SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1999
Commission File Number: 0-19989
Stratus Properties Inc.
Incorporated in Delaware 72-1211572
(IRS Employer Identification No.)
98 San Jacinto Blvd., Suite 220, Austin, Texas 78701
Registrant's telephone number, including area code: (512) 478-5788
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
On September 30, 1999, there were issued and outstanding
14,288,270 shares of the registrant's Common Stock, par value
$0.01 per share.
STRATUS PROPERTIES INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Operations 4
Statements of Cash Flow 5
Notes to Financial Statements 6
Remarks 9
Report of Independent Public Accountants 10
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
Part II. Other Information 16
Signature 18
Exhibit Index E-1
<PAGE> 2
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
September 30, December 31,
1999 1998
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,867 $ 5,169
Accounts receivable:
Property sales 479 525
Other 1,633 408
Prepaid expenses 383 361
--------- ---------
Total current assets 6,362 6,463
Real estate and facilities, net 96,825 96,556
Investment in and advances to
unconsolidated affiliates 4,889 2,468
Other assets 5,915 6,342
--------- ---------
Total assets $ 113,991 $ 111,829
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 773 $ 583
Accrued interest, property taxes and other 947 1,861
Current portion of long-term debt 13,118 -
--------- ---------
Total current liabilities 14,838 2,444
Long-term debt 17,625 29,178
Other liabilities 6,743 6,238
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 64,785 63,969
--------- ---------
Total liabilities and stockholders' equity $ 113,991 $ 111,829
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ------------------
1999 1998 1999 1998
------- ------- ------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Revenues $ 1,828 $ 6,239 $ 6,158 $ 12,302
Costs and expenses:
Cost of sales 420 4,512 2,497 9,165
General and administrative expenses 643 683 2,381 3,182
------- ------- ------- --------
Total costs and expenses 1,063 5,195 4,878 12,347
Operating income (loss) 765 1,044 1,280 (45)
Interest expense, net (142) (495) (644) (1,480)
Other income, net 12 17 116 48
------- ------- ------- --------
Income (loss) before income taxes
and equity in affiliates 635 566 752 (1,477)
Income tax provision - - (14) -
Equity in unconsolidated affiliates 125 - 78 -
------- ------- ------- --------
Net income (loss) $ 760 $ 566 $ 816 $ (1,477)
======= ======= ======= ========
Net income (loss) per share:
Basic $0.05 $0.04 $0.06 $(0.10)
===== ===== ===== ======
Diluted $0.05 $0.03 $0.05 $(0.10)
===== ===== ===== ======
Average shares outstanding:
Basic 14,288 14,288 14,288 14,288
====== ====== ====== ======
Diluted 16,376 16,205 16,356 14,288
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 4
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW (Unaudited)
Nine Months Ended
September 30,
-----------------------
1999 1998
------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 816 $ (1,477)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 63 54
Cost of real estate sold 3,518 10,564
Equity in unconsolidated affiliates (78) -
(Increase) decrease in working capital:
Accounts receivable and other (211) (3,354)
Accounts payable and accrued liabilities (724) 346
Other (483) (2,504)
------- -------
Net cash provided by operating activities 2,901 3,629
------- -------
Cash flow from investing activities:
Real estate and facilities (5,203) (4,284)
Investment in ABC West Joint Venture - (494)
Investment in Oly Walden Joint Venture (376) (1,999)
------- -------
Net cash used in investing activities (5,579) (6,777)
------- -------
Cash flow from financing activities:
Proceeds from preferred stock issuance - 10,000
Borrowings (repayment) of debt, net 1,000 (6,000)
Proceeds from convertible debt facility 376 1,999
------- -------
Net cash provided by (used in) financing activities 1,376 5,999
------- -------
Net increase (decrease) in cash and cash equivalents (1,302) 2,851
Cash and cash equivalents at beginning of year 5,169 873
------- -------
Cash and cash equivalents at end of period $ 3,867 $ 3,724
======= =======
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 5
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. EARNINGS PER SHARE
Basic net income (loss) per share of common stock was calculated
by dividing net income (loss) applicable to common stock by the
weighted-average number of common shares outstanding during each
period presented. Diluted net income (loss) per share was
calculated by dividing net income (loss) by the weighted-average
of common shares outstanding plus the effects of dilutive stock
options during each period presented. Stratus Properties Inc.
(STRS) had dilutive options representing approximately 376,000
and 356,000 shares of common stock for the third quarter and nine
months ended September 30, 1999, respectively. Additionally, the
diluted net income per share calculations for the 1999 periods
assume the redemption of STRS' approximate 1.7 million shares of
outstanding mandatorily redeemable preferred stock for
approximately 1.7 million shares of common stock. STRS'
outstanding convertible debt, which is convertible into
approximately 359,000 shares of common stock, was excluded from
the diluted net income per share calculation because of its anti-
dilutive effect. Interest accrued on the convertible debt
outstanding totaled approximately $64,000 and $189,000 during the
third quarter and nine months ended September 30, 1999,
respectively, and there have been no dividends accrued to date on
the mandatorily redeemable preferred stock.
During the third quarter of 1998, STRS' diluted net income
per share computation included the following: outstanding options
representing approximately 202,000 shares of common stock, the
assumed redemption of STRS' 1.7 million shares of outstanding
mandatorily redeemable preferred stock for approximately 1.7
million shares of common stock and STRS' outstanding convertible
debt which, assuming conversion, represented 3,000 shares of
common stock. Because of the net loss for the period, the diluted
loss per share calculation for the 1998 nine-month period
excludes as anti-dilutive the conversion of the mandatorily
redeemable preferred stock and convertible debt discussed above,
as well as outstanding options to purchase approximately 303,000
shares of common stock.
Outstanding options to purchase approximately 295,000 and
299,000 shares of common stock at an average exercise price of
$6.14 per share for both the third quarter of 1999 and 1998,
respectively, and outstanding options to purchase 295,000 and
289,000 shares of common stock at average exercise prices of
$6.14 and $6.19 per share for the nine months ended September 30,
1999 and 1998, respectively, were excluded from the computation
of diluted earnings per share because their exercise prices were
greater than the average market price for the periods presented.
2. LONG-TERM DEBT
STRS has a $35.0 million revolving credit facility with
individual borrowings bearing interest at rates based on the lead
lender's prime rate or LIBOR, at STRS' option. The aggregate
commitment decreased to $35.0 million on January 1, 1999. It
will be reduced further to $15.0 million on January 1, 2000 and
will terminate on January 1, 2001. During 1999 STRS classifies
any borrowings on this credit facility in excess of $15 million
as current maturities of long-term debt. As of September 30,
1999, credit facility borrowings totaled $28.1 million. IMC
Global Inc. (IGL) has guaranteed amounts borrowed under the
facility in exchange for an annual fee. This fee, which is
payable quarterly, is equal to the difference between STRS' cost
of funded borrowings before the assumption of the guarantee by
IGL and the current rate on the funded loans under the facility.
STRS cannot amend the facility without IGL's consent. For
further discussion of this credit facility, see Note 5 of "Notes
to Financial Statements" in STRS' 1998 Annual Report on Form 10-
K. STRS had $2.6 million of additional long-term debt
outstanding on September 30, 1999 resulting from borrowings on
its convertible debt facility (see Note 3).
STRS believes its near-term capital resource needs can be
met adequately during the remainder of 1999 from operating cash
flows and additional borrowings under its existing debt
facilities. However, the debt reduction required under its
revolving credit facility (see above) will require new financing
by no later than January 1, 2000. Accordingly, STRS is currently
exploring capital raising alternatives, including various forms
of debt and/or equity financing. STRS continues to pursue
financing for the development of individual projects through both
commercial bank facilities and in accordance with its alliance
with Olympus (see Note 3). While there can be no assurance that
STRS will have the necessary funds, management believes that STRS
<PAGE> 6
has the ability to effectively address its capital resource needs
and debt reduction requirements. See Note 7 for a discussion of
subsequent developments regarding STRS' capital resources and
debt reduction requirements.
3. OLYMPUS RELATIONSHIP
In May 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.
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 investments in new STRS/Olympus joint venture
opportunities involving properties not currently owned by STRS.
Interest under this facility accrues at 12 percent and is payable
quarterly or added to principal at Olympus' option. As of
September 30, 1999, Olympus had elected to add all interest ($0.2
million) to the outstanding principal ($2.4 million, see Note 5),
resulting in an outstanding amount of $2.6 million.
Through May 22, 2001, Olympus agreed to make available up to
$50 million for its share of capital for direct investments in
STRS/Olympus joint acquisition and development activities. In
return, STRS has provided Olympus with a right of first refusal
to participate for no less than a 50 percent interest in all new
acquisition and development projects on properties not currently
owned by STRS, as well as development opportunities on existing
properties in which STRS seeks third-party equity participation.
As of September 30, 1999, Olympus had invested approximately
$5.7 million of such funds in STRS/Olympus joint ventures. For
further discussion of STRS' alliance and its subsequent
formation of joint ventures with Olympus see Note 5 and Notes 2,
3 and 4 of "Notes to Financial Statements" included in STRS' 1998
Annual Report on Form 10-K.
4. PROJECT LOAN FACILITY
In April 1999, STRS and a wholly owned subsidiary finalized a
$6.6 million project development loan facility with a commercial
bank for the development of the 70,000 square foot first phase of
the 140,000 square foot Lantana Corporate Center (7000 West).
STRS is guarantor of the completion of the project and is
responsible for any unpaid interest and certain other limited
obligations. The 18-month, variable-rate, non-recourse loan is
secured by approximately 11 acres of land at 7000 West, the
related improvements and approximately $2.0 million of
reimbursements due from the City of Austin for the Lantana water
pump station. Interest is payable monthly and accrues at either
the lending bank's prime rate or LIBOR plus 250 basis points at
STRS' option. In August 1999, as part of a joint venture
agreement with Olympus, STRS sold a 50.1 percent interest in the
subsidiary that held the project loan. Accordingly the project
loan is no longer consolidated on STRS' books and is now being
recorded by the joint venture (see Note 5). As of September 30,
1999, outstanding borrowings on this project loan facility
totaled approximately $1.4 million.
5. INVESTMENT IN UNCONSOLIDATED AFFILIATES
On September 30, 1998, STRS entered into two separate
transactions with Olympus. The first provided for the
development of 75 residential lots at the Barton Creek ABC West
Phase I subdivision known as Wimberly Lane. In this transaction
STRS sold the land to the Oly Stratus ABC West I Joint Venture
(ABC Joint Venture) for approximately $3.3 million, of which
$1.65 million attributable to its 50 percent equity interest was
deferred for financial accounting purposes, and invested
approximately $0.5 million in the now fully developed 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 (Walden). Olympus originally purchased
Walden in April 1998 when it contained 930 developed lots and 80
acres of undeveloped property. STRS has served as manager of this
project since Olympus' purchase. STRS acquired a 50 percent
interest in the Oly Walden Partnership (Walden Partnership) for
$2.0 million borrowed under its convertible debt facility with
Olympus (see Note 3). On September 30, 1999, STRS borrowed an
additional $0.4 million under the convertible debt facility to
fund its share of an additional capital contribution to the
Walden Partnership. STRS accounts for its investment in both of
these affiliated entities using the equity method.
The Walden Partnership and the ABC Joint Venture each have
project development loan facilities with the same commercial
bank. These facilities, totaling $8.2 million for the Walden
<PAGE> 7
Partnership and $3.9 million for the ABC Joint Venture, are non-
recourse to the partners and secured by the assets of the
respective projects. At September 30, 1999, borrowings of $4.6
million were outstanding on the Walden facility. The ABC Joint
Venture has repaid all outstanding obligations under its facility
and does not anticipate making any future borrowings. These
facilities required that a wholly owned subsidiary of STRS
deposit a total of $3.0 million of restricted cash with the bank
as additional collateral for these facilities. The loan agreement
for the Walden Partnership permits a $0.30 reduction of this
restricted cash deposit for every $1.00 of principal repaid on
the Walden Partnership loan. The restriction on the $0.5 million
deposited as collateral for the ABC Joint Venture loan has now
been partially removed ($0.4 million) because the entire loan has
been repaid. The ABC Joint Venture facility currently has
approximately $0.1 million of outstanding letters of credit
covering the completion of the project, at which time this
remaining restricted cash will be released. At September 30,
1999, STRS had approximately $1.8 million of restricted cash
pursuant to these projects' development loan facilities
agreements.
On August 16, 1999, STRS sold Olympus a 50.1 percent
interest in 7000 West. STRS received $1.1 million upon closing
and recognized a $0.5 million gain. STRS deferred revenue of
approximately $0.5 million representing its 49.9 percent retained
interest in the 5.5 acres of commercial real estate associated
with phase I of the project. The initial 7000 West building is
substantially complete and leases have been executed totaling
approximately 83 percent of the building. STRS anticipates that
the building will be fully leased by completion of its
construction, which is expected in November 1999. STRS
anticipates the remaining 5.5 acres of commercial real estate
associated with phase II of the project will be sold in a similar
transaction by year-end 1999. Construction of the second building
will be funded utilizing additional borrowings under the existing
project loan (see Note 4) and is expected to be completed in the
third quarter of 2000. STRS accounts for its investment in this
joint venture using the equity method.
For a detailed discussion of the joint venture and
partnership transactions with Olympus see Note 4, "Investment in
Unconsolidated Affiliates" and "Transactions With Olympus Real
Estate Corporation" and "Capital Resources and Liquidity"
included in Items 7 and 7A " Management's Discussion and Analysis
of Financial Condition and Results of Operations and Disclosures
of Market Risks" included in STRS' 1998 Annual Report on Form 10-K.
There have been no dividends paid by any of the
unconsolidated affiliates as of September 30, 1999. The
summarized unaudited financial information of STRS'
unconsolidated affiliates is shown below (in thousands):
<TABLE>
<CAPTION>
ABC Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------ -------
<S> <C> <C> <C> <C>
Earnings data for the quarter
ended September 30, 1999:
Revenues $ 1,361 $ 632 $ - $ 1,993
Operating income (loss) 282 (130) (5) 147
Net income (loss) 282 (119) (2) 161
STRS' equity in net income (loss) 141 (15)a (1) 125a
Earnings data for the nine months
ended September 30, 1999:
Revenues $ 2,630 $ 1,622 $ - $ 4,252
Operating income (loss) 534 (476) (5) 53
Net income (loss) 534 (464) (2) 68
STRS' equity in net income (loss) 267 (188)a (1) 78a
</TABLE>
a.Includes recognition of $44,000 of a total $337,000 of
deferred income, representing the difference in STRS'
investment in the Walden partnership and its underlying equity
at the date of acquisition. STRS will recognize the remaining
difference as the related real estate is sold.
6. LITIGATION
STRS is involved in pending litigation involving the City of
Austin (the City) and others, which may affect its property
development entitlements and its ability to secure reimbursement
of approximately $22 million, of which STRS' portion is estimated
to be approximately $18 million, exclusive of penalties and
<PAGE> 8
interest, relating to development of its Circle C property. Refer
to Item 3 "Legal Proceedings" and Note 6 "Real Estate" in the
STRS Annual Report on Form 10-K for the year ended December 31,
1998 for a detailed discussion of such litigation matters. For
discussion of litigation events subsequent to the Form 10-K refer
to Note 7, "Capital Resources and Liquidity" and Part II - Other
Information, "Legal Proceedings" included elsewhere in this Form
10-Q.
7. SUBSEQUENT EVENTS
In late October 1999, Circle C Land Corp. (Circle C), a wholly
owned subsidiary of STRS, and the City reached an agreement
regarding a portion of Circle C's claims against the City (see
Note 6). As a result of this agreement, STRS received
approximately $9.8 million, including $1.0 million in interest,
representing a partial payment of these claims. STRS will
continue to vigorously pursue its remaining claims against the
City for approximately $9.0 million. STRS used the proceeds to
reduce the balance outstanding under its existing bank credit
facility (see Note 2), to approximately $18 million.
Under the terms of the agreement, STRS would be required to
return the money to the City and the City would be required to
return the utility infrastructure to STRS if the City's
annexation of the Circle C municipal utility districts is
reversed or otherwise legally rescinded, whether by legislative
action, final action of an appellate court, or other legal
process. If the transaction is rescinded, STRS would pursue its
reimbursement claims for this amount, plus the additional amounts
STRS considers due from the City, under Texas law. For further
discussion of STRS' litigation and related issues see Note 6 and
Part II- Other Information, "Legal Proceedings" included
elsewhere in this interim report on Form 10-Q.
On November 3, 1999, STRS received tentative approval of the
basic terms of a new credit facility from a commercial bank. The
actual terms of the new facility are subject to final negotiation
of a definitive agreement, which if consummated would replace
STRS' existing revolving credit facility (see Note 2) and
effectively extend STRS' current debt maturity. While STRS
believes that a new credit facility can be finalized on
acceptable terms by December 31, 1999, there can be no assurance
that this will occur. STRS has identified other financing
alternatives that it believes will be available if the new credit
facility cannot be finalized by December 31, 1999.
--------------------
Remarks
The information furnished herein should be read in conjunction
with STRS' financial statements contained in its 1998 Annual
Report on Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature.
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Stratus Properties Inc.:
We have reviewed the accompanying condensed balance sheet of
Stratus Properties Inc. (a Delaware Corporation), as of September
30, 1999, the related statements of operations for the three and
nine-month periods ended September 30, 1999 and 1998 and the
statements of cash flow for the nine month periods ended
September 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the balance sheet of Stratus Properties Inc.
as of December 31, 1998, and the related statements of
operations, stockholders' equity and cash flow for the year then
ended (not presented herein), and in our report dated January 19,
1999, based on our audit, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December
31, 1998, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN LLP
Austin, Texas
October 20, 1999 (except with
respect to Note 7, as to which
the date is November 3, 1999)
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
Stratus Properties Inc. (STRS) is engaged in the
acquisition, development, management and sale of commercial and
residential real estate. STRS conducts its real estate
operations on properties it owns and through unconsolidated
affiliates that are jointly owned with Olympus Real Estate
Corporation (Olympus) pursuant to a strategic alliance formed in
May 1998 (see Notes 3 and 5), as more fully discussed below.
STRS' principal real estate holdings are 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 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.
As of September 30, 1999, STRS also owned 30 developed lots,
136 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.
DEVELOPMENT ACTIVITIES
STRS Properties
Development is progressing at several sections of the Barton
Creek project, including the completion of utility infrastructure
that 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 the
new Tom Fazio-designed "Fazio Canyons" golf course, which was
completed in September 1999. STRS expects that a number of these
homesites will be available for sale by late 2000. Permitting
and entitlement issues now being litigated make the timing of
completion of the projects at Barton Creek uncertain.
In September 1999, STRS commenced construction of 54 multi-
acre homesites on approximately 240 acres in the southern portion
of its Barton Creek development. The homesites, which range in
size from 1 to 11 acres, are scheduled for completion in the
third quarter of 2000. All of these lots have scenic hill
country settings and some will overlook Fazio Canyons.
Construction commenced during the third quarter of 1999 and pre-
marketing is expected to begin in the fourth quarter of 1999.
Unconsolidated Affiliates Properties
During the first quarter of 1999, STRS, as developer,
completed the development of 75 Barton Creek residential lots
owned by the Oly Stratus ABC West I Joint Venture (ABC Joint
Venture). STRS, as manager, has closed on the sale of 13 and 26
lots, resulting in revenues of $1.4 million and $2.6 million to
the joint venture during the third quarter and nine months ended
September 30, 1999, respectively. The net proceeds from these
sales were used to repay borrowings under the ABC Joint Venture
loan facility. The project loan has been totally repaid and the
ABC Joint Venture does not anticipate any future borrowings under
the facility. STRS will continue its marketing efforts and
anticipates substantial sales during the remainder of 1999 and
early 2000. STRS' restricted cash, which serves as additional
collateral for the loan facility, has been reduced from $0.5
million to $0.1 million as a result of the repayment of the
outstanding borrowings. The remaining $0.1 million will be
released when Travis County approves the completion of the
project, which STRS anticipates will occur by year-end 1999.
STRS is continuing to manage and market the assets of the
Oly Walden Partnership, which currently includes approximately
640 developed lots and 80 acres of platted but undeveloped real
estate near Houston, Texas. STRS receives management fees and
commissions for its services. During the second quarter of 1998
STRS negotiated agreements with developers providing for the sale
of approximately 90 percent of the developed lots at that time.
