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 March 31, 2000
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
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 March 31, 2000, 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
Report of Independent Public Accountants 9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
Part II. Other Information 14
Signature 16
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)
March 31, December 31,
2000 1999
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents,including
restricted cash of $2.6 million and
$2.1 million, respectively, (Note 4) $ 3,333 $ 3,964
Accounts receivable:
Property sales 15 149
Other 1,427 1,160
Prepaid expenses 345 375
--------- ---------
Total current assets 5,120 5,648
Real estate and facilities, net 89,120 91,664
Investment in and advances to
unconsolidated affiliates 8,547 7,254
Other assets 8,963 11,106
--------- ---------
Total assets $ 111,750 $ 115,672
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 445 $ 900
Accrued interest, property taxes and other 590 1,537
--------- ---------
Total current liabilities 1,035 2,437
Long-term debt 16,828 16,562
Other liabilities 9,769 19,833
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 74,118 66,840
--------- ---------
Total liabilities and stockholders' equity $ 111,750 $ 115,672
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 3
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENT OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
---------------------
(In Thousands, Except
Per Share Amounts)
<S> <C> <C>
Revenues $ 2,060 $ 1,586
Costs and expenses:
Cost of sales 1,601 1,070
General and administrative expenses 981 734
-------- -------
Total costs and expenses 2,582 1,804
Operating loss (522) (218)
Interest expense (193) (269)
Other income (loss), net 7,805 (29)
-------- -------
Income (loss) before income taxes
and equity in affiliates 7,090 (516)
Income tax provision (40) (14)
Equity in unconsolidated affiliates'
income 228 51
-------- -------
Net income (loss) $ 7,278 $ (479)
======== =======
Net income (loss) per share
Basic $0.51 $(0.03)
===== ======
Diluted $0.44 $(0.03)
===== ======
Average shares outstanding
Basic 14,288 14,288
====== ======
Diluted 16,635 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)
Three Months Ended
March 31,
------------------
2000 1999
------- --------
(In Thousands)
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 7,278 $ (479)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 24 21
Cost of real estate sold 300 1,003
Recognition of deferred Circle C municipal
utility reimbursements (7,430) -
Equity in unconsolidated affiliates income (228) (51)
Long term receivable and other 567 (85)
(Increase) decrease in working capital:
Accounts receivable and other 888 (41)
Accounts payable and accrued liabilities (1,322) (1,222)
------- -------
Net cash provided by (used in) operating activities 77 (854)
------- -------
Cash flow from investing activities:
Real estate and facilities (893) (1,366)
------- -------
Net cash used in investing activities (893) (1,366)
------- -------
Cash flow from financing activities:
Proceeds from credit facility, net 185 2,000
------- -------
Net cash provided by financing activities 185 2,000
------- -------
Net decrease in cash and cash equivalents (631) (220)
Cash and cash equivalents at beginning of year 3,964 5,169
------- -------
Cash and cash equivalents at end of period $ 3,333 $ 4,949
======= =======
</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 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.'s (Stratus) first-quarter 2000
diluted net income per share includes the following:
. Dilutive options representing 254,000 shares of
Stratus' common stock.
. The assumed redemption of 1,712,000 shares of Stratus'
preferred stock for 1,712,000 shares of its common
stock.
. The assumed redemption of Stratus' $2.8 million of
outstanding convertible debt at March 31, 2000 for
381,000 shares of its common stock.
Stratus' first-quarter 1999 diluted net loss per share
excluded the following because of their anti-dilutive effect on
the loss incurred during the period:
. Dilutive options representing 191,000 shares of
Stratus' common stock.
. The assumed redemption of 1,712,000 shares of Stratus'
preferred stock for 1,712,000 shares of its common
stock.
. The assumed redemption of Stratus' $2.1 million of
outstanding convertible debt at March 31, 1999 for
290,000 shares of its common stock.
Interest accrued on the convertible debt outstanding totaled
approximately $81,000 for the first quarter of 2000 and $62,000
for the first quarter of 1999. There have been no dividends
accrued on Stratus' mandatorily redeemable preferred stock as of
March 31, 2000.
Outstanding options to purchase approximately 515,000 shares
of common stock, at an average exercise price of $5.37 during the
first quarter of 2000, and 476,000 shares of common stock, at an
average exercise price of $5.29 during the first quarter of 1999,
were not included in the computation of diluted income (loss) per
share. These options were excluded because their exercise prices
were greater than the average market price for the respective
periods presented.
2. OLYMPUS RELATIONSHIP and INVESTMENT IN UNCONSOLIDATED AFFILIATES
In May 1998, Stratus and Olympus Real Estate Corporation
(Olympus), an affiliate of Hicks, Muse, Tate & Furst
Incorporated, formed a strategic alliance to develop certain of
Stratus' 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 Stratus'
mandatorily redeemable preferred stock, provided a $10 million
convertible debt financing facility to Stratus and agreed to make
available up to $50 million of additional capital representing
its share of direct investments in joint Stratus/Olympus
projects. As of March 31, 2000, Stratus had outstanding
borrowings of $2.8 million on the convertible debt facility and
Olympus had invested approximately $13.4 million in joint
Stratus/Olympus projects, as further discussed below.
Stratus has investments in three joint ventures. Stratus
owns a 49.9 percent interest in each joint venture and Olympus
owns the remaining 50.1 percent interest. Accordingly, Stratus
accounts for its investments in the joint ventures utilizing the
equity method of accounting. Stratus develops and manages each
project undertaken by these joint ventures and receives
development fees, sales commissions, and other management fees
for its services.
