of the Partnership that it did not previously own. These events
enabled STRS to become an autonomous company, reduced
restrictions on its business activities and allowed it to pursue
its long standing objective of establishing a long-term, self-
supporting capital structure. In May 1998, STRS formed a
strategic alliance with Olympus Real Estate Corporation (Olympus)
to develop certain of STRS' existing properties and to jointly
pursue new real estate acquisition and development activities.
These transactions are discussed in more detail below under the
headings, "Credit Facility and IGL Debt Guarantee" and
"Transactions with Olympus."
STRS continues to focus its efforts on reducing and/or
restructuring its debt, developing its properties, and increasing
its return on stockholders' equity. Key factors in accomplishing
these goals include:
. STRS' overall strategy is to enhance the value of its Austin
properties by securing and maintaining development
entitlements, developing and building its own real estate
projects for sale or investment and limiting the need for
tract sales to subdevelopers, thereby increasing STRS'
potential returns from its core assets. These future
developments may be through joint ventures or wholly owned by
STRS. To that end, STRS has recently completed construction
at the ABC West Joint Venture project and is currently
developing the first phase of an office project at its Lantana
Corporate Center and several new subdivisions surrounding a
new Tom Fazio designed golf course being constructed on its
Barton Creek project.
<PAGE> 1
. STRS believes that it has the right to receive in the future
up to $40 million in reimbursement of certain of its prior
municipal utility development costs. Substantial additional
costs eligible for reimbursement will be incurred in the
future as development continues. STRS received approximately
$4.7 million of Municipal Utility District (MUD)
reimbursements during 1998. Approximately $1.0 million of
these reimbursements were associated with the Barton Creek
MUDs while the remaining $3.7 million was received from the
Circle C MUDs. STRS is continuing litigation to enforce its
entitlement rights to almost approximately $18 million in
Circle C MUD reimbursements. See Item 3, "Legal Proceedings,"
for more details on that matter.
. STRS faces significant challenges to the development
entitlements of its core properties in Austin, which are more
fully discussed under Item 3, "Legal Proceedings." STRS will
continue to vigorously defend its rights to the development
entitlements of all its properties, but the City of Austin's
(the City) aggressive attempts to restrict growth in the area
of STRS' holdings have had and are expected to continue to
have a negative effect on near term development and sales
activities.
. During 1998 STRS acquired a 50 percent interest in a
partnership with Olympus to manage the development of Olympus'
Walden on Lake Houston project near Houston, Texas. STRS will
continue to evaluate new opportunities in its existing
markets, including Dallas, Houston and San Antonio, as well as
elsewhere, in an effort to diversify its holdings both
geographically and by type of product.
The transactions described under the heading "Transactions with
Olympus" and "Credit Facility and IGL Debt Guarantee" below have
increased STRS' autonomy over its operations and short-term
financial flexibility and enabled STRS to further develop its
core assets in Austin. However, significant capital resources
will be required to fund STRS' further development expenditures
and debt reduction requirements under its existing credit
agreement. See "Capital Resources and Liquidity" included herein
under Items 7 and 7A. In addition, STRS anticipates continued
challenges to its development entitlements from the City and
special interest groups that may result in delays and higher
development costs requiring additional capital unless resolved.
See Item 3, "Legal Proceedings." STRS will continue to explore
options for restructuring or refinancing its credit agreement and
various means of raising capital, including equity and
subordinated debt investments and additional joint ventures with
Olympus. The future performance of STRS continues to be
dependent on its cash flows from real estate sales, which will be
significantly affected by future real estate values, regulatory
issues, development costs, future interest rate levels and the
ability of STRS to continue to protect its land use and
development entitlements. STRS will be required to actively
pursue all of its alternatives in order to generate sufficient
cash flow or obtain sufficient funds to carry out its development
programs and reduce its bank debt from $27.1 million at December
31, 1998 to $15 million by January 1, 2000 as required by its
existing credit facility.
Credit Facility and IGL Debt Guarantee
On December 22, 1997, FTX merged into IGL (the Merger). In
connection with the Merger, FTX sold its 0.2 percent interest as
managing general partner of the Partnership to STRS and a wholly
owned subsidiary of STRS for $100,000. In addition, STRS
restructured its bank credit agreement to extend its term to
January 1, 2001, with staged reductions of credit available
through the term. STRS had available credit of $50 million
through December 31, 1998. On January 1, 1999 the available
credit was reduced to $35 million through December 31, 1999, and
will be further reduced to $15 million on January 1, 2000. On
January 1, 2001, availability under this credit agreement will be
terminated. As a result of the Merger, IGL became guarantor
under this credit agreement in place of FTX. As financial
guarantor of STRS' credit agreement, IGL receives an annual fee
equal to the difference between STRS' cost of LIBOR-funded
borrowings before the assumption of the guarantee by IGL and the
rate on LIBOR-funded loans under the restructured agreement.
This fee was 60 basis points (0.6 percent) annually as of
December 31, 1998. STRS has granted liens in favor of IGL on
certain of its properties as security for the guarantee. These
liens would be released for property sales, subject to certain
restrictions. Additionally, under the guarantee terms STRS cannot
amend or refinance the credit facility without IGL's consent.
Transactions with Olympus
On May 22, 1998, STRS and Olympus, an affiliate of Hicks, Muse,
Tate and Furst Incorporated, formed a strategic alliance to
develop certain of STRS' existing properties and to pursue new
real estate acquisition and development opportunities. Under
terms of the agreement, Olympus purchased $10 million of STRS'
mandatorily redeemable preferred stock, provided a $10 million
convertible debt 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 one member or up to 20 percent of STRS'
Board of Directors, whichever is greater.
On September 30, 1998, STRS entered into two separate
transactions with Olympus. The first provided for the
development of a 75 residential lot project at the Barton Creek
ABC West Phase I subdivision. STRS sold the land to the joint
<PAGE> 2
venture for approximately $3.2 million and paid approximately
$0.5 million for its 50 percent equity interest in the ongoing
project. The other transaction involved approximately 700
developed lots and 80 acres of platted but undeveloped real
estate at the Walden on Lake Houston project, which Olympus
purchased in April 1998 and STRS has managed ever since. STRS
acquired its 50 percent interest in the related partnership
utilizing $2.0 million of funds available under the Olympus
convertible debt facility. For further discussion of
transactions see "Transactions with Olympus" included in Items 7
and 7A below.
Regulation and Environmental Matters
STRS' real estate investments are subject to extensive local,
city, county and state rules and regulations regarding
permitting, zoning, subdivision, utilities and water quality as
well as federal rules and regulations regarding air and water
quality and protection of endangered species and their habitats.
Such regulation has delayed and will likely continue to delay
development of STRS' properties and result in higher
developmental and administrative costs. See Item 3, "Legal
Proceedings."
STRS is making, and will continue to make, expenditures with
respect to its real estate development for the protection of the
environment. Emphasis on environmental matters will result in
additional costs in the future. Upon analysis of its operations
in relation to current and presently anticipated environmental
requirements, STRS does not anticipate that these costs will have
a material adverse effect on its future operations or financial
condition.
Employees
Since January 1, 1996, a corporation currently owned 10 percent
by STRS (the Services Company), has provided executive,
accounting, legal, financial, tax, insurance, personnel and
management information and similar services pursuant to a
services agreement between STRS and the Services Company, which
STRS may terminate at any time upon 90 days notice. Effective
January 1, 1998, the Services Company provides these services on
a cost reimbursement basis, which totaled $1.0 million in 1998.
Previously the Services Company provided these services to STRS
for a fixed annual fee of $500,000. At December 31, 1998, STRS
had 14 employees, who manage its operations and supervise the
functions of Services Company personnel under the Services
Agreement.
Cautionary Statements
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements are all statements other than statements of historical
fact included in this report, including, without limitation, the
statements under the headings "Business," "Properties," "Market
for Registrant's Common Equity and Related Stockholder Matters,"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations and Disclosures about Market Risks"
regarding STRS' financial position and liquidity, payment of
dividends, strategic plans, future financing plans, development
and capital expenditures, business strategies, and other plans
and objectives of the management of STRS for future operations
and activities.
Forward-looking statements are based on certain assumptions and
analysis made by STRS in light of its experience and its
perception of historical trends, current conditions, expected
future developments and other factors it believes are appropriate
under the circumstances. These statements are subject to a
number of assumptions, risks and uncertainties, including the
risk factors discussed below and in STRS' other filings with the
Securities and Exchange Commission, general economic and business
conditions, the business opportunities that may be presented to
and pursued by STRS, changes in laws or regulations and other
factors, many of which are beyond the control of STRS. Readers
are cautioned that these statements are not guarantees of future
performance, and actual results or developments may differ
materially from those projected, predicted or assumed in the
forward-looking statements. All subsequent written and oral
forward-looking statements attributable to STRS or persons acting
on its behalf are expressly qualified in their entirety by these
cautionary statements. Important factors that could cause actual
results to differ materially from those projected in the forward-
looking statements include, among others:
Financing and Liquidity. Substantial reductions in STRS' debt
have been made since its formation in 1992. However, significant
capital resources will be required to fund STRS' development
expenditures and its debt reduction requirements under its credit
agreement. STRS continues to explore options for restructuring
or refinancing its credit agreement and various means of raising
capital, including equity sales, formation of joint ventures with
Olympus, various forms of debt financing and other means. STRS'
performance continues to be dependent on future cash flows from
real estate sales, and there can be no assurance that STRS will
generate sufficient cash flow or otherwise obtain sufficient
funds to make the required debt reduction to $15 million by
January 1, 2000 under its credit agreement.
<PAGE> 3
Although all of STRS' outstanding bank debt subject to the terms
of the bank credit facility is currently guaranteed by IGL, there
is no commitment by IGL to guarantee any such debt after December
2000, and there is no expectation that IGL will provide any
further guarantee.
STRS' real estate operations are also dependent upon the
availability and cost of mortgage financing for potential
customers, to the extent they finance their purchases, and for
buyers of the potential customers' existing residences.
Performance of the Real Estate Industry. The real estate
activities of STRS are subject to numerous factors outside of the
control of management, including local real estate market
conditions (both where its properties are located and in areas
where its potential customers reside), substantial existing and
potential competition, the cyclical nature of the real estate
business, general national, regional and local economic
conditions, fluctuations in interest rates and mortgage
availability and changes in demographic conditions. Real estate
markets have historically been subject to strong periodic cycles
driven by numerous factors beyond the control of market
participants.
Real estate investments are relatively illiquid and market values
may be adversely affected by these economic circumstances, market
fundamentals, competition and demographic conditions. Because of
the effect of these factors on real estate values, it is
difficult to predict with certainty the level of future sales or
sales prices that will be realized for individual assets.
Regulatory Approval. Before STRS can develop a property it must
obtain a variety of approvals from local and state governments
with respect to such matters as zoning, density, parking,
subdivision, architectural design and environmental issues.
Because of the discretionary nature of these approvals and the
concerns about development in the areas where STRS' properties
are located that are often raised by government agencies and
special interest groups during the approval and development
processes, STRS' ability to develop properties and realize future
income from its projects could be delayed, reduced, prevented or
made more expensive.
The City and certain special interest groups have long opposed
certain of STRS' plans in the Austin area and have taken various
actions to partially or completely restrict development in
certain areas, including areas where some of STRS' most valuable
properties are located. These actions are being actively
opposed by STRS and other interested parties, and management does
not believe unfavorable rulings will have a significant long-term
adverse effect on the overall value of STRS' property holdings.
However, because of the regulatory environment that continues to
exist in the Austin area and the intensive opposition of certain
interest groups, there can be no assurance that such expectations
will prove correct. A more complete discussion of these matters
is set forth under Item 3, "Legal Proceedings."
Environmental Regulation. Real estate development is subject to
state and federal regulations and to possible interruption or
termination on account of environmental considerations,
including, without limitation, air and water quality and
protection of endangered species and their habitats. Certain of
the Barton Creek properties include nesting territories for the
Golden Cheek Warbler, a federally listed endangered species. In
February 1995 STRS received a permit from the U.S. Wildlife
Service pursuant to the Endangered Species Act (the ESA), which
to date has allowed the development of the Barton Creek
properties, free of restrictions under the ESA related to the
maintenance of habitat for the Golden Cheek Warbler.
Additionally, in April 1997, the U.S. Department of Interior
(DOI) listed the Barton Springs Salamander as an endangered
species after a federal court overturned a March 1997 decision by
the DOI not to list the Barton Springs Salamander based on a
conservation agreement between the State of Texas and federal
agencies. The listing of the Barton Springs Salamander hasn't
affected, nor does STRS anticipate it will affect, its Barton
Creek and Lantana properties for several reasons, including the
results of technical studies and STRS' U.S. Fish and Wildlife
Service 10(a) permit obtained in 1995. STRS' Circle C properties
may, however, be affected, although the extent of any impact
cannot be determined at this time. Special interest groups
provided written notice of their intention to challenge STRS'
10(a) permit and compliance with water quality regulations, but
no challenge has yet to occur.
STRS is making, and will continue to make, expenditures with
respect to its real estate development for the protection of the
environment. Emphasis on environmental matters will result in
additional costs in the future.
Competition. STRS' business is highly competitive. A large
number of companies and individuals are engaged in the real
estate business, and many of them possess financial resources
greater than those of STRS. In each of STRS' markets it competes
against local developers who are committed primarily to
particular markets and also against national developers who
acquire properties throughout the United States.
Geographic Concentration and Dependence on the Texas Economy.
STRS' real estate activities are located entirely in the Austin,
Dallas, Houston and San Antonio, Texas areas. Because of STRS'
geographic concentration and limited number of projects, its
<PAGE> 4
operations are more vulnerable to local economic downturns and
adverse project-specific risks than those of larger, more
diversified companies.
The performance of the Texas economy affects sales of STRS'
properties and consequently has an impact on the income derived
from STRS' real estate activities and the underlying values of
property owned by STRS. While the Texas economy has remained
healthy in recent years, current concerns relating to the oil and
gas industry may have a negative effect on this trend.
Natural Risks. STRS' performance may be adversely affected by
weather conditions that delay development or damage property.
Item 2. Properties
The following table provides information on STRS' holdings,
including its inventory of finished lots and acreage to be
developed. The acreage to be developed is broken down into
anticipated uses for single family lots, multi-family units and
commercial development based upon STRS' understanding of the
properties' existing entitlements. However, there is no assurance
that the undeveloped acreage will be so developed due to the
nature of the approval and development process and market demand
for a particular use. See Item 3, "Legal Proceedings," for more
details. For information concerning STRS' real estate holdings
in its unconsolidated affiliates, see "Transaction with Olympus"
above and "Managements Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures of Market
Risk" in Items 7 and 7A below.
<TABLE>
<CAPTION>
Potential Development Acreage
-------------------------------------
Developed Single Multi-
Lots Family family Commercial Total
--------- ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C>
Austin
Barton Creek 6 1,525 249 673 2,447
Lantana - 154 36 323 513
Circle C - - 212 1,062 1,274
Dallas
Bent Tree 8 - 18 - 18
Willow Bend 6 - - - -
Houston
Copper Lakes 68 169 - - 169
San Antonio
Camino Real 17 - 57 - 57
--------- ------ ------ ---------- -------
Total 105 1,848 572 2,058 4,478
========= ====== ====== ========== =======
</TABLE>
Item 3. Legal Proceedings
Various regulatory matters and litigation involving STRS'
development of its Austin properties are summarized below.
Save our Springs (SOS) Ordinance Litigation: Quick, et al. v.
City of Austin, et al., Cause No. 92-0637 (Hays County 22nd
Judicial District Court, Texas filed 10/1/92). In 1992, the City
promoted, and a public initiative enacted, a restrictive water
quality ordinance, the SOS Ordinance. In 1994, the Hays County
Court declared the ordinance unconstitutional. In 1996, the
Austin Court of Appeals reversed the lower court's decision but
upheld the lower court's ruling on certain grandfathered rights
for land previously platted. STRS may benefit from the
grandfathered rights decision because a significant portion of
STRS' Austin area properties was previously platted. On May 8,
1998, the Texas Supreme Court ruled that the SOS ordinance is
valid. At this point, the adverse effect of the Supreme Court's
ruling on STRS' Austin properties is uncertain for two reasons:
(1) the grandfathered rights referenced above, if valid, should
protect previously platted land; and (2) most of STRS' property
has been removed from Austin's jurisdiction because of the
creation of Water Quality Protection Zones (WQPZ), if valid, and
the creation of the Southwest Travis County Water District (the
STCWD) at Circle C, both authorized by Texas state legislation in
1995. However, the STCWD legislation has been declared
unconstitutional by a district court in Austin. Additionally,
the grandfathered rights are affected by the inadvertent repeal
of S.B. 1704 in the 1997 session of the Texas State legislature
and the City has challenged the constitutionality of the
legislation authorizing the creation of the WQPZs, as well as the
validity of the WQPZs, each further 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, Texas filed 1/9/98). On January 9, 1998,
the City filed suit in Travis County District Court against 14 WQPZ
and the their owners, including the Barton Creek WQPZ, challenging the
constitutionality of the legislation authorizing the creation of
water quality zones. The Attorney General of Texas intervened in
<PAGE> 5
this suit and the Circle C WQPZ litigation, described below, to
defend the legislation. The City filed a motion for partial
summary judgment against one defendant and against the State of
Texas. All defendant parties filed motions with regard to
summary judgment. A summary judgment hearing was conducted in
the Travis County District Court on July 9, 1998. The District
Court entered an order granting the City's motion for summary
judgment motion and declaring the WQPZ legislation
unconstitutional. All parties agreed to the form of an order
which permitted an expedited appeal directly to the Texas Supreme
Court. STRS and other defendants filed appeals. The Texas
Supreme Court noted probable jurisdiction and set an expedited
briefing and hearing schedule. Oral argument was presented to
the Texas Supreme Court on December 9, 1998. A ruling is
expected in 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, Texas filed 10/31/97).
Circle C Land Corp., a wholly owned subsidiary of STRS, filed a
WQPZ (Circle C WQPZ) covering all of its 553 acres in the Circle
C development located outside the boundaries of any MUD. In
November 1997, STRS sought a declaratory judgment in the Hays
County District Court to confirm the validity of the Circle C
WQPZ. The District Court denied the City's motion to deny
jurisdiction and transfer venue and, 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 STRS' motion for summary
judgment, pending the Court of Appeals' review of the District
Court's denial of the decision on jurisdiction. The Court of
Appeals refused to stay the summary judgment proceeding and, in
response, the City filed a writ with the Texas Supreme Court. The
Texas Supreme Court accepted the writ and stayed all underlying
litigation. Subsequently, the Court of Appeals confirmed the
trial court's decision on jurisdiction. STRS then filed a motion
to lift the stay with the Supreme Court which was granted. On
September 4, 1998, the Hays County District Court ruled that the
WQPZ enabling legislation was constitutional and that the Circle
C WQPZ was validly created. The City filed a petition for writ of
injunction with the Texas Supreme Court requesting a stay of the
District Court's ruling. On October 22, 1998, the Supreme Court
granted a temporary stay. It is anticipated that the merits of
Hays County District Court's ruling concerning the
constitutionality of the enabling legislation and the validity of
the Circle C WQPZ will be appealed or resolved in connection with
the Supreme Court's resolution of the City's WQPZ action
described above.
Annexation/Circle C MUD Reimbursement Suit: Circle C Land Corp.
v. The City of Austin, Texas, Cause No. 97-13994 (Travis County
53rd Judicial District Court, Texas filed 12/19/97). On December 19,
1997, the City annexed all land formerly lying within the Circle C
project. If the City's annexation is valid, STRS' property located
within Circle C's municipal utility districts (MUD) and annexed
by the City is subject to the City's zoning and development
regulations. Additionally, the City is required to assume all
MUD debt and reimburse STRS for a significant portion of the
costs incurred for water, wastewater and drainage infrastructure.