These agreements require the purchasers to close on the lots
pursuant to a specific schedule that extends through 2002. Sales
of approximately 290 lots have already been closed and funded
under these agreements.
<PAGE> 11
On August 16, 1999, STRS sold Olympus a 50.1 percent
interest in the 70,000 square foot first phase of the 140,000
square foot Lantana Corporate Center (7000 West) (see Notes 4 and
5). Upon closing STRS received $1.1 million and recognized a $0.5
million gain. The first building is substantially complete and is
approximately 83 percent leased. STRS' objective is to have the
building fully leased by its completion in November 1999. During
the fourth quarter of 1999, STRS anticipates entering into a
similar transaction with Olympus to construct a second 70,000
square foot building at 7000 West. STRS anticipates that this
transaction will occur by year-end 1999. Funding of the
construction of the second building at 7000 West will be
primarily through additional borrowings on the existing project
loan facility (see Note 4). The second building is expected to
be completed in the third quarter of 2000.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
STRS' summary operating results follow (in thousands):
Third Quarter Nine Months
----------------- ----------------
1999 1998 1999 1998
------ ------- ------ -------
<S> <C> <C> <C> <C>
Revenues:
Undeveloped properties:
Unrelated parties $ - $ 284 $ 873 $ 554
Olympus 509 1,644 509 1,644
Recognition of deferred revenues 287 - 531 -
------ ------- ------ -------
Total undeveloped properties 796 1,928 1,913 2,198
Developed properties 567 4,311 3,246 10,104
Commissions, management fees and other 465 - 999 -
------ ------- ------ -------
Total revenues 1,828 6,239 6,158 12,302
Operating income (loss) 765 1,044 1,280 (45)
Net income (loss) 760 566 816 (1,477)
</TABLE>
STRS' undeveloped property revenues include both sales of
undeveloped properties to third parties and the recognition of
previously deferred revenues from the sale of undeveloped real
estate to unconsolidated affiliates. When STRS sells real estate
to an entity jointly owed with Olympus, STRS defers recognizing
the portion of revenues from the sale related to its interest
until all or a portion of the real estate is ultimately sold to
unrelated parties. Revenues from unrelated parties included 28
acres of Houston residential property sold during the second
quarter of 1999, compared with 17 acres of residential property
at Barton Creek sold during the third quarter of 1998 and two
acres of residential property sold in Dallas during the first
quarter of 1998. STRS' recognition of deferred revenues resulted
from the ABC Joint Venture's sale of 13 and 26 developed lots
during the third quarter and nine months ended September 30,
1999, respectively. The remaining deferred revenues, which
originally totaled $1.6 million and resulted from STRS' retained
interest in the sale of 28 undeveloped acres to the ABC Joint
Venture during the third quarter of 1998, will be recognized as
the remaining lots are sold by the ABC Joint Venture. Revenues
from undeveloped property sales to Olympus in the third quarter
and nine-month periods of 1999 reflect the transfer to Olympus of
a 50.1 percent interest in 5.5 acres of commercial real estate in
7000 West, while third-quarter and nine-month 1998 revenues
reflect the interest in the 28 acres transferred to Olympus upon
formation of the ABC Joint Venture.
Revenues from developed properties represented the sale of
15 and 69 single family homesites during the third quarter and
nine month periods of 1999, respectively, compared with the sale
of 46 and 154 single family homesites during the comparable 1998
periods. The decreases in the 1999 periods reflect STRS' reduced
inventory of developed lots. STRS currently has no developed lots
in its Austin or Dallas developments and 30 remaining developed
lots in its Houston and San Antonio developments.
Commissions, management fees and other revenue reflect STRS'
effort to expand that part of its business through its role in
the joint ventures with Olympus, as well as its management of the
2,200 acre Lakeway project near Austin.
<PAGE> 12
Cost of sales decreased to $0.4 million and $2.5 million for
the third quarter and nine months ended September 30, 1999
compared with $4.5 million and $9.2 million for the same periods
last year. The decreases primarily reflect the substantial
reduction in sales during 1999. Additionally, reimbursement of
certain infrastructure costs, which were previously charged to
expense or related to properties previously sold, reduced cost of
sales by approximately $2.8 million during the nine months ended
September 30, 1999 and $0.8 million for the nine-month period in
1998.
General and administrative expenses decreased during the
third quarter and nine months ended September 30, 1999, to $0.6
million and $2.4 million, respectively, compared with $0.7
million and $3.2 million during the comparable periods in 1998.
The decrease resulted primarily from reduced legal costs in
connection with STRS' ongoing efforts to resolve through
litigation attempts by the City of Austin (the City) and others
to restrict STRS' development entitlements and to secure
reimbursement from the City of approximately $22 million relating
to infrastructure costs incurred in the development of the Circle
C property which had been annexed by the City. On October 29,
1999, STRS received a partial payment of $9.8 million from the
City (see "Capital Resources and Liquidity"). STRS' remaining
share of these infrastructure costs, is currently estimated at
approximately $9 million, exclusive of penalties and interest and
are not recorded as an asset in STRS' balance sheet. In December
1998, the Texas Supreme Court heard oral argument on a legal
brief that may resolve various issues between STRS and the City.
A ruling could be issued at any time. Lower legal costs during
the 1999 periods reflect the reduced activity associated with the
timing of the Texas Supreme Court's ruling. See Part II, Item 1
"Legal Proceedings" for further discussion of legal matters
concerning STRS, including favorable legislative developments
during the second quarter of 1999. Legal expenses for the third
quarter and nine months ended September 30, 1999 totaled
approximately $0.2 million and $0.6 million, respectively,
compared with $0.2 million and $1.2 million during the same
periods last year.
During 1995, the Texas State legislature enacted legislation
that enabled STRS to create a series of municipal utility
districts (MUDs) to serve the Barton Creek development. Once
established, the MUDs issue bonds, the proceeds of which are used
to reimburse STRS for costs related to the installation of major
utility, drainage and water quality infrastructure. During the
nine months ended September 30, 1999, STRS received approximately
$3.1 million in partial reimbursement of infrastructure costs
relating to the Barton Creek development, which included $2.8
million related to costs previously expensed (see discussion
above). During the nine months ended September 30, 1998, STRS
received approximately $2.8 million, reflecting the receipt of
$1.8 million in partial Circle C MUD reimbursements and $1.0
million in partial Barton Creek MUD reimbursements, which
included $0.8 million related to costs previously expensed. The
proceeds were used in part to fund current development
expenditures and to repay debt. STRS expects to receive
additional reimbursements for previously incurred infrastructure
costs related to the Barton Creek development from the proceeds
of MUD bonds issued in the future. However, the timing and the
amount of future Barton Creek MUD reimbursements are uncertain.
For information concerning Circle C MUD reimbursements currently
being litigated, see Part II, Item 1, "Legal Proceedings."
Net interest expense totaled $142,000 and $644,000 for the
third quarter and nine months ended September 30, 1999,
respectively, compared to $495,000 and $1,480,000 during the same
periods one year ago. The decrease reflects lower average debt
outstanding in the current year and an increase in capitalized
interest. Capitalized interest was $304,000 and $835,000 during
the third quarter and nine months ended September 30, 1999
compared to $47,000 and $293,000 during the comparable 1998
periods.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $2.9
million during the nine months ended September 30, 1999 compared
with $3.6 million during the nine months ended September 30,
1998. The decrease primarily reflects the reduction of sales
revenues and a reduction in outstanding accounts payable and
accrued liabilities subsequent to December 31, 1998, offset in
part by the receipt of $2.8 million in MUD reimbursements for
previously expensed infrastructure costs and collection of
outstanding accounts receivable. Cash used in investing
activities totaled $5.6 million during the nine months ended
September 30, 1999 compared with $6.8 million during the same
period in 1998, reflecting STRS' net real estate and facilities
expenditures. Financing activities provided cash of $1.4 million
from increased borrowings during the nine months ended September
30, 1999, including $0.4 million of additional borrowing under
the convertible debt facility (see Note 5). Financing activities
provided $6.0 million during the nine months ended September 30,
<PAGE> 13
1998, which reflected the issuance of $10 million of mandatorily
redeemable preferred stock associated with the Olympus
transaction (see Note 3) and borrowings on the convertible debt
facility (see Note 5), offset in part by net repayments of
outstanding borrowings under its existing bank credit facility
(see Note 2).
STRS' development expenditures during the nine months ended
September 30, 1999 were funded largely from borrowings under its
existing credit facility, which provides aggregate available
credit of $35 million through December 31, 1999 and $15 million
through December 31, 2000 (see Note 2). At September 30, 1999,
outstanding debt on this credit facility totaled $28.1 million.
Anticipated capital expenditures for the remainder of 1999 are
expected to be funded by operating cash flow. Future levels of
capital expenditures are subject to change based on the
resolution of ownership of certain reimbursements of previously
incurred infrastructure costs and other legal and regulatory
issues, as further discussed in Part II, Item 1, "Legal
Proceedings."
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' 1999 capital
expenditures have been and future capital expenditures will
continue to 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 Part II Item 1,
"Legal Proceedings." As a result, property sales during the
remainder of 1999 and early 2000 are expected to be lower than in
previous years.
On October 29, 1999, STRS and the City agreed on a partial
payment of STRS' MUD reimbursement claims totaling $9.8 million
(see Note 7 and Part II, Item 1, "Legal Proceedings"). These
funds were used to reduce STRS' outstanding borrowings under its
existing bank facility to approximately $18 million. STRS' debt
is required to be reduced to $15 million by January 1, 2000.
Accordingly, STRS and a commercial bank have tentatively agreed
on the terms of a new credit facility, with final approval by the
bank primarily contingent upon STRS providing certain collateral
certifications. The new facility would replace STRS' existing
credit facility and effectively extend STRS' current debt
maturity. While STRS believes that the new credit facility can
be finalized on acceptable terms prior to December 31, 1999,
there can be no assurance that this will occur. STRS has
identified other financing alternatives that it believes will be
available if the new credit facility cannot be finalized by
December 31, 1999. STRS continues to be able to obtain 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 developing its
properties. However, obtaining land acquisition financing is
generally expensive and uncertain. Resolving its entitlement and
reimbursement disputes with the City and establishing a long-term
capital structure remain STRS' primary objectives.
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 of which STRS owns 10 percent (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. Critical components of the plan are complete with
the remaining activities focused on contingency planning. Like
other companies, STRS cannot, however, make Y2K Compliance
certifications because the ability of any organization's systems
<PAGE> 14
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.
Information Technology (IT) Systems. STRS and the Services
Company have completed Y2K remediation and testing work for
critical business and office automation systems.
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 completed an assessment of this area and does not believe
its overall risk is significant.
Third Party Risks. STRS computer systems are not widely
integrated with the systems of its 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. The
incremental cost of Y2K Compliance not covered by STRS' routine
software and hardware maintenance fees will be less than $0.1
million, most of which has been incurred. 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. Initial contingency plans have been developed and will
continue to be updated based on changing business requirements.
While there can be no assurances that STRS will not be materially
adversely affected by Y2K problems, it is committed to ensuring
that it is fully Y2K ready and believes its plans adequately
address the above-mentioned risks.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition
and results of operations contains forward-looking statements
regarding future reimbursement for infrastructure costs, future
events related to financing and the IMC Global Inc. guarantee,
the anticipated outcome of 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" in STRS' Form
10-K for the year ended December 31, 1998.
----------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 15
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
STRS is involved in various regulatory matters and
litigation involving entitlement and/or development of its Austin
properties. For a detailed discussion on these matters see Item
3, "Legal Proceedings" and Note 6, "Real Estate" included in
STRS' 1998 Annual Report on Form 10-K.
Below is a summary of the cases in which STRS is currently
involved. The current status is summarized and should be read in
conjunction with the above referenced sections of the STRS 1998
Annual Report on Form 10-K.
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 Water
Quality Protection Zones ("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, 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 for 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 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 at any time.
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. On September 4, 1998, after numerous attempts by the City
to transfer venue, deny jurisdiction or to stay the proceedings,
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 Texas Supreme Court
granted a temporary stay. The City has appealed the Hays County
District Court's ruling to the Texas Third Court of Appeals. The
appellate court set the case for submission. Both parties
submitted briefs and on September 15, 1999 oral argument was
presented to the Third Court of Appeals. The principal issue
involved in this case, the constitutionality of the enabling
legislation authorizing the creation of WQPZs, is already pending
before the Texas Supreme Court in the City's WQPZ action
described above and is expected to be resolved in connection with
that case. Assuming the enabling legislation is determined to be
constitutional, certain important collateral issues are pending
before the Third Court of Appeals. Those issues, which involve
the application of the WQPZ enabling legislation to STRS' WQPZ at
Circle C, are expected to be resolved in STRS' favor.
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. Both
parties have filed motions for summary judgment. The hearing
previously set for May 18, 1999 and the trial, previously
scheduled for May 24, 1999, were both continued and are expected
to be set during the first quarter of 2000. The City's total
reimbursement obligation to the Circle C developers, resulting
from its annexation, is estimated at $22 million, of which STRS'
remaining share is estimated at approximately $9.0 million,
exclusive of penalties and interest. On October 29, 1999, Circle
C Land Corp. and the City reached an agreement in which STRS
received $9.8 million (including $1 million of interest) as
partial payment of its MUD reimbursement claims. Under the terms
<PAGE> 16
of the agreement, STRS would be required to return the money to
the City and the City would be required to return the utility
infrastructure to STRS if the City's annexation is reversed or
otherwise legally rescinded, whether by legislative action, final
action of the appellate court or other legal process. During the
1999 legislative session two laws were enacted enhancing STRS'
MUD reimbursement claim against the City, as described in
"Legislative Matters" below. These laws became effective on
September 1, 1999, and STRS is accordingly entitled to penalties
and interest on the outstanding delinquent Circle C MUD
reimbursements. 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 February 1998, the District
Court granted Circle C's summary judgement motion on the primary
case and Phoenix dismissed its counterclaim with prejudice.
Phoenix filed various appeals and writs. On August 26, 1999, the
Texas Supreme Court denied Phoenix's writ making the judgment
against Phoenix final and non-appealable.
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), that established grandfathered rights for previously
permitted lands. 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 has attempted to apply these regulations to
portions of STRS' Circle C property and Lantana. In response,
STRS undertook to assert and defend its grandfathered
entitlements vigorously. In April 1999, the Texas State House of
Representatives and Senate overwhelmingly approved H.B. 1704,
which reinstated the grandfathered rights previously
inadvertently repealed. This bill became law effective on May
11, 1999. Additionally, three other laws were enacted during the
second quarter of 1999, which are expected to have a positive
impact on STRS' development rights for its Austin-area properties
and strengthen its position in collecting the Circle C MUD
reimbursements currently being litigated (see "Annexation/Circle
C MUD Reimbursements Suit" above). The laws enacted include:
S.B. 262, which requires a municipality that annexed property in
a MUD to pay penalties and interest on utility infrastructure
reimbursements associated with the annexed properties that are
not timely paid by the municipality; S.B. 1165, which validates
the creation of existing water quality protection zones; and S.B.
89, which requires a municipality to pay developers for utility
infrastructure within a MUD controlled and operated by a
municipality in conjunction with an annexation, regardless of
whether or not the municipality's annexation is ultimately
validated.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit
Index appearing on page E-1 hereof.
(b) The registrant filed no Current Reports on Form 8-K
during the period covered by this Quarterly Report on
Form 10-Q.
<PAGE> 17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STRATUS PROPERTIES INC.
By: /s/ C. Donald Whitmire, Jr.
-----------------------------
C. Donald Whitmire, Jr.
Vice President & Controller
(authorized signatory and
Principal Accounting Officer)
Date: November 12, 1999
<PAGE> 18
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of STRS. Incorporated by reference to STRS' Exhibit
3.1 to 1998 Form 10-K.
3.2 By-laws of STRS, as amended as of February 11,
1999. Incorporated by Reference to Exhibit 3.2 to STRS'
1998 Form 10-K.
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 STRS' 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.
<PAGE> E-1
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.
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.
10.18 Amended and Restated Joint Venture Agreement Program,
dated August 16, 1999 by and between Oly Lantana, L.P., and
Stratus 7000 West Ltd.
10.19 The Reimbursement Claim Agreement dated October 29, 1999
by and between Circle C Land Corp. and the City of Austin.
Executive Compensation Plans and Arrangements (Exhibits
10.20 through 10.23)
10.20 STRS' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to STRS' 1998 Form 10-K.
10.21 STRS Stock Option Plan, as amended. Incorporated
by reference to Exhibit 10.9 to STRS's 1997 Form 10-K.
10.22 STRS 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to STRS' 1997 Form 10-K.
10.23 Stratus Properties Inc. 1998 Stock Option Plan as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.21 to STRS' 1998 Form 10-K.
15.1 Letter dated November 3, 1999 from Arthur Andersen LLP
regarding unaudited interim financial statements.
27.1 Financial Data Schedule.
Exhibit 10.18
STRATUS 7000 WEST JOINT VENTURE
(A Texas Joint Venture)
AMENDED AND RESTATED JOINT VENTURE AGREEMENT
__________________________________
Dated as of August 16, 1999
__________________________________
TABLE OF CONTENTS
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ARTICLE 1
1.1 Definitions 1
ARTICLE 2
2.1 Formation of Joint Venture 10
2.2 Name 11
2.3 Character of Business 11
2.4 Registered Office and Agent 11
2.5 Fiscal Year 11
ARTICLE 3
3.1 Capital Contributions to the Partnership 11
3.2 Additional Capital Contributions 13
3.3 No Return of Capital Contributions 17
3.4 Interest 17
3.5 Phase II Option 17
ARTICLE 4
4.1 Management of Partnership 21
4.2 Management Committee 21
4.3 Major Decisions 23
4.4 Budgets and Reports 23
4.5 Powers of the Operating Partner 24
4.6 Liability of Partners 24
4.7 Other Activities of Partners 25
ARTICLE 5
5.1 Exculpation 25
5.2 Indemnity 25
5.3 Indemnity from Stratus 26
ARTICLE 6
6.1 Distributions 26
6.2 Tax Allocations 28
ARTICLE 7
7.1 Admission of New Partners 29
7.2 Transfer of Partnership Interests 30
7.3 Buy/Sell 30
7.4 No Substituted Partners 33
7.5 Withdrawal of Partners 33
8.1 Books of Account; Tax Returns 33
8.2 Place Kept; Inspection 34
8.3 Tax Matters Partner 34
8.4Additional Reporting Requirements 34
ARTICLE 9
9.1 Amendments and Waivers 35
9.2 Certain Other Amendments 35
ARTICLE 10
10.1 Dissolution 36
10.2 Accounting Upon Winding Up 36
10.3 Termination 37
10.4 No Negative Capital Account Obligation 37
10.5 No Other Cause of Dissolution 37
10.6 Merger 37
ARTICLE 11
11.1 Waiver of Partition 38
11.2 Entire Agreement 38
11.3 Severability 38
11.4 Notices 38
11.5 Governing Laws 40
11.6 Successors and Assigns 38
11.7 Counterparts 38
11.8 Headings 39
11.9 Other Terms 39
11.10 Power of Attorney 39
11.11 Transfer and Other Restrictions 40
STRATUS 7000 WEST JOINT VENTURE
AMENDED and RESTATED JOINT VENTURE AGREEMENT
This Amended and Restated Joint
Venture Agreement (this "Agreement") of STRATUS
7000 WEST JOINT VENTURE, a Texas joint venture
(the "Partnership"), is made effective as of
August 16, 1999 (the "Effective Date"), by and
between Oly Lantana, L.P., a Texas limited
partnership, as the financial partner (referred
to herein alternatively as "Olympus" or the
"Financial Partner") and Stratus 7000 West,
Ltd., a Texas limited partnership, as the
operating partner (referred to herein
alternatively as "Stratus" or the "Operating
Partner"). (The Financial Partner and the
Operating Partner are collectively referred to
herein as the "Partners").
RECITALS
A. STRS L.L.C. ("STRS") and the
Operating Partner formed the Partnership under
the Act (as defined below) effective as of
April 1, 1999, pursuant to that certain Joint
Venture Agreement of Stratus 7000 West Joint
Venture, entered into and executed by STRS and
Stratus and dated to be effective April 1, 1999
(the "Original JV Agreement").