Stratus' three joint ventures are: the Oly Stratus Barton
Creek I Joint Venture (Barton Creek Joint Venture), the Oly
Walden General Partnership (Walden Partnership) and the Stratus
7000 West Joint Venture (7000 West). The Barton Creek Joint
Venture currently consists of two separate subdivisions located
in southwest Austin, Texas: "Wimberly Lane" and "Escala Drive."
At March 31, 2000 there were 21 remaining single-family homesites
at the Wimberly Lane subdivision and there were 49 remaining
single-family homesites at the Escala Drive subdivision, some of
which are still being developed. The Walden Partnership had
<PAGE> 6
approximately 570 single-family homesites available at the Walden
on Lake Houston development in Houston, Texas at March 31, 2000.
The 7000 West Joint Venture has completed and leased the first
of two 70,000 square foot office buildings and construction of
the second office building is proceeding as scheduled. During
the first quarter of 2000, Stratus finalized a previous sale of
5.5 acres of commercial real estate to the 7000 West Joint
Venture. Stratus will recognize an approximate gain of $0.5
million associated with this sale, representing Olympus' 50.1
percent joint venture interest, when the second 70,000 square
foot office building is fully constructed and leased.
For a detailed discussion of the Olympus alliance and the
initial formation and subsequent transactions of the joint
ventures and partnership see Notes 2, 3 and 4 of the "Notes To
Financial Statements" included in Stratus' 1999 Annual Report and
Form 10-K. Also refer to "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 Stratus' 1999 Annual Report and Form
10-K.
The Barton Creek Joint Venture distributed approximately
$2.0 million to the partners during the first quarter of 2000
($2.4 million from inception through March 31, 2000). Stratus
recorded its portion of the distribution, $1.0 million, as a
reduction of its note receivable and related accrued interest
relating to its initial sale of land to the joint venture. The
other joint ventures have yet to make any distributions. The
summarized unaudited financial information of Stratus'
unconsolidated affiliates is shown below (in thousands):
<TABLE>
<CAPTION>
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Earnings data for the three
months ended March 31, 2000:
Revenues $ 3,249 $ 449 $ 170 $ 3,868
Operating income (loss) 913 (218) (349) 346
Net income (loss) 977 (192) (345) 440
Stratus' equity in net
income (loss) 488 (88)a (172) 228a
Earnings data for the three
months ended March 31, 1999:
Revenues $ 774 $ 390 $ - $ 1,164
Operating income (loss) 248 (133) - 115
Net income (loss) 248 (146) - 102
STRS' equity in net
income (loss) 124 (73) - 51
</TABLE>
a. Includes recognition of $8,000 of deferred income,
representing the difference in Stratus' investment in the
Walden Partnership and its underlying equity at the date of
acquisition. Stratus will recognize the remaining difference
as the related real estate is sold. Through March 31, 2000,
Stratus has recognized $52,000 of a total of $337,000 of
deferred income associated with the Walden Partnership.
3. COMMITMENTS and CONTINGENCIES
In late October 1999, Circle C Land Corp. (Circle C), a wholly
owned subsidiary of Stratus, and the City of Austin (the City)
reached an agreement regarding a portion of Circle C's claims
against the City involving the reimbursement of certain
previously incurred water, wastewater and drainage infrastructure
expenditures following the City's December 1997 annexation of all
land lying within the Circle C cmuunniittyy.. AAss aa result of tis
agreement, Stratus received approximaatteely $9.8 million, including
$1.0 million in interest, representing a partial payment of these
claims. Stratus has collected a total of $10.5 million of
reimbursements from the City as of March 31, 2000. Stratus will
continue to pursue vigorously its approximate $9.0 million,
exclusive of penalties and interest, of remaining claims against
the City. Stratus used the proceeds to reduce its outstanding
debt.
The partial payment settlement agreement included a
contingency provision requiring Stratus to return all reimbursed
money to the City and the City to return the related utility
infrastructure to Stratus if the City's annexation of the Circle
C municipal utility districts (MUD) was reversed or otherwise
rescinded, whether by legislative action, final action of the
appellate court, or other legal process. In March 2000, the City
approved a
<PAGE> 7
settlement agreement of all disputes between the City
and certain third party real estate developers and landowners
involved in the Circle C community. Under terms of this
settlement, the lawsuits contesting the City's December 1997
annexation of all land within the four Circle C MUDs and the
dissolution of the four MUDs have been dismissed with prejudice.
As a result, the refund contingency included in the City's
partial settlement of Stratus' reimbursement claim has been
eliminated. Stratus has recorded a gain of approximately $7.4
million in the first quarter of 2000, representing that portion
of the reimbursed infrastructure expenditures in excess of
Stratus' remaining basis in these assets and related interest
income. The remaining $3.1 million of the proceeds reduced
Stratus' investment in Circle C.
4. RESTRICTED CASH
Stratus has a requirement under its existing credit facility to
deposit funds into an interest reserve account with the lending
bank, Comerica. The amount in this account must be sufficient to
carry Stratus' debt service for both its term loan and revolving
line of credit for the ensuing twelve-month period, adjusted
quarterly. Stratus had deposits totaling $1.3 million in the
interest reserve account at March 31, 2000. For additional
discussion of Stratus' credit facility and its interest reserve
requirements see Note 5 of the "Notes To Financial Statements"
included in its 1999 Annual Report and Form 10-K.