Because the City failed to pay these costs upon annexation, as
required by statute, STRS sued the City. The City's total
reimbursement obligation to the Circle C developers is currently
estimated at $22 million, of which STRS' share is currently
estimated at approximately $18 million. These proceeds are also
subject to the Phoenix litigation described below. The City's
and STRS' engineers and auditors are reviewing financial and
engineering materials in an effort to reach agreement on the
proper amount of STRS' reimbursement claim. A trial has been set
for May 24, 1999. STRS will continue to pursue this action
vigorously.
Phoenix Litigation: Circle C Land Corp. v. Phoenix Holdings,
Ltd., Cause No. 97-10388 (Travis County 261st Judicial District
Court, Texas filed 2/5/97). In February 1997, Circle C filed a
petition for declaratory judgment against Phoenix, which
purchased the residential portion of Circle C's lands, seeking a
declaration that Circle C is entitled to most of the MUD
reimbursements for infrastructure cost incurred at Circle C.
Phoenix filed a counterclaim in June 1997. In February 1998, the
District Court granted Circle C's summary judgment motion on the
primary case and Phoenix dismissed its counterclaim with
prejudice, but reserved the right to appeal the summary judgment
of the primary case. On April 10, 1998, Phoenix appealed. In
March 1999, the Texas Third Court of Appeals upheld the District
Court's ruling in favor of Circle C. On March 18, 1999, Phoenix
filed a motion for rehearing with the Texas Third Court of
Appeals, which STRS expects will be denied. See "Annexation
litigation" above for the estimated amount of MUD reimbursement
currently due to STRS.
Legislative Matters. In the 1997 Texas State legislative
session, a bill to reorganize a state governmental agency
inadvertently repealed the provisions of law (H.B. 4 and S.B.
1704), which established the grandfathered rights for previously
platted lands. Trial counsel has advised STRS, that in his
opinion, this inadvertent repeal should not affect STRS' rights
to develop its properties. In response to the legislature's
inadvertent repeal, the City enacted an ordinance establishing
regulations on land development that effectively eliminated the
grandfathered rights. The City likely will attempt to apply
these regulations to portions of STRS' Circle C property and
Lantana. If the City takes this position, STRS will assert and
defend its grandfathered entitlements. STRS expects the Texas
State Legislature to remedy this inadvertent repeal in 1999.
<PAGE> 6
SOS Notices of Intent. The SOS coalition (the Coalition) has
issued notices of intent to sue under the Endangered Species Act
and the Clean Water Act. The notice relative to the Endangered
Species Act alleges a non-authorized take of Golden Cheek Warbler
habitat under STRS' Section 10(a) Permit of the Barton Creek
development. The second notice relates to alleged violations of
the Clean Water Act pertaining to the Barton Creek wastewater
treatment plant. This facility is operated pursuant to a "no
discharge" permit from the Texas Natural Resource Conservation
Commission. The Coalition alleges that there is, in fact, an
ongoing discharge of treated effluent into Barton Creek. No suit
has been filed but if suit is brought, STRS will vigorously
defend against these allegations.
STRS maintains liability insurance to cover some, but not
all, potential liabilities normally incident to the ordinary
course of its businesses as well as other insurance coverage
customary in its business, with such coverage limits as
management deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
Certain information, as of March 16, 1999, regarding the
executive officers of STRS is set forth in the following table
and accompanying text.
Name Age Position or Office
---- --- -------------------
William H. Armstrong III 34 Chairman of the Board, President
and Chief Executive Officer
Kenneth N. Jones 39 General Counsel
Mr. Armstrong has been employed by STRS since its inception
in 1992. He has served as STRS' Chairman of the Board since
August 1998, Chief Executive Officer since May 1998 and President
since August 1996. Previously Mr. Armstrong served as Chief
Operating Officer from August 1996 to May 1998 and as Chief
Financial Officer from May 1996 to August 1996. He served as
Executive Vice President from August 1995 to August 1996.
Previously, Mr. Armstrong was a member of the Finance and
Business Development Group of FTX with responsibility for real
estate activities.
Mr. Jones has served as General Counsel of STRS since August
1998. Mr. Jones is a partner with the law firm of Armbrust Brown
& Davis, L.L.P. and provides legal and business advisory services
to STRS under a consulting arrangement with his firm.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
STRS's common stock trades on the Nasdaq National Market under
the symbol STRS. The following table sets forth, for the periods
indicated, the range of high and low sales prices, as reported by
Nasdaq.
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter $ 7.13 $ 4.63 $ 3.94 $ 2.06
Second Quarter 6.63 3.88 3.94 2.31
Third Quarter 4.75 3.00 5.44 2.81
Fourth Quarter 4.13 2.63 5.75 3.03
</TABLE>
STRS has not in the past and does not anticipate in the
foreseeable future paying cash dividends on its common stock.
The decision whether or not to pay dividends and in what amounts
is solely within the discretion of STRS' Board of Directors.
STRS' ability to pay dividends is restricted by the terms of its
credit agreement. As of March 16, 1998 there were 9,015 record
holders of STRS common stock.
Item 6. Selected Financial Data
The following table sets forth selected historical financial data
for STRS for each of the five years in the period ended December
31, 1998. The historical financial information is derived from
the audited financial statements of STRS and is not necessarily
indicative of future results. The following data should be read
in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures
about Market Risks" and STRS' historical financial statements and
notes thereto contained elsewhere in this Form 10-K.
<PAGE> 7
<TABLE>
<CAPTION>
1998 1997 a 1996 1995 1994 b
-------- -------- ------- ------- ---------
(In Thousands, Except PerShare Amounts)
<S> <C> <C> <C> <C> <C>
Years Ended December 31:
Revenues $ 17,590 $ 30,953 $ - $ - $ -
Loss from Partnership - - (346) (571) (118,741)
Operating income (loss) (572) 3,907 (566) (2,367) (122,869)
Net income (loss) (2,638) 7,006c 76 153 (86,290)
Basic net income (loss) per share (0.18) 0.49 0.01 0.01 (6.04)
Diluted net income (loss) per share (0.18) 0.48 0.01 0.01 (6.04)
Basic average shares outstanding 14,288 14,288 14,286 14,286 14,286
Diluted average shares outstanding 14,288 14,517 14,390 14,312 14,286
At December 31:
Real estate and facilities, net 96,556 105,274 - - -
Investment in the Partnership - - 56,055 56,401 56,972
Total assets 111,829 112,754 60,985 60,897 60,903
Stockholders' equity 63,969 66,607 59,599 59,523 59,370
</TABLE>
___________
a. Prior to 1997, reflects STRS' investment in the
Partnership under the equity basis of accounting. See
discussion under "Overview" in Items 7 and 7A below and Note 1
to the financial statements.
b. Includes a $115.0 million ($8.05 per share) charge for
a write-down of real estate assets.
c. Includes a $4.5 million ($0.31 per share) gain from
sale of oil and gas properties.
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures about
Market Risks
Overview
Stratus Properties Inc. (STRS) is engaged in the acquisition,
development and sale of commercial and residential real estate
properties. STRS' principal real estate holdings are currently
in the Austin, Texas area and consist of approximately 2,450
acres of undeveloped residential, multi-family and commercial
property within the Barton Creek development, approximately 1,300
acres of undeveloped 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 99 developed lots, 169 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 unaffiliated 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. As
of December 31, 1998 no amounts have been or are expected to be
paid in connection with these agreements.
On December 22, 1997 Freeport-McMoRan Inc. (FTX) merged into IMC
Global Inc. (IGL) (the Merger). Prior to the Merger, STRS
operated through its 99.8 percent general partnership interest in
STRS Properties Operating Co., a Delaware general partnership
(the Partnership). The remaining 0.2 percent general partnership
interest was held by FTX, which also served as the Partnership's
managing general partner. STRS reflected its investment in the
Partnership on the equity basis of accounting because of certain
rights held by FTX as managing general partner regarding the
Partnership's operations as long as it guaranteed any of the
Partnership's debt. In connection with the Merger, FTX sold its
0.2 percent general partnership interest to STRS and a wholly
owned subsidiary of STRS for $100,000. STRS also restructured and
consolidated its existing debt in December 1997, extending its
availability until January 1, 2001 and provided for staged
reductions in available credit. IGL became guarantor of this
restructured debt in place of FTX. See "Capital Resources and
Liquidity" below. As a result of FTX's sale of its interest,
elimination of its rights as a partner and replacement of the FTX
guarantee with the IGL guarantee, STRS' financial statements
reflect the Partnership's assets, liabilities and operating
results under consolidation accounting effective January 1, 1997
(see Note 1 of Notes to Financial Statements). All subsequent
references to "Notes" refer to the Notes to Financial Statements
located in Item 8 found elsewhere in this Form 10-K.
Transactions With Olympus Real Estate Corporation (Olympus)
On September 30, 1998, STRS and Olympus, an affiliate of Hicks,
Muse, Tate & Furst Incorporated, agreed to enter into two
<PAGE> 8
separate joint real estate transactions, pursuant to a strategic
alliance entered into on May 22, 1998 (see Note 2).
The first transaction involved the sale of STRS' ABC West Phase I
subdivision tract in Barton Creek to a joint venture owned 50
percent each by STRS and Olympus. The joint venture, Oly Stratus
ABC West I Joint Venture (ABC Joint Venture), agreed to pay $3.3
million for the 28 acre tract. This tract has subsequently been
developed into 75 single-family lots which are currently being
marketed. STRS received cash of $2.1 million, a note for $1.2
million and made an equity contribution of $0.5 million upon
formation of the joint venture. 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 closed on a
project development loan with a commercial bank for $3.9 million
in November 1998. The loan is secured by the property held in
the joint venture. Upon closing of the project loan STRS was
reimbursed $1.9 million for development costs already incurred
for 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 (the Walden
Partnership), which owns the Walden on Lake Houston project in
Houston, Texas that Olympus purchased in April 1998. STRS has
managed this project since April 1998 on Olympus' behalf under
the terms of a management agreement. STRS paid $2.0 million for
its share of the Walden Partnership, borrowing funds available
under its $10 million convertible debt facility with Olympus (see
Note 2). STRS will continue to manage this property, which
currently includes approximately 700 developed lots and 80 acres
of platted but undeveloped real estate, and will receive
management fees and commissions for its services. As of December
31, 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 230
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, which
is expected to be completed in the third quarter of 1999. STRS
expects these homesites to be available for sale by late 2000.
Permitting and entitlement issues now being litigated, however,
raise uncertainty about the timing of completion of the projects
at Barton Creek.
At the Lantana project, STRS has completed construction of a $3.0
million water system to serve the approximate 500 undeveloped
acres remaining in the project. The City of Austin (the City)
has approved the completion of this water system and reimbursed
STRS $1.0 million of the system's costs in December 1998, with
the remaining balance to be paid ratably in 1999 and 2000. 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 site work and received a $6.6
million project loan commitment for the 70,000 square foot first
phase of its 140,000 square foot Lantana Corporate Center. STRS
anticipates entering into a joint venture with Olympus for this
project and finalizing the project development loan during the
second quarter of 1999.
STRS is currently entitling approximately 250 acres within Barton
Creek for the development of 54 single family homesites. The
proposed development is being permitted pursuant to the Save Our
Spring (SOS) ordinance (see Note 6). The developed lots could be
marketed as early as year-end 1999 pending timely approval of the
project by the City.
STRS has finalized plans for the development of its 46 acre Bee
Cave tract, which is outside of the City's jurisdictional area.
This development project is anticipated to yield 39 developed
lots and 30,000 square feet of commercial space.
Results Of Operations
As noted above, STRS operates through the Partnership and, prior
to January 1, 1997, reflected the Partnership's results of
operations using the equity method of accounting. Accordingly,
the following discussion and analysis addresses the results of
operations and the capital resources and liquidity of STRS for
1998 and 1997 and of the Partnership for 1996, collectively
referred to as "STRS" hereafter.
During 1997 and 1996 STRS was able to capitalize on sales
opportunities at its properties in the Austin area brought about
by several positive legislative and judicial developments that
occurred during 1995. Previously, development of the STRS'
Austin area properties had been delayed principally because of
disagreements with the City over ordinances governing development
activities in the Barton Creek and Circle C areas. Summary
operating results follow (in thousands):
<PAGE> 9
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues
Developed properties $ 14,457 $ 17,723 $ 44,016
Undeveloped properties and other 2,667 13,230 35,161
Commissions, management fees and other 466 - -
-------- -------- --------
Total revenues 17,590 30,953 79,177
-------- -------- --------
Operating income (loss) (572)a 3,907a 3,534
Net income (loss) (2,638)a 7,006a,b (346)
</TABLE>
a. Includes reimbursement of $0.8 million and $3.1 million for
previously expensed infrastructure costs in 1998 and 1997,
respectively.
b. Includes a $4.5 million gain from sale of oil and gas property
interests.
Revenues from developed properties in 1998 represented the sale
of 213 single family homesites. Revenues from undeveloped
properties for 1998 represented the sale of 2 acres of commercial
property in Dallas and 72 acres of residential land, including
the sale of 28 acres of Barton Creek residential property to the
Oly Stratus ABC West I Joint Venture (see Note 4), 27 acres of
residential property in San Antonio and 17 acres of undeveloped
property within the ABC Midsection subdivision of Barton Creek.
STRS is committed to the long-term strategy of developing single-
family homesites and evaluating commercial development
opportunities rather than selling undeveloped tracts, especially
those located in the Barton Creek development. The ABC
Midsection subdivision tract sold in 1998 had limited development
potential and STRS will continue as developer of the property
sold to the ABC Joint Venture. Revenues from developed properties
for 1997 consisted of $5.4 million from the sale of 146 acres of
residential properties and $12.3 million from the sale of 198
single-family homesites. Revenues from undeveloped properties for
1997 represented the sale of 72 acres of commercial and multi-
family land. Revenues from developed properties during 1996
included the sale of the Barton Creek Country Club and Conference
Resort for $25.0 million and the sale of 393 single-family
homesites located in the Austin, Houston and San Antonio areas
for $19.0 million. Revenues from undeveloped properties during
1996 included two separate sales of undeveloped tracts within the
Barton Creek development totaling 105 acres for $4.8 million; the
sale of several undeveloped, commercial and multi-family tracts
in the Dallas area totaling 79 acres for $12.6 million; and the
sale of 535 other undeveloped acres in the Austin, Dallas and San
Antonio areas for $17.8 million.
General and administrative expenses were $4.0 million in 1998
compared with $2.8 million in 1997 and $2.5 million in 1996. The
increase in 1998 over the prior two years primarily reflects the
costs associated with STRS' ongoing efforts to resolve, through
litigation, attempts by the City to restrict STRS' development
entitlements and to secure reimbursements of approximately $18
million of infrastructure costs incurred in the development of
the Circle C property. Legal expenses totaled $1.5 million, $0.6
million, and $0.4 million for 1998, 1997 and 1996, respectively.
Additionally, the 1998 expenses reflect the allocation of actual
general and administrative expense relating to services provided
by an affiliated services company, which were charged at a fixed
annual amount of $0.5 million prior to 1998 (see Note 9).
In September 1997, STRS sold several working interests and
numerous overriding royalty interests in oil and gas properties,
which had been held since its formation, to McMoRan Oil & Gas Co.
(MOXY), and Phosphate Resource Partners Limited Partnership
(PLP), for $4.5 million cash, resulting in a gain of $4.5
million. At the time of the sale MOXY and PLP were affiliates of
STRS because of FTX's former role as administrative managing
general partner of PLP and because of common management and a
common director shared with MOXY. These interests, which had no
cost basis and included all of STRS' remaining oil and gas
interests, remained with STRS after the sale of substantially all
of its oil and gas properties in 1993. The gain is reflected in
Other Income, and proceeds were used to reduce debt. Other
Income also includes royalty income generated by these properties
totaling $0.8 million for 1997 (prior to the sale) and $1.4
million in 1996.
Net interest expense totaled $2.0 million, $2.2 million and $3.9
million for 1998, 1997 and 1996, respectively. The decrease
represents STRS' repayment of debt over the three-year period
resulting in substantially lower average debt outstanding in each
of the three years. The lower average debt balances were offset
in part by the reduction in capitalized interest, which totaled
$0.4 million, $1.4 million, and $3.1 million for 1998, 1997 and
1996, respectively.
During 1996, STRS agreed to sell the remaining assets of Circle C
for $34.0 million. STRS received a $1.0 million non-refundable
cash deposit, with the balance of the purchase price due in
January 1997. However, the investor group was unable to complete
the sale and the agreement expired. The cash deposit was
recorded as a reduction in the related carrying value of these
<PAGE> 10
properties.
STRS is evaluating the development of income producing properties
on certain of its tracts and continues to consider opportunities
to enter into significant transactions involving its properties.
As a result, and because of numerous other factors inherent in
STRS' business activities as described herein, past operating
results are not necessarily indicative of future trends in
profitability.
Capital Resources And Liquidity
Net cash provided by operating activities totaled $11.1 million
in 1998, $29.5 million in 1997 and $68.7 million in 1996. The
decrease in the 1998 amount from the prior two years reflects the
substantial decrease in sales of STRS' undeveloped properties,
which reflects STRS' commitment to develop its undeveloped tracts
in an effort to maximize the long-term earnings potential
associated with its lands. Operating cash flows in 1997 include
the $4.5 million gain on the sale of oil and gas properties (see
discussion in "Results of Operations" above) and $3.1 million for
reimbursement of previously expensed infrastructure costs, while
operating cash flows during 1996 included $25.0 million from the
sale of the Barton Creek Country Club and Conference Resort.
Net cash used in investing activities totaled $8.8 million in
1998, $9.5 million in 1997 and $5.9 million in 1996. Investing
activities for all three years reflect payments for real estate
and facilities capital expenditures, net of any related municipal
utility district (MUD) reimbursements. In addition, 1998
investing activities include a $2.5 million investment in two
joint ventures (see "Transactions with Olympus" above and Note
4). Decreased 1998 real estate and facility capital expenditures
reflect the constraints on development entitlements resulting
from disputes with the City and others. Additionally, ABC Joint
Venture capital expenditures are not reflected directly in the
accompanying financial statements, as the joint venture's results
are presented using the equity method of accounting. The
increased 1997 expenditures resulted from increased development
requirements for the properties currently being marketed and a
$1.5 million acquisition of Austin-area land. Expenditures
incurred during 1996 reflect the impact of reduced development
restrictions resulting from favorable legislative and judicial
events that occurred in 1995, which enabled STRS to secure land
use and development entitlements, and STRS' success in marketing
and selling undeveloped tracts to sub-developers.
Financing activities consisted of net reductions in outstanding
borrowings totaling $7.9 million in 1998, $21.2 million in 1997
and $63.0 million in 1996. Additionally, STRS' financing
activities in 1998 reflect $10.0 million and $2.0 million in
proceeds from the issuance of mandatorily redeemable preferred
stock and borrowings on the convertible debt facility,
respectively (see Notes 2 and 3). The mandatorily redeemable
preferred stock proceeds were used to reduce outstanding bank
debt, and the convertible debt proceeds were used to fund STRS'
investment in the Walden Partnership (see Note 4).
Sales and limited development activities during the three years
ended December 31, 1998 enabled STRS to generate operating cash
flows that it used to reduce its outstanding debt from $121.3
million at December 31, 1995 to $29.2 million on December 31,
1998. Historically, STRS' funding needs were met largely from
borrowings under its revolving credit facility and term loan,
which provided for an aggregate $50 million of available proceeds
through December 31, 1998. The facility bears interest at rates
tied to the lending bank's prime rate or LIBOR at STRS' option.
On January 1, 1999, STRS' available credit under this agreement
was reduced to $35 million for the duration of 1999. On January
1, 2000 the availability will be further reduced to $15 million.