B. Effective as of August 16, 1999,
STRS assigned a 0.1% interest in the Partnership
to Olympus and Stratus assigned a 50.0% interest
in the Partnership to Olympus (collectively, the
"Assignments"), pursuant to that certain Assignment
Agreement (as defined below).
C. The Partnership has been formed for
the purpose of acquiring, owning, developing, operating
and reselling that certain property located in Travis
County, Texas and further described in Exhibit C
to this Agreement (the "Property").
D. The Partners hereto desire to enter
into this Agreement to reflect the Assignments,
the withdrawal of STRS from the Partnership and
the admission of Olympus to the Partnership as
the Financial Partner; and in connection
therewith, the undersigned Partners desire to amend
and restate the Original JV Agreement as provided
in this Agreement in order to establish their
respective rights and obligations with respect
to the Partnership and to provide for the
orderly management of the affairs of the
Partnership.
NOW, THEREFORE, in consideration of
the mutual covenants and agreements set forth in
this Agreement, and for other good and valuable
consideration, the receipt and
sufficiency of which is hereby acknowledged, the
Partners hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. As used in this
Agreement, the following terms shall have the
following meanings:
"Act" shall have the meaning set forth in Section 2.1.
"Affiliate" shall mean, when used with reference to
a specified Person, any other Person that directly or
indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control
with, the specified Person. As used in this
definition of Affiliate, the term "Control" means the
possession, directly or indirectly, of the power to
direct or cause the direction of the management and
policies of a Person, whether through ownership of
voting securities, by contract, or otherwise. For
purposes of this definition, the Partners agree and
acknowledge that Stratus, Stratus Management, Stratus
Properties, Inc., a Delaware corporation and Stratus
Properties Operating Co., a Delaware general
partnership are Affiliates.
"Agreement" shall mean this Amended and Restated
Joint Venture Agreement.
"Assignment Agreement" shall mean that certain
Agreement of Assignment dated to be effective August
16, 1999, by and among Stratus 7000 West, Ltd., a
Texas limited partnership, STRS L.L.C., a Delaware
limited liability company and Oly Lantana, L.P.,
a Texas limited partnership.
"Assignments" shall have the meaning set forth in
the recitals of this Agreement.
"Attorney" shall have the meaning set forth in
Section 11.10.
"Bankruptcy" shall mean, with respect to the
affected party, (i) the entry of an order for relief
under the Bankruptcy Code, (ii) the admission by such
party of its inability to pay its debts as they
mature, (iii) the making by it of an assignment for
the benefit of creditors, (iv) the filing by it of a
petition in bankruptcy or a petition for relief under
the Bankruptcy Code or any other applicable federal or
state bankruptcy or insolvency statute or any similar
law, (v) the expiration of thirty (30) days after the
filing of an involuntary petition under the Bankruptcy
Code without such petition being vacated in such
thirty (30) day period, (vi) an application by such
party for the appointment of a receiver for the assets
of such party, (vii) an involuntary petition seeking
liquidation, reorganization, arrangement or
readjustment of its debts under any federal or state
insolvency law, provided that the same shall not have
been vacated, set aside or stayed within thirty (30)
days after the filing of such petition or (viii) the
imposition of a judicial or statutory lien on all or a
substantial part of its assets unless such lien is
discharged or vacated or the enforcement thereof
stayed within thirty (30) days after its effective
date.
"Bankruptcy Code" shall mean Title 11 of the
United States Code, as amended.
"Building I" shall mean that certain
approximately 70,000 square foot office building
currently under construction by the Partnership on the
Phase I Property, the plans and specifications for
which have been approved by the Management Committee
and reflected in the Operating Budget and Business
Plan.
"Building II" shall mean that certain
approximately 70,000 square foot office building
which, pursuant to the provisions of Section 3.5 of
this Agreement, may be constructed by the Partnership
on the Phase II Property in accordance with plans and
specifications approved by the Management Committee
and reflected in the pertinent Operating Budget and
Business Plan.
"Building II Permit" shall mean that certain
building permit, a copy of which is attached hereto as
Exhibit D.
"Buildings" means, collectively, Building I and
Building II.
"Business" shall mean all tangible and intangible
(and real and personal) property of the Partnership as
of the date of the Buy/Sell offer and any proceeds
therefrom subject to all obligations or liabilities
associated therewith.
"Business Day" shall mean any day other than a
Saturday, Sunday, or holiday on which national banking
associations in the State of Texas are authorized or
required to be closed.
"Business Plan" shall mean the business plan
attached hereto as Exhibit A and incorporated herein,
and as may be amended from time to time in accordance
with the provisions hereof or as may be attached
hereto within sixty (60) days of the execution of this
Agreement upon approval of the Management Committee.
"Buy-Sell" shall have the meaning set forth in
Section 7.3(a).
"Buy/Sell Closing Date" shall have the meaning
set forth in Section 7.3(f).
"Buy/Sell Election Period" shall have the meaning
set forth in Section 7.3(c).
"Buy/Sell Offer" shall have the meaning set forth
in Section 7.3(a).
"Buy/Sell Purchaser" shall have the meaning set
forth in Section 7.3(f).
"Buy/Sell Seller" shall have the meaning set
forth in Section 7.3(f).
"Capital Account" shall mean a separate account
maintained for each Partner in accordance with the
provisions of Regulation section 1.704-1(b)(2)(iv).
Each Partner shall have only one Capital Account,
regardless of the number of classes of units or other
interests in the Partnership owned by such Partner.
Initially, the Capital Account of each Partner shall
have a positive balance equal to its initial Capital
Contribution. Such Capital Account shall thereafter
be adjusted in accordance with the following
provisions:
(a) Additions. The Capital Account shall be
increased by the sum of (i) except as otherwise
provided in paragraph (f) below in the case of a
contribution of a promissory note, the amount of cash
and the fair market value (determined as of the date
of contribution, without regard to section 7701(g) of
the Code, including a constructive contribution
resulting from a termination and reconstitution of the
Partnership under section 708(b)(1)(B) of the Code) of
property contributed, or deemed to have been
contributed, to the capital of the Partnership by the
Partner, net of any liabilities assumed by the
Partnership in connection with such contribution or to
which the contributed property is subject under
section 752 of the Code, plus (ii) the amount of any
net income or other item of income or gain allocated
to the Partner pursuant to Article 6 hereof.
(b) Subtractions. The Capital Account shall be
reduced by the sum of (i) the amount of any net loss
or other item of expense, loss or deduction allocated
to the Partner pursuant to Article 6 hereof, plus (ii)
the Distribution Value (determined without regard to
section 7701(g) of the Code) of any cash or other
property distributed, or deemed to have been
distributed, by the Partnership to the Partner, net of
any liabilities assumed by the distributee in
connection with the distribution or to which the cash
or other distributed property is subject under section
752 of the Code.
(c) Other Adjustments. The Capital Account
shall otherwise be adjusted by the Financial Partner
in accordance with the other capital account
maintenance rules of Regulation section 1.704
1(b)(2)(iv). In connection with the foregoing:
(d) Determination of Fair Market Value. In
determining the balance of each Partner's Capital
Account, and for all other purposes of this Agreement,
the fair market value of an asset contributed to or
distributed by the Partnership shall be determined in
good faith by the Partners (which shall use their
reasonable efforts not to overstate or understate the
fair market value of any such asset). Notwithstanding
the preceding sentence, it is understood that (i) no
Partner shall have any obligation to contribute any
real property asset to the Partnership unless all
Partners have agreed to the fair market value of the
asset and (ii) the Partners have agreed that the fair
market value of Property II is $1,065,000.00.
(e) Capital Account of Transferee. A transferee
of all or part of an interest in the capital and
profits of the Partnership shall succeed to the
Capital Account of the transferor to the extent that
such Capital Account relates to the transferred
interest.
(f) Contribution of Note. Notwithstanding any
other provision of this definition of Capital Account,
if a Partner has contributed his promissory note to
the capital of the Partnership and such note is not
readily traded on an established securities market,
then the principal of such note shall not be credited
to the Partner's Capital Account until and to the
extent that either (i) the Partnership makes a taxable
disposition of the note or (ii) principal payments are
made on the note, all in accordance with Regulation
section 1.704-1(b)(2)(iv)(d)(2).
"Capital Contribution" shall mean the gross
amount of cash or the fair market value of other
property contributed or caused to be contributed to
the capital of the Partnership by a Partner with
respect to such Partner's capital account.
"Cash Flow" of the Partnership for any period
shall mean any and all cash revenues generated from
the ownership, sale of undeveloped parcels, sale of
developed parcels, lease and other operation of the
Partnership assets and any and all capital transaction
proceeds minus the sum of (i) any operating and
capital expenses incurred in the operation of the
business of the Partnership, including without
limitation any payments of interest and principal
(other than any payments of principal or interest that
are refinanced by the Partnership) on Partnership
indebtedness required by the lender of such
indebtedness during the quarterly period in question
but specifically excluding any amounts payable by the
Partnership to Stratus under the Indemnity Agreement
and any payments of interest and principal with
respect to any Partnership indebtedness owed by the
Partnership to any Partner or Affiliate thereof, and
(ii) an amount necessary to replenish or maintain a
reasonable reserve for necessary or desirable
operating and capital expenses of the Partnership that
are anticipated to be incurred or to become due and
payable within six (6) months as the Management
Committee, in the exercise of its reasonable
discretion and as is consistent with the Operating
Budget and the Business Plan, shall determine.
"Code" shall mean the Internal Revenue Code of
1986 and any successor statute, as amended from time
to time.
"Construction Lender" shall have the meaning set
forth in Section 3.1(b).
"Construction Loan" shall have the meaning set
forth in Section 3.1(b).
"Contribution Percentage" of a Partner shall be
the percentage obtained by dividing the actual Capital
Contributions of such Partner by the total actual
Capital Contributions of all Partners. The initial
Contribution Percentage of each Partner is set forth
opposite its name on Schedule I attached hereto.
"Cost Overrun" shall have the meaning set forth
in Section 3.1(b).
"Debtor Partner" shall have the meaning set forth
in Section 3.2(e).
"Default Amount" shall have the meaning set forth
in Section 3.2(b).
"Default Date" shall have the meaning set forth
in Section 3.2(b).
"Defaulting Partner" shall have the meaning set
forth in Section 3.2(b).
"Disposition Fee" shall have the meaning set
forth in Section 6.4.
"Distribution Period" shall mean (i) the period
beginning on the Effective Date and ending on
September 30, 1999 and (ii) each calendar quarter
thereafter; provided, however, that in the event that
the Partnership shall commence the development of the
Phase II Property (as further described in Section 3.5
(e)) other than upon the date that is the last day of a
Distribution Period, then the Distribution Period in
which the Partnership commences such development shall
be terminated upon the date that the Partnership
commences development of the Phase II Property (as
described in Section 3.5(e) hereof) and a new
Distribution Period shall commence upon the next
succeeding day.
"Distribution Value" shall mean the dollar amount
of any cash distribution and the fair market value, as
jointly determined in good faith by the Partners (each
of which shall use its reasonable efforts not to
overstate or understate fair market value), of any non-
cash property distribution at the time of the
distribution, net of the distributee's share of any
liabilities to which the distributed property is
subject and net of any liabilities assumed by the
distributee.
"Effective Date" shall have the meaning set forth
in the preamble to this Agreement.
"Equalization Contribution" means the Stratus
Equalization Contribution or the Olympus Equalization
Contribution .
"Equalization Percentage" shall have the meaning
set forth in Section 3.5(c).
"Escrow Agent" shall have the meaning set forth
in Section 7.3(a).
"Exercise Period" shall have the meaning set
forth in Section 3.5(b).
"Financial Partner" shall mean Oly Lantana, L.P.,
together with its successors and assigns.
"Fund II" shall have the meaning set forth in
Section 7.2.
"Funding Date" shall have the meaning set forth
in Section 3.1(c).
"Guaranty" shall have the meaning set forth in
Section 3.1(b).
"Guaranty Payment" shall have the meaning set
forth in Section 3.2(a).
"Indemnification Obligation" shall have the
meaning set forth in Section 6.1(c).
"Indemnified Parties" shall have the meaning set
forth in Section 7.3(f).
"Indemnity Agreement" shall mean that certain
Indemnity Agreement made and entered into to be
effective August 16, 1999 by and among the
Partnership, Stratus Properties Inc., a Delaware
corporation and Stratus Properties Operating Co., a
Delaware general partnership.
"IRR" shall mean, internal rate of return and is
the annualized interest rate received for an
investment consisting of payments (negative values)
and income (positive values) that occur at regular
periods. In this case, IRR shall be derived by
annualizing the rate received from quarterly cash
flows. As it relates to any Partner, its actual
internal rate of return on its Capital Contributions,
which with respect to Stratus shall not include the
value of the Phase II Property, when determining IRR
in accordance with Section 6.1(a)(iii), IRR shall be
computed by entering the following Excel formula:
=(1+IRR(values))^4-1.
"Major Decision" means any decision with respect
to (1) approval of the Business Plan, including the
decision to make additional Capital Contributions
except as provided in Section 3.1 or Section 3.2,
(2) approval of the Operating Budget, (3) approval of
the plans and specifications for the Property, and the
subsequent approval of all material change orders or
amendments given in substitution for such approved
plans and specifications, (4) approval of any
financing or refinancing, whether secured or
unsecured, unless previously approved in the Business
Plan or annual Operating Budget, (5) approval of
acquisition of any additional property, (6) approval
of admission or withdrawal of any Partners to the
Partnership, (7) approval of any sale, exchange or
other disposition of the Property, unless the same is
pursuant to the applicable provisions of an approved
Business Plan or annual Operating Budget, (8) approval
of any amendments to this Agreement, (9) approval of
any termination or dissolution of the Partnership,
(10) assumption of the duties of the Operating Partner
pursuant to Section 4.1 and (11) approval of the terms
of any lease of any portion of the Property and the
form of lease document pursuant to which such lease
shall be made.
"Management Agreement" means that certain
Management Agreement (7000 West), dated of even date
herewith, between the Partnership, as Owner, and
Stratus Management L.L.C., a Delaware limited
liability company, as Property Manager.
"Management Committee" shall have the meaning set
forth in Section 4.2.
"Mandatory Additional Contributions" shall have
the meaning set forth in Section 3.2(a).
"Non-Debtor Partners" shall have the meaning set
forth in Section 3.2(e).
"Non-Defaulting Partners" shall have the meaning
set forth in Section 3.2 (b).
"Obligor Partner" shall have the meaning set
forth in Section 3.1(c).
"Offer Amount" shall have the meaning set forth
in Section 7.3(a).
"Offer Deposit" shall mean the sum of Five
Hundred Thousand and No/100 Dollars ($500,000.00) in
cash.
"Offeree" shall have the meaning set forth in
Section 7.3(a).
"Offeror" shall have the meaning set forth in
Section 7.3(a).
"Olympus" shall have the meaning set forth in the
preamble of this Agreement.
"Olympus Equalization Contribution" shall have
the meaning set forth in Section 3.5(c).
"Olympus Equalization Percentage" shall have the
meaning set forth in Section 3.5(c).
"Olympus Representative" shall have the meaning
set forth in Section 4.2(a).
"Operating Budget" shall mean the budget attached
hereto as Exhibit B (specifically including the
construction budget which is a part thereof) and
incorporated herein, as may be amended from time to
time in accordance with the provisions hereof, or to
be attached hereto within sixty (60) days of the
execution of this Agreement upon approval by the
Management Committee in accordance with this
Agreement.
"Operating Partner" shall mean Stratus 7000 West,
Ltd., together with its successors or assigns.
"Operational Default" shall have the meaning set
forth in Section 3.2(a).
"Operational Default Partner" shall have the
meaning set forth in Section 3.2(a).
"Original JV Agreement" shall have the meaning
set forth in the recitals of this Agreement.
"Original Stratus Contribution" shall have the
meaning set forth in Section 3.1(a).
"Partner" shall mean any Person executing this
Agreement as of the Effective Date as a partner or
hereafter admitted to the Partnership as a partner as
provided in this Agreement, but does not include any
Person who has ceased to be a Partner of the
Partnership.
"Partnership" shall have the meaning set forth in
the preamble to this Agreement.
"Partnership Interest" shall have the meaning set
forth in Section 7.3.
"Person" shall mean an individual, partnership,
joint venture, limited partnership, limited liability
company, foreign limited liability company, trust,
business trust, estate, corporation, custodian,
trustee, executor, administrator, nominee,
association, cooperative or entity in a representative
capacity.
"Phase I Asset Management Fee" shall have the
meaning set forth in Section 6.3.
"Phase II Asset Management Fee" shall have the
meaning set forth in Section 6.3.
"Phase I Property" shall mean that portion of the
Property generally described and identified as the
"Phase I Property" on the attached Exhibit E.
"Phase II Approval Notice" shall have the meaning
set forth in Section 3.5(b).
"Phase II Development Proposal" shall have the
meaning set forth in Section 3.5(b).
"Phase II Indemnified Parties" shall have the
meaning set forth in Section 3.5(b).
"Phase II Notice" shall have the meaning set
forth in Section 3.5(b).
"Phase II Option Exercise Period" shall have the
meaning set forth in Section 3.5(b).
"Phase II Property" shall mean that portion of
the Property generally described and identified as the
Phase II Property on the attached Exhibit F.
"Phase II Purchase Option" shall have the meaning
set forth in Section 3.5(b).
"Phase II Purchase Option Exercise Notice" shall
have the meaning set forth in Section 3.5(b).
"Phase II Purchase Option Closing" shall have the
meaning set forth in Section 3.5(b).
"Procuring Party" shall have the meaning set
forth in Section 6.4.
"Property" shall have the meaning set forth in
the recitals of this Agreement.
"Purchase Amount" shall have the meaning set
forth in Section 3.5(b).
"Receipt Amount" shall have the meaning set forth
in Section 7.3(b).
"Regulation" shall mean Treasury Regulations
promulgated under Title 26 of the United States Code.
"Reimbursement Payment" shall have the meaning
set forth in Section 3.1(a).
"Rejection Date" shall have the meaning set forth
in Section 3.5(b).
"Replacement Loan" shall have the meaning set
forth in Section 3.2.
"Representative" shall have the meaning set forth
in Section 4.2.
"Required Payment" shall have the meaning set
forth in Section 3.2(e).
"Sharing Ratio" shall mean with respect to a
Partner, the percentage set forth opposite its name on
Schedule I attached hereto (as such percentage shall
be adjusted from time to time under Section 3.2).
"Shortfall Contribution" shall have the meaning
set forth in Section 3.1(c).
"Shortfall Notice" shall have the meaning set
forth in Section 3.1(c).
"Stratus" shall have the meaning set forth in the
preamble of this Agreement.
"Stratus Equalization Contribution" shall have
the meaning set forth in Section 3.5(c).
"Stratus Equalization Percentage" shall have the
meaning set forth in Section 3.5(c).
"Stratus Management" means Stratus Management,
L.L.C., a Delaware limited liability company.
"Stratus Representative" shall have the meaning
set forth in Section 4.2.
"STRS" shall have the meaning set forth in the
recitals of this Agreement.
"Terminal Sale" shall have the meaning set forth
in Section 6.4.
"Unreturned Capital Contributions" means with
respect to a Partner the aggregate Capital
Contributions made or deemed made by the Partner to
the Partnership (which with respect to Stratus shall
not include the value of the Phase II Property) less
any distributions by the Partnership to the Partner
under Section 6.1(b)(iii) in reduction thereof (any
such distributions under Section 6.1(b)(iii) being
applied first to repay the Unreturned Capital
Contributions of the Partners, and thereafter, to the
payment of amounts necessary to achieve the 25% IRR
described therein).
ARTICLE 2
Organization
2.1 Original Formation of Joint Venture. Effective
April 1, 1999, STRS and Stratus formed the Partnership pursuant
to the Original JV Agreement and in accordance with the
provisions of the Texas Revised Partnership Act, as amended from
time to time (the "Act"). Effective August 16, 1999, pursuant
to the Assignment Agreement, Olympus acquired a 50.1% interest
in the Partnership, and STRS withdrew from the Partnership. In
connection with the Assignments, the withdrawal of STRS from the
Partnership and the Admission of Olympus to the Partnership as
the Financial Partner, the Original JV Agreement is hereby
amended and restated as further set forth in this Agreement and
the provisions of the Original JV Agreement are superceded in
their entirety by the provisions of this Agreement. The
Partnership is hereby continued upon the terms and conditions
set forth in this Agreement.