At March 31, 2000, Stratus had additional restricted
cash deposits totaling $1.3 million related to additional
collateral associated with the Walden Partnership's project
development loan. This deposit is reduced by $0.30 for every
$1.00 in principal the Walden Partnership repays on the loan. For
additional discussion of the Walden Partnership project
development loan see Item 2. "Management Discussion and Analysis
of Financial Condition and Results of Operations" included
elsewhere in this Form 10-Q and Note 4 of the "Notes To Financial
Statements" included in Stratus' 1999 Annual Report and Form 10-K.
5. LITIGATION
Stratus is involved in pending litigation involving the City and
others, which may affect its property development entitlements
and its ability to secure its remaining reimbursements from the
City of approximately $9.0 million, exclusive of penalties and
interest, relating to development of its Circle C property. Refer
to Item 3 "Legal Proceedings" and Note 6 "Real Estate" in the
Stratus' 1999 Annual Report and Form 10-K for a detailed
discussion of such litigation matters. For discussion of
litigation events subsequent to the Form 10-K refer to Part II -
Other Information, "Legal Proceedings" included elsewhere in this
Form 10-Q.
--------------------
Remarks
The information furnished herein should be read in conjunction
with Stratus' financial statements contained in its 1999 Annual
Report and Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature
<PAGE> 8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Stratus Properties Inc.:
We have reviewed the accompanying condensed balance sheet of
Stratus Properties Inc. (a Delaware corporation), as of March 31,
2000, the related statements of operations and cash flow for the
three month periods ended March 31, 2000 and 1999. 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 auditing standards generally
accepted in the United States, 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 accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
Stratus Properties Inc. as of December 31, 1999, 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, 2000, 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, 1999, 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
May 1, 2000
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
We are engaged in the acquisition, development, management
and sale of commercial and residential real estate. We conduct
real estate operations on properties we own and through
unconsolidated affiliates we jointly own with Olympus Real
Estate Corporation (Olympus) pursuant to a strategic alliance
formed in May 1998 (see Note 2).
Our principal real estate holdings are in the Austin, Texas
area and consist of approximately 2,300 acres of undeveloped
residential, multi-family and commercial property located in
southwest Austin within the Barton Creek community and 500 acres
of undeveloped residential, multi-family and commercial property
known as the Lantana tract, south of and adjacent to the Barton
Creek community. Our remaining Austin acreage consists of about
1,300 acres of undeveloped commercial and multi-family property
within the Circle C Ranch development, also located in southwest
Austin.
As of March 31, 2000, we also own nine developed lots, 120
acres of undeveloped residential property and 33 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.
<PAGE> 9
DEVELOPMENT ACTIVITIES
Stratus Properties
Development is progressing at several sections of the Barton
Creek community, including the completion of utility
infrastructure that will serve a significant portion of the 2,300
acres of undeveloped property at Barton Creek, and preliminary
development of approximately 200 new single-family homesites in
the vicinity of the new Tom Fazio-designed "Fazio Canyons" golf
course, which was completed in September 1999. We expect that a
number of these homesites will be available for sale by late
2000.
In April 2000, we received final subdivision plat approval
from the City of Austin (the City) to develop approximately 160
acres of commercial and multi-family real estate within the
Lantana community. Development activities at this commercial
development, which we anticipate will include office, retail and
multi-family sites, are expected to commence during the second
quarter of 2000.
Unconsolidated Affiliates
We have investments in three joint ventures in which we own
a 49.9 percent interest and Olympus owns the remaining 50.1
percent interest. Accordingly, we account for our investments in
the joint ventures utilizing the equity method of accounting. We
develop and manage each project undertaken by these joint
ventures and receive development fees, sales commissions, and
other management fees for our services. See Note 2 included
elsewhere in this Form 10-Q for the summarized unaudited results
of operations of our unconsolidated affiliates' for the first
quarters of 2000 and 1999.
Barton Creek Joint Venture
- --------------------------
The Oly Stratus Barton Creek I Joint Venture (Barton Creek
Joint Venture) currently consists of two separate subdivisions:
"Wimberly Lane" and "Escala Drive." The Wimberly Lane
subdivision, in which we completed construction of 75 developed
residential lots during the first quarter of 1999, had 21 of
these developed lots remaining at March 31, 2000. We sold 12 of
the Wimberly Lane lots during the first quarter of 2000, which
represented $1.3 million of the Barton Creek Joint Venture's
revenues for the period. In the first quarter of 1999, we sold
eight of the Wimberly Lane developed residential lots for $0.8
million, which represented all of Barton Creek Joint Venture's
revenues for that period. The Escala Drive subdivision, which we
are currently developing, will consist of 54 multi-acre
residential lots when completed. These residential lots will be
the largest developed to date within the Barton Creek community.
Construction of the final of these 54 planned lots is
anticipated to be completed by mid-2000. We sold the initial
five Escala Drive residential lots in the first quarter of 2000
which contributed $2.1 million to the Barton Creek Joint
Venture's revenues. The Barton Creek Joint Venture distributed
approximately $2.0 million to the partners in the first quarter
of 2000. We recorded our share of the distribution, $1.0 million,
as a reduction of our notes receivable and related accrued
interest relating to the initial sale of land to the joint
venture.