The facility terminates on January 1, 2001. Under the terms of
the Merger, IGL assumed FTX's guarantee of this credit facility
for a fee (see Note 5). At December 31, 1998, $27.1 million was
outstanding under this facility and $2.1 million was outstanding
under the Olympus convertible debt facility.
During 1998 STRS pursued financing opportunities available
through its relationship with Olympus. On September 30, 1998, the
Walden Partnership, a 50 percent owned, unconsolidated subsidiary
of STRS (see "Transactions with Olympus" above and Note 4),
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
secured by the assets of the Walden Partnership and is non-
recourse to the partners. In addition, the loan is secured by
cash (see discussion below). Interest is payable monthly and is
based on the bank's prime rate or the LIBOR rate at the Walden
Partnership's option. On October 1, 1998, the Walden Partnership
borrowed $6.1 million on this loan and used the proceeds to repay
its outstanding bank debt associated with land acquisition and
development costs incurred on the project.
In November 1998, the ABC Joint Venture closed on a $3.9 million
project development loan facility with the same bank as the
Walden Partnership loan. The three year, variable rate loan is
secured by the assets of the ABC Joint Venture and is non-
recourse to the partners. In addition, the loan is secured by
cash (see discussion below). Interest is payable monthly and
accrues based on the bank's prime rate or LIBOR at the ABC Joint
Venture's option. Upon closing of the project loan STRS was
reimbursed $1.9 million for previously incurred development costs
associated with the project and certain Travis County fiscal
deposits.
<PAGE> 11
The Walden Partnership and ABC Joint Venture loan agreements
required a cash deposit as additional collateral for the
respective loans. As required under the loan agreements upon
closing of the loans, a wholly owned subsidiary of STRS
deposited a total of $3.0 million with the bank. The Walden
Partnership loan agreement provides that the restricted cash
balance ($2.5 million) may be reduced by $0.30 for every $1.00 in
principal reduction. The ABC Joint Venture loan's restricted cash
requirement ($0.5 million) will remain in effect until the loan
has been repaid in its entirety, which is expected to occur no
later than the end of 2000. Olympus has agreed to pay STRS
interest at 12 percent per annum for its 50 percent share of such
restricted cash, net of related interest earned. At December 31,
1998 STRS had $2.8 million of restricted cash deposited with the
bank. STRS may be required to deposit additional restricted cash
for similar joint venture loans in the future.
STRS' future operating cash flows and, ultimately, its ability to
develop its properties and expand its business will be largely
dependent on the level of its real estate sales. In turn, these
sales will be significantly affected by future real estate
values, regulatory issues, development costs, interest rate
levels and the ability of STRS to continue to protect its land
use and development entitlements. Significant development
expenditures remain to be incurred for STRS' Austin-area
properties prior to their eventual sale. STRS' anticipated 1999
capital expenditures will be limited to essential levels as STRS
works to preserve its land use and related rights in various
disputes with the City and others, as more fully explained in
Item 3, "Legal Proceedings." As a result, property sales during
1999 are expected to be lower than in previous years. STRS
believes its near-term capital resource needs can be met
adequately during 1999 from operating cash flows. However, the
debt reduction required under its revolving credit facility will
require raising additional capital by no later than January 1,
2000. STRS therefore is considering other capital raising
alternatives, including various forms of debt and/or equity
financing and other means. STRS is able to obtain up to $50
million in capital from Olympus for the development of existing
properties in which it desires third-party equity participation,
and also believes it can obtain bank financing at a reasonable
cost for refinancing its existing credit facility. However, while
financing for development of STRS' existing properties is
available, obtaining land acquisition financing is generally
expensive and uncertain. While STRS believes it can meet the
capital resource needs discussed above, there can be no assurance
that STRS will generate sufficient cash flow or obtain sufficient
funds to make the required debt reduction to $15 million by
January 1, 2000 under its existing revolving credit 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. Like other companies, STRS cannot, however, 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.
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 that
is not fully Y2K Compliant is its accounting system. The
Services Company has installed, for an affiliated entity, a Y2K
compliant version of the same accounting system used by STRS.
This will allow any installation issues to be identified and
rectified prior to installation of this system at STRS in the
second quarter of 1999. The Services Company 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
<PAGE> 12
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
has been completed. Based on this assessment, STRS does not
believe overall risk from third parties is significant.
The Costs to Address STRS' Y2K Issues Expenditures for the
necessary Y2K related modifications 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 incremental cost of
Y2K Compliance not covered by routine software and hardware
maintenance fees will be less than $0.1 million, most of which is
expected to be incurred in 1999. 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 its detailed 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.
STRS' Contingency Plans 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.
Disclosures About Market Risks
STRS' revenues are derived from the management, development and
sale of its real estate holdings. STRS' net income can vary
significantly with fluctuations in the market prices of real
estate in these areas, which are influenced by numerous factors,
including interest rate levels. Changes in interest rates also
affect STRS' interest expense on its debt. At the present time
STRS does not hedge its exposure to changes in interest rates.
Based on December 31, 1998 outstanding bank debt and interest
rates, a change of 100 basis points in applicable annual interest
rates would have an approximate $0.3 million impact on 1999 net
income.
Environmental
Increasing emphasis on environmental matters is likely to result
in additional costs, which will be charged against the STRS'
operations in future periods when such costs can be estimated.
Present and future environmental laws and regulations applicable
to the STRS' operations may require substantial capital
expenditures, could adversely affect the development of its real
estate interests, or may affect its operations in other ways that
cannot be accurately predicted at this time.
Cautionary Statement
Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures about Market Risks 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
STRS, changes in laws or regulations and other factors, many of
which are beyond the control of STRS and other factors that are
described in more detail under the heading "Cautionary
Statements" under Item 1 in this Form 10-K.
<PAGE> 13
Item 8. Financial Statements and Supplementary Data
REPORT OF MANAGEMENT
Stratus Properties Inc. (STRS) is responsible for the
preparation of the financial statements and all other information
contained in this Annual Report. The financial statements have
been prepared in conformity with generally accepted accounting
principles and include amounts that are based on management's
informed judgments and estimates.
STRS maintains a system of internal accounting controls
designed to provide reasonable assurance at reasonable costs that
assets are safeguarded against loss or unauthorized use, that
transactions are executed in accordance with management's
authorization and that transactions are recorded and summarized
properly. The system is tested and evaluated on a regular basis
by STRS' internal auditors, PricewaterhouseCoopers LLP. In
accordance with generally accepted auditing standards, STRS'
independent public accountants, Arthur Andersen LLP, have
developed an overall understanding of our accounting and
financial controls and have conducted other tests as they
consider necessary to support their opinion on the financial
statements.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, is responsible for overseeing
the integrity and reliability of STRS' accounting and financial
reporting practices and the effectiveness of its system of
internal controls. Arthur Andersen LLP and PricewaterhouseCoopers LLP
meet regularly with, and have access to, this committee, with and
without management present, to discuss the results of their audit
work.
William H. Armstrong III
Chairman of the Board, President
and Chief Executive Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF STRATUS PROPERTIES INC.:
We have audited the accompanying balance sheets of Stratus
Properties Inc. (a Delaware Corporation) as of December 31, 1998
and 1997, and the related statements of operations, cash flow and
changes in stockholders' equity for each of the three years in
the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Stratus Properties Inc. as of December 31, 1998 and 1997 and
the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Austin, Texas
January 19, 1999
<PAGE> 14
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
BALANCE SHEETS
December 31,
----------------------
1998 1997
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted
cash of $2.8 million at December 31, 1998 (Note 4) $ 5,169 $ 873
Accounts receivable:
Property sales 525 1,265
Other 408 316
Prepaid expenses 361 473
Total current assets 6,463 2,927
--------- ---------
Real estate and facilities, net (Note 6) 96,556 105,274
Investments in and advances to unconsolidated
affiliates (Note 4) 2,468 -
Other assets, including related party
receivable (Note 4) 6,342 4,553
--------- ---------
Total assets $ 111,829 $ 112,754
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 583 $ 1,231
Accrued interest, property taxes and other 1,861 1,789
--------- ---------
Total current liabilities 2,444 3,020
Long-term debt 29,178 37,118
Other liabilities 6,238 6,009
Mandatorily redeemable preferred stock (Note 3) 10,000 -
Stockholders' equity:
Preferred stock, par value $0.01, 50,000,000 shares
authorized, and unissued - -
Common stock, par value $0.01, 150,000,000 shares
authorized, 14,288,270 issued and outstanding 143 143
Capital in excess of par value of common stock 176,447 176,447
Accumulated deficit (112,621) (109,983)
--------- ---------
Total stockholders equity 63,969 66,607
--------- ---------
Total liabilities and stockholders' equity $ 111,829 $ 112,754
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 15
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- ------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C> <C>
Revenues $ 17,590 $ 30,953 $ -
Costs and expenses:
Cost of sales 14,118 24,294 -
General and administrative expenses 4,044 2,752 220
-------- -------- ------
Total costs and expenses 18,162 27,046 220
-------- -------- ------
Loss from the Partnership (Note 7) - - (346)
-------- -------- ------
Operating income (loss) (572) 3,907 (566)
Other income, net 66 5,375 116
Interest expense, net (2,019) (2,181) -
-------- -------- ------
Income (loss) before income tax benefit
and minority interest (2,525) 7,101 (450)
Income tax benefit (expense) (87) (80) 526
Minority interest in net income of
the Partnership - (15) -
Equity in losses of unconsolidated
affiliates (26) - -
-------- -------- ------
Net income (loss) $ (2,638) $ 7,006 $ 76
======== ======== ======
Net income (loss) per share:
Basic $(0.18) $0.49 $0.01
Diluted $(0.18) $0.48 $0.01
Average shares outstanding:
Basic 14,288 14,288 14,286
Diluted 14,288 14,517 14,390
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<TABLE>
<CAPTION>
STRATUS PROPERITES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
Capital
in
Excess
Preferred Common of Par Accumulated
Stock Stock Value Deficit Total
--------- ------ --------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ 143 $ 176,445 $(117,065) $ 59,523
Net income - - - 76 76
--------- ------ --------- --------- --------
Balance at December 31, 1996 - 143 176,445 (116,989) 59,599
Stock options exercised - - 2 - 2
Net income - - - 7,006 7,006
--------- ------ --------- --------- --------
Balance at December 31, 1997 - 143 176,447 (109,983) 66,607
Net loss - - - (2,638) (2,638)
--------- ------ --------- --------- --------
Balance at December 31, 1998 $ - $ 143 $ 176,447 $(112,621) $ 63,969
========= ====== ========= ========= ========
</TABLE>
<PAGE> 16
The accompanying notes are an integral part of these financial
statements.
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ (2,638) $ 7,006 $ 76
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 76 104 -
Cost of real estate sales 14,989 23,729 -
Equity in losses of unconsolidated affiliates 26 - -
Minority interest's share of Partnership
net income - 15
Excess of equity in losses of the
Partnership over distributions received - - 346
(Increase) decrease in working capital:
Accounts receivable and prepaid expenses 620 2,582 (2,624)
Accounts payable and accrued liabilities (662) (2,734) 12
Accrued income and other taxes 87 - 2,190
Other (1,422) (1,183) -
-------- -------- --------
Net cash provided by operating activities 11,076 29,519 -
Cash flow from investing activities:
Real estate and facilities (6,346) (9,547) -
Investment in ABC West I Joint Venture (494) - -
Investment in Oly Walden Partnership (1,999) - -
-------- -------- --------
Net cash used in investing activities (8,839) (9,547) -
Cash flow from financing activities:
Proceeds from preferred stock issuance 10,000 - -
Repayment of debt, net (9,940) (21,207) -
Proceeds from convertible debt facility 1,999 - -
-------- -------- --------
Net cash provided by (used in)
financing activities 2,059 (21,207)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 4,296 (1,235)
Cash and cash equivalents at beginning of year 873 2,108 -
-------- -------- --------
Cash and cash equivalents at end of year $ 5,169 $ 873 $ -
======== ======== ========
Interest paid $ 2,338 $ 3,351 $ -
======== ======== ========
Income taxes paid (refunded) $ (118) $ 220 $ -
======== ======== ========
</TABLE>
<PAGE> 17
The accompanying notes are an integral part of these financial
statements.
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Accounting. The real estate development and marketing
operations of STRS Properties Inc. (STRS) are conducted in Austin
and other urban areas of Texas through its investment in Stratus
Properties Operating Co., a Delaware general partnership (the
Partnership). Prior to December 22, 1997, STRS owned a 99.8
percent general partnership interest in the Partnership and
Freeport-McMoRan Inc. (FTX), STRS' former parent, owned the
remaining 0.2 percent general partnership interest and served as
managing general partner. FTX had certain rights regarding the
Partnership's operations as long as it guaranteed any of the
Partnership's debt (Note 5). Because of FTX's rights, STRS
reflected its investment in the Partnership under the equity
basis of accounting.
On December 22, 1997 FTX merged into IMC Global Inc. (IGL)
(the Merger). In connection with the Merger, FTX sold its 0.2
percent general partnership interest to STRS and a subsidiary of
STRS for $100,000. STRS also restructured and consolidated its
existing debt in December 1997, extending its availability until
January 1, 2001 and providing for staged reductions in available
credit. IGL became guarantor of this restructured debt in place
of FTX. As a result of FTX's sale of its interest and the
replacement of the FTX guarantee with the IGL guarantee, the
accompanying financial statements and related footnotes reflect
the Partnership's financial position and results of operations
under consolidation accounting effective January 1, 1997 and
under the equity basis of accounting for all previous periods.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying
notes. The more significant estimates include valuation
allowances for deferred tax assets, estimates of future cash
flows from development and sale of real estate properties, and
useful lives for depreciation and amortization. Actual results
could differ from those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased
with a maturity of three months or less are considered cash
equivalents.
Financial Instruments. The carrying amounts of property sales
and other receivables, other current assets, accounts payable and
long-term borrowings reported in the balance sheet approximate
fair value.
Earnings Per Share. 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 year. Diluted net income (loss) 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 year plus the net effect of dilutive stock options,
which represented approximately 229,000 shares in 1997 and
104,000 shares in 1996. STRS had options outstanding to purchase
a total of approximately 275,000 common shares excluded from the
calculation as anti-dilutive considering the loss reported in
1998. STRS' outstanding mandatorily redeemable preferred stock
and outstanding convertible debt were not included in the 1998
computation of diluted net loss per share of common stock because
the conversion of these shares would have decreased the net loss
per share. As a result, the mandatorily redeemable preferred
stock and outstanding convertible debt convertible into 1.7
million and 282,000 shares of common stock, respectively, were
not considered in the determination of diluted EPS. During 1998
there were no dividends accrued on the mandatorily redeemable
preferred stock and interest expense on the convertible debt
totaled approximately $61,000.
Outstanding options to purchase approximately 295,000 shares
at an average exercise price of $6.14 in 1998, 235,000 shares at
an average exercise price of $5.23 per share in 1997 and 300,000
shares at an average exercise price of $4.61 per share in 1996
were not included in the computation of diluted net income (loss)
per share because their exercise prices were greater than the
average market price for the years presented.
Investment in Real Estate. Real estate assets are stated at the
lower of cost or net realizable value and include acreage,
development, construction and carrying costs, and other related
costs through the development stage. Capitalized costs are
assigned to individual components of a project, as practicable,
whereas interest and other common costs are allocated based on
the relative fair value of individual land parcels. Carrying
costs are capitalized on properties currently under active
development. Revenues are recognized when the risks and rewards
of ownership are transferred to the buyer and the consideration
received can be reasonably determined.
When events or circumstances indicate that asset carrying
amounts may not be recoverable, a reduction of the carrying
amount of long-lived assets to fair value is required.
Measurement of the impairment loss is based on the fair value of
<PAGE> 18
the asset. Generally, STRS determines fair value using valuation
techniques such as expected future cash flows. No impairment
losses are reflected in the accompanying financial statements.
Investment in Unconsolidated Affiliates. STRS' investment in its
affiliated 20 percent to 50 percent owned joint ventures and
partnerships are accounted for on the equity method. STRS' real
estate sales to these entities are deferred to the extent of its
ownership interest in the unconsolidated affiliate. The deferred
revenues are recognized ratably as the unconsolidated affiliates
sell the real estate to unrelated third parties.
2. 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 one member or up to 20 percent
of STRS' Board of Directors, whichever is greater.
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 3 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 under this
convertible debt facility to fund its investment in the Oly
Walden General Partnership (see Note 4). Interest under this
facility accrues at 12 percent and is payable quarterly or added
to principal at Olympus' option. Through December 31, 1998,
Olympus had elected to add the interest to principal, resulting
in an outstanding amount on the facility of approximately $2.1
million on this date. 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, of which it had committed approximately $3.6
million at December 31, 1998, 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.
3. 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.
4. Investment in Unconsolidated Affiliates
On September 30, 1998, STRS entered into a joint venture with
Olympus to develop 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 ABC 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 ABC Joint Venture. STRS received $2.1
<PAGE> 19
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,
commissions and other incentives for its services. STRS accounts
for its investment in the ABC Joint Venture using the equity
method.
Also on September 30, 1998, STRS acquired a 50 percent
interest in the Oly Walden General Partnership (the Walden
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 Walden Partnership, borrowing
funds available to it under its $10 million convertible debt
facility with Olympus (see Note 2). STRS will continue to manage
this property, which currently includes approximately 700
developed lots and 80 acres of platted but undeveloped real
estate. STRS will receive management fees and commissions for
its services. STRS accounts for its investment in the Walden
Partnership using the equity method.
On September 30, 1998, the Walden 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 secured by the
assets of the Walden Partnership and is non-recourse to the
partners. In addition, the loan is secured by cash (see
discussion below). Interest is payable monthly and is based on
the bank's prime rate or the LIBOR rate at the Walden
Partnership's option. On October 1, 1998, the Walden Partnership
borrowed $6.1 million on this loan and used the proceeds to repay
its outstanding bank debt associated with land acquisition and
development costs incurred on the project.
In November 1998, the ABC Joint Venture closed on a $3.9
million project development loan facility with the same bank as
the Walden Partnership loan. The three year, variable rate loan
is secured by the assets of the ABC Joint Venture and is non-
recourse to the partners. In addition, the loan is secured by
cash (see discussion below). Interest is payable monthly and
accrues based on the bank's prime rate or LIBOR at the ABC Joint
Venture's option. Upon closing of the project loan STRS was
reimbursed $1.9 million for previously incurred development costs
associated with the project and certain Travis County fiscal
deposits.
As discussed above, the Walden Partnership and ABC Joint
Venture loan agreements required a cash deposit as additional
collateral for the respective loans. As required under the loan
agreements upon closing, a wholly owned subsidiary of STRS
deposited a total of $3.0 million with the bank. The Walden
Partnership loan agreement provides that the restricted cash
balance may be reduced by $0.30 for every $1.00 in principal
reduction. The ABC Joint Venture loan's restricted cash
requirement ($0.5 million) will remain in effect until the loan
has been repaid in its entirety, which is expected to occur
during 1999. Olympus has agreed to pay STRS interest at 12
percent per annum for its 50 percent share of such restricted
cash, net of related interest earned. At December 31, 1998 STRS
had $2.8 million of restricted cash deposited with the bank. STRS
may be required to deposit additional restricted cash for similar
joint venture loans in the future.