2.2 Name. The name of the Partnership is Stratus
7000 West Joint Venture. The Management Committee may change
the name of the Partnership from time to time and shall give
prompt written notice thereof to the Partners; provided,
however, that such name may not contain any portion of the name
or mark of a Partner without the consent of such Partner.
2.3 Character of Business. The purpose of the
Partnership shall be (i) to acquire, hold, develop, operate,
sell, encumber, or otherwise act with respect to investments,
direct or indirect, in the Property, and (ii) to engage in such
other business as may be conducted by a joint venture organized
under the laws of the State of Texas.
2.4 Registered Office and Agent. The name and
address of the Partnership's initial registered agent is Oly
Real Estate Corporation, 200 Crescent Court, Suite 1650, Dallas,
Texas 75201. The Partnership's initial principal place of
business shall be 200 Crescent Court, Suite 1650, Dallas,
Texas 75201. The Financial Partner may change such registered
agent, registered office, or principal place of business from
time to time. The Financial Partner shall give prompt written
notice of any such change to the Operating Partner. The
Partnership may from time to time have such other place or
places of business within or without the State of Texas as may
be determined by the Financial Partner.
2.5 Fiscal Year. The fiscal year of the Partnership
shall end on December 31 of each calendar year unless, for
United States federal income tax purposes, another fiscal year
is required. The Partnership shall have the same fiscal year
for United States federal income tax purposes and for accounting
purposes.
ARTICLE 3
Capital Contributions
3.1 Capitalization of the Partnership.
(a) Prior to the effective date of this Agreement,
Stratus made a cash contribution to the Partnership of
$1,658,000 and made a contribution in-kind of the Property to
the Partnership (collectively, the "Original Stratus
Contribution"). Upon the Effective Date, the Partnership shall
make a payment to Stratus in the sum of $959,000 to reimburse a
portion of the Original Stratus Contribution previously made by
Stratus to the Partnership (the "Reimbursement Payment"). The
Partners agree and acknowledge that for purposes of determining
the Capital Account of Stratus the Original Stratus Contribution
(i.e. the net value of the Property plus the amount of cash
contributed) had a value of $1,714,000, and further, that upon
the effective date of this Agreement and following the
Assignments, the payment of the Reimbursement Payment to
Stratus, the admission of Olympus to the Joint Venture (and the
"book up" of Stratus' Capital Account in connection therewith),
the Capital Account balance of Stratus and the Unreturned
Capital Contributions owing Stratus and the Sharing Ratio and
Contribution Percentage of Stratus shall be as further set forth
opposite its name in Schedule I hereto. For purposes of
determining the Unreturned Capital Contributions of Stratus
hereunder (as the same has been reflected in Schedule I hereto),
the value of the Property has been reduced by $1,065,000 (the
agreed value of the Phase II Property). The Partners agree and
acknowledge that as of the Effective Date, the Phase II Property
has a net value of $1,065,000, and further, that Stratus shall
receive distributions from the Partnership with regard to the
value of the Phase II Property, if at all, only as further
provided in Section 6.1(a)(iv). Upon the Effective Date,
Olympus shall make a cash contribution to the Partnership of
$1,722,000 (the "Olympus Contribution"). Upon the Effective
Date of this Agreement the Capital Account balance of Olympus,
the Unreturned Capital Contributions owing Olympus and the
Sharing Ratio and Contribution Percentage of Olympus shall be as
further set forth opposite its name in Schedule I hereto. For
purposes of determining the distributions payable under Section
6.1(a)(iii) hereof (and the calculation of the IRR of the
Partners hereunder) all of the Capital Contributions further
described in this Section 3.1(a) (including the Original Stratus
Contribution and the Olympus Contribution) shall be deemed to be
made to the Partnership as of the Effective Date of this
Agreement.
(b) On April 9, 1999 the Partnership obtained a loan
from Comerica Bank - Texas (the "Construction Lender") in the
maximum principal sum not to exceed $6,600,000 (the
"Construction Loan") in order to finance the construction of
certain improvements on the Property. In connection with the
Construction Loan, Stratus provided that certain Guaranty, dated
April 9, 1999, executed by Stratus Properties, Inc., a Delaware
corporation, as Guarantor, for the benefit of the Construction
Lender (the "Guaranty"). In consideration for the provision of
the Guaranty as well as Stratus' contribution of the entire
Property to the Joint Venture (notwithstanding the fact that the
Joint Venture may not pursue the full construction of Building
II) upon the Effective Date hereof, Olympus shall pay to Stratus
a credit enhancement fee in the sum of $150,000.
(c) In addition to the Original Stratus Contribution
and any Mandatory Additional Contributions under Section 3.2
hereof, Stratus shall make such additional Capital Contributions
to the Partnership as shall be necessary to cover any Cost
Overruns (as further defined herein) directly resulting from any
breach by Stratus, Stratus Management or any Affiliate thereof
of any material provision of this Agreement or the Management
Agreement or any act or omission on the part of Stratus, Stratus
Management or any Affiliate thereof with respect to the
construction of the Buildings that constitutes bad faith,
willful misconduct or gross negligence. In addition to the
Olympus Contribution, and any Mandatory Additional Contributions
under Section 3.2 hereof, Olympus shall make such additional
Capital Contributions to the Partnership as shall be necessary
to cover any Cost Overruns (as further defined herein) directly
resulting from any breach by Olympus of any material provision
of this Agreement or any act or omission on the part of Olympus
with respect to the construction of the Buildings that
constitutes bad faith, willful misconduct or gross negligence.
For purposes hereof, "Cost Overrun" shall mean any expenditure
that shall be required to complete the development of a Building
in accordance with the applicable plans and specifications to
the extent that such expenditure is not set forth in the
approved Operating Budget or exceeds the amount set forth in the
Operating Budget. Upon the reasonable determination by the
Financial Partner that the Partnership has incurred or shall
incur a Cost Overrun and that a Partner (the "Obligor Partner")
has an obligation to make a Capital Contribution to the
Partnership (a "Shortfall Contribution") under this Section
3.1(c), as soon as reasonably practicable following such
determination, the Financial Partner shall send written notice
(a "Shortfall Notice") to the Obligor Partner setting forth (i)
the breach or other act or omission of the Obligor Partner
resulting in the Cost Overrun, (ii) the nature and amount of
such Cost Overrun and (iii) the date on or before which the
Obligor Partner must make the Shortfall Contribution to the
Partnership (the "Funding Date") which such Funding Date shall
be no earlier than ten (10) days and no later than twenty (20)
days following delivery of the Shortfall Notice to the Obligor
Partner. In the event that the Obligor Partner shall fail to
timely make any Shortfall Contribution to the Partnership, the
other Partner may, in addition to any other remedies available
to the other Partner at law or in equity, make a Capital
Contribution to the Partnership in an amount equal to such
Shortfall Contribution. In such case, the Obligor Partner shall
be treated for all purposes hereunder (including, without
limitation, Section 3.2 and Article IX hereof) as a Defaulting
Partner with respect to such Shortfall Contribution and the
other Partner shall be treated for all purposes hereunder
(including, without limitation Section 3.2 and Article IX
hereof) as a Non-Defaulting Partner having made a Replacement
Loan to the Obligor Partner in the amount of the Shortfall
Contribution. Notwithstanding any provision to the contrary set
forth herein, any Shortfall Contributions made by an Obligor
Partner to the Partnership under this Section 3.1(c) shall not
constitute Capital Contributions to the Partnership and shall
not affect or result in any adjustment or recalculation of the
Unreturned Capital Contributions or Sharing Ratios of the
Partners.
3.2 Additional Capital Contributions.
(a) In addition to the Original Stratus
Contribution and the Olympus Contribution further set
forth above and to the extent not available from
proceeds of the Construction Loan, (i) the Partners
shall make additional Capital Contributions to the
Partnership at such times and in such aggregate
amounts as shall be approved by the Management
Committee, and reflected in an amendment to the
Business Plan; (ii) the Partners shall make additional
Capital Contributions to the Partnership in accordance
with Section 3.5 hereof in the event that the
Partnership undertakes the development of the Phase II
Property in accordance with Section 3.5 hereof;
(iii) if either (A) there has been a default or an
event of default under the Construction Loan or (B)
additional capital is necessary to complete any
capital improvement or development program approved in
the Business Plan or reflected in the applicable
Operating Budget, then either Partner may elect to
call or not call for additional Capital Contributions
to be made to the Partnership to cure any default or
event of default under the Construction Loan or to
complete such capital improvement or development
program; or (iv) in the event that Stratus makes any
payment to the Construction Lender under that certain
Guaranty (a "Guaranty Payment") and the obligation to
make such payment shall not be attributable or related
to, or arise from any Cost Overrun with respect to
which an Obligor Partner shall have an obligation to
make a Shortfall Contribution under Section 3.1(c)
hereof, or the bad faith, willful misconduct or gross
negligence of a Partner or any Affiliate thereof or a
material breach by a Partner or any Affiliate thereof
of the provisions of the Guaranty, this Agreement or
the Management Agreement (collectively, "Operational
Defaults"), the Financial Partner shall elect to call
for additional Capital Contributions from the Partners
in an amount necessary to reimburse Stratus for any
portion of the Guaranty Payment which has not already
been paid by the Partnership to Stratus. Any Capital
Contributions required to be made by the Partners to
the Partnership in accordance with this Section 3.2(a)
are collectively referred to herein as "Mandatory
Additional Contributions." In the event that Stratus
shall make a Guaranty Payment, and such Guaranty
Payment shall be attributable or relate to, or arise
from any Operational Default by a Partner (the
"Operational Default Partner") or its Affiliates, then
any such Guaranty Payment shall not give rise to any
Mandatory Additional Contributions hereunder, rather,
in such case the Operational Default Partner shall be
obligated to make a cash payment to Stratus in an
amount equal to the Guaranty Payment (the "Operational
Default Payment") made by Stratus to the Construction
Lender, no later than sixty (60) days after written
demand therefor delivered by Stratus to the
Operational Default Partner. In the event that
Stratus shall be the Operational Default Partner, then
any such Guaranty Payment shall not result in any
Mandatory Additional Contributions or any Operational
Default Payments hereunder, rather, Stratus shall have
the sole responsibility for any such Guaranty Payment.
Any Mandatory Additional Contributions shall be made
by the Partners pro rata, based on the Contribution
Percentages of the Partners. This Section 3.2(a) is
solely for the benefit of the Partners, and shall not,
nor shall it be deemed to, create any rights in, or
provide any benefit to, any other Person, and the
decision to make additional contributions to the
Partnership shall be made in the sole and absolute
discretion of the Financial Partner, except as may be
provided in the Business Plan.
(b) Each Partner shall be required to make its
Mandatory Additional Contribution to the Partnership
on or before twenty-one (21) days after written notice
to such Partner ("Default Date"). In the event any
Partner fails to make a Mandatory Additional
Contribution as required by this Section 3.2 within
the time period set forth herein (such Partner, being
herein referred to as the "Defaulting Partner"), then,
the Partners other than the Defaulting Partner, the
"Non-Defaulting Partners" (herein so called) shall be
entitled, as their sole and exclusive remedy for such
failure, by giving written notice to the Defaulting
Partner to make a loan (the "Replacement Loan") to the
Defaulting Partner in the amount of such Defaulting
Partner's delinquent share of such Mandatory
Additional Contribution, which Replacement Loan
(i) shall be applied solely to fund the Defaulting
Partner's delinquent share of such Mandatory
Additional Contribution, (ii) shall have a term of one
hundred twenty (120) days from the date of such loan
(as such term and maturity date may be accelerated
upon any default with respect to the Replacement Loan)
and (iii) shall bear interest at the lesser of (A)
eighteen percent (18%) per annum and (B) the maximum
rate of interest which may be charged, collected or
contracted for under applicable law, with accrued
interest due at the maturity of such loan (each such
Replacement Loan together with all accrued interest
thereon from time to time, the "Default Amount").
Anything contained in this Agreement to the contrary
notwithstanding, any Partner who becomes a Defaulting
Partner shall immediately and without any further
demand, notice or cure period (time being of the
essence herein) automatically cease to have a right to
vote on all Partnership decisions from and after the
Default Date for any purposes hereunder for the
remainder of the life of the Partnership unless
reinstated as described below and any Representatives
appointed by such Partner to the Management Committee
shall immediately and without any further demand,
notice or cure period (time being of the essence
herein) automatically cease to have a right to vote on
all Management Committee decisions from and after the
Default Date for any purposes hereunder for the
remainder of the life of the Partnership unless
reinstated as described below. If a Defaulting
Partner shall pay the Default Amount in full to the
Non-Defaulting Partners who elected to make such loan,
on or before the expiration of the 120-day term (as
the same may be accelerated upon default) of the
Replacement Loan to such Defaulting Partner, effective
as of the date that such Default Amount is paid in
full, such Defaulting Partner's voting rights
hereunder and the voting rights of the Representatives
appointed by the Defaulting Partner to the Management
Committee shall be automatically reinstated. If the
Default Amount is not paid in full on or before the
expiration of the 120-day period (as the same may be
accelerated upon default), the Defaulting Partner's
voting rights (and the voting rights of any
Representatives appointed by such Defaulting Partner)
shall not be reinstated upon the subsequent payment of
the Default Amount.
(c) The Partners further agree that if the
Default Amount is not repaid in full to the Non
Defaulting Partners within the 120-day term (as the
same may be accelerated upon a default), then, without
demand, notice or cure period (time being of the
essence herein), such Default Amount shall for all
purposes hereunder be deemed to be a Capital
Contribution by the Non-Defaulting Partners to the
Partnership effective as of the expiration of such 120
day term (as the same may be accelerated upon default)
of such Replacement Loan, which deemed Capital
Contribution shall, for all purposes hereunder
(including, without limitation, the calculation of the
Unreturned Capital Contributions, IRR and Sharing
Ratio of Olympus hereunder), be credited as an amount
equal to the product of 150% multiplied by the Default
Amount, and the Sharing Ratio of the Defaulting
Partner shall for all purposes be appropriately
reduced to reflect such treatment; provided, however,
with respect to any Default Amount attributable to a
Replacement Loan made more than one hundred twenty
(120) days (as the same may be accelerated upon
default) after the initial Replacement Loan (which is
not repaid during its 120-day term, as the same may be
accelerated upon default) made by one or more Non
Defaulting Partners, the deemed Capital Contribution
shall be credited as an amount equal to the product of
300% multiplied by the Default Amount, and in each
case (i.e. with respect to an initial Replacement Loan
and/or any subsequent Replacement Loan) the Sharing
Ratio of the Defaulting Partner shall be reduced by,
and the Sharing Ratio of each Non-Defaulting Partner
who makes its pro rata share of such loan shall be
increased by an amount equal to the quotient of (i)
150% (or 300%, as the case may be) multiplied by the
Default Amount, divided by (ii) the aggregate Capital
Contributions made by the Partners to the Partnership
(which for purposes of this calculation with respect
to Stratus shall not include any amount attributable
to the value of the Phase II Property unless and until
the Partnership shall commence development of the
Phase II Property in accordance with Section 3.5
hereof) prior to the date of calculation (including
the Mandatory Additional Contributions of all Non
Defaulting Partners, but excluding the Default Amount
then in question).
(d) In the event that the Sharing Ratio of any
Partner shall be adjusted hereunder, the new Sharing
Ratios computed in accordance with this Section 3.2
shall remain in effect under this Agreement unless and
until there is a subsequent adjustment to the Sharing
Ratios. Notwithstanding the foregoing, no Partner's
Sharing Ratio shall be reduced under any circumstance
to less than zero, nor shall any Partner's Sharing
Ratio be increased under any circumstance to more than
100%. Mandatory Additional Contributions shall be
made pro rata, based on the relative Contribution
Percentages of the Partners
(e) Each Partner which becomes an Obligor
Partner, an Operational Default Partner, or a
Defaulting Partner or Stratus, to the extent of any
Indemnification Obligation further described in
Section 6.1(c) (in each case, the "Debtor Partner")
hereby irrevocably grants to the Partnership and the
other Partners a continuing, first priority, perfected
security interest in the Partnership Interest of such
Debtor Partner to secure the prompt payment of each
Shortfall Contribution, Operational Default Payment,
Replacement Loan or Indemnification Obligation under
Section 6.1(c) hereof (each a "Required Payment") owed
by such Defaulting Partner to the Partnership or the
other Partners until such time, if ever, as the
Required Payment shall have been satisfied (or with
respect to a Required Payment arising from a Default
Amount, the Replacement Loan under consideration has
been converted into a deemed Capital Contribution
pursuant to Section 3.2(c), and there shall be no
other Required Payments owed by the Debtor Partner to
the Partnership or the Partners). On or before
fifteen (15) days after any written request of any
Partner other than the Debtor Partner (the "Non-Debtor
Partners"), the Partner shall execute and deliver a
UCC-1 financing statement in form and substance
acceptable to such Non-Debtor Partners to evidence
such security interest, the failure of which shall
constitute a material breach of this Agreement (and a
default under any Replacement Loan owed by the Debtor
Partner to the Non-Debtor Partners). Upon any default
under any Replacement Loan, in addition to any other
remedies which may be available to the Non-Defaulting
Partners at law or in equity, the maturity date (and
one hundred twenty (120) day term) of such Replacement
Loan shall be accelerated and all amounts of principal
and interest with respect to such Replacement Loan
shall immediately become due and payable in-full to
the Non-Defaulting Partners. Without limiting the
remedies of the Non-Debtor Partners, at law or in
equity, at the election of the Non-Debtor Partners,
all distributions payable to the Debtor Partner under
this Agreement and any fees or other compensation
payable by the Partnership to the Debtor Partner or
its Affiliates (including without limitation the Fees
further described in Sections 6.3 and 6.4 hereof)
shall be paid directly to the Partnership and/or the
Non-Debtor Partners (pro rata based on the relative
amount of the Required Payment owing the Partnership
and/or each such Non-Debtor Partner) until the
Required Payments are paid in full (or, with respect
to any Replacement Loan, converted to a deemed Capital
Contribution). Any amounts paid directly to the
Partnership and/or the Non-Debtor Partners pursuant to
the terms of the preceding sentence shall be treated
as paid to the Debtor Partner (or, as applicable, its
Affiliate) entitled to receive the amount of the
distribution or payment in the absence of the
requirements of the preceding sentence (thereby
discharging the Partnership's obligation to make the
payment in question) and then applied by the Debtor
Partner to the repayment of the Debtor Partner's
Required Payment.
(f) EXCEPT AS SET FORTH IN SECTION 3.1, THIS
SECTION 3.2 OR SECTION 3.5 (FOLLOWING THE COMMENCEMENT
OF THE DEVELOPMENT OF THE PHASE II PROPERTY, AS
DESCRIBED IN SECTION 3.5(E) HEREOF), NO ADDITIONAL
CAPITAL CONTRIBUTIONS SHALL BE REQUIRED BY ANY PARTNER
UNLESS AN EXPRESS WRITTEN CALL FOR A CAPITAL
CONTRIBUTION IS MADE BY THE MANAGEMENT COMMITTEE TO
EACH OF THE PARTNERS.
3.3 No Return of Capital Contributions. No Partner
is entitled to a return of its Capital Contributions, but shall
look solely to distributions from the Partnership as provided
for in Article 6 of this Agreement.
3.4 Interest. No Partner shall be entitled to
interest on its Capital Contributions or its Capital Account,
and any payments to the Partners under Article 6 (whether in the
form of IRR payments or otherwise) shall not be deemed to be
interest for any purpose. Any interest actually received by
reason of temporary investment of any part of the Partnership's
funds shall be included in the Partnership's funds.
3.5 Development of Phase II.
(a) Upon satisfaction of the Phase II Conditions
(as further described herein), the Partnership shall
commence development activities on the Phase II
Property in accordance with an Operating Budget and
Business Plan (and pursuant to plans and
specifications with respect to Building II) approved
by the Management Committee. For purposes of this
Agreement, the "Phase II Conditions" shall be
satisfied at such point in time as (i) (A) at least
75% of the gross leasable area of Building I shall be
leased by tenants pursuant to leases that have been
duly executed by such tenants and the Partnership and
approved by the Management Committee, or (B) at least
50% of the projected gross leasable area of Building
II shall be leased by tenants pursuant to leases that
have been duly executed by such tenants and the
Partnership and approved by the Management Committee;
and (ii) construction financing shall be available to
the Partnership in such amounts and on such terms as
further set forth in Schedule III hereof.