Walden Partnership
- ------------------
The Walden Partnership is currently marketing single-family
homesites at the Walden on Lake Houston development in Houston,
Texas. During the three months ended March 31, 2000, the
Partnership sold 17 single-family homesites compared with eight
single-family homesites during the comparable period last year.
At March 31, 2000, the Walden Partnership's outstanding
borrowings totaled $3.5 million on its project development loan
facility. In September 1998, we deposited $2.5 million of
restricted cash with the bank as additional collateral for the
related project development loan facility. However, for every
$1.00 of facility's principal that is repaid by the Partnership,
the bank allows for a $0.30 reduction of our restricted amount.
Accordingly, we had a total of $1.3 million deposited within the
bank's restricted account at March 31, 2000 and $1.5 million at
December 31, 1999.
7000 West
- ---------
The first 70,000 square foot office building at the 140,000
square foot Lantana Corporate Center, which is commonly referred
to as 7000 West, is fully leased and occupied. During the first
quarter of 2000, we completed a transaction admitting Olympus as
our joint venture partner in the second 70,000 square foot office
building at 7000 West. In this transaction, we finalized the
second phase of a prior sale of 5.5 acres of commercial real
estate to the joint venture. In early April 2000, we received
approximately $0.5 million, which we used to repay outstanding
borrowings on our term loan (see Note 5 of "Notes To Financial
Statements"
<PAGE> 10
included in our 1999 Annual Report and Form 10-K).
Revenues from this sale of $1.1 million and the related gain of
approximately $0.9 million have been deferred until the
completion of construction and leasing of the second building,
which is anticipated to occur by the third quarter of 2000. At
that time we anticipate recognizing Olympus' 50.1 percent of the
sale and related gain of $0.5 million. In our role as manager,
we arranged for a $6.6 million project loan facility for 7000
West, which was utilized to construct the first office building.
The construction of the second building required additional
financing, which was provided when we arranged for an additional
$7.7 million of availability on the 7000 West development loan
facility in the first quarter of 2000. Outstanding borrowings
under 7000 West's project loan facility totaled $6.3 million at
March 31, 2000.
RESULTS OF OPERATIONS
Summary operating results follow (in thousands):
<TABLE>
<CAPTION>
First Quarter
-----------------
2000 1999
------- -------
<S> <C> <C>
Revenues:
Undeveloped properties:
Recognition of deferred revenues $ 811 $ 155
Developed properties 350 1,152
Commissions, management fees and other 899 279
------- -------
Total revenues 2,060 1,586
Operating loss (522) (218)
Net income (loss) 7,278 (479)
</TABLE>
Operating Results
- -----------------
During the first quarters of 2000 and 1999 our
undeveloped property revenues consisted solely of the recognition
of previously deferred revenues from the sale of undeveloped real
estate to unconsolidated affiliates. When we sell real estate to
an entity we jointly own with Olympus, we defer recognizing the
portion of revenues from the sale related to our interest until
all or a portion of the real estate is ultimately sold to
unrelated parties. Our recognition of deferred revenues resulted
from the Barton Creek Joint Venture's sale of 12 Wimberly Lane
single family homesites and five Escala Drive homesites during
the first quarter of 2000 compared with sales of eight Wimberly
Lane homesites during the first quarter of 1999. The remaining
$5.4 million of deferred revenues, which originally totaled $7.1
million and resulted from our retained interest in the sales of
28 acres and 174 acres of undeveloped residential real estate in
the Wimberly Lane and Escala Drive subdivisions, respectively, to
the Barton Creek Joint Venture, will be recognized as this
acreage is developed and sold by the Barton Creek Joint Venture.
Revenues from developed properties represented the sale of
15 single-family homesites during the first quarter of 2000 and
21 single-family homesites for the first quarter of 1999. We
have no remaining developed lots in our Austin or Dallas
developments andd oonly nine remaining developed lots in our
Houston and San Antonio developments. Lots available for sale by
our unconsolidated affiliates are not included in these amounts
(see "Unconsolidated Affiliates" aboe).
Commissions, management fees and other revenue totaled $0.8
million for the first quarter of 2000 compared to $0.3 million
for the first quarter of 1999. This increase primarily reflects
the increase in sales commissions on properties we sold for the
Barton Creek Joint Venture during the first quarter of 2000
compared with the same period last year.
Cost of sales increased to $1.6 million for the first
quarter of 2000 compared with $1.1 million for the first quarter
of 1999. The increase primarily reflects a reimbursement of
certain infrastructure costs previously charged to expense or
relating to properties previously sold, which reduced cost of
sales by $0.8 million during the first quarter of 1999.
<PAGE> 11
General and administrative expenses increased to $1.0
million in the first quarter of 2000 from $0.7 million during the
first quarter of 1999. The increase primarily reflects increased
personnel costs offset in part by a decrease in legal expenses.
Legal expense has decreased to $0.1 million for the first quarter
of 2000 from $0.2 million for the first quarter of 1999. The
decrease in legal expense reflects reduced activities associated
with the anticipated ruling from the Texas Supreme Court related
to a hearing presented in December 1998, that may resolve various
issues between the City and us.