There were no dividends received from either unconsolidated
affiliate during 1998. The summarized unaudited financial
information of STRS' unconsolidated affiliates is shown below as
of December 31, 1998 and for the period from inception (September
30, 1998) to December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
ABC Walden
Joint Venture Partnership Total
------------- ----------- -------
<S> <C> <C> <C>
Earnings data (inception to
December 31, 1998):
Revenue $ - $ 875 $ 875
Operating loss - (75) (75)
Net loss - (51) (51)
STRS' equity in net losses - (26) (26)
Balance sheet data (at
December 31, 1998):
Current assets 21 726 747
Real estate and facilities, net 4,666 9,859 14,525
Total assets 4,687 10,662 15,349
Current liabilities 103 2,298 2,401
Total liabilities 3,698 9,630a 13,328
Net assets 989 600 2,021
STRS' equity in net assets 494 299 793
</TABLE>
a. Includes a $1.7 million note payable to STRS.
<PAGE> 20
5. Long-Term Debt
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- --------
(In Thousands)
<S> <C> <C>
Bank credit facility and term loan,
average rate 6.0% in 1998 and 6.6% in 1997 $ 27,118 $ 37,118
Convertible debt facility with Olympus,
average rate 12% in 1998 (Note 2) 2,060 -
-------- --------
$ 29,178 $ 37,118
======== ========
</TABLE>
STRS has a commercial bank credit facility that provided for
borrowings of up to $50 million as of December 31, 1998. This
commitment reduced to $35 million as of January 1, 1999, and will
be further reduced to $15 million on January 1, 2000, and will
terminate on January 1, 2001. Borrowings accrue interest at
rates based on either the lender's prime rate or LIBOR at STRS'
option. The credit facility contains covenants restricting
dividends or other distributions, mergers, additional debt, and
certain other activities. IGL has guaranteed amounts borrowed
under the facility. As consideration for IGL's guarantee, STRS
pays IGL 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 previous rate on
LIBOR-funded loans. This fee was 60 basis points (0.6 percent)
annually as of December 31, 1998. STRS has granted liens in
favor of IGL on certain of its properties as security for the
guarantee. This arrangement with IGL provides for the release of
these liens in connection with property sales, subject to certain
restrictions. Additionally, as long as the IGL guarantee remains
outstanding, STRS cannot amend or refinance the credit facility
without IGL's consent. Capitalized interest totaled $0.4 million
in 1998, $1.4 million in 1997 and $3.1 million in 1996.
6. Real Estate
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
-------- ---------
(In Thousands)
<S> <C> <C>
Land held for development or sale:
Austin, Texas area, net of accumulated
depreciation of $122,000 for 1998 and
$46,000 for 1997 $ 87,199 $ 85,098
Other areas of Texas 9,357 20,176
-------- ---------
$ 96,556 $ 105,274
======== =========
</TABLE>
STRS' investment in real estate includes approximately 4,500
acres of land located in Austin, Dallas, Houston and San Antonio,
Texas. STRS' principal holdings are in the Austin area and
consist of approximately 2,450 acres of undeveloped residential,
multi-family 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 owns 99 developed lots, 169 acres of undeveloped
residential property and 75 acres of undeveloped commercial and
multi-family residential property located in Dallas, Houston and
San Antonio, Texas, which are being managed and actively marketed
by unaffiliated professional real estate developers. Under the
terms of the related development agreements, the operating
expenses and development costs, net of revenues, are funded by
STRS. 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
the managed properties. As of December 31, 1998 no amounts have
been or are expected to be paid in connection with these
agreement provisions.
During 1996, STRS agreed to sell the remaining assets of
Circle C for $34.0 million and received a $1.0 million non-
refundable cash deposit, with the balance of the purchase price
due in January 1997. However, the investor group was unable to
complete the sale and the agreement expired. STRS has no further
obligation to the investor group and is proceeding with
developing and marketing the Circle C commercial and multi-family
properties. The cash deposit was recorded as a reduction in the
related carrying value of these properties.
Various regulatory matters and litigation involving STRS'
development of its Austin-area properties are summarized below.
<PAGE> 21
Save our Springs (SOS) Ordinance Litigation - In 1992, the
City promoted, and a public initiative enacted, a restrictive
water quality ordinance, the SOS Ordinance. In 1994, the Hays
County Court declared the ordinance unconstitutional. In 1996,
the Austin Court of Appeals reversed the lower court's decision
but upheld the lower court's ruling on certain grandfathered
rights for land previously platted. STRS may benefit from the
grandfathered rights decision because a significant portion of
STRS' Austin area properties was previously platted. On May 8,
1998, the Texas Supreme Court ruled that the SOS ordinance is
valid. At this point, the adverse effect of the Supreme Court's
ruling on STRS' Austin properties is uncertain for two reasons:
(1) the grandfathered rights described above, if valid, should
protect previously platted land; and (2) most of STRS' property
has been removed from Austin's jurisdiction because of the
creation of Water Quality Protection Zones (WQPZ), if valid, and
the creation of the Southwest Travis County Water District (the
STCWD) at Circle C, both authorized by Texas state legislation in
1995. However, the STCWD legislation has been declared
unconstitutional by a district court in Austin. Additionally,
the grandfathered rights are affected by the inadvertent repeal
of S.B. 1704 in the 1997 session of the Texas State legislature
and the City has challenged the constitutionality of the
legislation authorizing the creation of the WQPZs, as well as the
validity of the WQPZs, each further described below.
The City's WQPZ Action - On January 9, 1998, the City filed
suit in Travis County District Court against 14 WQPZ and their
owners, including the Barton Creek WQPZ, challenging the
constitutionality of the legislation authorizing the creation of
water quality zones. The Attorney General of Texas intervened in
this suit and the Circle C WQPZ litigation below, to defend the
legislation. The City filed a motion for partial summary
judgment against one defendant and against the State of Texas.
All defendant parties filed motions with regard to summary
judgment. A summary judgment hearing was conducted in the Travis
County District Court on July 9, 1998. The District Court
entered an order granting the City's motion for summary judgment
motion and declaring the WQPZ legislation unconstitutional. All
parties agreed to the form of an order which permitted an
expedited appeal directly to the Texas Supreme Court. STRS and
other defendants filed appeals. The Texas Supreme Court noted
probable jurisdiction and set an expedited briefing and hearing
schedule. Oral argument was presented to the Texas Supreme Court
on December 9, 1998. A ruling is expected in 1999.
Circle C WQPZ Litigation - Circle C Land Corp., a wholly
owned subsidiary of STRS, filed a WQPZ (Circle C WQPZ) covering
all of its 553 acres in the Circle C development located outside
the boundaries of any MUD. In November 1997, STRS sought a
declaratory judgment in the Hays County District Court to confirm
the validity of the Circle C WQPZ. The District Court denied the
City's motion to deny jurisdiction and transfer venue and, 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
STRS' motion for summary judgment, pending the Court of Appeals'
review of the District Court's denial of the decision on
jurisdiction. The Court of Appeals refused to stay the summary
judgment proceeding and, in response, the City filed a writ with
the Texas Supreme Court. The Texas Supreme Court accepted the
writ and stayed all underlying litigation. Subsequently, the
Court of Appeals confirmed the trial court's decision on
jurisdiction. STRS then filed a motion to lift the stay with the
Supreme Court which was granted. On September 4, 1998, the Hays
County District Court ruled that the WQPZ enabling legislation
was constitutional and that the Circle C WQPZ was validly
created. The City filed a petition for writ of injunction with
the Texas Supreme Court requesting a stay of the District Court's
ruling. On October 22, 1998, the Supreme Court granted a
temporary stay. It is anticipated that the merits of Hays County
District Court's ruling concerning the constitutionality of the
enabling legislation and the validity of the Circle C WQPZ will
be appealed or resolved in connection with the Supreme Court's
resolution of the City's WQPZ action described above.
Annexation/Circle C MUD Reimbursement Litigation - On
December 19, 1997, the City annexed all land formerly lying
within the Circle C project. If the City's annexation is valid,
STRS' property located within Circle C's municipal utility
districts (MUD) and annexed by the City is subject to the City's
zoning and development regulations. Additionally, the City is
required to assume all MUD debt and reimburse STRS for a
significant portion of the costs incurred for water, wastewater
and drainage infrastructure. Because the City failed to pay
these costs upon annexation, STRS sued the City. The City's total
reimbursement obligation to the Circle C developers is currently
estimated at $22 million, of which STRS' share is currently
estimated at approximately $18 million. These proceeds are also
subject to the Phoenix litigation described below. The City's
and STRS' engineers and auditors are reviewing financial and
engineering materials in an effort to reach agreement on the
proper amount of STRS' reimbursement claim. A trial has been set
for May 24, 1999. STRS will continue to pursue this action
vigorously.
Phoenix Litigation - In February 1997, Circle C filed a
petition for declaratory judgment against Phoenix, which
purchased the residential portion of Circle C's lands, seeking a
declaration that Circle C is entitled to most of the MUD
reimbursements for infrastructure cost incurred at Circle C.
Phoenix filed a counterclaim in June 1997. In February 1998, the
District Court granted Circle C's summary judgment motion on the
primary case and Phoenix dismissed its counterclaim with
<PAGE> 22
prejudice, but reserved the right to appeal the summary judgment
of the primary case. On April 10, 1998, Phoenix appealed. See
"Annexation litigation" above for the estimated amount of MUD
reimbursements currently due to STRS.
Legislative Matters - In the 1997 Texas State legislative
session, a bill to reorganize a state governmental agency
inadvertently repealed the provisions of law (H.B. 4 and S.B.
1704), which established the grandfathered rights for previously
platted lands. Trial counsel has advised STRS, that in his
opinion, this inadvertent repeal should not affect STRS' rights
to develop its properties. In response to the legislature's
inadvertent repeal, the City enacted an ordinance establishing
regulations on land development that effectively eliminated the
grandfathered rights. The City likely will attempt to apply
these regulations to portions of STRS' Circle C property and
Lantana. If the City takes this position, STRS will assert and
defend its grandfathered entitlements. STRS expects the Texas
State Legislature to remedy this inadvertent repeal in 1999.
SOS Notices of Intent - The SOS coalition (the Coalition)
has issued notices of intent to sue under the Endangered Species
Act and the Clean Water Act. The notice relative to the
Endangered Species Act alleges a non-authorized take of Golden
Cheek Warbler habitat under STRS' Section 10(a) Permit of the
Barton Creek development. The second notice relates to alleged
violations of the Clean Water Act pertaining to the Barton Creek
wastewater treatment plant. This facility is operated pursuant
to a "no discharge" permit from the Texas Natural Resource
Conservation Commission. The Coalition alleges that there is, in
fact, an ongoing discharge of treated effluent into Barton Creek.
No suit has been filed but if suit is brought, STRS will
vigorously defend against these allegations.
7. Investment in the Partnership
Shown below are the condensed statements of operations and cash
flow for the year ended December 31, 1996 relating to STRS'
investment in the Partnership (see Note 1). These statements
should be read in conjunction with STRS' financial statements and
accompanying footnotes (in thousands).
<TABLE>
<CAPTION>
Statement Of Operations
<S> <C>
Revenues $ 79,177
Costs and expenses:
Cost of sales 73,347
General and administrative expenses 2,296
---------
Total costs and expenses 75,643
---------
Operating income 3,534
Interest expense, net (3,896)
Other income, net 16
---------
Net loss $ (346)
=========
Statement Of Cash Flow
Cash flow from operating activities:
Net loss $ (346)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,484
Cost of real estate sales 66,466
(Increase) decrease in working capital: 1,134
---------
Net cash provided by operating activities 68,738
---------
Real estate and facilities (5,943)
---------
Net cash used in investing activities (5,943)
---------
Repayment of debt, net (62,969)
---------
Net cash used in financing activities (62,969)
---------
Net decrease in cash and cash equivalents $ (174)
=========
Interest paid $ 10,481
=========
</TABLE>
8. Income Taxes
Income taxes are recorded pursuant to SFAS 109 "Accounting for
Income Taxes." STRS has provided a valuation allowance equal to
its deferred tax assets because of the expectation of incurring
tax losses for the near future. The components of deferred taxes
follow:
<PAGE> 23
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
--------- --------
(in Thousands)
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating losses (expire 2001-2018) $ 15,355 $ 12,509
Real estate and facilities, net (8,945) (7,511)
Alternative minimum tax credits and
depletion allowance (no expiration) 838 800
Other future deduction carryforwards
(expire 1999-2003) 390 319
Valuation allowance (7,638) (6,117)
--------- --------
$ - $ -
========= ========
</TABLE>
STRS recognized a tax benefit of $0.5 million in 1996 for
the carryback of its tax loss to recoup taxes paid in previous
years. Income taxes credited (charged) to income follow:
<TABLE>
<CAPTION>
1998 1997 1996
------ ----- ------
(In Thousands)
<S> <C> <C> <C>
Current income tax benefit (expense)
Federal $ - $ - $ 526
State (87) (80) -
------ ----- ------
(87) (80) 526
------ ----- ------
Income tax benefit (expense) $ (87) $ (80) $ 526
====== ===== ======
</TABLE>
Reconciliations of the differences between the income tax
(charges) benefits computed at the federal statutory tax rate and
the income tax (expense) benefit recorded follow:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- --------------
Amount Percent Amount Percent Amount Percent
------- ------- ------- ------- ------ -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit (expense)
computed at the federal
statutory income tax rate $ 893 35 % $(2,485) (35)% $ 158 35%
Increase (decrease)
attributable to:
Change in valuation allowance (1,521) (59) 3,168 45 (169) (37)
State taxes and other 541 21 (763) (11) 537 119
------- ------- ------- ------- ------ -------
Income tax benefit (expense) $ (87) (3)% $ (80) (1)% $ 526 117%
======= ======= ======= ======= ====== =======
</TABLE>
9. Transactions with Affiliates
Management Services. FM Services Company (Services Company),
owned 10 percent by STRS, provides certain management and
administrative services to STRS including technical,
administrative, accounting, financial, tax and other services
under a management services agreement. Prior to January 1, 1998
services had been provided to STRS at a fixed annual fee of $0.5
million, subject to annual cost of living increases. Effective
January 1, 1998 the Services Company implemented a new management
services agreement whereby these same services are provided on a
cost reimbursement basis. Fees paid to Services Company totaled
$1.0 million in 1998 and $0.5 million in 1997 and 1996. STRS
believes the costs of these services do not differ materially
from those costs that would have been incurred had the relevant
personnel providing these services been employed directly by STRS
during 1998.
Sale of Oil & Gas Interests. In September 1997, STRS sold
several working interests and numerous overriding royalty
interests in oil and gas properties which had been held since its
formation to McMoRan Oil & Gas Co. (MOXY) and Phosphate Resource
Partners Limited Partnership (PLP) for $4.5 million cash,
resulting in a gain of $4.5 million. PLP was an affiliate of
STRS prior to the Merger because of FTX's former role as
administrative managing general partner of PLP. MOXY was a STRS
affiliate at that time because of common management and a common
director shared with STRS. These interests, which had no cost
basis, remained with STRS after the sale of substantially all of
its oil and gas properties in 1993. The gain is reflected in
Other Income and proceeds were used to reduce debt. Other Income
also includes royalty income generated by these properties
totaling $0.8 million for 1997 (prior to the sale) and $1.4
million for 1996.
10. Employee Benefits
Stock Options. STRS' Stock Option Plan and Stock Option Plan
for Non-Employee Directors (the Plans) provide for the issuance
of up to a total of 1.3 million stock options and stock
appreciation rights (SARs) at no less than market value at time
of grant. In May 1998, STRS' shareholders approved the 1998
Stock Option Plan (the 1998 Plan). Under terms of the 1998 plan
<PAGE> 24
STRS can grant options representing 850,000 shares of common
stock, of which 241,500 were granted through December 31, 1998.
Generally, stock options are exercisable in 25 percent annual
increments beginning one year from the date of grant and expire
10 years after the date of grant. A summary of stock options
outstanding, including 150,000 SARs, follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------- ------------------ -----------------
Average Average Average
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
---------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 1,050,000 $ 2.98 790,000 $ 2.77 535,000 $ 3.23
Granted 304,000 6.05 280,000 3.55 305,000 1.79
Exercised (50,000) 1.75 (2,500) 1.50 - -
Expired/Forfeited (236,375) 5.21 (17,500) 2.64 (50,000) 1.81
---------- --------- --------
End of year 1,067,625 3.42 1,050,000 2.98 790,000 2.77
========== ========= ========
</TABLE>
At December 31, 1998, 1,029,875 shares were available for
new grants under the Plans. Summary information of fixed stock
options outstanding at December 31, 1998 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------- --------------------
Weighted Weighted
Number Average Average Average
Of Remaining Option Number Option
Range of Exercise Prices Options Life Price of Option Price
- ------------------------ ------- --------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
$1.50 to $1.81 280,000 7.0 years $ 1.57 155,000 $ 1.59
$2.63 to $3.50 342,500 8.2 years 3.32 102,500 3.20
$4.81 to $6.19 295,125 9.3 years 6.14 3,125 5.09
------- -------
917,625 260,625
======= =======
</TABLE>
STRS has adopted the disclosure-only provisions of SFAS 123,
"Accounting for Stock Based Compensation," and continues to apply
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting
for its stock-based compensation plans. Accordingly, no
compensation cost has been recognized for STRS' fixed stock
option grants. Had compensation cost for STRS' fixed stock option
grants been determined based on the fair value at the grant dates
for awards under those plans consistent with SFAS 123, STRS' net
loss would have increased by $523,000 ($0.04 per share) in 1998,
and its net income would have decreased by $252,000 ($0.02 per
share) in 1997 and $104,000 ($0.01 per share) in 1996. For the
pro forma computations, the fair values of the fixed option
grants were estimated on the dates of grant using the Black-
Scholes option pricing model. These values totaled $4.35 per
option in 1998, $2.76 per option in 1997, $1.46 per option in
1996. The weighted average assumptions used include a risk-free
interest rate of 5.7 percent in 1998, 6.7 percent in 1997 and 6.4
percent in 1996, expected lives of 10 years and expected
volatility of 55 percent in 1998, 62 percent in 1997 and 70
percent in 1996. These pro forma effects are not representative
of future years because they do not take into consideration
grants made prior to 1995. No other discounts or restrictions
related to vesting or the likelihood of vesting of fixed stock
options were applied.
11. Commitments and Contingencies
STRS has made, and will continue to make, expenditures at its
operations for protection of the environment. Increasing
emphasis on environmental matters can be expected to result in
additional costs, which will be charged against STRS' operations
in future periods. Present and future environmental laws and
regulations applicable to the STRS' operations may require
substantial capital expenditures, could adversely affect the
development of its real estate interests or may affect its
operations in other ways that cannot be accurately predicted at
this time.
In connection with the sale of one of its oil and gas
properties in 1993, the Company indemnified the purchaser for any
future abandonment costs in excess of net revenues received by
the purchaser. The Company has accrued $3.0 million relating to
this contingent liability, included in Other Liabilities, which
it believes to be adequate.
<PAGE> 25
12. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Operating Net Net Income
Income Income (Loss)Per Share
Revenues (Loss) (Loss) Basic Diluted
-------- ------- ------- ------ -------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1998
1st Quarter $ 2,655 $ (385)a $ (883)a $ (.06)a $ (.06)a
2nd Quarter 3,408 (704) (1,160) (.08) (.08)
3rd Quarter 6,239 1,044 566 .04 .03
4th Quarter 5,288 (527) (1,161) (.08) (.08)
-------- ------- -------
$ 17,590 $ (572) $(2,638) (.18) (.18)
======== ======= =======
1997
1st Quarter $ 15,070 $ 2,491 $ 1,972 $ .14 $ .14
2nd Quarter 5,191 1,756b 1,744b .12b .12b
3rd Quarter 4,037 (637) 3,455c .24c .24c
4th Quarter 6,655 297 (165) (.01) (.01)
-------- ------- -------
$ 30,953 $ 3,907 $ 7,006 .49 .48
======== ======= =======
</TABLE>
a. Includes a $0.8 million ($0.06 per share) reimbursement of
previously expensed infrastructure costs.
b. Includes a $3.1 million ($0.22 per share) reimbursement of
previously expensed infrastructure costs.
c. Includes a $4.5 million ($0.31 per share) gain from sale of
oil and gas property interests.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the caption "Information
About Nominees and Directors" of the Proxy Statement submitted to
the stockholders of the registrant in connection with its 1999
annual meeting to be held on May 13, 1999, is incorporated herein
by reference.