(b) In the event that the Phase II Conditions
have not been satisfied but the Operating Partner
determines in good faith that the development of the
Phase II Property and the construction of Building II
is in the best interests of the Partnership, it shall
deliver to the Financial Partner written notice of
such proposal (the "Phase II Notice") together with
(i) a detailed description of the development
activities to be performed on the Phase II Property
(including detailed plans and specifications
describing Building II) and (ii) a proposed Business
Plan and Operating Budget for the development of the
Phase II Property and the construction of Building II
(collectively, the "Phase II Development Proposal").
In addition, following delivery of the Phase II Notice
to the Financial Partner, the Operating Partner shall
deliver to the Financial Partner, as soon as
reasonably practicable following a request therefor,
any and all such information, pro forma and other
analyses and other data that the Financial Partner
shall request with respect to the proposed development
of the Phase II Property and the construction of
Building II. On or before the date that is thirty
(30) days following receipt of the Phase II Notice, as
the same shall be extended to the extent that the
Operating Partner shall fail to deliver any requested
information to the Financial Partner (such thirty (30)
day period, as the same may be extended, being
referred to herein as the "Exercise Period"), the
Financial Partner may, in its sole discretion, elect
to approve the commencement of development activities
on the Phase II Property in accordance with the Phase
II Development Proposal by delivery of written notice
to Stratus (the "Phase II Approval Notice"), in which
case, the Partnership shall undertake the development
of the Phase II Property and the construction of
Building II in accordance with the Phase II
Development Proposal. In the event that the Financial
Partner shall not deliver a Phase II Approval Notice
to Stratus prior to the end of the Exercise Period,
the Financial Partner shall be deemed to have rejected
the Phase II Development Proposal upon the first
Business Day following the expiration of the Exercise
Period (the "Rejection Date"), in which case, the
Partnership shall not pursue the development of the
Phase II Property. Notwithstanding the above
provisions of this Section 3.5(b), during the sixty
(60) day period following the Rejection Date (the
"Phase II Option Exercise Period"), Stratus may elect
to purchase the entire interest of Olympus in the
Partnership (the "Phase II Purchase Option") for an
amount of cash equal to the Unreturned Capital
Contributions owing Olympus plus an amount of cash
necessary to result in an IRR to Olympus of 25% (the
"Purchase Amount"), as calculated through the date of
the Phase II Purchase Option Closing (as hereinbelow
defined). The Phase II Purchase Option may be
exercised by Stratus by its delivery of written notice
of such exercise (the "Phase II Purchase Option
Exercise Notice") to Olympus during the Phase II
Option Exercise Period. In the event that Stratus
shall fail to timely deliver a Phase II Purchase
Option Exercise Notice to Olympus, such Phase II
Purchase Option shall lapse and expire as of the close
of business on the final day of the Phase II Option
Exercise Period.
The closing of the Phase II Purchase Option (the
"Phase II Purchase Option Closing") shall take place
upon a Business Day chosen by Stratus by delivery of
written notice thereof to Olympus which such Business
Day shall in no event be later than thirty (30) days
following the expiration of the Phase II Option
Exercise Period. The sale of Olympus' Partnership
Interest to Stratus pursuant to the Phase II Purchase
Option shall be made without representation, warranty
or recourse, except for representations and warranties
in form and substance reasonably acceptable to Olympus
and Stratus with respect to existence, good standing,
title, no encumbrance, authority, authorization, no
conflicts, and such other customary matters as may be
reasonably agreed upon by the parties. If the Phase
II Purchase Option or the purchase contemplated
thereby causes the maturity of any Partnership
indebtedness to be accelerated, Olympus shall be
released from liability resulting from such
accelerated indebtedness and Stratus shall pay (or
cause to be paid) such indebtedness in full (including
without limitation, any accrued but unpaid interest
and any prepayment premiums or penalties) at Stratus'
sole cost and expense and shall indemnify and hold
Olympus harmless from and against any losses, damages,
costs or expenses (including attorneys' fees) incurred
by Olympus, or Olympus' Affiliates, employees, agents,
representatives, consultants, attorneys, fiduciaries,
servants, officers, directors, partners, predecessors,
successors and assigns and Affiliates of the foregoing
(the "Phase II Indemnified Parties"), as a direct or
indirect result of any such acceleration or relating
to or otherwise arising from events and occurrences
that take place after the Phase II Purchase Option
Closing, other than any losses, damages, costs or
expenses (including attorneys' fees) incurred by any
of the Phase II Indemnified Parties as a direct result
of such Phase II Indemnified Parties' gross
negligence, willful misconduct or bad faith. As a
precondition to the closing of the Phase II Purchase
Option, Olympus shall be released from liability from
any indebtedness of the Partnership, including,
without limitation, the release of any guaranties
and/or collateral pledged to secure any guaranteed
debt. Anything contained in this Agreement to the
contrary notwithstanding, in the event the sale of
Olympus' Partnership Interest is not consummated
because of a default on the part of Stratus or if a
condition precedent cannot be fulfilled, Olympus may,
at its election, pursue an action for specific
performance and/or damages, costs and expenses.
(c) In the event that the Partnership shall
undertake the development of the Phase II Property in
accordance with Section 3.5(a) or Section 3.5(b)
hereof, (i) (A) if the Sharing Ratio of Stratus shall
be less than 49.9%, as a condition precedent to the
Partnership undertaking the development of the Phase
II Property, Stratus shall make a Capital Contribution
to the Partnership (the "Stratus Equalization
Contribution") in such amount as shall be required to
result in the percentage obtained by dividing the
aggregate Capital Contributions made (or deemed made)
by Stratus to the Partnership (which for purposes
hereof shall include, in addition to all other Capital
Contributions made by Stratus to the Partnership, the
value of the Phase II Property which the Partners
agree and acknowledge shall be equal to $1,065,000,
notwithstanding that at the time of such determination
the fair market value of the Phase II Property may be
greater than $1,065,000) by the aggregate Capital
Contributions made (or deemed made) by all Partners to
the Partnership (which for purposes hereof shall
include the value of the Phase II Property which the
Partners agree and acknowledge shall be equal to
$1,065,000, notwithstanding that at the time of such
determination the fair market value of the Phase II
Property shall be greater than $1,065,000), to equal
49.9% (the "Stratus Equalization Percentage") and (B)
if the Sharing Ratio of Olympus shall be less than
50.1%, as a condition precedent to the Partnership
undertaking the development of the Phase II Property,
Olympus shall make a Capital Contribution to the
Partnership (the "Olympus Equalization Contribution"
in such amount as shall be required to result in the
percentage obtained by dividing the aggregate Capital
Contributions made (or deemed made) by Olympus to the
Partnership by the aggregate Capital Contributions
made (or deemed made) by all Partners to the
Partnership (which for purposes hereof shall include
the value of the Phase II Property which the Partners
agree and acknowledge shall be equal to $1,065,000,
notwithstanding that at the time of such determination
the fair market value of the Phase II Property shall
be greater than $1,065,000) to equal 50.1% (the
"Olympus Equalization Percentage") and (ii) each of
Stratus and Olympus shall be required to make Capital
Contributions to the Partnership in an amount equal to
the Stratus Equalization Percentage and the Olympus
Equalization Percentage, respectively multiplied by
the amount of any Capital Contributions required in
connection with the development of the Phase II
Property and/or the construction of Building II by the
Partnership, as reflected in the applicable Operating
Budget and Business Plan (any such Capital
Contributions by a Partner to be made to the
Partnership at the same time as any Capital
Contributions made by the other Partner, to the
Partnership). Immediately following the Equalization
Contribution by Stratus or Olympus (as the case may
be) to the Partnership, the Sharing Ratio and
Contribution Percentage of Olympus shall be adjusted
to 50.1% and the Sharing Ratio and Contribution
Percentage of Stratus shall be adjusted to 49.9%.
(d) From and after the Effective Date hereof and
for so long as the Partnership shall hold the Building
II Permit for the development and construction of
Building II but shall not have commenced the
development of the Phase II Property (as further
described in Section 3.5(e)), the Partnership shall
not undertake any development activities or make any
expenditures with respect to the Phase II Property,
other than such minimum development activities and
expenditures, in an amount not to exceed in the
aggregate $300,000 with respect to all periods
following the Effective Date, as shall be required to
maintain the Building II Permit and as shall be
approved in advance and in writing by Olympus (such
approval not to be unreasonably withheld or delayed).
Stratus hereby represents and warrants to Olympus
that, as of the Effective Date, the aggregate
expenditures made by Stratus with respect to the
construction of Building II and the development of the
Phase II Property are as set forth in Schedule IV
hereto.
(e) For purposes of this Section 3.5 and the
further provisions of this Agreement, the Partnership
shall be deemed to have commenced the development of
the Phase II Property as of the date upon which (i)
(A) the Phase II Conditions have been satisfied or (B)
Olympus has delivered a Phase II Approval Notice to
Stratus, (ii) the Management Committee shall have
approved a Business Plan and Operating Budget with
respect to the development of the Phase II Property
and plans and specifications relating to Building II,
(iii) a construction management agreement and any
requisite construction contracts shall have been
approved by the Management Committee and executed by
the Partnership and all other parties thereto, and
(iv) the Partnership shall have obtained sufficient
construction financing to pursue the development of
the Phase II Property and the construction of Building
II.
ARTICLE 4
Rights and Obligations of Partners
4.1 Management of Partnership. The management,
control and direction of the Partnership and its operations,
business and affairs shall be vested exclusively in the
Management Committee, which shall have the right, power and
authority, acting solely by itself and without the necessity of
approval by any Partner or any other person, to carry out any
and all of the purposes of the Partnership and to perform or
refrain from performing any and all acts that the Management
Committee may deem necessary, desirable, appropriate or
incidental thereto, except as otherwise provided in this
Agreement; provided, however, that the Operating Partner shall
manage the Partnership and its operations, business and affairs
solely as described in Section 4.5. The Management Committee
may assume the management duties and responsibilities of the
Operating Partner as set forth in Section 4.5 at any time in the
event the Management Committee determines in its good faith
discretion that (i) the Operating Partner has acted negligently
or with willful misconduct in performing its duties, (ii) the
monthly financial reports of the Partnership reveal a material
adverse deviation from the Business Plan more than three (3)
times within any twelve (12) month period, (iii) the Operating
Partner has breached a material provision of this Agreement or
(iv) a Bankruptcy has occurred with respect to the Operating
Partner. The Management Committee agrees that prior to its
exercise of its right to assume the management duties and
responsibilities of the Operating Partner as a result of a
default by the Operating Partner further described in clauses
(i) or (iii) of the immediately preceding sentence, the
Management Committee shall first deliver written notice of said
default to the Operating Partner and give the Operating Partner
ten (10) days thereafter in which to cure said default, if the
Operating Partner so elects.
4.2 Management Committee.
(a) The "Management Committee" (herein so
called) shall consist of four (4) representatives, two
(2) of which shall be designated by Stratus
(collectively, the "Stratus Representatives") and two
(2) of which shall be designated by Olympus
(collectively, the "Olympus Representatives")
(individually, a "Representative and collectively, the
"Representatives"). The initial Representatives
designated by Stratus and Olympus are set forth
opposite such Partner's name below:
Partner Initial Representative
Stratus J.B. Brown
Stratus William H. Armstrong, III
Olympus Greg Adair
Olympus Hal R. Hall
Olympus and Stratus may appoint alternates for the
Representatives appointed by it, which alternates shall
have all the powers of the Representatives in their absence
or inability to serve. Olympus hereby appoints Ron J. Hoyl
as an alternate Representative. Stratus hereby appoints
John E. Baker as an alternate Representative. Olympus and
Stratus may change its designated Representatives effective
upon written notice from Olympus or Stratus designating
such Representative to the other Partners. Olympus shall
designate one of the Olympus Representatives who shall
serve as Chairman of the Management Committee and shall set
the agenda for such meetings.
(b) The Representatives shall meet quarterly (or
more often as the Management Committee may reasonably
determine) in the offices of the Partnership or by
telephone conference, unless the Representatives
jointly agree that the meeting is unnecessary or that
a different schedule or location for the meeting is
appropriate, to discuss current material management
issues (but not day-to-day operations matters which
are in accordance with the operation parameters set
forth in the Business Plan, Operating Budget or
otherwise set forth in writing) or Major Decisions. At
each meeting the Representatives shall each receive
one (1) vote. All action taken by the Management
Committee, including any Major Decisions, shall
require the approval or consent of at least one
Olympus Representative and at least one Stratus
Representative; provided, however, that in the event
that either of Olympus or Stratus shall be a
Defaulting Partner and its designated Representatives
shall lose their voting rights in accordance with
Section 3.2(b) hereof, then, unless and until such
voting rights shall be reinstated under Section 3.2(b)
hereof, all action taken by the Management Committee,
including any Major Decisions, shall require the
approval or consent of the two Representatives
appointed by the Non-Defaulting Partner.
Representatives may bring to any meeting such
employees, agents, professionals and advisors as they
deem necessary or appropriate to assist them at such
meeting. A quorum shall consist of at least one
Stratus Representative and one Olympus Representative
unless either of Olympus or Stratus shall be a
Defaulting Partner and its designated Representatives
shall lose their voting rights in accordance with
Section 3.2(b) hereof, in which case, unless and until
such voting rights shall be reinstated under Section
3.2(b) hereof, a quorum shall consist of the two
Representatives appointed by the Non-Defaulting
Partner.
(c) The Financial Partner, at the direction of
the Management Committee, shall be authorized and
empowered to (i) make all day-to-day management
decisions (provided that such decisions are consistent
with the operation parameters set forth in the
Business Plan, Operating Budget or otherwise in
writing) except for Major Decisions, (ii) direct the
Operating Partner (which shall be obligated to follow
any such directives), and (iii) perform all acts and
enter into and perform all contracts and other
undertakings that the Financial Partner may, in the
exercise of its reasonable discretion, deem necessary,
advisable, appropriate or incidental thereto; provided
that any directives of the Financial Partner under
clause (ii) hereof and the performance of any acts
under clause (iii) hereof are consistent with the
operation parameters set forth in the Business Plan,
Operating Budget or otherwise in writing.
Notwithstanding any provision of this Agreement to the
contrary, the Financial Partner acting singly and
without necessity of joinder of any other Person shall
be authorized and empowered to exercise any rights and
remedies granted to the Partnership under the
Management Agreement (including, without limitation,
the provision or withholding of consent, the making of
any elections and any other decisions of the
Partnership thereunder). The authority granted to the
Financial Partner hereunder with respect to the
Management Agreement shall include, without
limitation, the power to terminate the Management
Agreement in accordance with its terms. If the
Management Agreement is terminated, then the Financial
Partner shall have the power and authority to replace
Stratus Management as the construction manager and to
designate a successor construction manager. In
connection therewith, the Financial Partner shall have
the power and authority acting alone and without
necessity of joinder of any other Person to negotiate,
enter into and execute (on behalf of the Partnership)
a construction management agreement pursuant to which
such successor construction manager shall provide
construction management services to the Partnership
for the consideration set forth therein. Upon the
execution by the Financial Partner of any such
construction management agreement, the Operating
Budget and Business Plan shall automatically, and
without any approval or consent of the Partners or the
Representatives, be amended to reflect the terms of
the construction management agreement between the
Partnership and the successor construction manager.
4.3 Major Decisions. Except as otherwise expressly
provided to the contrary in Article 3, Article 4, Article 7 or
Article 9 hereof, Major Decisions shall be made upon the prior
written approval or written consent of at least one Stratus
Representative and at least one Olympus Representative.
Accordingly, except as provided to the contrary in Article 3,
Article 4, Article 7 or Article 9 hereof, neither Stratus nor
Olympus, on behalf of the Management Committee, shall have the
right or the power to make any binding commitment on behalf of
the Partnership in respect of a Major Decision unless and until
at least one Stratus Representative and at least one Olympus
Representative have authorized the same in writing.
4.4 Budgets and Reports.
(a) By November 1st of each calendar year hereafter during
the term hereof, the Operating Partner shall prepare a revised
Operating Budget and Business Plan for the operation of the
Partnership for the next succeeding calendar year of the
Partnership. The Management Committee shall have thirty (30)
days after receipt thereof to either approve the submitted
Business Plan and Operating Budget or respond with required
changes to same. A copy of the initial Business Plan is attached
hereto as Exhibit A and a copy of the initial Operating Budget is
attached hereto as Exhibit B.
(b) The Operating Partner agrees to use
diligence and to employ all reasonable efforts to
ensure that the actual costs of operating the
Partnership shall not exceed the Operating Budget,
either in total or for any one accounting category.
The Operating Partner shall secure the written
approval of the Management Committee for any
expenditure that (i) exceeds fifteen percent (15%) of
the annual budgeted amount for the Partnership in any
one accounting category on such Operating Budget or
(ii) exceeds ten percent (10%) of the annual budgeted
amount for the Partnership in all accounting
categories of the Operating Budget. During each
applicable calendar year, the Operating Partner agrees
to promptly inform the Management Committee of any
material increases in costs and expenses or any
material decreases in revenue that were not foreseen
during the budget preparation period and thus were not
reflected in the Operating Budget.
(c) In addition to the reports further described
in Section 8.4, the Operating Partner shall submit any
additional financial or operational reports as the
Financial Partner may from time to time reasonably
request.
4.5 Powers of the Operating Partner. Subject to
Section 4.3, the Operating Partner shall have the duties, rights
and obligations to implement the operations of the Partnership
as described in the Business Plan, Operating Budget or approved
in writing by the Management Committee. Without limiting the
generality of Section 4.1, but subject to Section 4.2(c) and
Section 4.3, the Operating Partner, acting on behalf of the
Partnership, shall oversee the development activities with
respect to the Property as well as the activities of the
property manager and the construction manager; provided, that if
there is no property manager, the Operating Partner shall
perform the duties and obligations of a property manager;
provided, further, that neither the Operating Partner nor any
Affiliate thereof shall take any action that has a material
economic affect on the Partnership without the prior approval of
the Management Committee, including, without limitation,
approving the form and substance of all leases, contracts, loan
documents or other documents necessary to operate the business
of the Partnership.
4.6 Liability of Partners. The Partners shall be
personally liable for the debts and obligations of the
Partnership if (but solely to the extent) required by applicable
law; provided, however, that all such debts and obligations
shall be paid or discharged first with the property of the
Partnership (including insurance proceeds) before the Partners
shall be obligated to pay or discharge any such debts or
obligations with their personal assets. Notwithstanding the
preceding sentence, the Partners shall not be personally liable
for any debts or obligations which are nonrecourse or which,
under the terms thereof, do not create or impose such liability.
For purposes hereof, any obligations arising under the Indemnity
Agreement and/or the Management Agreement shall be treated as
nonrecourse obligations and Stratus agrees and acknowledges
that, except as expressly provided to the contrary in Section
3.2(a) hereof with respect to any Guaranty Payment, no Partner
shall have any obligation to make any Capital Contribution to
the Partnership or any other payment in order to satisfy any
obligation arising under the Indemnity Agreement and/or the
Management Agreement.
4.7 Other Activities of Partners. Except as otherwise agreed
in writing, each Partner (i) may carry on and conduct in any way
or in any capacity, including, but not limited to, for such
Partner's own right and for such Partner's own personal account,
as a partner in any other partnership, as a venturer in any
joint venture, as a member or manager in any limited liability
company, as an employee, officer, director or stockbroker of any
corporation, or as a participant in any syndicate, pool, trust,
association or other business organization, a business that
competes, directly or indirectly, with the business of the
Partnership, (ii) will be free in any capacity to conduct
business activities the same or similar as conducted by the
Partnership and (iii) may make investments in any kind of
property. The Partnership will have absolutely no claim or
right to any such business or assets thereof. Further, the
Partnership will have claim to and will own only those assets
contributed to the Partnership or acquired with Partnership
funds or credit. Neither this Agreement nor any principle of
law or equity shall preclude or limit, in any respect, the right
of any Partner or any affiliate thereof to engage in or derive
profit or compensation from any activities or investments, nor
give any other Partner any right to participate or share in such
activities or investments or any profit or compensation derived
therefrom.