During 1995, the Texas State legislature enacted legislation
that enabled us 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
us for costs related to the installation of major utility,
drainage and water quality infrastructure. During the first
quarter of 2000, we received the second of three $1.0 million
payments from the City as reimbursement for the costs associated
with the construction of the Lantana Pump Station. We used the
proceeds from this reimbursement to reduce our outstanding
borrowings under our term loan. During the first quarter of
1999, we received approximately $1.1 million in partial
reimbursement of infrastructure costs relating to the Barton
Creek development, which included $0.8 million related to costs
previously expensed (see discussion above). We expect to receive
additional reimbursements in the future for infrastructure costs
related to the Barton Creek development from the proceeds of MUD
bonds issued. 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 "Non-Operating Results" below and Part II, Item 1, "Legal
Proceedings."
Non-Operating Results
- ---------------------
Interest expense totaled $193,000 during the first quarter
of 2000 and $269,000 for the first quarter of 1999. The decrease
reflects an increase in capitalized interest, which totaled
$346,000 during the first quarter of 2000 and $253,000 during the
first quarter of 1999.
In March 2000, the City approved a settlement agreement of
all disputes between the City and other Austin-area real estate
developers and landowners concerning the Circle C community.
Under terms of this settlement, the lawsuits contesting the
City's December 1997 annexation of all land within the four
Circle C MUDs and the dissolution of the four MUDs have been
dismissed with prejudice. Accordingly, the City's partial
payments of our reimbursement claim, currently totaling $10.5
million, are no longer subject to a repayment contingency and we
have recorded approximately $7.4 million of these previously
deferred proceeds in other income. This amount represents that
portion of the reimbursed infrastructure expenditures in excess
of our remaining basis in these assets as well as related
interest income on the reimbursements. The remaining $3.1 million
was recorded as a reduction of our investment in Circle C. We
are continuing to pursue vigorously our remaining $9.0 million claim,
exclusive of penalties and interest, against the City,
however no amounts have been recorded for these claims as of
March 31, 2000.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by operating activities totaled $0.1
million during the first quarter of 2000 compared with a use of
$0.9 million during the first quarter of 1999. The increase
primarily reflects a distribution received from the Barton Creek
Joint Venture, which was recorded as a reduction of our related
notes receivable. Cash used in investing activities totaled $0.9
million during the first quarter of 2000 compared with $1.4
million during the same period in 1999, reflecting our net real
estate and facilities expenditures. The decrease in our real
estate and facilities costs reflect the construction costs of the
first 70,000 square foot office building at 7000 West being
included in our consolidated results until the formation of the
7000 West Joint Venture in August 1999. Financing activities
provided cash of $0.2 million during the first quarter of 2000
and $2.0 million during the first quarter of 1999 reflecting
borrowings on the respective lines of credit available at the
time.
At March 31, 2000, we had debt of $16.8 million compared to
debt of $31.2 million at March 31, 1999. Our outstanding debt at
March 31, 2000 included $12.5 million outstanding on our term
loan, $1.5 million of borrowings under our $10 million revolver,
both of which mature in December 2002, and $2.8 million of
borrowings under our $10 million convertible debt facility with
Olympus (see Note 2), which matures in May 2004. Our revolving
line of credit's availability has been reduced by $0.9 million at
March 31, 2000 in order to make up the shortfall in an interest
reserve account. The balance of funds we deposited into this
restricted interest reserve account totaled $1.3 million at March
31, 2000. We anticipate fully funding the interest reserve
<PAGE> 12
account during the second quarter making the entire $10 million
revolving line of credit available. For a complete discussion of
our bank facility see Note 5 included in the "Notes To Financial
Statements" included in our 1999 Annual Report and Form 10-K.
Our future operating cash flows and, ultimately, our ability
to develop our properties and expand our business will be largely
dependent on the level of our real estate sales. In turn, these
sales will be significantly affected by future real estate
values, regulatory issues, development costs, interest rate
levels and our ability to continue to protect our land use and
development entitlements. Significant development expenditures
remain to be incurred for our Austin-area properties prior to
their eventual sale. Our capital expenditures during the
remainder of 2000 will be limited to essential levels as we work
to preserve our land use and related rights in various disputes
with the City and others, as more fully explained in Part II Item
1, "Legal Proceedings." Resolving our entitlement and
reimbursement issues with the City remains our primary near-term
objective. The timing of our future capital expenditures could
be accelerated if disputes over our land use and related rights
were to be satisfactorily resolved.
We are continuing to actively pursue additional development
and management fee opportunities, both individually and through
our existing relationships with Olympus and other institutional
capital sources. We continue to be able to obtain capital from
Olympus for the development of existing properties in which we
desire third-party equity participation, and also believe we can
obtain bank financing at a reasonable cost for developing our
properties. However, obtaining land acquisition financing is
generally expensive and uncertain.
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, the anticipated outcome of
litigation and regulatory matters, the expected results of our
business strategy and other plans and objectives of management
for future operations and activities. Important factors that
could cause actual results to differ materially from our
expectations include economic and business conditions, business
opportunities that may be presented to and pursued by us, changes
in laws or regulations and other factors, many of which are
beyond our control and other factors that are described in more
detail under the heading "Cautionary Statements" in our Annual
Report and Form 10-K for the year ended December 31, 1999.
----------------------------
The results of operations reported and summarized above are not
necessarily indicative of future operating results.
<PAGE> 13
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
We are involved in various regulatory matters and litigation
involving entitlement and/or development of our Austin-area
properties. For a detailed discussion on these matters see Item
3, "Legal Proceedings" and Note 6, "Real Estate" included in our
1999 Annual Report and Form 10-K. Below is a summary of the
cases in which we are currently involved.