Item 11. Executive Compensation
The information set forth under the captions "Director
Compensation" and "Executive Officer Compensation" of the Proxy
Statement submitted to the stockholders of the registrant in
connection with its 1999 annual meeting to be held on May 13,
1999, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the captions "Common Stock
Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Directors and Executive Officer" of the Proxy
Statement submitted to the stockholders of the registrant in
connection with its 1999 annual meeting to be held on May 13,
1999, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Certain
Transactions" of the Proxy Statement submitted to the
stockholders of the registrant in connection with its 1999 annual
meeting to be held on May 13, 1999, is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) Financial Statements. Reference is made to the
Financial Statements beginning on page 16 hereof.
(a)(2) Financial Statement Schedules. Reference is made to
the Index to Financial Statements appearing on page F-1
hereof.
(a)(3) Exhibits. Reference is made to the Exhibit Index
beginning on page E-1 hereof.
(b) Reports on Form 8-K. None.
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 26, 1999.
STRATUS PROPERTIES INC.
By: /s/ William H. Armstrong III
----------------------------
William H. Armstrong III
Chairman of the Board, President
And Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated, on March 26, 1999.
/s/ William H. Armstrong III Chairman of the Board, President,
- ------------------------------ and Chief Executive Officer
William H. Armstrong III (principal executive
and financial officer)
* Vice President and Controller
- ------------------------------ (principal accounting officer)
C. Donald Whitmire
* Director
- ------------------------------
Robert L. Adair III
* Director
- ------------------------------
James C. Leslie
* Director
- ------------------------------
Michael D. Madden
*By: /s/ William H. Armstrong III
----------------------------
William H. Armstrong III
Attorney-in-Fact
<PAGE> S-1
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of STRS.
3.2 By-laws of STRS, as amended as of February 11,
1999.
4.1 STRS' Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated
by reference to Exhibit 4.1 to STRS' 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between
STRS and Mellon Securities Trust Company, as Rights
Agent. Incorporated by reference to Exhibit 4.2 to
STRS' 1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of
April 21, 1997 between STRS and the Rights Agent.
Incorporated by reference to Exhibit 4 to STRS' 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 STRS'
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 STRS' 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 STRS' Current Report on
Form 8-K dated June 3, 1998.
10.1 Amended and Restated Services Agreement, dated as of
December 23, 1997 between FM Services Company and STRS.
Incorporated by reference to Exhibit 10.2 to STRS' 1997
Form 10-K.
10.2 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 STRS' 1992 Form 10-K.
10.3 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 STRS' 1992 Form 10-K.
10.4 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 STRS' 1992 Form 10-K.
10.5 STRS Guarantee Agreement dated as of December 15, 1997
by STRS. Incorporated by reference to Exhibit 10.6 to
STRS' 1997 Form 10-K.
10.6 Amended and Restated IGL Guarantee Agreement dated as
of December 22, 1997 by IMC Global Inc. Incorporated
by reference to Exhibit 10.7 to STRS' 1997 Form 10-K.
10.7 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 STRS'
Current Report on Form 8-K dated June 3, 1998.
<PAGE> E-1
10.8 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 STRS' Current Report on Form 8-K dated
June 3, 1998.
10.9 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. Incorporated by reference to
Exhibit 10.10 to the Quarterly Report on Form 10-Q of
STRS for the Quarter ended September 30, 1998 ("the
STRS Third Quarter 10-Q")
10.10 Amendment No. 1 to the Oly Stratus ABC West I
Joint Venture Agreement dated November 9, 1998.
Incorporated by reference to Exhibit 10.11 to the STRS
Third Quarter 10-Q.
10.11 Management Agreement between Oly Stratus ABC West
I Joint Venture and Stratus Management L.L.C. dated
September 30, 1998. Incorporated by reference to
Exhibit 10.12 to the STRS Third Quarter 10-Q.
10.12 Loan Agreement dated September 30, 1998 between
Oly Stratus ABC West I Joint Venture and Oly Lender
Stratus, L.P. Incorporated by reference to Exhibit
10.13 to the STRS Third Quarter 10-Q.
10.13 General Partnership Agreement dated April 8, 1998
by and between Oly/Houston Walden, L.P. and Oly/FM
Walden, L.P. Incorporated by reference to Exhibit 10.14
to the STRS Third Quarter 10-Q.
10.14 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. Incorporated by
reference to Exhibit 10.15 to the STRS Third Quarter
10-Q.
10.15 Development Loan Agreement dated September 30,
1998 by and between Oly Walden General Partnership and
Bank One, Texas, N.A. Incorporated by reference to
Exhibit 10.16 to the STRS Third Quarter 10-Q.
10.16 Guaranty Agreement dated September 30, 1998 by and
between Oly Walden General Partnership and Bank One,
Texas, N.A. Incorporated by reference to Exhibit 10.17
to the STRS Third Quarter 10-Q.
10.17 Management Agreement dated April 9, 1998 by and
between Oly/FM Walden, L.P. and Stratus Management,
L.L.C. Incorporated by reference to Exhibit 10.18 to
the STRS Third Quarter 10-Q.
Executive Compensation Plans and Arrangements (Exhibits
10.18 through 10.21)
10.18 STRS' Performance Incentive Awards Program, as
amended effective February 11, 1999.
10.19 STRS Stock Option Plan, as amended. Incorporated
by reference to Exhibit 10.9 to STRS's 1997 Form 10-K.
10.20 STRS 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to STRS' 1997 Form 10-K.
10.21 Stratus Properties Inc. 1998 Stock Option Plan as amended
effective February 11, 1999.
21.1 List of subsidiaries.
23.1 Consent of Arthur Andersen LLP.
24.1 Certified resolution of the Board of Directors of STRS
authorizing this report to be signed on behalf of any
officer or director pursuant to a Power of Attorney.
24.2 Powers of Attorney pursuant to which this report has
been signed on behalf of certain officers and directors
of STRS.
27.1 Financial Data Schedule.
<PAGE> E-2
STRATUS PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
The financial statements in the schedule listed below should
be read in conjunction with the financial statements of STRS
contained elsewhere in this Annual Report on Form 10-K.
Page
Report of Independent Public Accountants F-1
Schedule III-Real Estate and Accumulated Depreciation F-2
Schedules other than the one listed above have been omitted
since they are either not required, not applicable or the
required information is included in the financial statements or
notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Stratus Properties Inc.:
We have audited, in accordance with generally accepted
auditing standards, the financial statements as of December 31,
1998 and 1997 and for each of the three years in the period ended
December 31, 1998 included elsewhere in Stratus Properties Inc.'s
Annual Report on Form 10-K, and have issued our report thereon
dated January 19, 1999. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a
whole. The accompanying schedule is the responsibility of the
Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Austin, Texas
January 19, 1999
<PAGE> F-1
<TABLE>
<CAPTION>
Stratus Properties Inc.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(In Thousands)
SCHEDULE III
Cost Gross
Capitalized Amounts at
Subsequent to December 31,
Intial Cost Acquisitions 1998
---------------- ------------ ------------
Building Building
and and
Improve- Improv-
Land ments Land Land ements
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Developed Lots
Camino Real, San Antonio, TX $ 175 - $ 471 $ 646 -
Bent Tree Marsh, Dallas TX 78 - 157 235 -
Willow Bend, Plano, TX 417 - 362 779 -
Copper Lakes, Houston,TX 279 - 1,150 1,429 -
Barton Creek (North), Austin TX 198 - 710 908 -
Undevloped Acerage
Camino Real, San Antonio, TX 825 - - 825 -
Copper Lakes, Houston, TX 2,225 - 1,980 4,205 -
Bent Tree Addison, Dallas, TX 364 - - 364 -
Bent Tree Apt./ Retail, Dallas TX 873 - - 873 -
Barton Creek (North), Austin, TX 5,825 - 28,281 34,106 -
Barton Creek (South), Austin, TX 20,325 - 4,154 24,479 -
Lantana, Austin, TX 3,934 - 2,088 6,022 -
Longhorn Properties, Austin, TX 15,792 - 5,599 21,391 -
Operating Properties
Barton Creek Utilities, Austin, TX - 416 - - 416
-------- ------- -------- ------- -------
$51,310 416 $ 44,952 $96,678 416
======== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Stratus Properties Inc.
REAL ESTATE AND ACCUMLATED DEPRECIATION (Continued)
December 31, 1998
Number of Lots
and Acres Accumulated
------------ Depre- Year
Total Lots Acres ciation Acquired
------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Developed Lots
Camino Real, San Antonio, TX $ 646 17 - - 1990
Bent Tree Marsh, Dallas TX 235 8 - - 1991
Willow Bend, Plano, TX 779 6 - - 1991
Copper Lakes, Houston,TX 1,429 68 - - 1991
Barton Creek (North), Austin TX 908 6 - - 1997
Undevloped Acerage
Camino Real, San Antonio, TX 825 - 57 - 1990
Copper Lakes, Houston, TX 4,205 - 169 - 1991
Bent Tree Addison, Dallas, TX 364 - 8 - 1991
Bent Tree Apt./ Retail, Dallas TX 873 - 10 - 1990
Barton Creek (North), Austin, TX 34,106 - 650 - 1988
Barton Creek (South), Austin, TX 24,479 - 1,797 - 1988
Lantana, Austin, TX 6,022 - 513 - 1994
Longhorn Properties, Austin, TX 21,391 - 1,274 - 1992
Operating Properties
Barton Creek Utilities, Austin, TX - - - 122 1997
------- ----- ----- ------
$96,678 105 4,478 $ 122
======= ===== ===== ======
</TABLE>
<PAGE> F-2
Stratus Properties Inc.
Notes to Schedule III
(In Thousands)
(1) Reconciliation of Real Estate Properties:
The changes in real estate assets for the years ended
December 31, 1998 and 1997 are as follows:
1998 1997
--------- ---------
Balance, beginning of year $ 105,320 $ 119,478
Acquisitions 728 1,802
Improvements and other 5,619 10,116
Cost of real estate sold (14,989) (26,076)
--------- ---------
Balance, end of year $ 96,678 $ 105,320
========= =========
The aggregate net book value for federal income tax purposes as
of December 31, 1998 was $124,560,000.
(2) Reconciliation of Accumulated Depreciation:
The changes in accumulated depreciation for the years ended
December 31, 1998 and 1997 are as follows:
1998 1997
------ ------
Balance, beginning of year $ 46 $ 723
Depreciation expense 7 98
Real estate sold - (775)
------ ------
Balance, end of year $ 122 $ 46
====== ======
Depreciation of buildings and improvements reflected in the
statements of operations is calculated over estimated lives of 30
years.
(3) Concurrent with certain year-end 1994 debt negotiations, the
Partnership analyzed the carrying amount of its real estate
assets, using generally accepted accounting principles, and
recorded a $115 million pre-tax, non-cash write-down. The
actual amounts that will be realized depend on future market
conditions and may be more or less than the amounts recorded
in the Partnership's financial statements.
<PAGE> F-3
Exhibit 3.1A
CERTIFICATE OF AMENDMENT
to the
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
of
FM PROPERTIES INC.
FM Properties Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The Corporation's Board of Directors, by unanimous written
consent dated as of March 27, 1998, duly adopted the following
resolution:
RESOLVED, That Article FIRST of the Corporation's
Amended and Restated Certificate of Incorporation be amended to
read in its entirety as follows:
FIRST: The name of the Corporation is Stratus
Properties Inc.
SECOND: The Corporation's Board of Directors declared the foregoing
amendment to be advisable and directed that the proposed amendment be
submitted to a vote of the Corporation's stockholders at the 1998 Annual
Meeting of Stockholders of the Corporation.
THIRD: At the Annual Meeting of Stockholders on May 14, 1998, the
Corporation's stockholders duly approved the foregoing amendment and such
amendment was duly adopted in accordance with the provisions of Section
242 of the General Corporation Law of the State of Delaware
IN WITNESS WHEREOF, the undersigned, being the Chairman of the Board
of the Corporation, for the purpose of amending the Corporation's Amended
and Restated Certificate of Incorporation, does hereby make this
Certificate of Amendment, hereby declaring and certifying that this is
the act and deed of the Corporation and the facts herein stated are true,
and accordingly the undersigned has hereunto set his hand as of this
14th day of May, 1998.
FM PROPERTIES INC.
(to be named Stratus Properties Inc. pursuant
to this Certificate of Amendment)
By:/s/ Richard C. Adkerson
--------------------------
Richard C. Adkerson
Chairman of the Board
CORPORATE SEAL
Attest:/s/ Michael Kilanowski Jr.
---------------------------
Michael C. Kilanowski, Jr.
Secretary
Exhibit 3.1 Con't
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
FM PROPERTIES INC.
FM Properties Inc., a Delaware corporation (the "Corporation"),
hereby certifies that this Amended and Restated Certificate of
Incorporation amending and restating its Certificate of Incorporation,
which was originally filed with the Secretary of State of Delaware
on March 11, 1992, was duly proposed by its Board of Directors and adopted
by its stockholders in accordance with Sections 242 and 245 of the
GeneralCorporation Law of the State of Delaware.
FIRST: The name of the Corporation is FM Properties Inc.
SECOND: The address of its registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may
hereafter be amended ("Delaware Law").
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 200,000,000 shares, of which
50,000,000 shares shall be Preferred Stock with a par value of $.01 per
share and 150,000,000 shares shall be Common Stock with a par value of $.01
per share.
The Preferred Stock may be issued from time to time in one or
more series, each of such series to have such voting powers, full or
limited, or no voting powers, and such designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions providing for the issue of such
series adopted by the Board of Directors. If so provided in such
resolution or resolutions and as and to the extent permitted by law, the
shares of any series of the Preferred stock may be made subject to
redemption, or convertible into or exchangeable for shares of any other
class or series, by the Corporation at its option or at the option of the
holders or upon the happening of a specified event.
Subject to such special voting rights as holders of any shares of
the Preferred Stock may be entitled to exercise, each holder of Common
Stock of the Corporation shall be entitled to one vote for each share of
such Common Stock standing in the name of such holder on the books of the
Corporation.
No holder of shares of any class shall be entitled, as such, as
matter of right, to subscribe for or purchase any part of any new or
additional issue of stock of any class or series whatsoever, or of
securities convertible into, or accompanied by rights to subscribe to,
stock of any class or series whatsoever, whether now or hereafter
authorized, or whether issued for cash or otherwise.
FIFTH: (a) Subject to such rights to elect additional directors
under specified circumstances as may be granted to holders of any shares of
the Preferred Stock pursuant to the provisions of Article FOURTH, the
number of directors of the Corporation shall be fixed from time to time by
the Board of Directors but shall not be less than three. The directors,
other than those who may be elected by the holders of any class or series
of Preferred Stock, shall be classified, with respect to the time for which
they severally hold office, into three classes, designated Class I, Class
II and Class III, as nearly equal in number as possible, as determined by
the Board of Directors, directors designated as Class I directors to hold
office initially for a term expiring at the annual meeting of stockholders
to be held in 1993, directors designated as Class II directors to hold
office initially for a term expiring at the annual meeting of stockholders
to be held in 1994, and directors designated as Class III directors to hold
office initially for a term expiring at the annual meeting of stockholders
to be held in 1995, with the members of each class to hold office until
their successors are elected and qualified. At each annual meeting of
stockholders, the successors of the class of directors whose term expires
at that meeting shall be elected to hold office for a term expiring at the
annual meeting of stockholders held in the third year following the year of
their election.
(b) Subject to such rights to elect directors under specified
circumstances as may be granted to holders of any shares of the Preferred
Stock pursuant to the provision of Article FOURTH, newly created
directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other reason shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of
any incumbent director.
(c) Notwithstanding any other provision of this Certificate
of Incorporation or any provision of law which might otherwise permit a
lesser vote or no vote, the affirmative vote of the holders of 85 per cent
or more of the outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors shall be required
to amend, alter, change or repeal this Article FIFTH.
The names and mailing addresses of the persons who are to
serve as directors until the first annual meeting of stockholders or until
their successors are elected and qualified are:
Name Mailing Address
Class I 16th Floor
Michael D. Madden American Express Tower
New York, New York 10285
Class II 16475 Dallas Parkway
Robert S. Folsom Suite 800
Dallas, Texas 75248
Class III Freeport-McMoRan Inc.
Richard C. Adkerson 1615 Poydras Street
New Orleans, Louisiana 70112
SIXTH: In furtherance and not in limitation of the powers
conferred by law, (a) the Board of Directors is expressly authorized to
adopt, amend or repeal the By-Laws of the Corporation in any manner not
inconsistent with Delaware Law or this Certificate of Incorporation,
subject to the power of the stockholders to adopt, amend or repeal the By-
Laws or to limit or restrict the power of the Board of Directors to adopt,
amend or repeal the By-Laws, and (b) the Corporation may in its By-Laws
confer powers and authorities upon its Board of Directors in addition to
those conferred upon it by statute.
SEVENTH: (a) Any action required or permitted to be taken by
the stockholders of the Corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders.
(b) Subject to such rights to call special meetings of
stockholders under special circumstances as may be granted to holders of
any shares of the Preferred Stock pursuant to the provisions of Article
FOURTH, special meetings of the stockholders may be called only by the
Chairman of the Board or the President of the Corporation, or at the
request in writing or by vote of a majority of the Board of Directors, and
not by any other persons. Any request for a special meeting made by the
Board of Directors shall state the purpose or purposes of the proposed
meeting.
(c) Notwithstanding any other provision of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, the affirmative vote of the holders of 85 per cent or more
of the outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors shall be required to amend,
alter, change or repeal this Article SEVENTH.
EIGHTH: (a) A director of this Corporation shall not be liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (iii) under Section 174 of
the Delaware Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
(b) The Corporation shall indemnify any person who is a
director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent permitted by applicable law. The
determination as to whether such person has met the standard required for
indemnification shall be made in accordance with applicable law.
Expenses incurred by such a director, officer, employee or agent
in defending a civil or criminal action, suit or proceeding shall be paid
by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such person
to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article
EIGHTH.
The foregoing indemnification shall not be deemed exclusive of
any other rights to which those seeking indemnification may be entitled
under any applicable law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
(c) The provisions of this Article EIGHTH shall be deemed to be
a contract between the Corporation and each person who serves as such
director, officer, employee or agent of the Corporation in any such
capacity at any time while this Article EIGHTH is in effect. No repeal or
modification of the foregoing provisions of this Article EIGHTH nor, to the
fullest extent permitted by law, any modification of law shall adversely
affect any right or protection of a director, officer, employee or agent of
the Corporation existing at the time of such repeal or modification.
NINTH: The affirmative vote of the holders of not less than 85
per cent of the outstanding shares of Common Stock of the Corporation shall
be required for the approval or authorization of any Business Combination;
provided , however, that the 85 per cent voting requirement shall not be
applicable if
(1) the Board of Directors of the Corporation by affirmative
vote which shall include not less than a majority of the entire number of
Continuing Directors (a) has approved in advance the acquisition of those
outstanding shares of Common Stock of the Corporation which caused the
Interested Party to become an Interested Party or (b) has approved the
Business Combination;
(2) the Business Combination is solely between the Corporation
and one or more other corporations all of the common stock of each of which
other corporations is owned directly or indirectly by the Corporation or
between two or more of such other corporations; or
(3) the Business Combination is a merger or consolidation and
the cash and /or fair market value of the property, securities or other
consideration to be received per share by holders of Common Stock of the
Corporation in the Business Combination is at least equal to the highest
price per share (after giving effect to appropriate adjustments for any
recapitalizations and for any stock splits, stock dividends and like
distributions) paid by the Interested Party in acquiring any shares of the
Corporation's Common Stock on the date when last acquired or during a
period of two years prior thereto.