ARTICLE 5
Exculpation and Indemnity
5.1 Exculpation. Except as expressly provided to the
contrary herein, neither the Partners nor any Affiliate of the
Partners, nor any officer, director, manager, member, employee,
agent, stockholder, or partner of the Partners or any of its
Affiliates, shall be liable, responsible, or accountable in
damages or otherwise to the Partnership or any Partner by reason
of, or arising from or relating to the operations, business, or
affairs of, or any action taken or failure to act on behalf of,
the Partnership, except to the extent that any of the foregoing
is determined, to have been primarily caused by the negligence,
willful misconduct, or bad faith of the person claiming
exculpation.
5.2 Indemnity. The Partnership shall indemnify the
Partners, each Affiliate of the Partners, and each officer,
director, stockholder, manager, member, and partner of the
Partners or any of its Affiliates, and if so determined by the
Partners, each employee or agent of the Partners or any of its
Affiliates, against any claim, loss, damage, liability, or
expense (including reasonable attorneys' fees, court costs, and
costs of investigation and appeal) suffered or incurred by any
such indemnitee by reason of, or arising from or relating to the
operations, business, or affairs of, or any action taken or
failure to act on behalf of, the Partnership, except to the
extent any of the foregoing (i) is primarily caused by the
negligence (which for purposes of this Agreement shall not
include the provision or withholding of any consent or approval
by the Partner or its Representative with respect to any matter
under this Agreement), willful misconduct, or bad faith of the
person claiming indemnification or constitutes a material breach
of any provision of the Guaranty, this Agreement, the Management
Agreement or the Assignment Agreement (including, without
limitation, any breach of any representation, warranty or
covenant of Stratus further set forth in the Assignment
Agreement), or (ii) is suffered or incurred as a result of any
claim (other than a claim for indemnification under this
Agreement) asserted by the indemnitee as plaintiff against the
Partnership. Unless a determination has been made that
indemnification is not required, the Partnership shall, upon the
request of any indemnitee, advance or promptly reimburse such
indemnitee's reasonable costs of investigation, litigation, or
appeal, including reasonable attorneys' fees; provided, however,
that the affected indemnitee shall, as a condition of such
indemnitee's right to receive such advances and reimbursements,
certify its good faith belief that it is entitled to
indemnification hereunder, undertake in writing to repay
promptly the Partnership for all such advancements or
reimbursements if a court of competent jurisdiction determines
that such indemnitee is not then entitled to indemnification
under this Section 5.2 and provide the Partnership with
reasonable assurances of performance with respect to the
obligation to repay such amounts. No Partner shall be required
to contribute capital to the Partnership in respect of any
indemnification claim under this Section 5.2.
ARTICLE 6
Distributions and Allocations
6.1 Distributions.
(a) Subject to the provisions of Section 3.2(e) and Section
6.1(c) hereof, unless and until the Partnership shall commence
the development of the Phase II Property (as described in
Section 3.5(e) hereof), in which event distributions of
Partnership Cash Flow shall be made in accordance with Section
6.1(b) hereof, any and all Cash Flow of the Partnership shall be
distributed in accordance with this Section 6.1(a). No later
than thirty (30) days after the end of each Distribution Period
during which the Partnership has Cash Flow, such Cash Flow shall
be distributed, after the payment of all third party obligations
(which third party obligations shall not include any amounts
owing any Partner or Affiliate thereof with respect to any
Partnership indebtedness or any amounts owing Stratus under the
Indemnity Agreement), in the following order of priority:
(i) first, to Stratus in an
amount equal to any unpaid amounts
owing Stratus under the Indemnity
Agreement;
(ii) second, to the Partners
and their Affiliates in an amount equal
to any accrued and unpaid interest
and/or any unpaid principal amounts
with respect to any Partnership
indebtedness owing any such Partners or
their Affiliates;
(iii) third, to the
Partners, pro rata, in accordance with
their respective Sharing Ratios until
each Partner shall have received
aggregate distributions under this
Section 6.1(a)(iii) equal to an IRR of
25%;
(iv) fourth, to Stratus until
Stratus has received an aggregate
amount equal to $1,065,000 under this
Section 6.1(a)(iv); and
(v) fifth, to the Partners,
pro rata, in accordance with their
respective Sharing Ratios.
(b) Subject to the provisions of Section 3.2(e)
and Section 6.1(c) hereof, notwithstanding the
provisions of Section 6.1(a) hereof to the contrary,
upon the date that the Partnership shall commence
development of the Phase II Property (as described in
Section 3.5(e) hereof) and during all periods of the
Partnership thereafter, any and all Cash Flow of the
Partnership shall be distributed in accordance with
this Section 6.1(b). No later than thirty (30) days
after the end of each Distribution Period during which
the Partnership has Cash Flow, such Cash Flow shall be
distributed, after the payment of all third party
obligations (which third party obligations shall not
include any amounts owing any Partner or any Affiliate
thereof with respect to any Partnership Indebtedness
or any amounts owing Stratus under the Indemnity
Agreement), in the following order of priority:
(i) first, to Stratus in an
amount equal to any unpaid amounts
owing Stratus under the Indemnity
Agreement;
(ii) second, to the Partners and
their Affiliates in an amount equal to
any accrued and unpaid interest and/or
any unpaid principal amounts with
respect to any Partnership indebtedness
owing any such Partners or their
Affiliates; and
(iii) third, to the Partners,
pro rata, in accordance with their
respective Sharing Ratios.
(c) In accordance with Section 11.15 of the
Assignment Agreement, each of Stratus and STRS have
agreed to indemnify Olympus and hold Olympus harmless
from certain Losses (as defined in the Assignment
Agreement) incurred by Olympus and its Affiliates (as
defined in the Assignment Agreement). Stratus hereby
agrees and acknowledges that, in addition to any other
remedies available to Olympus under any other
provision of this Agreement, the Assignment Agreement
or at law or in equity, in the event that Stratus or
STRS shall have any obligation to Olympus under
Section 11.15 of the Assignment Agreement (an
"Indemnification Obligation"), the Partnership shall
not distribute or pay to Stratus, Stratus Management,
or their respective Affiliates, any amount that would
otherwise be distributable or payable to Stratus,
Stratus Management, or their respective Affiliates
(including, without limitation, any amounts of Cash
Flow otherwise distributable to Stratus or its
Affiliates under this Section 6.1 as well as any fees
payable by the Partnership to Stratus, Stratus
Management or their respective Affiliates, including,
without limitation, the Phase I Asset Management Fee,
the Phase II Asset Management Fee and any applicable
Disposition Fees), and such amounts shall instead be
paid by the Partnership to Olympus and applied to the
discharge of such Indemnification Obligation, provided
that the application of such amounts to any such
Indemnification Obligation shall not release Stratus
and STRS of their obligation to indemnify and hold
Olympus harmless from and against any and all Losses
in accordance with the provisions of Section 11.15 of
the Assignment Agreement. Any amounts otherwise
distributable or payable by the Partnership to
Stratus, Stratus Management or their respective
Affiliates that are instead paid to Olympus hereunder
and applied toward the discharge of any
Indemnification Obligation shall be treated, for all
purposes under this Agreement as distributions or
payments (as the case may be, based upon the amount of
the payment and the priority of payment provided under
the other provisions of this Agreement) to Stratus,
Stratus Management and/or their respective Affiliates.
6.2 Tax Allocations. For United States federal
income tax purposes, allocations of items of income, gain, loss,
deduction, expense, and credit for each fiscal year of the
Partnership shall be in accordance with each Partner's economic
interest in the respective item, as determined by the Management
Committee pursuant to Section 704(b) of the Code, and the
regulations promulgated thereunder and subject to the
requirements of Section 704(c) of the Code and the regulations
promulgated thereunder. Unless the Management Committee
determines otherwise, allocations shall be made to each Partner
(i) in the same manner as such Partner would be required to
contribute to the Partnership or (ii) in such manner as shall
result in the Capital Account of each Partner having a balance
equal to the aggregate distributions the Partner would receive
if the Partnership were to liquidate the assets of the
Partnership at their book value and distribute the proceeds in
accordance with Section 6.1; provided, however, that if any such
allocation is not permitted by applicable law, the Partnership's
subsequent income, gain, loss, deduction, expense and credit
shall be allocated among the Partners so as to reflect as nearly
as possible the allocation used in computing Capital Accounts.
6.3 Asset Management Services. From and after the
Effective Date, until the termination of the Management
Agreement, Stratus Management shall provide the asset management
services to the Partnership further described in the attached
Schedule II (the "Asset Management Services") with respect to
the Property, in consideration for the accrual and/or payment of
the fees further set forth in this Section 6.3. In
consideration for its provision of the Asset Management Services
with respect to the Phase I Property Stratus Management shall be
paid a monthly asset management fee equal to $5,000 per month
(the "Phase I Asset Management Fee") upon the terms and
conditions set forth in this Section 6.3. The Phase I Asset
Management Fee shall begin to accrue with respect to the Phase I
Property at such time as a certificate of occupancy shall have
been issued for the Phase I Property by the City of Austin, and
all development fees shall have been paid; provided, however,
that the Phase I Asset Management Fee shall not be payable by
the Partnership to Stratus Management unless and until a tenant,
other than the Partnership, any Partner or any Affiliate thereof
shall take physical possession of a portion of the Phase I
Property pursuant to a lease between such tenant and the
Partnership that has been approved by the Management Committee.
In consideration for its provision of the Asset Management
Services with respect to the Phase II Property, Stratus
Management shall be paid a monthly asset management fee (in
addition to the Phase I Asset Management Fee) equal to $2,500
per month (the "Phase II Asset Management Fee"). The Phase II
Asset Management Fee shall begin to accrue with respect to the
Phase II Property at such time as a certificate of occupancy
shall have been issued for the Phase II Property by the City of
Austin and all development fees have been paid; provided,
however, that the Phase II Asset Management Fee shall not be
payable by the Partnership to Stratus Management unless and
until a tenant, other than the Partnership, any Partner or any
Affiliate thereof shall take physical possession of a portion of
the Phase II Property pursuant to a lease between such tenant
and the Partnership that has been approved by the Management
Committee. Any accrued fees that become payable to Stratus
Management hereunder shall be paid by the Partnership monthly in
arrears and shall constitute guaranteed payments to Stratus as
further described in Section 707(c) of the Code.
6.4 Disposition Services. Upon the sale by the
Partnership of all or substantially all of the Property (a
"Terminal Sale") to a third-party buyer (who shall not be a
Partner or Affiliate of a Partner), a sales commission of 2% of
the gross sale price (the "Disposition Fee") shall be paid to
the Partner or a duly licensed Affiliate or representative of
the Partner who procured such third-party buyer (the "Procuring
Party"); provided, however, that, no Disposition Fee shall be
payable to the Procuring Party in the event that (i) the
Partnership shall have retained any broker or representative
that is entitled to a commission with regard to the Terminal
Sale, (ii) the third party buyer shall have initiated contact
with the Partnership or any Partner or Affiliate or
representative thereof without prior independent solicitation by
the Procuring Party or (iii) the third party buyer otherwise
shall have contacted the Partnership or any Partner or Affiliate
or representative thereof or have been identified other than
through the marketing efforts and solicitation of the Procuring
Party. Any Disposition Fee payable to a Partner hereunder shall
constitute a guaranteed payment to the Partner as further
described in Section 707(c) of the Code.
6.5 No Other Fees. Except as otherwise expressly
provided herein to the contrary or as otherwise expressly
provided to the contrary in the Management Agreement or as may
be unanimously approved by the Partners in writing, the Partners
and their Affiliates shall not be paid any fees or other
compensation by the Partnership.
ARTICLE 7
Admissions, Transfers and Withdrawals
7.1 Admission of New Partners. Except as expressly
provided to the contrary herein, after the Effective Date, new
Partners may be admitted to the Partnership only with the
written consent of, and upon such terms and conditions as are
approved by the unanimous approval of the Management Committee.
No admission of any new Partner shall cause the Partner's
interest in Partnership allocations, distributions and capital
to be less than one percent (1%), and no Partner's Sharing Ratio
in the Partnership shall be reduced or diluted unless approved
in writing by such Partner.
7.2 Transfer of Partnership Interests. No Partner
may transfer or encumber all or any portion of such Partner's
interest in the Partnership without the prior written consent of
the Management Committee; provided, however, that Olympus may
transfer all or any portion of its interest in the Partnership
to an Affiliate of Olympus Real Estate Corporation without the
consent of the Management Committee or Stratus; and provided,
further, that Stratus may transfer all or any portion of its
interest in the Partnership to a wholly-owned subsidiary of
Stratus Properties, Inc., a Delaware corporation, without the
consent of the Management Committee or Olympus. Additionally,
any interest in the Partnership held by Olympus or its
Affiliates may be transferred without the consent of the
Management Committee or Stratus in connection with the exercise
of the rights of the limited partners of Olympus Real Estate
Fund II, L.P. ("Fund II") to remove the general partner under
the limited partnership agreement of Fund II. As soon as
reasonably practicable following any transfer that is permitted
hereunder, the Management Committee shall amend the Partnership
Agreement (and Schedule I hereof) to reflect the Capital Account
balance, Contribution Percentage, Unreturned Capital
Contributions and Sharing Ratios of the Partners and the
admission of the transferee to the Partnership as a Partner.
7.3 Buy/Sell Option.
(a) At any time during the term of the
Partnership, either Partner may exercise a "buy-sell"
right (the "Buy-Sell") as follows: either Partner
(the "Offeror") exercising such Buy-Sell (A) shall
deliver to the other Partner (the "Offeree") a written
notice (the "Buy/Sell Offer") stating the Offeror's
exercise of such right and setting forth the Buy/Sell
Offer and a description of any negotiations or
discussions with third parties that Offeror or its
Affiliates may have had with respect to the sale of
all or any portion of the Partnership Interest and/or
the Business, which Buy/Sell Offer shall represent the
dollar amount (without reduction for any deemed or
imputed expenses of sale) that the Offeror would be
willing to pay to the Partnership in cash for the
Business (the "Offer Amount") and (B) simultaneously
with the delivery of the Buy/Sell Offer, shall deliver
into escrow with a title insurance company located in
Dallas, Texas selected by the Offeror (the "Escrow
Agent"), a good faith deposit in the amount of the
Offer Deposit. The Offeror hereby instructs the Escrow
Agent that the Escrow Agent shall either (i) in the
event the Offeree elects to sell its interest in the
Partnership (the "Partnership Interest") in accordance
with the terms hereof, apply such Offer Deposit to the
purchase price as of the Buy/Sell Closing Date (as
hereinafter defined) or if the Offeror fails to timely
purchase the Offeree's Partnership Interest in
accordance with the terms hereof, disburse such Offer
Deposit in accordance with Section 7.3(g), or (ii) in
the event the Offeree elects to purchase the Offeror's
Partnership Interest, disburse such Offer Deposit in
accordance with Section 7.3(e).
(b) The notice transmitting the Buy/Sell Offer
shall be deemed to constitute an offer by the Offeror
to purchase the Offeree's Partnership Interest for a
price equal to the Receipt Amount. "Receipt Amount"
shall mean the aggregate amount which the Partner
whose Partnership Interest is to be transferred,
whether Offeror or Offeree (or pursuant to Section
7.3(g), the Buy/Sell Purchaser), would receive as a
Partnership distribution if (i) the Business were sold
for cash for the Offer Amount, (ii) all debts and
liabilities of the Partnership but without taking into
account any deemed or imputed expenses which would
occur for the sale to third parties (e.g. imputed
brokerage fees, etc.) were paid in full from such
proceeds in the order of priority further set forth in
this Agreement, and (iii) prorations were made with
respect to all current assets and current liabilities
of the Partnership.
(c) The Offeree shall have forty-five (45) days
from the date of the Buy/Sell Offer to elect, by
written notice to the Offeror signed by the Partner
constituting the Offeree, whether to sell such
Offeree's Partnership Interest to the Offeror or
whether to purchase (or cause its designee to
purchase) the Offeror's Partnership Interest in the
Partnership (the "Buy/Sell Election Period").
(d) If the Offeree fails to make an election
within such forty-five (45) day period, or fails to
comply with subsection (e) below, such Offeree shall
be conclusively deemed to have elected to sell its
Partnership Interest in the Partnership to the Offeror
according to the terms of this Section 7.3.
(e) If the Offeree makes an election to purchase
within such forty-five (45) day period by sending
written notice to the Offeror as required by
subsection (c), and by delivering into escrow with the
Escrow Agent a good faith deposit in the amount of the
Offer Deposit, then, the original Offeror shall be
conclusively deemed to have elected to sell its
Partnership Interest in the Partnership to the Offeree
for a price equal to the applicable Receipt Amount.
In the event the Offeree timely makes an election to
purchase, the Offeree hereby instructs the Escrow
Agent that the Escrow Agent shall (i) return the
Offeror's Offer Deposit to the Offeror and (ii) hold
the Offeree's Offer Deposit and shall either apply
such Offeree's Offer Deposit to the purchase price as
of the Buy/Sell Closing Date (as hereinafter defined)
or disburse such Offeree's Offer Deposit in accordance
with Section 7.3(g).
(f) The Partner (the "Buy/Sell Purchaser") that
is obligated to purchase the Partnership Interest in
the Partnership of the other Partner (the "Buy/Sell
Seller") pursuant to this Section 7.3 shall fix a
closing date (the "Buy/Sell Closing Date") for such
purchase that shall be a Business Day that is not
later than forty-five (45) days after the expiration
of the Buy/Sell Election Period, by written notice to
the Buy/Sell Seller at least fifteen (15) days in
advance of the Buy/Sell Closing Date. The closing of
such purchase shall take place on the Buy/Sell Closing
Date at the address of the Escrow Agent. At such
closing, the Partner constituting the Buy/Sell Seller
shall execute and deliver to the Buy/Sell Purchaser
(or its designee) such instruments of assignment,
bills of sale, amendments to this Agreement and other
instruments and documents as the Buy/Sell Purchaser
and the Buy/Sell Seller (or such designee) may
reasonably require for the conveyance to such Buy/Sell
Purchaser (or such designee) of all of the Buy/Sell
Seller's right, title and interest in and to the
Buy/Sell Seller's Partnership Interest in the
Partnership against receipt by the Buy/Sell Seller of
a wire transfer of immediately available funds in an
amount equal to the applicable Receipt Amount; and the
Buy/Sell Seller hereby irrevocably constitutes and
appoints the Buy/Sell Purchaser as its attorneyin-
fact to execute, acknowledge and deliver any of
such instruments or documents. Each of the Buy/Sell
Seller and Buy/Sell Purchaser shall each bear their
respective closing costs and expenses (including, but
not limited to, all attorney's fees and costs and all
applicable transfer and income taxes) incurred in the
purchase or sale of the Buy/Sell Seller's Partnership
Interest in the Partnership hereunder. Such sale of
such Partnership Interest shall be made without
representation, warranty or recourse, except for
representations and warranties in form and substance
reasonably acceptable to the Buy/Sell Purchaser and
the Buy/Sell Seller with respect to existence, good
standing, title, no encumbrance, authority,
authorization, no conflicts, and such other customary
matters as may be reasonably requested by the Buy/Sell
Purchaser. If the Buy/Sell Offer or the closing of
the purchase contemplated thereby causes the maturity
of any Partnership indebtedness to be accelerated, the
Buy/Sell Seller shall be released from liability
resulting from such accelerated indebtedness and the
Buy/Sell Purchaser shall pay (or cause to be paid)
such indebtedness in full (including without
limitation, any accrued but unpaid interest and any
prepayment premiums or penalties) at Buy/Sell
Purchaser's sole cost and expense and shall indemnify
and hold Buy/Sell Seller harmless from and against any
losses, damages, costs or expenses (including
attorneys' fees) incurred by Buy/Sell Seller, or the
Buy/Sell Seller's Affiliates, employees, agents,
representatives, consultants, attorneys, fiduciaries,
servants, officers, directors, partners, predecessors,
successors and assigns and Affiliates of the foregoing
(the "Indemnified Parties"), as a direct or indirect
result of any such acceleration, other than any
losses, damages, costs or expenses (including
attorneys' fees) incurred by any of the Indemnified
Parties as a direct result of such Indemnified Party's
gross negligence, willful misconduct or bad faith. As
a precondition to the closing of the Buy/Sell
transaction, the Buy/Sell Seller shall be released
from liability from any indebtedness of the
Partnership, including, without limitation, the
release of any guaranty and collateral pledged to
secure any guaranty debt. Anything contained in this
Agreement to the contrary notwithstanding, in the
event the sale of the Partnership Interest is not
consummated because of a default on the part of
Buy/Sell Seller or if a condition precedent cannot be
fulfilled because Buy/Sell Seller frustrated such
fulfillment, Buy/Sell Purchaser may, at its election,
pursue an action for specific performance and/or
damages, costs and expenses.