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 (WQPZs) 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
join in the defense of the legislation. 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. Oral argument was presented to the Texas Supreme Court on
December 9, 1998. A ruling is expected in the near future.
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 Stratus, filed
a WQPZ (Circle C WQPZ) covering a portion of the Circle C
development, consisting of 554 acres located outside the
boundaries of any municipal utility district. In November 1997,
Stratus sought a declaratory judgment in the Hays County District
Court to confirm the validity of the Circle C WQPZ.
On September 4, 1998, the Hays County District Court ruled
that the WQPZ enabling legislation was constitutional and that
the Circle C WQPZ was validly created. The City has appealed the
Hays County District Court's ruling to the Texas Third Court of
Appeals. 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 Texas
Supreme Court determines that the enabling legislation is
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 Stratus' WQPZ
at Circle C, are expected to be resolved in Stratus' 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, Stratus'
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 Stratus 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, Stratus sued the City. The
City paid a portion of Stratus' claim, as described below. A
trial of the balance of Stratus' claim has been set for August 1,
2000.
The City's total reimbursement obligation to the Circle C
developers, resulting from its annexation, is estimated at $22
million. On October 29, 1999, Circle C Land Corp. and the City
reached an agreement in which Stratus received $9.8 million
(including $1 million of interest) as partial payment of its MUD
reimbursement claims. On January 14, 2000, Stratus received an
additional $0.3 million from the City resulting from both parties
agreeing to the adjustment of prior engineering and accounting
estimates. Stratus has received a total of $10.5 million under
this partial payment settlement as of March 31, 2000. Under the
terms of the agreement, Stratus would be required to return the
money to the City and the City would be required to
<PAGE> 14
return the
utility infrastructure to Stratus 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.
In March 2000, the City approved a settlement agreement of
all disputes between the City and certain third party developers
and landowners involved in Circle C. Under the terms of this
settlement, the lawsuits contesting the City's December 1997
annexation of all land within the four Circle C MUDs and the
dissolution of the four MUDs have been dismissed with prejudice.
As a result, Stratus' agreement with the City is no longer
subject to recission.
During the 1999 legislative session two laws were enacted
enhancing Stratus' MUD reimbursement claim against the City, as
described in "Legislative Matters" below. These laws became
effective on September 1, 1999, and Stratus is accordingly
entitled to penalties and interest on its remaining outstanding
delinquent Circle C MUD reimbursements, which are estimated at
approximately $9.0 million, exclusive of penalties and interest.
Stratus will continue to pursue this action vigorously.
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 attempted to apply these regulations to
portions of Stratus' Circle C and Lantana properties. In
response, Stratus undertook to assert and defend its
grandfathered entitlements vigorously. In April 1999, the Texas
State House of Representatives and Senate vveerrwwhheellmingly approved
H.B. 1704, which reinstated the grandfathered rights previously
inadvertently repealed. This bill became law effective on May
11, 1999.
Three other laws were enacted during the second quarter of
1999, which are expected to have a positive impact on Stratus'
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 three laws enacted are: 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 4. Submission of Matters to a Vote of Security Holders.
(a) Our Annual Meeting of Stockholders was held May 11,
2000 (the Annual Meeting). Proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
(b) At the Annual Meeting James C. Leslie was elected to
serve until the 2003 Annual Meeting of Stockholders. In addition
to the director elected at the Annual Meeting, the terms of the
following directors continued after the Annual Meeting: Robert L.
Adair III, William H. Armstrong III, and Michael D. Madden.
(c) At the Annual Meeting, holders of Stratus' Common Stock
elected one director with the number of votes cast for or
withheld from the nominee as follows:
Name For Withheld
- --------------- ---------- ---------
James C. Leslie 13,610,839 51,912
With respect to the election of the director, there were no abstentions.
At the Annual Meeting, the stockholders also voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent auditors to audit our and our
subsidiaries' financial statements for the year 2000. Holders of
13,600,954 shares voted for, holders of 41,415 shares voted
against and holders of 20,382 shares abstained from voting on,
such proposal.
<PAGE> 15
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.
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: May 12, 2000
<PAGE> 17
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of Stratus. Incorporated by reference to Stratus'
Exhibit 3.1 to 1998 Form 10-K.
3.2 By-laws of Stratus, as amended as of February 11,
1999. Incorporated by Reference to Exhibit 3.2 to
Stratus' 1998 Form 10-K.
4.1 Stratus' Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated
by reference to Exhibit 4.1 to Stratus' 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between
Stratus and Mellon Securities Trust Company, as Rights
Agent. Incorporated by reference to Exhibit 4.2 to
Stratus' 1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of
April 21, 1997 between Stratus and the Rights Agent.
Incorporated by reference to Exhibit 4 to Stratus'
Current Report on Form 8-K dated April 21, 1997.
4.4 The loan agreement by and between Comerica Bank-
Texas and Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land Corp. and Austin 290
Properties Inc. dated December 21, 1999. Incorporated
by reference to Exhibit 4.4 to Stratus 1999 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
Stratus' 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 Stratus' 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 Stratus' 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
Stratus. Incorporated by reference to Exhibit 10.2 to
Stratus' 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 Stratus' 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 Stratus' 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 Stratus' 1992 Form 10-K.
10.5 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 Stratus'
Current Report on Form 8-K dated June 3, 1998.