For purposes of this Article NINTH:
(i) The terms "affiliate" and "associate" shall have the
respective meanings assigned to those terms in Rule 12b-2 under the
Securities Exchange Act of 1934, as such Rule was in effect at April 1,
1992.
(ii) A person shall be deemed to be a "beneficial owner" of any
Common Stock
(a) which such person or any of its affiliates or
associates beneficially owns, directly or indirectly; or
(b) which such person or any of its affiliates or associates
has the right t acquire (whether such right is exercisable immediately or
only after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or has the right to vote pursuant to any
agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holdings, voting or disposing of any shares of Common Stock.
(iii) The term "Business Combination" shall mean (a) any merger
or consolidation of the Corporation or a subsidiary of the Corporation with
or into an Interested Party, (b) any merger or consolidation of an
Interested Party with or into the Corporation or a subsidiary of the
Corporation, (c) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) of all
or any Substantial Part of the assets either of the Corporation (including
without limitation any voting securities of a subsidiary) or of a
subsidiary of the Corporation, in which an Interested Party is involved,
(d) the adoption of any plan or proposal for the liquidation of dissolution
of the Corporation proposed by or on behalf of any Interested Party, (e)
the issuance or transfer (in one transaction or a series of transactions)
by the Corporation or a subsidiary of the Corporation to an Interested
Party of any securities of the Corporation or such subsidiary, which
securities have a fair market value of $1,000,000 or more, or (f) any
recapitalization, reclassification, merger or consolidation involving the
Corporation or a subsidiary of the Corporation that would have the effect
of increasing, directly or indirectly, the Interested Party's voting power
in the Corporation or such subsidiary.
(iv) The term "Interested Party" shall mean and include (a) any
individual, corporation, partnership, trust or other person or entity which
, together with its affiliates and associates, is (or with respect to a
Business Combination was within two years prior thereto) a beneficial owner
of shares aggregating 20 per cent or more of the outstanding Common Stock
of the Corporation, and (b) any affiliate or associate of any such
individual, corporation, partnership, trust or other person or entity. For
the purposes of determining whether a person is an Interested Party the
number of shares deemed to be outstanding shall include shares deemed
beneficially owned through application of subclause (b) of the foregoing
clause (ii) but shall not include any other shares of Common Stock which
may be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
(v) The term "Substantial Part" shall mean, with respect to the
assets of any corporation or other entity, assets having a fair market
value equal to more than 10 per cent of the fair market value of the total
assets of such corporation or other entity.
(vi) The term "Continuing Director" shall mean a director who is
not an affiliate of an Interested Party and who was a member of the Board
of Directors of the Corporation immediately prior to the time that the
Interested Party involved in a Business Combination became an Interested
Party, and any successor to a Continuing Director who is not such an
affiliate and who is nominated to succeed a Continuing Director by a
majority of the Continuing Directors in office at the time of such
nomination.
(vii) For the purposes of paragraph (3) of this
Article NINTH, the term "other consideration to be received" shall include
without limitation Common Stock of the Corporation retained by its existing
public stockholders in the event of a Business Combination in which the
Corporation is the surviving corporation.
The provisions of this Article NINTH shall be construed liberally to
the end that the consideration paid to holders whose Common Stock is
acquired by an Interested Party in connection with a Business Combination
to which paragraph (3) is applicable shall be not less favorable than
that paid by such Interested Party to holders of such Common Stock prior
to such Business Combination. Nothing contained in this Article NINTH
shall be construed to relieve any Interested Party from any fiduciary
duties or obligations imposed by law, nor shall anything herein be deemed
to supersede any vote of holders of any class of stock other than Common
Stock that shall be required by law or by or pursuant to this Certificate
of Incorporation or the Bylaws of the Corporation.
Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the Corporation and notwithstanding the fact
that a lesser percentage may be specified by law, this Certificate of
Incorporation or the By-Laws of the Corporation, the affirmative vote of
the holders of 85 per cent or more of the shares of the then outstanding
Common Stock shall be required to amend or repeal, or adopt any provisions
inconsistent with, this Article NINTH.
TENTH: The Corporation reserves the right to amend this Certificate
of Incorporation in any manner permitted by Delaware Law and, with the sole
exception of those rights and powers conferred under the above ARTICLE
EIGHTH, all rights and powers conferred herein on stockholders, directors
and officers, if any, are subject to this reserved power.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be
signed in its name by its Chairman of the Board and attested to by its
Secretary this 27th day of May 1992.
FM PROPERTIES INC.
BY: /s/Richard C. Adkerson
Chairman of the Board
ATTEST:
/s/ Charles E. Holmes
Secretary
Exhibit 3.2
Stratus Properties Inc.
(formerly FM Properties Inc.)
By-Laws
ARTICLE I
Name
The name of the corporation is Stratus Properties Inc.
ARTICLE II
Offices
1. The location of the registered office of the corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington,
County of New Castle, and the name of its registered agent at such address
is The Corporation Trust Company.
2. The corporation shall in addition to its registered office in
the State of Delaware establish and maintain an office or offices at such
place or places as the Board of Directors may from time to time find
necessary or desirable.
ARTICLE III
Corporate Seal
The corporate seal of the corporation shall have inscribed
thereon the name of the corporation and the year (1992) and jurisdiction
(Delaware) of its creation. Such seal may be used by causing it or a
facsimile thereof to be impressed, affixed, printed or otherwise
reproduced.
ARTICLE IV
Meetings of Stockholders
1. All meetings of the stockholders shall be held at the
registered office of the corporation in the State of Delaware, or at any
other place as shall be determined, from time to time, by the Board of
Directors.
2. The first annual meeting of stockholders shall be held on
Monday, May 17, 1993, at eleven o'clock in the forenoon, or on such other
date in that year or at such other time as may be determined by resolution
of the Board of Directors. In subsequent years the annual meeting of the
stockholders shall be held on the Monday immediately preceding the third
Tuesday of May at eleven o'clock in the forenoon, or on such other day or
at such other time as may be determined from time to time by resolution of
the Board of Directors. At each annual meeting of the stockholders they
shall elect by plurality vote, by written ballot, the successors of the
class of directors whose term expires at such meeting, to hold office until
the annual meeting of the stockholders held in the third year following the
year of their election and their successors are respectively elected and
qualified or until their earlier resignation or removal. Any other proper
business may be transacted at the annual meeting.
3. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise expressly provided by statute,
by the Certificate of Incorporation or by these By-Laws. If, however, such
majority shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person
or by proxy, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting (except as otherwise
provided by statute), until the requisite amount of voting stock shall be
present. At such adjourned meeting at which the requisite amount of voting
stock shall be represented, any business may be transacted which might have
been transacted at the meeting as originally notified.
4. At all meetings of the stockholders each stockholder having
the right to vote shall be entitled to vote in person or by proxy appointed
by an instrument in writing subscribed by such stockholder and bearing a
date not more than three years prior to said meeting, unless such
instrument provides for a longer period. All proxies shall be filed with
the secretary of the meeting before being voted.
5. At each meeting of the stockholders each stockholder shall
have one vote, unless otherwise provided in the Certificate of
Incorporation, for each share of stock of the corporation having voting
power, registered in his name on the books of the corporation at the record
date fixed in accordance with these By-Laws, or otherwise determined, with
respect to such meeting. Except as otherwise expressly provided by
statute, by the Certificate of Incorporation or by these By-Laws, all
matters coming before any meeting of the stockholders shall be decided by
the vote of a majority of the number of shares of stock present in person
or represented by proxy at such meeting and entitled to vote thereat, a
quorum being present.
6. Notice of each meeting of the stockholders shall be mailed to
each stockholder entitled to vote thereat not less than 10 nor more than 60
days before the date of the meeting. Such notice shall state the place,
date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
7. Subject to such rights to call special meetings of
stockholders under specified circumstances as may be granted to holders of
any shares of Preferred Stock pursuant to the Certificate of Incorporation,
special meetings of the stockholders may be called only by the Chairman of
the Board or the President of the corporation, or at the request in writing
or by vote of a majority of the Board of Directors, and not by any other
persons. Any request for a special meeting made by the Board of Directors
shall state the purpose or purposes of the proposed meeting.
8. Business transacted at each special meeting shall be confined
to the purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of the stockholders
shall be determined by the chairman at such meeting.
10. At an annual meeting of the stockholders, only business shall
be conducted as shall have been brought before the meeting (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the
corporation who complies with the notice procedures set forth in this
Section 10. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation. To be timely, a stockholder's
notice must be delivered to the Secretary at the principal executive
offices of the corporation not later than the close of business on the
120th day nor earlier than the close of business on the 210th day prior to
the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 90 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the
close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made. In no event shall
the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described
above. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(b) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (c) the class and number of shares of
the corporation which are beneficially owned by the stockholder and (d) any
material interest of the stockholder in such business. Notwithstanding
anything in these By-Laws to the contrary, no business shall be conducted
at an annual meeting except in accordance with the procedures set forth in
this Section 10. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not
properly brought before the meeting and in accordance with the provisions
of these By-Laws, and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the meeting shall
not be transacted. Notwithstanding the foregoing provisions of this
Section 10, a stockholder seeking to have a proposal included in the
corporation's proxy statement shall comply with the requirements of
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including, but not limited to, Rule 14a-8 or its successor provision).
11. Only persons who are nominated in accordance with the
procedures set forth in these By-Laws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors
of the corporation may be made at a meeting of stockholders (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this Section 11. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to the Secretary at the principal executive offices of the
corporation not later than the close of business on the 120th day nor
earlier than the close of business on the 210th day prior to the first
anniversary of the preceding year's annual meeting; provided, however, that
in the event that the date of the annual meeting is more than 30 days
before or more than 90 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 120th day prior to such annual meeting and not later than
the close of business on the later of the 90th day prior to such annual
meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time
period for the giving of a stockholder's notice as described above. Such
stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director
all information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's written consent
to being named in the proxy statement as a nominee and to serve as a
director if elected); and (b) as to the stockholder giving the notice (i)
the name and address, as they appear on the corporation's books, of such
stockholder and (ii) the class and number of shares of the corporation
which are beneficially owned by such stockholder. At the request of the
Board of Directors any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance
with the procedures set forth in these By-Laws. The chairman of the
meeting shall, if the facts warrant, determine and declare to the meeting
that a nomination was not made in accordance with the procedures prescribed
by these By-Laws, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
12. Any action required or permitted to be taken by the
stockholders of the corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders.
ARTICLE V
Directors
1. The business and affairs of the corporation shall be managed
under the direction of a Board of Directors which may exercise all such
powers and authority for and on behalf of the corporation as shall be
permitted by law, the Certificate of Incorporation or these By-Laws.
2. The directors may hold their meetings and have one or more
offices, and, subject to the laws of the State of Delaware, keep the stock
ledger and other books and records of the corporation, outside said State,
at such place or places as they may from time to time determine.
3. Subject to such rights to elect additional directors under
specified circumstances as may be granted to the holders of any shares of
the Preferred Stock pursuant to the Certificate of Incorporation, the
number of directors of the corporation shall be fixed from time to time by
the Board of Directors but shall not be less than three. The directors,
other than those who may be elected by the holders of any class or series
of Preferred Stock, shall be classified, with respect to the time for which
they severally hold office, into three classes, designated Class I, Class
II and Class III, as nearly equal in number as possible, as determined by
the Board of Directors, Class I directors to hold office initially for a
term expiring at the annual meeting of stockholders to be held in 1993,
Class II directors to hold office initially for a term expiring at the
annual meeting of stockholders to be held in 1994, and Class III directors
to hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1995, with the members of each class to hold
office until their successors are elected and qualified. At each annual
meeting of stockholders, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year
following the year of their election.
4. Subject to such rights to elect directors under specified
circumstances as may be granted to holders of any shares of the Preferred
Stock pursuant to the Certificate of Incorporation, newly created
directorships resulting from any increase in the number of directors and
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other reason shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been elected and qualified. No decrease in the number
of directors constituting the Board of Directors shall shorten the term of
any incumbent director.
5. Any director may resign at any time by giving written notice
of his resignation to the Board of Directors, the Chairman of the Board or
the President. Any such resignation shall take effect upon receipt thereof
by the Board, the Chairman of the Board or the President, as the case may
be, or at such later date as may be specified therein. Any such notice to
the Board shall be addressed to it in care of the Secretary.
ARTICLE VI
Committees of Directors
By resolution adopted by a majority of the whole Board of
Directors, the Board shall designate an Executive Committee and an Audit
Committee and may designate one or more other committees as the Board may
deem appropriate, each such committee to consist of one or more directors
of the corporation. The Executive Committee shall have and may exercise
all the powers and authority of the Board in the management of the business
and affairs of the corporation (except as otherwise expressly limited by
statute) and may authorize the seal of the corporation to be affixed to all
papers which may require it. The Audit Committee and each such other
committee shall have such of the powers and authority of the Board as may
be provided from time to time in resolutions adopted by a majority of the
whole Board. Each committee shall report its proceedings to the Board when
required.
ARTICLE VII
Compensation of Directors
The directors shall receive such compensation for their services
as may be authorized by resolution of the Board of Directors, which
compensation may include an annual fee and a fixed sum and expenses for
attendance at regular or special meetings of the Board or any committee
thereof. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE VIII
Meetings of Directors; Action Without A Meeting
1. Regular meetings of the Board of Directors may be held
without notice at such time and place as may be determined from time to
time by resolution of the Board.
2. Special meetings of the Board of Directors may be called by
the Chairman of the Board or by the President on at least 24 hours' notice
to each director, and shall be called by the President or by the Secretary
on like notice on the request in writing of any director. Except as may be
otherwise specifically provided by statute, by the Certificate of
Incorporation or by these By-Laws, the purpose or purposes of any such
special meeting need not be stated in such notice.
3. At all meetings of the Board of Directors the presence of a
majority of the total number of directors shall be necessary and sufficient
to constitute a quorum for the transaction of business, and, except as
otherwise provided by statute, by the Certificate of Incorporation or by
these By-Laws, if a quorum shall be present the act of a majority of the
directors present shall be the act of the Board.
4. Any action required or permitted to be taken at any meeting
of the Board of Directors or of any committee thereof may be taken without
a meeting if all the members of the Board or such committee, as the case
may be, consent thereto in writing and the writing or writings are filed
with the minutes of proceedings of the board or committee. Any director
may participate in a meeting of the Board, or of any committee designated
by the Board, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other, and participation in a meeting pursuant to this sentence
shall constitute presence in person at such meeting.
ARTICLE IX
Officers
1. The officers of the corporation shall be chosen by the Board
of Directors and shall be a President, a Secretary and a Treasurer. The
Board may also choose a Chairman of the Board, a General Counsel, a
Controller, one or more Executive Vice Presidents, Senior Vice Presidents,
Vice Presidents, Assistant Secretaries and Assistant Treasurers, and such
other officers as it shall deem necessary, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board. Any number of offices may be
held by the same person.
2. The Board of Directors, at its first meeting after the annual
meeting of stockholders, shall choose a Chairman of the Board and a
President from among the directors and shall choose the remaining officers
who need not be members of the Board.
3. The salaries of all officers of the corporation shall be
fixed by the Board of Directors, or in such manner as the Board may
prescribe.
4. The officers of the corporation shall hold office until their
successors are chosen and qualified, except that any officer may at any
time be removed by the Board of Directors. If the office of any officer
becomes vacant for any reason, the vacancy may be filled by the Board.
5. Any officer may resign at any time by giving written notice
of his resignation to the Board of Directors, the Chairman of the Board or
the President. Any such resignation shall take effect upon receipt thereof
by the Board, the Chairman of the Board or the President, as the case may
be, or at such later date as may be specified therein. Any such notice to
the Board shall be addressed to it in care of the Secretary.
ARTICLE X
Chairman of the Board
The Chairman of the Board shall be the chief executive officer of
the corporation and shall preside at meetings of the stockholders and of
the Board of Directors. Subject to the supervision and direction of the
Board of Directors, he shall be responsible for managing the affairs of the
corporation. He shall have general supervision and direction of all of the
other officers of the corporation and shall have powers and duties usually
and customarily associated with the office of Chairman of the Board and the
position of chief executive officer.
ARTICLE XI
President
The President shall be the chief operating officer of the
corporation, and he shall have the powers and duties usually and
customarily associated with the office of the President and the position of
chief operating officer. He shall have such other powers and duties as may
be delegated to him by the Chairman of the Board.
ARTICLE XII
Executive Vice Presidents, Senior Vice Presidents and Vice Presidents
The Executive Vice Presidents, the Senior Vice Presidents and the
Vice Presidents shall have such powers and duties as may be delegated to
them by the Chairman of the Board.
ARTICLE XIII
General Counsel, Secretary and Assistant Secretaries
1. The General Counsel shall have the powers and duties usually
and customarily associated with the position of General Counsel. He shall
have such other powers and duties as may be delegated to him by the
Chairman of the Board.
2. The Secretary shall attend all meetings of the Board of
Directors and of the stockholders, and shall record the minutes of all
proceedings in a book to be kept for that purpose. He shall perform like
duties for the committees of the Board when required.
3. The Secretary shall give, or cause to be given, notice of
meetings of the stockholders, of the Board of Directors and of the
committees of the Board. He shall keep in safe custody the seal of the
corporation, and when authorized by the Chairman of the Board, the
President, an Executive Vice President, a Senior Vice President or a Vice
President, shall affix the same to any instrument requiring it, and when so
affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. He shall have such other powers and duties as may be
delegated to him by the Chairman of the Board.
4. The Assistant Secretaries shall, in case of the absence of
the Secretary, perform the duties and exercise the powers of the Secretary,
and shall have such other powers and duties as may be delegated to them by
the Chairman of the Board.
ARTICLE XIV
Treasurer and Assistant Treasurer
1. The Treasurer shall have the custody of the corporate funds
and securities, and shall deposit or cause to be deposited under his
direction all moneys and other valuable effects in the name and to the
credit of the corporation in such depositories as may be designated by the
Board of Directors or pursuant to authority granted by it. He shall render
to the President and the Board whenever they may require it an account of
all his transactions as Treasurer and of the financial condition of the
corporation. He shall have such other powers and duties as may be
delegated to him by the Chairman of the Board.
2. The Assistant Treasurers shall, in case of the absence of the
Treasurer, perform the duties and exercise the powers of the Treasurer, and
shall have such other powers and duties as may be delegated to them by the
Chairman of the Board.
ARTICLE XV
Controller
The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation, and shall see that
adequate audits thereof are currently and regularly made. He shall
disburse the funds of the corporation in payment of the just obligations of
the corporation, or as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements. He shall have such other powers
and duties as may be delegated to him by the Chairman of the Board.
ARTICLE XVI
Certificates of Stock
The certificates for shares of stock of the corporation shall be
numbered and shall be entered on the books of the corporation as they are
issued. Such certificates shall exhibit the holder's name and the number
of shares such certificate represents and shall be signed by the Chairman
of the Board, the President, an Executive Vice President, a Senior Vice
President or a Vice President and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary. The signature of any such
officers may be facsimile if such certificate is countersigned by a
transfer agent other than the corporation or its employee or by a registrar
other than the corporation or its employee. In case any officer who has
signed or whose facsimile signature has been placed on any such certificate
shall have ceased to be such officer before such certificate is issued,
then, unless the Board of Directors shall otherwise determine and cause
notification thereof to be given to such transfer agent and registrar, such
certificate may be issued by the corporation (and by its transfer agent)
and registered by its registrar with the same effect as if he were such
officer at the date of issue.