(g) In the event that the Buy/Sell Purchaser
defaults in its obligation to purchase the Partnership
Interest of the Buy/Sell Seller in the Partnership on
the Buy/Sell Closing Date, the Buy/Sell Seller shall
have the right to (i) solicit third party offers on
behalf of the Partnership for the purchase of the
Business, to accept the best such offer, as determined
by the Buy/Sell Seller in its sole and absolute
discretion, and to consummate the sale of the Business
to such third party pursuant to such offer,
(ii) purchase the Partnership Interest of the Buy/Sell
Purchaser for a purchase price equal to ninety percent
(90%) of the Receipt Amount with respect to the
Partnership Interest of the Buy/Seller Purchaser,
(iii) specifically enforce the Buy/Sell Purchaser's
obligation to purchase the Partnership interest of the
Buy/Sell Seller, and (iv) notify the Escrow Agent
holding the Offer Deposit of the Buy/Sell Purchaser
immediately to deliver such Offer Deposit to the
Buy/Sell Seller as liquidated damages for the breach
by such Buy/Sell Purchaser (and the Buy/Sell Purchaser
covenants and agrees to cause, and hereby instructs,
the Escrow Agent to deliver such Offer Deposit to the
Buy/Sell Seller). The delivery of the Offer Deposit
to the Buy/Sell Seller shall not constitute a return
of capital or a Partnership distribution. The
Buy/Sell Purchaser hereby constitutes and appoints the
Buy/Sell Seller as its attorney-in-fact to execute and
deliver on behalf of the Buy/Sell Purchaser all
documents as may be reasonably required in connection
with the delivery by the Escrow Agent of the Offer
Deposit to the Buy/Sell Seller in accordance with
this Section 7.3.
7.4 No Substituted Partners. Except as permitted by
Section 7.1 and subject to the provisions of Section 7.2, no
transferee of any partnership interest in the Partnership may
become a substituted Partner. Rather, any transferee of any
Partnership interest of a Partner shall be entitled solely to
rights as assignee of the rights to receive all or part of the
share of the income, gains, losses, deductions, expenses,
credits, distributions, or returns of capital to which his or
its transferor would otherwise be entitled with respect to the
Partnership interest so transferred.
7.5 Withdrawal of Partners. Except as permitted by
Section 7.2 hereof, no Partner shall have any right to withdraw
or resign from the Partnership without the unanimous consent of
the Management Committee.
ARTICLE 8
General Accounting Provisions, Books and Reports
8.1 Books of Account; Tax Returns. The Financial
Partner shall prepare and file, or shall cause to be prepared
and filed, all United States federal, state, and local income
and other tax returns required to be filed by the Partnership
and shall keep or cause to be kept complete and appropriate
records and books of account in which shall be entered all such
transactions and other matters relative to the Partnership's
operations, business and affairs as are usually entered into
records and books of account that are maintained by persons
engaged in business of like character or are required by the
Act. The Financial Partner shall have the authority to make any
and all federal or state tax elections with respect to the
Partnership and its Business. In addition, the Partners agree
and acknowledge that the Partnership shall make an election
under Section 754 of the Code with respect to its 1999 taxable
year, and more particularly, with regard to the Assignments.
Except as otherwise expressly provided herein, the books and
records of the Partnership shall be maintained in accordance
with the basis utilized in preparing the Partnership's United
States federal income tax returns, which returns, if allowed by
applicable law, shall be prepared on an accrual basis.
8.2 Place Kept; Inspection. The books and records
shall be maintained at the principal place of business of the
Partnership, and all such books and records shall be available
for inspection and copying at the reasonable request, and at the
expense, of any Partner during the ordinary business hours of
the Partnership.
8.3 Tax Matters Partner. The Financial Partner shall
be the tax matters partner of the Partnership and, in such
capacity, shall exercise all rights conferred, and perform all
duties imposed, upon a tax matters partner under Sections 6221
through 6233 of the Code and the regulations promulgated
thereunder. Notwithstanding the foregoing, the Financial
Partner shall have the right to select the methodology to be
used pursuant to Section 704(c) of the Code.
8.4 Additional Reporting Requirements. In addition
to any reports required under Section 4.4(c) hereof:
(a) Stratus shall deliver to each Partner within
twenty (20) days of the end of each month a statement of
receipts and disbursements relating to the Property, and on
a quarterly basis a narrative report on all variances from
the Business Plan or Operating Budget, pacing against the
Construction Loan, and all construction, leasing and
marketing activities affecting the Property, and such other
reports as reasonably requested by Olympus.
(b) Stratus shall cause a preliminary annual report
of the Partnership (for the immediately preceding fiscal
year of the Partnership) to be sent to each of the Partners
before January 31st of each fiscal year of the Partnership
and a final annual report of the Partnership (for the
immediately preceding fiscal year of the Partnership) to be
sent to each of the Partners on or before March 1st of
each fiscal year of the Partnership. Such reports shall
contain a balance sheet as of the end of the fiscal year,
an income statement and statement of changes in financial
position for the fiscal year.
(c) If requested by Olympus, the financial statements
referred to in Section 8.4(b) shall be accompanied by the
report thereon, if any, of Arthur Andersen & Co. or such
other accountant as may be designated by the Management
Committee.
ARTICLE 9
Amendments and Waivers
9.1 Amendments and Waivers. Except as expressly
provided in Section 9.2 of this Agreement, the Management
Committee may amend or waive any provision of this Agreement
which merely (i) corrects an error or clarifies an ambiguity in
this Agreement, (ii) does not adversely affect the Financial
Partner or the Operating Partner in any material respect or
(iii) changes Schedule I to this Agreement to reflect the
Capital Account balances, Contribution Percentages, Unreturned
Capital Contributions, Sharing Ratios and/or Partnership
Interests of the Partners as from time to time amended in
accordance with this Agreement. The Management Committee shall
amend Schedule I to this Agreement to reflect any additional
Capital Contributions; provided, however, that upon any failure
of a Defaulting Partner to repay the Default Amount to the Non
Defaulting Partners within the one hundred twenty (120) day term
further described in the first sentence of Section 3.2(c), the
Non-Defaulting Partners shall have complete power and authority,
acting singly and without necessity of joinder of any other
Partner to amend Schedule I to accurately reflect the Capital
Contributions, Sharing Ratios and Contribution Percentages of
the Partners. The Partners agree to look to the books and
records of the Partnership for determination of the actual
amount of Capital Contributions made to the Partnership, as
provided in Section 3.1 and Section 3.2 of this Agreement.
9.2 Certain Other Amendments. Notwithstanding any
provision to the contrary contained herein, no amendment to or
waiver of any provision of this Agreement shall be effective
against a given Partner without the consent or vote of such
Partner if such amendment or waiver would (i) cause the
Partnership to fail to be treated as a partnership for federal
income tax purposes or under the Act, (ii) change Section 3.1 or
Section 3.2 of this Agreement to increase a Partner's obligation
to contribute to the capital of the Partnership, (iii) change
Section 5.1, or 5.2 of this Agreement to affect adversely any
Partner's rights to exculpation or indemnification, (iv) change
Section 6.1 or 6.2 of this Agreement to affect adversely the
participation of such Partner in the income, gains, losses,
deductions, expenses, credits, capital or distributions of the
Partnership (but excluding any amendments to Schedule I hereof
to accurately reflect the Capital Account balances, Contribution
Percentages, Unreturned Capital Contributions, Sharing Ratios
and/or Partnership Interests of the Partners following any
failure of a Defaulting Partner to timely repay the Default
Amount to the Non-Defaulting Partners, as further described in
Section 3.2(c) or any transfer of a Partnership Interest
expressly permitted pursuant to the provisions of Section 7.2
hereof), (v) change Section 7.1 of this Agreement to affect
adversely the anti-dilution rights of such Partner, (vi) change
the percentage of Partners necessary for any consent or vote
required hereunder to the taking of any action (provided, that
the provisions of this Section 9.2 shall have no affect upon the
loss of voting rights hereunder of a Defaulting Partner or its
Representatives under Section 3.2(b)) or (vii) amend this
Section 9.2 of this Agreement.
ARTICLE 10
Winding Up and Termination
10.1 Dissolution. The Partnership's business and
affairs shall be wound up upon the first to occur of the
following events:
(i) the election of the both Partners
to wind up the business and affairs of the
Partnership;
(ii)the election of the Financial
Partner to wind up the business and affairs of the
Partnership, if all or substantially all Partnership
assets shall have been sold or disposed of or shall
consist of cash;
(iii) both the Partners shall have
withdrawn from the Partnership within the meaning of
the Act, or any other dissolution event specified in
the Act shall have occurred;
(iv)the Financial Partner shall have
(A) made a general assignment for the benefit of
creditors, (B) filed a voluntary petition in
bankruptcy, (C) filed a petition or answer seeking for
itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar
relief under any bankruptcy or debtor relief law,
(D) filed an answer or other pleading admitting or
failing to contest the material allegations of a
petition filed against it in any bankruptcy or
insolvency proceeding brought against it or
(E) sought, consented to, or acquiesced in the
appointment of a trustee, receiver or liquidator of
the Financial Partner or of all or any substantial
part of its property;
(v) if within sixty (60) days after
the commencement of any proceeding against the
Financial Partner seeking reorganization, arrangement,
composition, readjustment, liquidation, dissolution or
similar relief under any bankruptcy or debtor relief
law, the proceeding shall not have been dismissed; or
(vi)if within sixty (60) days after
the appointment (without the Financial Partner's
consent or acquiescence) of a trustee, receiver or
liquidator of the Financial Partner or of all or any
substantial part of its property, the appointment
shall not have been vacated or stayed if within sixty
(60) days after the expiration of any such stay, the
appointment shall not have been vacated.
Notwithstanding the foregoing, the business and affairs of the
Partnership shall not be wound up upon the occurrence of an
event specified in (iii) through (vi) of this Section 10.1, if
within ninety (90) days after such occurrence a majority in
interest of the remaining Partners agree in writing to continue
the business of the Partnership and to the appointment,
effective as of the date of withdrawal, of a successor Financial
Partner.
10.2 Accounting Upon Winding Up. Following the
occurrence of an event requiring the winding up of the business
and affairs of the Partnership pursuant to Section 10.1 of this
Agreement (and, if applicable, the failure of a majority in
interest of the remaining Partners to continue the business of
the Partnership in accordance with Section 10.1), the books of
the Partnership shall be closed, and a proper accounting of the
Partnership's assets, liabilities and operations shall be made
by the Financial Partner, all as of the most recent practicable
date. The Financial Partner shall serve as the liquidator of
the Partnership unless it has been removed or unless it
otherwise fails or refuses to serve. If the Financial Partner
does not serve as the liquidator, one or more other persons or
entities may be selected to serve by the Operating Partner. The
expenses incurred by the liquidator in connection with the
dissolution, liquidation and termination of the Partnership
shall be borne by the Partnership.
10.3 Termination. As expeditiously as practicable,
but in no event later than one year (except as may be necessary
to realize upon any material amount of property that may be
illiquid), after the occurrence of an event requiring the
winding up of the business and affairs of the Partnership
pursuant to Section 10.1 of this Agreement, the liquidator shall
cause the Partnership to pay the current liabilities of the
Partnership (other than any liabilities or obligations of the
Partnership under the Indemnity Agreement or with respect to any
Partnership indebtedness owed to any Partner or Affiliate
thereof which shall be repaid in the order of priority further
set forth in Section 6.1 hereof) and (i) establish a reserve
fund (which may be in the form of cash or other property, as the
liquidator shall determine) for any and all other liabilities,
including contingent liabilities, of the Partnership in a
reasonable amount determined by the liquidator to be appropriate
for such purposes or (ii) otherwise make adequate provision for
such other liabilities. To the extent that cash required for
the foregoing purposes is not otherwise available, the
liquidator may sell property, if any, of the Partnership for
cash. Thereafter, all remaining cash or other property, if any,
of the Partnership shall be distributed to the Partners in
accordance with the provisions of Section 6.1 of this Agreement.
The Partners must agree on the value and distributee for all in
kind distributions or else all property must be sold and the
proceeds therefrom distributed in accordance herewith. At the
time final distributions are made in accordance with Section 6.1
of this Agreement, the liquidator shall make any and all such
filings as the liquidator shall determine to be appropriate to
cause or evidence the termination of the Partnership, and the
legal existence of the Partnership shall terminate, but if at
any time thereafter any reserved cash or property is released
because in the judgment of the liquidator the need for such
reserve has ended, then such cash or property shall be
distributed in accordance with Section 6.1 of this Agreement.
10.4 No Negative Capital Account Obligation.
Notwithstanding any other provision of this Agreement to the
contrary, in no event shall any Partner who has a negative
capital account upon final distribution of all cash and other
property of the Partnership be required to restore such negative
account to zero.
10.5 No Other Cause of Dissolution. The Partnership
shall not be dissolved, or its legal existence terminated, for
any reason whatsoever except as expressly provided in this
Article 10.
10.6 Merger. Subject to the rights of the Partners
pursuant to Section 9.2, the Partnership may, with the written
consent of the Financial Partner acting with the unanimous
approval of the Management Committee, adopt a plan of merger and
engage in any merger or consolidation permitted by applicable
law.
ARTICLE 11
Miscellaneous
11.1 Waiver of Partition. Each Partner hereby
irrevocably waives any and all rights that he or it may have to
maintain an action for partition of any of the Partnership's
property.
11.2 Entire Agreement. This Agreement constitutes the
entire agreement among the Partners with respect to the subject
matter hereof and supersedes any prior agreement or
understanding among them with respect to such subject matter.
11.3 Severability. If any provision of this
Agreement, or the application of such provision to any person or
circumstance, shall be held invalid under the applicable law of
any jurisdiction, the remainder of this Agreement or the
application of such provision to other persons or circumstances
or in other jurisdictions shall not be affected thereby. Also,
if any provision of this Agreement is invalid or unenforceable
under any applicable law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such law. Any
provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any
other provision hereof.
11.4 Notices. All notices, requests, demands, and
other communications hereunder shall be in writing and shall be
deemed to have been duly given if sent by overnight courier,
hand delivered, mailed (first class registered mail or certified
mail, postage prepaid), or sent by telex or telecopy if to the
Partners, at the addresses or telex or facsimile numbers set
forth on Schedule I hereto, and if to the Partnership, at the
address of its principal place of business at 200 Crescent
Court, Suite 1650, Dallas, Texas 75201 (fax 214/740-7340), or to
such other address as the Partnership or any Partner shall have
last designated by notice to the Partnership and all other
parties hereto in accordance with this Section 11.4. Notices
sent by hand delivery shall be deemed to have been given when
received; notices mailed in accordance with the foregoing shall
be deemed to have been given three days following the date so
mailed; notices sent by telex or telecopy shall be deemed to
have been given when electronically confirmed; and notices sent
by overnight courier shall be deemed to have been given on the
next business day following the date so sent.
11.5 Governing Laws. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of Texas (without regard to principles of conflicts of
laws).
11.6 Successors and Assigns. Except as otherwise
specifically provided, this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective
successors and permitted assigns.
11.7 Counterparts. This Agreement may be executed in
one or more counterparts, all of which shall constitute one and
the same instrument.
11.8 Headings. The section and article headings in
this Agreement are for convenience of reference only and shall
not be deemed to alter or affect the meaning or interpretation
of any provision hereof.
11.9 Other Terms. All references to "Articles" and
"Sections" contained in this Agreement are, unless specifically
indicated otherwise, references to articles, sections,
subsections, and paragraphs of this Agreement. Whenever in this
Agreement the singular number is used, the same shall include
the plural where appropriate (and vice versa), and words of any
gender shall include each other gender where appropriate. As
used in this Agreement, the following words or phrases shall
have the meanings indicated: (i) "or" shall mean "and/or", (ii)
"day" shall mean a calendar day, (iii) "including" or "include"
shall mean "including without limitation", and (iv) "law" or
"laws" shall mean statutes, regulations, rules, judicial orders,
and other legal pronouncements having the effect of law.
Whenever any provision of this Agreement requires or permits a
Partner to take or omit to take any action, or make or omit to
make any decision, unless the context clearly requires
otherwise, such provision shall be interpreted to authorize an
action taken or omitted, or a decision made or omitted, by the
Partner acting alone and in good faith.
11.10 Power of Attorney. By execution of this
Agreement, the Operating Partner hereby makes, constitutes and
appoints the Financial Partner, with full power of substitution
and re-substitution in the Financial Partner (in its sole
discretion), such Partner's true and lawful attorney-in-fact
(the "Attorney") for and in the Operating Partner's name, place
and stead and for its use and benefit, to prepare, execute,
certify, acknowledge, swear to, file, deliver or record any or
all of the following, authorized pursuant to the terms of this
Agreement:
(i) any agreement, certificate,
report, consent, instrument, filing or writing made by
or relating to the Partnership that the Attorney deems
necessary, desirable, or appropriate for the lawful
purpose of (A) organizing the Partnership under the
Act, (B) admitting Partners with respect to the
Partnership, (C) pursuing or effecting any rights or
remedies available under this Agreement or otherwise
with respect to a defaulting Partner, (D) qualifying
the Partnership to do business in any jurisdiction and
(E) complying with any law, agreement or obligation
applicable to the Partnership;
(ii)any agreement, certificate,
report, consent, instrument, filing or writing made by
or relating to the Partnership necessary, desirable or
appropriate to effectuate the business purposes of, or
the dissolution, termination or liquidation of, the
Partnership pursuant to applicable law or the
respective terms of this Agreement; and
(iii) any amendment to or
modification or restatement of this Agreement or any
other agreement, certificate, report, consent,
instrument, filing or writing of any type described in
subsection (i) or (ii) of this Section 11.10, provided
that any amendment of or modification to this
Agreement shall first have been adopted in accordance
with Article 9 of this Agreement.
11.11 Transfer and Other Restrictions. INTERESTS
IN THE PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD UNLESS
SUCH INTERESTS HAVE BEEN REGISTERED UNDER SUCH ACT OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. INTERESTS IN THE
PARTNERSHIP ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER,
VOTING AND OTHER TERMS AND CONDITIONS SET FORTH IN (1) ARTICLE 7
AND (2) VARIOUS INVESTMENT AGREEMENTS BETWEEN OR AMONG CERTAIN
PARTNERS. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED FROM THE
PARTNERSHIP OR THE FINANCIAL PARTNER AT THEIR PRINCIPAL
EXECUTIVE OFFICES.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the undersigned have executed this
instrument effective as of the Effective Date.
FINANCIAL PARTNER:
OLY LANTANA, L.P.,
a Texas limited partnership
By: Oly Lantana GP, L.L.C.,
a Texas limited liability company,
its sole general partner
By: /s/Hal R. Hall,
its Vice President
OPERATING PARTNER:
STRATUS 7000 WEST, LTD.,
a Texas limited partnership
By: STRS L.L.C.,
a Delaware limited liability company,
General Partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:
Name: William H. Armstrong III
Title:President
WITHDRAWING PARTNER:
STRS L.L.C.,
a Texas limited liability company
By:
Name: William H. Armstrong III
Title: President
FOR PURPOSES OF SECTION 6.3 ONLY:
STRATUS MANAGEMENT, L.L.C.,
a Delaware limited liability company
By:
Name: William H. Armstrong III
Title: President
EXHIBIT A
Business Plan
[TO BE ATTACHED WITHIN 60 DAYS OF EFFECTIVE DATE]
EXHIBIT B
Operating Budget
[TO BE ATTACHED WITHIN 60 DAYS OF EFFECTIVE DATE]
EXHIBIT C
Property Description
Lot 6, Block A, LANTANA LOT 6, BLOCK A, a subdivision in
Travis County, Texas, according to the map or plat thereof,
recorded in Volume 100, Page(s) 1-2 of the Plat Records of
Travis County, Texas, as corrected by instrument recorded
in Volume 13064, Page 278 of the Real Property Records of
Travis County.