10.6 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 Stratus' Current Report on Form 8-K
dated June 3, 1998.
<PAGE> E-1
10.7 Oly Stratus Barton Creek I Amended and Restated Joint
Venture Agreement between Oly ABC West I, L.P. and
Stratus ABC West I, L.P. dated December 28, 1999.
Incorporated by reference to Exhibit 10.7 to the
Stratus 1999 Form 10-K.
10.8 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 Stratus 1998 Third
Quarter 10-Q.
10.9 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 Stratus 1998 Third Quarter 10-Q.
10.10 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 Stratus 1998 Third Quarter 10-Q.
10.11 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 Stratus 1998 Third Quarter 10-Q.
10.12 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 Stratus 1998 Third
Quarter 10-Q.
10.13 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 Stratus 1998 Third Quarter 10-Q.
10.14 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 Stratus 1998 Third Quarter 10-Q.
10.15 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 Stratus 1998 Third Quarter 10-Q.
10.16 Amended and Restated Joint Venture Agreement dated
August 16, 1999 by and between Oly Lantana, L.P., and
Stratus 7000 West, Ltd. Incorporated by reference to
Exhibit 10.18 to the Quarterly Report on Form 10-Q of
Stratus for the Quarter ended September 30, 1999. ("the
Stratus 1999 Third Quarter 10-Q".)
10.17 The Reimbursement Claim Agreement dated October
29, 1999 by an between Circle C Land Corp. and the City
of Austin. Incorporated by reference to Exhibit 10.19
to the Stratus 1999 Third Quarter 10-Q.
10.18 Guaranty Agreement dated December 31, 1999 by and
between Stratus Properties Inc. and Comerica Bank-
Texas.
10.19 Guaranty Agreement dated February 24, 2000 by and
between Stratus Properties Inc. and Comerica Bank-
Texas.
Executive Compensation Plans and Arrangements (Exhibits
10.20 through 10.23)
10.20 Stratus' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to Stratus' 1998 Form 10-K.
10.21 Stratus Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.9 to Stratus'
1997 Form 10-K.
10.22 Stratus 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to
Exhibit 10.10 to Stratus' 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 Stratus' 1998 Form 10-K.
<PAGE> E-2
15.1 Letter dated May 1, 2000 from Arthur Andersen LLP
regarding the unaudited financial statements.
27.1 Financial Data Schedule.
<PAGE> E-3
Exhibit 10.18
GUARANTY
This GUARANTY ("Guaranty") is executed as of, although not necessarily on, the
31st day of December, 1999, by STRATUS PROPERTIES INC., a Delaware corporation
("Guarantor"),for the benefit of COMERICA BANK-TEXAS, a state banking
association ("Lender").
W I T N E S S E T H :
WHEREAS, Lender entered into a Construction Loan Agreement ("Loan Agreement")
dated April 9, 1999, with STRATUS 7000 WEST JOINT VENTURE, a Texas joint
venture("Borrower"), pursuant to which Borrower executed that certain Promissory
Note dated of even date therewith payable to the order of the Lender in the
original principal amount of $6,600,000.00 (together with all renewals,
modifications, increases and extensions thereof, the "Note") under which
Borrower became indebted, and may from time to time be further indebted, to
Lender with respect to a loan ("Loan") which is secured by the liens and
security interests of a deed of trust and a security agreement, each of even
date therewith, and further evidenced, secured or governed by other instruments
and documents executed in connection with the Loan (collectively the
"Loan Documents"); and
WHEREAS, Borrower, Lender and Guarantor entered into that certain Modification
Agreement as of the 16th day of August, 1999 (the "Modification Agreement")
wherein, among other things, the restructure of the Borrower was requested by
Borrower and consented to by Lender; and
WHEREAS, of even date herewith, Borrower, Lender and STRATUS OPERATING CO.,
L.P., a Delaware limited partnership (formerly Stratus Properties Operating
Co., a Delaware general partnership) (the "Operating Company"), have entered
into that certain Second Amendment to Construction Loan Agreement (the "Second
Amendment"), which provides, among other things, that certain proceeds to be
paid to Lender pursuant to the terms of that certain Assignment of Accounts
Receivable dated of even date with the Loan Agreement and executed by the
Operating Company for the benefit of Lender be released and, in lieu thereof,
Guarantor has agreed to execute and deliver to Lender, in substitution and
replacement of the limited guaranty delivered to Lender in connection with
the Loan Agreement, its unconditional and unlimited guaranty, as more fully
set forth below; and
WHEREAS, Lender would not be willing to enter into the Second Amendment unless
Guarantor unconditionally guarantees payment to Lender of the Guaranteed Debt
(as herein defined); and
WHEREAS, Guarantor is the owner of a direct and indirect interest in Borrower,
Guarantor has benefitted from Lender's making the Loan to Borrower and will
continue to benefit therefrom, and Guarantor will benefit from Lender's
entering into the Second Amendment; and
<PAGE> 1
WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit,
to Borrower unless Guarantor unconditionally guarantees payment to Lender of
the Guaranteed Debt (as herein defined); and
NOW, THEREFORE, as an inducement to Lender to enter into the Second Amendment
and to extend such additional credit under the Loan as Lender may from time
to time agree to extend, and for other good and valuable consideration, the
receipt and legal sufficiency of which are hereby acknowledged, the parties
do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
I.1 Guaranty of Obligation. Guarantor hereby irrevocably and unconditionally
guarantees to Lender and its successors and assigns the payment and performance
of the "Guaranteed Debt" (as herein defined) as and when the same shall be due
and payable, whether by lapse of time, by acceleration of maturity or otherwise.