ARTICLE XVII
Transfer of Stock
1. All transfers of shares of the stock of the corporation shall
be made on the books of the corporation by the registered holders of such
shares in person or by their attorneys lawfully constituted in writing, or
by their legal representatives.
2. Certificates for shares of stock shall be surrendered and
cancelled at the time of transfer.
ARTICLE XVIII
Fixing Record Date
In order that the corporation may determine the stockholders
entitled to notice of and to vote at any meeting of stockholders or any
adjournment thereof, or entitled to express consent in writing to any
corporate action without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for any other lawful purpose, the Board of Directors may fix, in
advance, a record date which shall not be more than 60 nor less than 10
days before the date of such meeting, nor more than 60 days prior to any
other action. Only stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or entitled to express such consent, or entitled to
receive payment of such dividend or other distribution or allotment of
rights, or entitled to exercise such rights in respect of change,
conversion or exchange, as the case may be, notwithstanding any transfer of
stock on the books of the corporation after any such record date fixed as
aforesaid.
ARTICLE XIX
Registered Stockholders
The corporation shall be entitled to treat the holder of record of
any share or shares of stock as the holder in fact thereof and,
accordingly, shall not be bound to recognize any equitable or other claim
to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly
provided by the laws of the State of Delaware.
ARTICLE XX
Checks
All checks, drafts and other orders for the payment of money and
all promissory notes and other evidences of indebtedness of the corporation
shall be signed by such officer or officers or such other person or persons
as may be designated by the Board of Directors or pursuant to authority
granted by it.
ARTICLE XXI
Fiscal Year
The fiscal year of the corporation shall end on December 31 of
each year.
ARTICLE XXII
Notices and Waiver
1. Whenever by statute, by the Certificate of Incorporation or
by these By-Laws it is provided that notice shall be given to any director
or stockholder, such provision shall not be construed to require personal
notice, but such notice may be given in writing, by mail, by depositing the
same in the United States mail, postage prepaid, directed to such
stockholder or director at his address as it appears on the records of the
corporation, or, in default of other address, to such director or
stockholder at the General Post Office in the City of Wilmington, Delaware,
and such notice shall be deemed to be given at the time when the same shall
be thus deposited. Notice of special meetings of the Board of Directors
may also be given to any director by telephone or by telex, telegraph or
cable and in the latter event the notice shall be deemed to be given at the
time such notice, addressed to such director at the address hereinabove
provided, shall be transmitted or delivered to and accepted by an
authorized telegraph or cable office.
2. Whenever by statute, by the Certificate of Incorporation or
by these By-Laws a notice is required to be given, a written waiver
thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance
of any stockholder or director at any meeting thereof shall constitute a
waiver of notice of such meeting by such stockholder or director, as the
case may be, except as otherwise provided by statute.
ARTICLE XXIII
Alteration of By-Laws
These By-Laws, including, but not limited to, Section 7 of Article
IV and Sections 3 and 4 of Article V, may be altered, amended, changed or
repealed at any meeting of the Board of Directors by vote of a majority of
the directors present or as otherwise provided by statute, except that, in
the case of any amendment, alteration, change or repeal of Section 7 of
Article IV or Section 3 or 4 of Article V by the stockholders,
notwithstanding any other provision of these By-Laws, the Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, the affirmative vote of the holders of 85 percent or more
of the outstanding shares of capital stock of the corporation entitled to
vote generally in the election of directors shall be required to amend,
alter, change or repeal such Section 7 of Article IV or such Section 3 or 4
of Article V.
ARTICLE XXIV
Indemnification of Corporate Personnel
The corporation shall indemnify any person who is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise as provided in the Certificate of Incorporation. Expenses
incurred by such a director, officer, employee or agent in defending a
civil or criminal action, suit or proceeding shall be paid by the
corporation as provided in the Certificate of Incorporation. The
corporation shall have power to purchase and maintain insurance on behalf
of any such person against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under the provisions of the Certificate of Incorporation. The
indemnification provisions of this Article XXIV and the Certificate of
Incorporation shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any applicable law, by-
law, agreement, vote of stockholders or disinterested directors or
otherwise.
The provisions of this Article XXIV and Article EIGHTH of the
Certificate of Incorporation shall be deemed to be a contract between the
corporation and each person who serves as such director, officer, employee
or agent of the corporation in any such capacity at any time while this
Article XXIV and Article EIGHTH of the Certificate of Incorporation are in
effect. No repeal or modification of the provisions of this Article XXIV
and Article EIGHTH of the Certificate of Incorporation nor, to the fullest
extent permitted by law, any modification of law shall adversely affect any
right or protection of a director, officer, employee or agent of the
corporation then existing at the time of such repeal or modification. The
provisions of this Article XXIV of the By-Laws of the corporation have been
adopted by the stockholders of the corporation.
Exhibit 10.18
STRATUS PROPERTIES INC.
PERFORMANCE INCENTIVE AWARDS PROGRAM
1. Purpose. The purpose of the Performance Incentive Awards Program
(the "Plan") of Stratus Properties Inc. (the "Company") is to provide
greater incentives for certain key management, professional and technical
employees whose performance in fulfilling the responsibilities of their
positions can significantly affect the performance of the Company. The
Plan provides an opportunity to earn additional compensation in the form of
cash incentive payments based on the employee's individual performance and
on the results achieved by the Company and by the staff unit for which the
employee performs services.
2. Administration. The Plan shall be administered by the Chairman of
the Board of the Company who shall have full authority to interpret the
Plan and from time to time adopt rules and regulations for carrying out the
Plan, subject to such directions as the Company's Board of Directors may
give, either as guidelines or in particular cases.
3. Eligibility for Participation. Each year the Chairman of the Board
shall select the key managerial, professional or technical employees of the
Company or of any of its subsidiaries who shall be eligible for
participation in the Plan during that year. The Chairman of the Board may
in his discretion make such selection, in whole or in part, on the basis of
minimum salary levels, or position-point levels. The selection of an
employee for eligibility in a particular year shall not constitute
entitlement either to an incentive payment under the Plan for that year or
to selection for eligibility in any subsequent year. Selection of
employees for eligibility in a particular year will ordinarily be made in
January of that year, but selection of any employee or employees may be
made at any subsequent time or times in such year.
4. Determination of Target Incentives. At the time each employee is
selected for eligibility in the Plan for a particular year, the Chairman of
the Board shall determine a target incentive or a target incentive range
for the employee with respect to that year. Such incentive or range shall
be indicative of the incentive payment which the employee might expect to
receive on the basis of strong performance by such employee, by the Company
and by such employee's staff unit, having regard to such performance
standards and objectives as may be established with respect to that year.
5. Cash Incentive Payments. After the end of each year the
Chairman of the Board shall evaluate, or cause to be evaluated, the
performance of each employee selected for eligibility under the Plan for
that year, as well as the performance of the Company and the employee's
staff unit. Based on such evaluation, the Chairman of the Board shall
determine whether a cash incentive payment shall be made to such employee
for that year and, if so, the amount of such payment. Each such payment
(less applicable withholding and other taxes) shall be made at such time
established by the Chairman of the Board, which shall in no event be later
than February 28 of the year following the year for which the incentive
payments are made. An individual who has been awarded an incentive payment
for a particular year need not be employed by the Company or any of its
subsidiaries at the time of payment thereof to be eligible to receive such
payment. Notwithstanding any of the foregoing to the contrary, if an
individual selected for eligibility under the Plan for a particular year
should cease to be employed by the Company and its subsidiaries for any
reason prior to the end of such year, the Chairman of the Board shall
evaluate, or cause to be evaluated, the performance of such employee and
the employee's staff unit for the portion of such year prior to such
cessation of employment. Based on such evaluation, the Chairman of the
Board shall determine whether a cash incentive payment shall be made to
such employee for that year and, if so, the amount of such payment. Each
such payment (less applicable withholding and other taxes) shall be made at
such time established by the Chairman of the Board, which may be made at
any time during the year for which such incentive payments are made but
shall in no event be later than February 28 of the year following such
year.
6. Optional Deferral of Payments. If, prior to the date
established by the Chairman of the Board for any year for which incentive
payments are made, an employee selected for participation in the Plan shall
so elect, in accordance with procedures established by the Chairman of the
Board, all or any part of a cash incentive payment to such employee with
respect to such year shall be deferred and paid in one or more periodic
installments, not in excess of ten, at such time or times before or after
the date of such employee's Termination of Employment (as hereinafter
defined), but not later than ten years after such date of Termination of
Employment, as shall be specified in such election. If and only if any
cash incentive payment or portion thereof is so deferred for payment after
December 31 of the year following the year for which the incentive payment
is made, such cash incentive payment or portion thereof, as the case may
be, shall, commencing with January 1 of the year following the year for
which the incentive payment is made, be increased at a rate equal to the
prime commercial lending rate announced from time to time by The Chase
Manhattan Bank, N.A. (compounded quarterly) or at such other rate and in
such manner as shall be determined from time to time by the Chairman of the
Board. If such employee's Termination of Employment occurs for any reason
other than early or normal retirement under the retirement plan of this
corporation or retirement with the consent of this corporation outside the
retirement plan of this corporation and if, on the date of such Termination
of Employment, there remain unpaid any installments of cash incentive
payments which have been deferred as provided in this Section 6, the
Chairman of the Board may, in his discretion, direct the payment to such
employee of the aggregate amount of such unpaid installments in a lump sum,
notwithstanding such election. Subject to the terms of the Plan and
applicable law, the Chairman of the Board may delegate to one or more
officers or assistant officers of the Company his authority set forth in
the immediately preceding sentence, subject to such terms and limitations
as the Chairman of the Board shall determine. Solely for purposes of this
Section 6, the term "Termination of Employment" shall mean the cessation of
the rendering of services, whether or not as an employee, to any and all of
the following entities: the Company; any subsidiary of the Company;
Freeport-McMoRan Inc.; any subsidiary of Freeport-McMoRan Inc.; Freeport-
McMoRan Copper & Gold Inc.; any subsidiary of Freeport-McMoRan Copper &
Gold Inc.; McMoRan Oil & Gas Co.; any subsidiary of McMoRan Oil & Gas Co.;
and any corporation or other entity in which any two or more of the
aforementioned entities collectively possess, directly or indirectly,
equity interests representing at least 50% of the total ordinary voting
power or at least 50% of the total value of all classes of equity interests
of such corporation or other entity.
7. General Provisions. The selection of an employee for
participation in the Plan shall not give such employee any right to be
retained in the employ of the Company or any of its subsidiaries, and the
right of the Company and of such subsidiary to dismiss or discharge any
such employee is specifically reserved. The benefits provided for employees
under the Plan shall be in addition to, and in no way preclude, other forms
of compensation to or in respect of such employee.
8. Amendment or Termination. The Board of Directors of the
Company may from time to time amend or at any time terminate the Plan.
Exhibit 10.21
STRATUS PROPERTIES INC.
1998 STOCK OPTION PLAN
SECTION 1
Purpose. The purpose of the Stratus Properties Inc. 1998 Stock Option
Plan (the "Plan") is to motivate and reward key employees, consultants and
advisers by giving them a proprietary interest in the Company's continued
success.
SECTION 2
Definitions. As used in the Plan, the following terms shall have the
meanings set forth below:
"Award" shall mean any Option, Stock Appreciation Right, Limited Right
or Other Stock-Based Award.
"Award Agreement" shall mean any notice of grant, written agreement,
contract or other instrument or document evidencing any Award, which may,
but need not, be executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Committee" shall mean a committee of the Board designated by the
Board to administer the Plan and composed of not fewer than two directors,
each of whom, to the extent necessary to comply with Rule 16b-3 only, is a
"non-employee director" within the meaning of Rule 16b-3 and, to the
extent necessary to comply with Section 162(m) only, is an "outside
director" under Section 162(m). Until otherwise determined by the Board,
the Committee shall be the Corporate Personnel Committee of the Board.
"Company" shall mean Stratus Properties Inc.
"Designated Beneficiary" shall mean the beneficiary designated by the
Participant, in a manner determined by the Committee, to receive the
benefits due the Participant under the Plan in the event of the
Participant's death. In the absence of an effective designation by the
Participant, Designated Beneficiary shall mean the Participant's estate.
"Eligible Individual" shall mean (i) any person providing services as
an officer of the Company or a Subsidiary, whether or not employed by such
entity, including any such person who is also a director of the Company,
(ii) any employee of the Company or a Subsidiary, including any director
who is also an employee of the Company or a Subsidiary, (iii) any officer
or employee of an entity with which the Company has contracted to receive
executive, management or legal services who provides services to the
Company or a Subsidiary through such arrangement, (iv) any consultant or
adviser to the Company, a Subsidiary or to an entity described in clause
(iii) hereof who provides services to the Company or a Subsidiary through
such arrangement and (v) any person who has agreed in writing to become a
person described in clauses (i), (ii), (iii) or (iv) within not more than
30 days following the date of grant of such person's first Award under the
Plan.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Incentive Stock Option" shall mean an option granted under Section 6
of the Plan that is intended to meet the requirements of Section 422 of
the Code or any successor provision thereto.
"Limited Right" shall mean any right granted under Section 8 of the
Plan.
"Nonqualified Stock Option" shall mean an option granted under Section
6 of the Plan that is not intended to be an Incentive Stock Option.
"Offer" shall mean any tender offer, exchange offer or series of
purchases or other acquisitions, or any combination of those transactions,
as a result of which any person, or any two or more persons acting as a
group, and all affiliates of such person or persons, shall beneficially own
more than 40% of all classes and series of the Company's stock outstanding,
taken as a whole, that has voting rights with respect to the election of
directors of the Company (not including any series of preferred stock of
the Company that has the right to elect directors only upon the failure of
the Company to pay dividends).
"Offer Price" shall mean the highest price per Share paid in any Offer
that is in effect at any time during the period beginning on the ninetieth
day prior to the date on which a Limited Right is exercised and ending on
and including the date of exercise of such Limited Right. Any securities
or property that comprise all or a portion of the consideration paid for
Shares in the Offer shall be valued in determining the Offer Price at the
higher of (i) the valuation placed on such securities or property by the
person or persons making such Offer, or (ii) the valuation, if any, placed
on such securities or property by the Committee or the Board.
"Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
"Other Stock-Based Award" shall mean any right or award granted under
Section 9 of the Plan.
"Participant" shall mean any Eligible Individual granted an Award
under the Plan.
"Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization,
government or political subdivision thereof or other entity.
"Rule 16b-3" shall mean Rule 16b-3 under the Exchange Act, or any
successor rule or regulation thereto as in effect from time to time.
"SAR" shall mean any Stock Appreciation Right.
"SEC" shall mean the Securities and Exchange Commission, including the
staff thereof, or any successor thereto.
"Section 162(m)" shall mean Section 162(m) of the Code and all
regulations promulgated thereunder as in effect from time to time.
"Shares" shall mean the shares of Common Stock, par value $0.01 per
share, of the Company and such other securities of the Company or a
Subsidiary as the Committee may from time to time designate.
"Stock Appreciation Right" shall mean any right granted under Section
7 of the Plan.
"Subsidiary" shall mean (i) any corporation or other entity in which
the Company possesses directly or indirectly equity interests representing
at least 50% of the total ordinary voting power or at least 50% of the
total value of all classes of equity interests of such corporation or other
entity and (ii) any other entity in which the Company has a direct or
indirect economic interest that is designated as a Subsidiary by the
Committee.
SECTION 3
(a) Administration. The Plan shall be administered by the
Committee. Subject to the terms of the Plan and applicable law, and in
addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority
to: (i) designate Participants; (ii) determine the type or types of Awards
to be granted to an Eligible Individual; (iii) determine the number of
Shares to be covered by, or with respect to which payments, rights or
other matters are to be calculated in connection with, Awards; (iv)
determine the terms and conditions of any Award; (v) determine whether, to
what extent, and under what circumstances Awards may be settled or
exercised in cash, whole Shares, other whole securities, other Awards,
other property or other cash amounts payable by the Company upon the
exercise of that or other Awards, or canceled, forfeited or suspended and
the method or methods by which Awards may be settled, exercised, canceled,
forfeited or suspended; (vi) determine whether, to what extent, and under
what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable by the Company with respect to an Award
shall be deferred either automatically or at the election of the holder
thereof or of the Committee; (vii) interpret and administer the Plan and
any instrument or agreement relating to, or Award made under, the Plan;
(viii) establish, amend, suspend or waive such rules and regulations and
appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take
any other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the
Plan, all designations, determinations, interpretations and other
decisions under or with respect to the Plan or any Award shall be within
the sole discretion of the Committee, may be made at any time and shall be
final, conclusive and binding upon all Persons, including the Company, any
Subsidiary, any Participant, any holder or beneficiary of any Award, any
stockholder of the Company and any Eligible Individual.
(b) Delegation. Subject to the terms of the Plan and applicable
law, the Committee may delegate to one or more officers of the Company the
authority, subject to such terms and limitations as the Committee shall
determine, to grant Awards to, or to cancel, modify or waive rights with
respect to, or to alter, discontinue, suspend, or terminate Awards held by,
Eligible Individuals who are not officers or directors of the Company for
purposes of Section 16 of the Exchange Act, or any successor section
thereto, or who are otherwise not subject to such Section.
SECTION 4
Eligibility. Any Eligible Individual shall be eligible to be granted
an Award.
SECTION 5
(a) Shares Available for Awards. Subject to adjustment as
provided in Section 5(b):
(i) Calculation of Number of Shares Available.
(A) The number of Shares with respect to which Awards
payable in Shares may be granted under the Plan shall be 850,000, plus, to
the extent authorized by the Board, the number of Shares reacquired by the
Company in the open market or in private transactions for an aggregate
price no greater than the cash proceeds received by the Company from the
exercise of options granted under the Plan. Awards that by their terms may
be settled only in cash shall not be counted against the maximum number of
Shares provided herein.
(B) Grants of Stock Appreciation Rights, Limited
Rights and Other Stock-Based Awards not granted in tandem with Options and
payable only in cash may relate to no more than 850,000 Shares.
(C) Any Shares granted under the Plan that are
forfeited because of failure to meet an Award contingency or condition
shall again be available for grant pursuant to new Awards under the Plan.
(D) To the extent any Shares covered by an Award are
not issued
because the Award is forfeited or cancelled or the Award is settled in
cash, such Shares shall again be available for grant pursuant to new
Awards under the Plan.
(E) To the extent that Shares are delivered to pay the
exercise price of an Option or are delivered or withheld by the Company in
payment of the withholding taxes relating to an Award, the number of
Shares so delivered or withheld shall become Shares with respect to which
Awards may be granted.
(ii) Substitute Awards. Any Shares delivered by the
Company, any Shares with respect to which Awards are made by the Company,
or any Shares with respect to which the Company becomes obligated to make
Awards, through the assumption of, or in substitution for, outstanding
awards previously granted by an acquired company or a company with which
the Company combines, shall not be counted against the Shares available
for Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any
Shares delivered pursuant to an Award may consist of authorized and
unissued Shares or of treasury Shares, including Shares held by the
Company or a Subsidiary and Shares acquired in the open market or otherwise
obtained by the Company or a Subsidiary. (iv) Individual
Limit. Any provision of the Plan to the contrary notwithstanding, no
individual may receive in any year Awards under the Plan, whether payable
in cash or Shares, that relate to more than 250,000 Shares.