EXHIBIT D
Building II Permit
The Building II Permit shall comprise (i) that certain City
of Austin-Project Permit No. 9811861 issued 8/28/98, a copy
of which is attached as Attachment D-1, and (ii) that
certain City of Austin Site Plan Development Permit No. SP98-
0054C issued 5/21/98, a copy of which is attached as
Attachment D-2.
EXHIBIT E
Description of Phase I Property
EXHIBIT F
Description of Phase II Property
SCHEDULE I
<TABLE>
Partnership Capital Accounts, Unreturned Capital Contributions,
Sharing Ratios and Contribution Percentages
<CAPTION>
Stratus 7000 West, Ltd. Oly Lantana, LP
Partner and Address ----------------------------------- ---------------- Unreturned
Capital Capital
Prior to Account as Capital Contributtion
Effective Adjust- of Effective Account as of as of Sharing Contribuion
Date ments Date Effective Date Effective Date Ratio Percentage
---------- ----------- ------------ --------------- -------------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Partner:
Oly Lantana, L.P. $0.0 $0.00 $ $1,722,000 50.1% 50.1%
200 Crescent Court,
Suite 1650
Dallas, Texas 75201
(214) 740-7340
Operating partner:
Stratus 7000 West, Ltd.
98 San Jacinto Blvd.,
Suite 220 Cash $1,658,000 $ (959,000)$ 699,000 $ $ 699,000
Austin, Texas Phase I Land $1,015,000 $1,015,000 $ $1,015,000
78701 Phase II Land $1,065,000 $(1,065,000) $ $ 49.9% 49.9%
(512)478-5788 ------------ ---------- ----------- ---------- ---------- ----------
Subtotal-
Stratus $3,738,000 $(2,024,000)$1,714,000 $ $
---------- ----------- ---------- ---------- ---------- -------- --------
Total $3,738,000 $(2,024,000)$1,714,000 $1,722,000 $1,714,000 100.0% 100.0%
========== =========== ========== ========== ========== ======== ========
</TABLE>
SCHEDULE II
Description of Asset Management Services
The Asset Management Services shall consist of those
services required to be performed by Stratus Management
L.L.C. pursuant to that certain Management Agreement
between Stratus Management L.L.C., as "Property Manager,"
and Stratus 7000 West Joint Venture, as "Owner," dated of
even date herewith.
SCHEDULE III
Amount and Terms of Phase II Construction Financing
Loan Amount: not less than 50% of total project costs.
Interest Rate: No higher than LIBOR plus 300 basis points.
Amortization: Minimum of 15 year amortization or no
amortization and interest only payments.
Term to Maturity: Term to maturity of at least 18 months.
Prepayment: May be pre-paid at any time without payment
of any fee, premium or penalty.
SCHEDULE IV
Historical Development Costs (Phase II Property)
[ATTACHED]
Exhibit 10.19
REIMBURSEMENT CLAIM AGREEMENT
(CCLC)
This Reimbursement Claim Agreement is entered into on the 29th day of October
1999 by and between Circle C Land Corp., a Texas corporation
("CCLC") and the City of Austin, a Texas municipal corporation (the "City").
RECITALS
A. Circle C Municipal Utility District Nos. 1, 2, 3 and 4 (the "Districts"
or the "Circle C MUDs") were conservation and reclamation districts created in
1984 that operated as municipal utility districts under the provisions of
Article XVI, Sec. 59 of the Texas Constitution and Chapters 49 and 54, Texas
Water Code. The lands comprising the former Districts are located in
southwest Travis County and were in the City's extra-territorial jurisdiction
("ETJ") until the annexation described below.
B. As a condition of the City's consent to the creation of the Districts
in its ETJ, the developers of the Districts and the City entered into four
separate "Agreements Concerning Creation and Operation of the Circle C Municipal
Utility District No. ____ (the "Consent Agreements") for each of the Districts.
The Consent Agreements placed certain conditions upon the Districts' authority
to issue bonds to fund or reimburse the developers for the cost of construction
of water, wastewater and drainage infrastructure and facilities. After their
creation, the Districts joined in the Consent Agreements.
C. By a succession of transactions, CCLC succeeded to the rights,
interests and obligations of a Developer of the Districts under the Consent
Agreements.
D. By certain municipal annexation proceedings effective December 19,
1997, the City of Austin annexed and dissolved the Districts in accordance with
the procedures set forth in Chapter 43, Texas Local Government Code, and Article
XI, Sec. 5 of the Texas Constitution.
E. Previous to the City's annexation and dissolution of the Districts,
each of the Districts entered into a separate agreement with the developers in
each of the Districts entitled "Utility Construction Agreement Between Circle C
Municipal Utility District No. __and [Developer]" (the "Utility Construction
Agreements"). The Utility Construction Agreements set forth terms and conditions
under which the Developer would construct, and the District would acquire,
throughthe issuance of district bonds, certain water, wastewater and drainage
improvements to serve the land within the boundaries of the Districts (the
"Improvements"). As of the date of annexation, CCLC held the rights, interests
and obligations of a Developer under each of the Utility Construction
Agreements.
F. The Utility Construction Agreements are subject to the terms and
conditions of the Consent Agreements entered into between the City, the
Developer and the Districts.
G. On December 19, 1997, Circle C Land Corp. filed suit against the City
on its alleged claim for reimbursement for the Improvements pursuant to Texas
Local Government Code 43.0715, and related claims in Cause No. 97-13994; Circle
C Land Corp. v. City of Austin, pending in the 53rd Judicial District Court,
Travis County, Texas (the "Reimbursement Claim Lawsuit").
H. On December 31, 1997, Phoenix Holdings, Ltd. ("Phoenix"), another
developer in the Districts intervened in the Reimbursement Claim Lawsuit as a
plaintiff. Phoenix is not a party to this agreement.
I. Pulte Home Corporation of Texas, a Michigan corporation ("Pulte"),
another developer in the Districts, also presented to the City a claim for
reimbursement for water, wastewater and/or drainage improvements serving a
portion of the lands in Circle C MUD No. 2. By an assignment from Pulte, CCLC
holds the right to one-half (1/2) of that reimbursement claim. CCLC's interest
in the reimbursement claim pursuant to the assignment from Pulte is the subject
of a separate agreement and is not addressed or included in this agreement.
J. In 1998, the City established an administrative procedure for the
submittal and processing of developer reimbursement claims arising out of the
City's December 1997 annexations of the Circle C MUDs and other municipal
utility districts previously located in the City's extra-territorial
jurisdiction ("ETJ").CCLC has submitted to the City documentation to support
its reimbursement claim and the City has administratively processed the claim
to determine what portion of the claim is eligible for reimbursement under the
Consent Agreements, the Utility Construction Agreements, the TNRCC rules
governing bond applications for reimbursement of developers in municipal
utility districts and applicable law.
K. Based on the administrative processing of the claim the City has
determined that the sum of $8,844,269.00 is eligible for reimbursement to CCLC
under the Consent Agreements, the Utility Construction Agreements, the TNRCC
rules and applicable law, except that each of the Circle C MUDs did not have
sufficient tax base as of the date of annexation to service bond debt necessary
to repay this entire amount along with all other developer reimbursement claims
relating to each of the Circle C MUDs. TNRCC rules require that the tax base
be sufficient to service the bond debt necessary to fund developer reimbursement
claims as a condition of approving district bond applications. It is the City's
position that payment of developer reimbursement claims upon annexation is not
due under applicable law, TNRCC rules, the Consent Agreements and the Utility
Construction Agreements until this condition is satisfied. CCLC disputes
this position.
L. It is CCLC's position that the full amount of its reimbursement
claim was due and payable upon annexation under Texas Local Government Code
43.0715, and that penalties and interest are due on the amount of the claim
under the May 1999 amendments to this statute. The City disputes this position.
M. The parties recognize and acknowledge that there is pending
litigation challenging the validity of the City's annexation and dissolution
of the Circle C MUDs and that the City's annexation or dissolution of the Circle
C MUDs may hereafter be reversed or otherwise legally rescinded, by legislative
action, final action of an appellate court of last resort in the pending or
other litigation or other legal process. Nothing in this agreement is intended,
or shall be used or construed, to limit, prejudice, or otherwise affect either
party's positions or claims in the litigation referenced in the preceding
sentence.
N. In the event the annexation or dissolution of the Districts is so
reversed or otherwise legally rescinded, then it is the parties' intent to
rescind this agreement as set forth below.
O. This agreement is not a full and final settlement of the
Reimbursement Claim Lawsuit and the parties are reserving certain rights with
respect to that suit as set forth below.
Agreement
1. City Payment to CCLC and CCLC's Conveyance of Facilities to City.
Upon execution of this agreement, the City shall pay to CCLC the sum of
$8,844,269.00, plus simple interest at the rate of 6% from the date of
annexation (12/19/97) through the date of this agreement. Concurrent with and
in exchange for this payment, CCLC shall execute and deliver the Deed, Bill
of Sale and Assignment with General Warranty in the form attached hereto as
Exhibit A, conveying the facilities and related rights described therein (the
"Conveyed Facilities and Related Rights") to the City. The parties acknowledge
that the City's administrative review of CCLC's reimbursement claim is ongoing.
If as a result of this process, the City determines that additional amounts
are eligible for reimbursement for the Conveyed Facilities, then the City may
pay such additional amounts, with interest as set forth above, to CCLC under
this Agreement. Such additional amounts shall be included as part of the
amount paid under this Section of the Agreement for all purposes and shall be
allocated to the Conveyed Facilities in a revised Attachment A-1 to the Deed,
Bill of Sale and Assignment with General Warranty referenced above.
2. Recission of Transaction. In the event that the City's annexation
or dissolution of the Circle C MUDs is reversed or otherwise legally rescinded,
whether by legislative action, final action of an appellate court of last
resort or other legal process (a "Recission Event"), the transaction provided
for in this agreement shall be rescinded and both parties shall be restored to
the positions they were in prior to this agreement. In the event a Recission
Event occurs and results in the recission of the transaction as provided in the
prior sentence, then the following shall occur:
(i) CCLC Repays City. Within sixty (60) days from the occurrence
of a Recission Event, and simultaneously with and in exchange for the
City fulfilling its obligations under (ii) below, CCLC shall pay to the
City, in cash or cash equivalent funds, all amounts paid by the City
to Circle C pursuant to Section 1, above.
AND
(ii) City Reconveys Facilities to CCLC. Within sixty (60) days
after the occurrence of a Recission Event, and simultaneously with and in
exchange for CCLC fulfilling its obligations under (i) above, the
City shall convey back to CCLC the Conveyed Facilities and
Related Rights by execution and delivery of a Deed, Bill of Sale and
Assignment with General Warranty Deed, in the form attached
hereto as Exhibit B, subject to the provisions of Section 5 below.
3. Security for CCLC's Repayment Obligation. CCLC's obligation to
repay the City upon the occurrence of a Recission Event and recission of this
transaction, as provided in Section 2, above, shall be secured by one of the
following three forms of security:
(i) First Lien Deed of Trust on 536.699 Acre Tract. CCLC shall
execute and deliver to the City of Austin for recording a first lien
deed of trust, in the form attached hereto as Exhibit C, encumbering
that certain 536.699 acre tract of land, generally located on the
southeast corner of State Highway 45 and FM 1826, more
specifically described in the legal description attached to Exhibit C
(the "First Lien Land Security");
OR
(ii) Letter of Credit. CCLC shall provide an irrevocable Letter
of Credit to the City in the form attached as Exhibit D (the "Letter of
Credit Security");
OR
(iii) Surety Bond. CCLC shall provide a Surety Bond in favor of
the City, providing the same payment terms and conditions for payment
as provided in the form Letter of Credit attached as Exhibit D (the
"Surety Bond Security").
CCLC shall, at its option, elect one of the three forms of security required
above to secure its repayment obligation. Both parties understand that upon
execution of this agreement, CCLC shall elect to provide the First Lien Land
Security. So long as CCLC is obligated under this Section to maintain
security for its repayment obligation, upon ten (10) days advance written notice
to the City, CCLC shall have the option to substitute one of the three alternate
forms of security. As long as there is litigation pending wherein it is
alleged that the City's annexation or dissolution of the Districts is invalid
or illegal for any reason, CCLC shall take all action necessary to assure that
the required security is continuously in place, with no gap in time, including,
without limitation, actions necessary to extend or substitute letters of credit
or surety bonds prior to their expiration or maturity. If a Recission Event
occurs resulting in recission of this transaction, and CCLC fulfills its
repayment obligation as provided in Section 2, above, the City shall
cooperate in the release of the security.
4. Maintenance of Condition and Capacity of Conveyed Facilities and
Related Rights. In the event a Recission Event occurs resulting in recission
of this transaction, the City is required to convey back to CCLC the Conveyed
Facilities and Related Rights, as provided above. In order to assure that the
City will be in a position to fulfill this obligation, the City agrees that it
will maintain and operate the Conveyed Facilities in a prudent manner and with
the same degree of care as it operates the balance of the City's utility
facilities.
5. City's Retention of Facilities. In the event a Recission Event
occurs and the City has permitted any connection into, or use of, any of
the Conveyed Facilities to provide water or wastewater service to any land
which is not located within the boundaries of the former Circle C Municipal
Utility District Nos. 1, 2, 3 and 4, without CCLC's express written consent,
then as to those specific Conveyed Facilities (referred to as "City's
Retained Facilities") (i) the City shall retain ownership of the City's
Retained Facilities and Related Rights; (ii) CCLC shall not be obligated to
repay the "Eligible Amount" allocated to the City's Retained Facilities as
shown on Exhibit A-1 to the Deed, Bill of Sale and Assignment with General
Warranty referenced in Paragraph 1 above; (iii) the security CCLC provided
pursuant to Section 3, above, shall be promptly released as to the
"Eligible Amount" allocated to the City's Retained Facilities as shown
on Exhibit A-1 to the Deed, Bill of Sale and Assignment with General Warranty
referenced in Paragraph 1 above; and (iv) the City shall pay to CCLC any
additional amount for the City's Retained Facilities and Related Rights
ordered to be paid in the Reimbursement Claim Lawsuit, provided that CCLC
will not seek or be entitled to recover against the City any penalties or
interest under Texas Local Government Code 43.0715, as amended. If, in
the event of a Recission Event, the City wishes to retain additional of
the Conveyed Facilities (to which the City has not permitted connection into
or use to provide water or wastewater service to any land not located
within the boundaries of the former Districts), then the parties agree to
negotiate in good faith to reach an agreement for the City to retain those
additional Conveyed Facilities and to execute all documents evidencing
such agreement.
6. CCLC's Access to Utility Capacity. The City agrees to provide
CCLC access to water and wastewater capacity in the Conveyed Facilities for
development of its property at Circle C on a first-come, first-serve basis
and subject to the same engineering specifications and other technical criteria,
and applicable fees that are imposed on other City water and wastewater
customers. In the event the City provides water and wastewater service to any
land which is not located within the boundaries of the former Circle C
Municipal Utility Districts Nos. 1, 2, 3 and 4, without CCLC's express written
consent, as described in paragraph 5, above, then the City agrees that CCLC,
or any successor to CCLC's interest in land within Circle C, shall be entitled
to utilize any available utility capacity in the City's Retained Facilities on
a first-come, first-serve basis and subject to the same engineering
specifications and other technical criteria, and applicable fees that are
imposed on other City water and wastewater customers. In the event that
the available capacity in the City's Retained Facilities is insufficient
to provide adequate water or wastewater service for development of CCLC's
land within Circle C as a result of the City using the City's Retained
Facilities to provide service to land outside the former Circle C MUDs,
then the City agrees that CCLC shall be entitled to construct at CCLC's
cost water and wastewater facilities to provide adequate capacity to develop
CCLC's land at Circle C and the City shall approve the construction of
such facilities provided the City's engineering specifications and other
technical criteria for such infrastructure facilities are satisfied.
7. City's Waiver and Retention of Claims. While this agreement is in
effect, the City agrees to waive its argument in the Reimbursement Claim Lawsuit
that the sum the City paid CCLC pursuant to Section 1, above, was not due and
payable to CCLC under the applicable agreements and law for the reason that
the Circle C MUDs did not each have sufficient tax base at the date of
annexation. The City expressly reserves the right to assert this position as
to any other developer claimant, including Phoenix, and as to any other amount
that CCLC claims is due on its reimbursement claim. In the event this
transaction is rescinded, the City's waiver of claim provided for in this
paragraph shall be fully revoked and the claim restored. The City reserves
all of its rights and defenses to oppose any claim by CCLC for additional
amounts (in excess of the amounts paid under Section 1 of this agreement) as
reimbursement for the facilities, including penalties and interest asserted to
be due on such amounts,and reserves its counterclaims to offset and declaratory
judgment as to such amounts, which rights, defenses and counterclaims are or
may become the subject of the pending Reimbursement Claim Lawsuit. Except for
the specific waiver provided above, the City expressly reserves the right to
assert or pursue any claims, counterclaims, offsets or defenses that are or
may become the subject of the pending Reimbursement Claim Lawsuit.
8. CCLC's Waiver and Retention of Claims. While this agreement is in
effect, CCLC agrees to waive its argument in the Reimbursement Claim Lawsuit
that any penalty or additional interest is due on the amounts paid under
Section 1 of this agreement, whether under the May 1999 amendments to Texas
Local Gov't Code 43.0715 or any other law or agreement. Except for the
specific waiver provided in the prior sentence, CCLC expressly reserves the
right to claim additional amounts are owed as reimbursement for the
Improvements and to claim penalties and interest on such additional amounts,
and to assert or pursue any other claims that are or may become the subject
of the pending Reimbursement Claim Lawsuit. In the event this transaction is
rescinded, CCLC's waiver of claim provided for in this paragraph shall be
fully revoked and the claim restored.
9. CCLC's Indemnity. CCLC agrees to indemnify, defend and hold
harmless the City of and from any and all claims, demands or causes of action
brought by third parties, including, but not limited to, Phoenix Holdings, Ltd.,
asserting any right, claim or interest in the Improvements or any right to any
portion of the amount paid hereunder to CCLC or any right to reimbursement
for construction of the Improvements whether under the Consent Agreements,
the Utility Construction Agreements, the TNRCC rules or applicable law. This
indemnity includes all costs of defense incurred by the City in connection with
any such claim or cause of action, regardless of whether the claim is colorable,
frivolous, or without merit, and the City may tender any such claim, demand or
cause of action to CCLC upon receipt for defense and resolution at CCLC's
sole expense.
10. Except as expressly set forth herein, no party is making any
admission of liability or waiving any claim or defense in the pending
Reimbursement Claim Lawsuit.
EXECUTED by the parties and effective on the date set forth above.
CIRCLE C LAND CORP., THE CITY OF AUSTIN, TEXAS, a
a Texas corporation Texas municipal corporation
By:/s/ William H. Armstrong III By:/s/ Jesus Garza
---------------------------- -----------------------
William H. Armstrong, III Jesus Garza
President City Manager
Attached and Incorporated Exhibits:
A: CCLC to City: Deed, Bill of Sale and Assignment with General Warranty
(with Attachment A-1: Description of Facilities)
B: Reconveyance - City to CCLC: Deed, Bill of Sale and Assignment With
General Warranty (with Attachment A-1:
Description of Facilities)
C: First Lien Deed of Trust (with Attachment A-1:
Description of 536.699 Acres)
D: Letter of Credit Form
Exhibit 15.1
November 3, 1999
Stratus Properties Inc.
98 San Jacinto Blvd.
Austin, TX 78701
Gentlemen:
We are aware that Stratus Properties Inc. has incorporated by reference
in its Registration Statements (File Nos. 33-78798, 333-31059 and 333-
52995) its Form 10-Q for the quarter ended September 30, 1999, which
includes our report dated October 20, 1999 (except with respect to Note
7, as to which the date is November 3, 1999) covering the unaudited
interim financial information contained therein. Pursuant to Regulation
C of the Securities Act of 1933 (the Act), this report is not
considered a part of the registration statements prepared or certified
by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Stratus
Properties Inc.'s financial statements at September 30, 1999 and the nine months
then ended, and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000885508
<NAME> STRATUS PROPERTIES INC.
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