(b) Adjustments. In the event that the Committee determines
that any dividend or other distribution (whether in the form of cash,
Shares, Subsidiary securities, other securities or other property),
recapitalization, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of
Shares or other securities of the Company, issuance of warrants or other
rights to purchase Shares or other securities of the Company, or other
similar corporate transaction or event affects the Shares such that an
adjustment is determined by the Committee to be appropriate to prevent
dilution or enlargement of the benefits or potential benefits intended to
be made available under the Plan, then the Committee may, in its sole
discretion and in such manner as it may deem equitable, adjust any or all
of (i) the number and type of Shares (or other securities or property)
with respect to which Awards may be granted, (ii) the number and type of
Shares (or other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any Award and, if deemed
appropriate, make provision for a cash payment to the holder of an
outstanding Award and, if deemed appropriate, adjust outstanding Awards to
provide the rights contemplated by Section 9(b) hereof; provided, in each
case, that with respect to Awards of Incentive Stock Options no such
adjustment shall be authorized to the extent that such authority would
cause the Plan to violate Section 422(b)(1) of the Code or any successor
provision thereto and, with respect to all Awards under the Plan, no such
adjustment shall be authorized to the extent that such authority would be
inconsistent with the requirements for full deductibility under Section
162(m); and provided further, that the number of Shares subject to any
Award denominated in Shares shall always be a whole number.
SECTION 6
(a) Stock Options. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Eligible
Individuals to whom Options shall be granted, the number of Shares to be
covered by each Option, the option price therefor and the conditions and
limitations applicable to the exercise of the Option. The Committee shall
have the authority to grant Incentive Stock Options, Nonqualified Stock
Options or both. In the case of Incentive Stock Options, the terms and
conditions of such grants shall be subject to and comply with such rules
as may be required by Section 422 of the Code, as from time to time
amended, and any implementing regulations. Except in the case of an
Option granted in assumption of or substitution for an outstanding award
of a company acquired by the Company or with which the Company combines,
the exercise price of any Option granted under this Plan shall not be less
than 100% of the fair market value of the underlying Shares on the date of
grant.
(b) Exercise. Each Option shall be exercisable at such times
and subject to such terms and conditions as the Committee may, in its sole
discretion, specify in the applicable Award Agreement or thereafter,
provided, however, that in no event may any Option granted hereunder be
exercisable after the expiration of 10 years after the date of such grant.
The Committee may impose such conditions with respect to the exercise of
Options, including without limitation, any condition relating to the
application of Federal or state securities laws, as it may deem necessary
or advisable.
(c) Payment. No Shares shall be delivered pursuant to any
exercise of an Option until payment in full of the option price therefor
is received by the Company. Such payment may be made in cash, or its
equivalent, or, if and to the extent permitted by the Committee, by
applying cash amounts payable by the Company upon the exercise of such
Option or other Awards by the holder thereof or by exchanging whole Shares
owned by such holder (which are not the subject of any pledge or other
security interest), or by a combination of the foregoing, provided that the
combined value of all cash, cash equivalents, cash amounts so payable by
the Company upon exercises of Awards and the fair market value of any such
whole Shares so tendered to the Company, valued (in accordance with
procedures established by the Committee) as of the effective date of such
exercise, is at least equal to such option price.
SECTION 7
(a) Stock Appreciation Rights. Subject to the provisions of the
Plan, the Committee shall have sole and complete authority to determine
the Eligible Individuals to whom Stock Appreciation Rights shall be
granted, the number of Shares to be covered by each Award of Stock
Appreciation Rights, the grant price thereof and the conditions and
limitations applicable to the exercise thereof. Stock Appreciation Rights
may be granted in tandem with another Award, in addition to another Award,
or freestanding and unrelated to any other Award. Stock Appreciation
Rights granted in tandem with or in addition to an Option or other Award
may be granted either at the same time as the Option or other Award or at
a later time. Stock Appreciation Rights shall not be exercisable after
the expiration of 10 years after the date of grant. Except in the case of
a Stock Appreciation Right granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the
Company combines, the grant price of any Stock Appreciation Right granted
under this Plan shall not be less than 100% of the fair market value of
the Shares covered by such Stock Appreciation Right on the date of grant
or, in the case of a Stock Appreciation Right granted in tandem with a
then outstanding Option or other Award, on the date of grant of such
related Option or Award.
(b) A Stock Appreciation Right shall entitle the holder thereof
to receive upon exercise, for each Share to which the SAR relates, an
amount equal to the excess, if any, of the fair market value of a Share on
the date of exercise of the Stock Appreciation Right over the grant price.
Any Stock Appreciation Right shall be settled in cash, unless the Committee
shall determine at the time of grant of a Stock Appreciation Right that it
shall or may be settled in cash, Shares or a combination of cash and
Shares.
SECTION 8
(a) Limited Rights. Subject to the provisions of the Plan, the
Committee shall have sole and complete authority to determine the Eligible
Individuals to whom Limited Rights shall be granted, the number of Shares
to be covered by each Award of Limited Rights, the grant price thereof and
the conditions and limitations applicable to the exercise thereof. Limited
Rights may be granted in tandem with another Award, in addition to another
Award, or freestanding and unrelated to any Award. Limited Rights granted
in tandem with or in addition to an Award may be granted either at the
same time as the Award or at a later time. Limited Rights shall not be
exercisable after the expiration of 10 years after the date of grant and
shall only be exercisable during a period determined at the time of grant
by the Committee beginning not earlier than one day and ending not more
than ninety days after the expiration date of an Offer. Except in the case
of a Limited Right granted in assumption of or substitution for an
outstanding award of a company acquired by the Company or with which the
Company combines, the grant price of any Limited Right granted under this
Plan shall not be less than 100% of the fair market value of the Shares
covered by such Limited Right on the date of grant or, in the case of a
Limited Right granted in tandem with a then outstanding Option or other
Award, on the date of grant of such related Option or Award.
(b) A Limited Right shall entitle the holder thereof to receive
upon exercise, for each Share to which the Limited Right relates, an
amount equal to the excess, if any, of the Offer Price on the date of
exercise of the Limited Right over the grant price. Any Limited Right
shall be settled in cash, unless the Committee shall determine at the time
of grant of a Limited Right that it shall or may be settled in cash,
Shares or a combination of cash and Shares.
SECTION 9
(a) Other Stock-Based Awards. The Committee is hereby
authorized to grant to Eligible Individuals an "Other Stock-Based Award",
which shall consist of an Award, the value of which is based in whole or
in part on the value of Shares, that is not an instrument or Award
specified in Sections 6 through 8 of this Plan. Other Stock-Based Awards
may be awards of Shares or may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible or
exchangeable into or exercisable for Shares), as deemed by the Committee
consistent with the purposes of the Plan. The Committee shall determine
the terms and conditions of any such Other Stock-Based Award and may
provide that such awards would be payable in whole or in part in cash.
Except in the case of an Other Stock-Based Award granted in assumption of
or in substitution for an outstanding award of a company acquired by the
Company or with which the Company combines, the price at which securities
may be purchased pursuant to any Other Stock-Based Award granted under this
Plan, or the provision, if any, of any such Award that is analogous to the
purchase or exercise price, shall not be less than 100% of the fair market
value of the securities to which such Award relates on the date of grant.
(b) Dividend Equivalents. In the sole and complete discretion
of the Committee, an Award, whether made as an Other Stock-Based Award
under this Section 9 or as an Award granted pursuant to Sections 6 through
8 hereof, may provide the holder thereof with dividends or dividend
equivalents, payable in cash, Shares, Subsidiary securities, other
securities or other property on a current or deferred basis.
SECTION 10
(a) Amendments to the Plan. The Board may amend, suspend or
terminate the Plan or any portion thereof at any time, provided that no
amendment shall be made without stockholder approval if such approval is
necessary to comply with any tax or regulatory requirement, including for
these purposes any approval necessary to qualify Awards as "performance
based" compensation under Section 162(m) or any successor provision if
such qualification is deemed necessary or advisable by the Committee.
Notwithstanding anything to the contrary contained herein, the Committee
may amend the Plan in such manner as may be necessary for the Plan to
conform with local rules and regulations in any jurisdiction outside the
United States.
(b) Amendments to Awards. The Committee may amend, modify or
terminate any outstanding Award at any time prior to payment or exercise
in any manner not inconsistent with the terms of the Plan, including
without limitation, to change the date or dates as of which an Award
becomes exercisable. Notwithstanding the foregoing, no amendment,
modification or termination may impair the rights of a holder of an Award
under such Award without the consent of the holder.
(c) Adjustment of Awards Upon the Occurrence of Certain Unusual
or Nonrecurring Events. The Committee is hereby authorized to make
adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including,
without limitation, the events described in Section 5(b) hereof) affecting
the Company, or the financial statements of the Company or any Subsidiary,
or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
(d) Cancellation. Any provision of this Plan or any Award
Agreement to the contrary notwithstanding, the Committee may cause any
Award granted hereunder to be canceled in consideration of a cash payment
or alternative Award made to the holder of such canceled Award equal in
value to such canceled Award. The determinations of value under this
subparagraph shall be made by the Committee in its sole discretion.
SECTION 11
(a) Award Agreements. Each Award hereunder shall be evidenced
by a writing delivered to the Participant that shall specify the terms and
conditions thereof and any rules applicable thereto, including but not
limited to the effect on such Award of the death, retirement or other
termination of employment of the Participant and the effect thereon, if
any, of a change in control of the Company.
(b) Withholding. (i) A Participant may be required to pay to
the Company, and the Company shall have the right to deduct from all
amounts paid to a Participant (whether under the Plan or otherwise), any
taxes required by law to be paid or withheld in respect of Awards
hereunder to such Participant. The Committee may provide for additional
cash payments to holders of Awards to defray or offset any tax arising
from the grant, vesting, exercise or payment of any Award.
(ii) At any time that a Participant is required to pay to
the Company an amount required to be withheld under the applicable tax
laws in connection with the issuance of shares of Common Stock under the
Plan, the Participant may, if permitted by the Committee, satisfy this
obligation in whole or in part by electing (the "Election") to have the
Company withhold from the issuance shares of Common Stock having a value
equal to the amount required to be withheld. The value of the shares
withheld shall be based on the fair market value of the Common Stock on
the date that the amount of tax to be withheld shall be determined in
accordance with applicable tax laws (the "Tax Date").
(iii) Each Election must be made prior to the Tax Date.
The Committee may suspend or terminate the right to make Elections at any
time.
(iv) A Participant may also satisfy his or her total tax
liability related to the Award by delivering Shares owned by the
Participant. The value of the Shares delivered shall be based on the fair
market value of the Shares on the Tax Date.
(c) Transferability. No Awards granted hereunder may be
transferred, pledged, assigned or otherwise encumbered by a Participant
except: (i) by will; (ii) by the laws of descent and distribution; (iii)
pursuant to a domestic relations order, as defined in the Code, if
permitted by the Committee and so provided in the Award Agreement or an
amendment thereto; or (iv) if permitted by the Committee and so provided
in the Award Agreement or an amendment thereto, Options and Limited Rights
granted in tandem therewith may be transferred or assigned (a) to Immediate
Family Members, (b) to a partnership in which Immediate Family Members, or
entities in which Immediate Family Members are the owners, members or
beneficiaries, as appropriate, are the partners, (c) to a limited
liability company in which Immediate Family Members, or entities in which
Immediate Family Members are the owners, members or beneficiaries, as
appropriate, are the members, or (d) to a trust for the benefit of
Immediate Family Members; provided, however, that no more than a de
minimus beneficial interest in a partnership, limited liability company or
trust described in (b), (c) or (d) above may be owned by a person who is
not an Immediate Family Member or by an entity that is not beneficially
owned solely by Immediate Family Members. "Immediate Family Members"
shall be defined as the spouse and natural or adopted children or
grandchildren of the Participant and their spouses. To the extent that an
Incentive Stock Option is permitted to be transferred during the lifetime
of the Participant, it shall be treated thereafter as a Nonqualified Stock
Option. Any attempted assignment, transfer, pledge, hypothecation or
other disposition of Awards, or levy of attachment or similar process upon
Awards not specifically permitted herein, shall be null and void and
without effect. The designation of a Designated Beneficiary shall not be a
violation of this Section 11(c).
(d) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan or the
rules, regulations, and other requirements of the SEC, any stock exchange
upon which such Shares or other securities are then listed, and any
applicable federal or state laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to
such restrictions.
(e) No Limit on Other Compensation Arrangements. Nothing
contained in the Plan shall prevent the Company from adopting or
continuing in effect other compensation arrangements, which may, but need
not, provide for the grant of options, stock appreciation rights and other
types of Awards provided for hereunder (subject to stockholder approval of
any such arrangement if approval is required), and such arrangements may
be either generally applicable or applicable only in specific cases.
(f) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ
of or as a consultant or adviser to the Company or any Subsidiary or in
the employ of or as a consultant or adviser to any other entity providing
services to the Company. The Company or any Subsidiary or any such entity
may at any time dismiss a Participant from employment, or terminate any
arrangement pursuant to which the Participant provides services to the
Company or a Subsidiary, free from any liability or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement. No Eligible Individual or other person shall have any claim to
be granted any Award, and there is no obligation for uniformity of
treatment of Eligible Individuals, Participants or holders or beneficiaries
of Awards.
(g) Governing Law. The validity, construction, and effect of
the Plan, any rules and regulations relating to the Plan and any Award
Agreement shall be determined in accordance with the laws of the State of
Delaware.
(h) Severability. If any provision of the Plan or any Award is
or becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or
any Award under any law deemed applicable by the Committee, such provision
shall be construed or deemed amended to conform to applicable laws, or if
it cannot be construed or deemed amended without, in the determination of
the Committee, materially altering the intent of the Plan or the Award,
such provision shall be stricken as to such jurisdiction, Person or Award
and the remainder of the Plan and any such Award shall remain in full force
and effect.
(i) No Trust or Fund Created. Neither the Plan nor any Award
shall create or be construed to create a trust or separate fund of any
kind or a fiduciary relationship between the Company and a Participant or
any other Person. To the extent that any Person acquires a right to
receive payments from the Company pursuant to an Award, such right shall be
no greater than the right of any unsecured general creditor of the
Company.
(j) No Fractional Shares. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award, and the Committee shall
determine whether cash, other securities or other property shall be paid
or transferred in lieu of any fractional Shares or whether such fractional
Shares or any rights thereto shall be canceled, terminated, or otherwise
eliminated.
(k) Headings. Headings are given to the subsections of the Plan
solely as a convenience to facilitate reference. Such headings shall not
be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
SECTION 12
Term of the Plan. Subject to Section 10(a), the Plan shall remain in
effect until all Awards permitted to be granted under the Plan have either
been satisfied, expired or cancelled under the terms of the Plan and any
restrictions imposed on Shares in connection with their issuance under the
Plan have lapsed.
Exhibit 21.1
List of Subsidiaries of
STRATUS PROPERTIES INC.
Name Under Which
Entity Organized It Does Business
- ------------------------------- ---------- ------------------
Stratus Properties Operating Co. Delaware Same
Circle C Land Corp. Texas Same
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports included herein or incorporated by reference in this
Form 10-K, into Stratus Properties Inc.'s previously filed Registration
Statements on Form S-8 (File Nos. 33-78798, 333-31059 and 333-52995).
/s/ Arthur Andersen
New Orleans, Louisiana
March 26, 1999
Exhibit 24.1
Stratus Properties Inc.
Secretary's Certificate
I, Michael C. Kilanowski, Jr., Secretary of Stratus Properties Inc.
(the "Corporation"), a Delaware corporation, do hereby certify that the
following resolution was duly adopted by the Board of Directors of the
Corporation at a meeting held on February 10, 1993, and that such resolution
has not been amended, modified or rescinded and is in full force and effect:
RESOLVED, That any report, registration statement or other form
filed on behalf of this corporation pursuant to the Securities Exchange
Act of 1934, or any amendment to any such report, registration statement
or other form, may be signed on behalf of any director or officer of
this corporation pursuant to a power of attorney executed by such
director or officer.
IN WITNESS WHEREOF, I have hereunto set my name and the seal of the
Corporation this 19th day of March, 1998.
(Seal) /s/Michael C. Kilanowski, Jr.
Michael C. Kilanowski, Jr.
Secretary
Exhibit 24.2
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Stratus
Properties Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and
each of them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of substitution,
to execute, deliver and file, for and on behalf of him, in his name and in
his capacity or capacities as aforesaid, an Annual Report of the Company
on Form 10-K for the year ended December 31, 1998, and any amendment or
amendments thereto and any other document in support thereof or supplemental
thereto, and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every act and
thing whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 11th day of February, 1999.
/s/Robert L. Adair III
Robert L. Adair III
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Stratus
Properties Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint KENNETH N. JONES, his true and lawful attorney-in-
fact with power to act, to execute, deliver and file, for and on behalf of
him, in his name and in his capacity or capacities as aforesaid, an Annual
Report of the Company on Form 10-K for the year ended December 31, 1998,
and any amendment or amendments thereto and any other document in support
thereof or supplemental thereto, and the undersigned hereby grants to said
attorney, full power and authority to do and perform each and every act
and thing whatsoever that said attorney may deem necessary or advisable to
carry out fully the intent of the foregoing as the undersigned might or
could do personally or in the capacity or capacities as aforesaid, hereby
ratifying and confirming all acts and things which said attorney may do or
cause to be done by virtue of this Power of Attorney.
EXECUTED this 11th day of February, 1999.
/s/William H. Armstrong III
William H. Armstrong III
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Stratus
Properties Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and
each of them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of substitution,
to execute, deliver and file, for and on behalf of him, in his name and in
his capacity or capacities as aforesaid, an Annual Report of the Company
on Form 10-K for the year ended December 31, 1998, and any amendment or
amendments thereto and any other document in support thereof or supplemental
thereto, and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every act and
thing whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 11th day of February, 1999.
/s/James C. Leslie
James C. Leslie
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Stratus
Properties Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and
each of them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of substitution,
to execute, deliver and file, for and on behalf of him, in his name and in
his capacity or capacities as aforesaid, an Annual Report of the Company
on Form 10-K for the year ended December 31, 1998, and any amendment or
amendments thereto and any other document in support thereof or supplemental
thereto, and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every act and
thing whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 11th day of February, 1999.
/s/Michael D. Madden
Michael D. Madden
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities
as an officer and/or a member of the Board of Directors of Stratus
Properties Inc., a Delaware corporation (the "Company"), does hereby make,
constitute and appoint WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and
each of them acting individually, his true and lawful attorney-in-fact
with power to act without the others and with full power of substitution,
to execute, deliver and file, for and on behalf of him, in his name and in
his capacity or capacities as aforesaid, an Annual Report of the Company
on Form 10-K for the year ended December 31, 1998, and any amendment or
amendments thereto and any other document in support thereof or supplemental
thereto, and the undersigned hereby grants to said attorneys, and each of
them, full power and authority to do and perform each and every act and
thing whatsoever that said attorney or attorneys may deem necessary or
advisable to carry out fully the intent of the foregoing as the undersigned
might or could do personally or in the capacity or capacities as aforesaid,
hereby ratifying and confirming all acts and things which said attorney or
attorneys may do or cause to be done by virtue of this Power of Attorney.
EXECUTED this 11th day of February, 1999.
/s/C. Donald Whitmire, Jr.
C. Donald Whitmire, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Stratus
Properties Inc. financial statements at December 31, 1998 and the year then
ended, and is qualified in its entirety by reference to such statements. The
earnings per share (EPS) data shown was prepared in accordance with FASB No. 128
"Earnings Per Shar," 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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,169
<SECURITIES> 0
<RECEIVABLES> 525
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,463
<PP&E> 96,678
<DEPRECIATION> 122
<TOTAL-ASSETS> 111,829
<CURRENT-LIABILITIES> 2,444
<BONDS> 29,178
10,000
0
<COMMON> 143
<OTHER-SE> 63,826
<TOTAL-LIABILITY-AND-EQUITY> 111,829
<SALES> 17,590
<TOTAL-REVENUES> 17,590
<CGS> 14,118
<TOTAL-COSTS> 14,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,019
<INCOME-PRETAX> (2,525)
<INCOME-TAX> 87
<INCOME-CONTINUING> (2,638)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,638)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