Guarantor hereby irrevocably and unconditionally covenants and agrees that it
is liable for the Guaranteed Debt as a primary obligor.
I.2 Definition of Guaranteed Debt. As used herein, the term "Guaranteed Debt"
means all of the following:
(a) all principal, interest, attorneys' fees, commitment fees, liabilities for
costs and expenses and other indebtedness, obligations and liabilities of
Borrower to Lender at any time created or arising in connection with the Loan,
or any amendment thereto or substitution therefor, including but not limited to
the terms of the Modification Agreement and the Second Amendment and to all
indebtedness, obligations and liabilities of Borrower to Lender arising under
the Note, or under any renewals, modifications, increases and extensions of the
Note, or under the Loan Documents;
(b) all liabilities of Borrower for future advances, extensions of credit,
sales on account or other value at any time given or made by Lender to Borrower
arising under the Loan Documents, as amended, whether or not the advances,
creditor value are given pursuant to commitment;
(c) any and all other indebtedness, liabilities, obligations and duties of
every kind and character of Borrower to Lender arising under the Loan Documents,
as amended, whether now or hereafter existing or arising, regardless of whether
such present or future indebtedness, liabilities, obligations or duties be
direct or indirect, related or unrelated, liquidated or unliquidated,
primary or secondary, joint, several, or joint and several, or fixed
or contingent;
(d) any and all post-petition interest and expenses (including attorney's
fees) whether or not allowed under any bankruptcy, insolvency, or other similar
law; and
<PAGE> 2
(e) all costs, expenses and fees, including but not limited to court costs and
attorneys' fees, arising in connection with the collection of any or all
amounts, indebtedness, obligations and liabilities of Borrower to Lender
described in items (a) through (d) of this Section.
I.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing
guaranty of payment and performance and not a guaranty of collection. This
Guaranty may not be revoked by Guarantor and shall continue to be effective with
respect to any Guaranteed Debt arising or created after any attempted revocation
by Guarantor and after (if Guarantor is a natural person) Guarantor's death (in
which event this Guaranty shall be binding upon Guarantor's estate and
Guarantor's legal representatives and heirs). The fact that at any time or from
time to time the Guaranteed Debt may be increased, reduced or paid in full shall
not release, discharge or reduce the obligation of Guarantor to Lender with
respect to indebtedness or obligations of Borrower thereafter incurred (or other
Guaranteed Debt thereafter arising) under the Note or otherwise. This Guaranty
may be enforced by Lender and any subsequent holder of the Guaranteed Debt and
shall not be discharged by the assignment or negotiation of all or part of the
Guaranteed Debt.
I.4 Guaranteed Debt Not Reduced by Offset. The Guaranteed Debt and the
liabilities and obligations of Guarantor to Lender hereunder, shall not be
reduced, discharged or released because or by reason of any existing or future
offset, claim or defense of Borrower, or any other party, against Lender or
against payment of the Guaranteed Debt, whether such offset, claim or defense
arises in connection with the Guaranteed Debt (or the transactions creating the
Guaranteed Debt) or otherwise. Without limiting the foregoing or the
Guarantor's liability hereunder, to the extent that Lender advances funds or
extends credit to Borrower, and does not receive payments or benefits thereon in
the amounts and at the times required or provided by applicable agreements or
laws, Guarantor is absolutely liable to make such payments to (and confer such
benefits on) Lender, on a timely basis.
I.5 Payment by Guarantor. If all or any part of the Guaranteed Debt shall not
be punctually paid when due, whether at maturity or earlier by acceleration or
otherwise, Guarantor shall, immediately upon demand by Lender, and without
presentment, protest, notice of protest, notice of non-payment, notice of
intention to accelerate the maturity, notice of acceleration of the maturity, or
any other notice whatsoever, pay in lawful money of the United States of
America, the amount due on the Guaranteed Debt to Lender at Lender's address as
set forth herein. Such demand(s) may be made at any time coincident with or
after the time for payment of all or part of the Guaranteed Debt, and may be
made from time to time with respect to the same or different items of
Guaranteed Debt. Such demand shall be deemed made, given and received in
accordance with the notice provisions hereof.
I.6 No Duty to Pursue Others. It shall not be necessary for Lender (and
Guarantor hereby waives any rights which Guarantor may have to require Lender),
in order to enforce such payment by Guarantor, first to (i) institute suit or
exhaust its remedies against Borrower or others liable on the Guaranteed Debt or
any other person, (ii) enforce Lender's rights against any collateral which
shall ever have been given to secure the Guaranteed Debt, (iii) enforce Lender's
rights against any other guarantors of the Guaranteed Debt, (iv) join Borrower
or any others liable on the Guaranteed Debt in any action seeking to enforce
this Guaranty, (v) exhaust any remedies available to Lender against any
collateral which shall ever have been given to secure the Guaranteed Debt, or
(vi) resort to any other means of obtaining payment of the Guaranteed Debt.
Lender shall not be required to mitigate damages or take any other action to
reduce, collect or enforce the Guaranteed Debt.
<PAGE> 3
I.7 Waivers. Guarantor agrees to the provisions of the Loan Documents, as
amended, and hereby waives notice of (i) any loans or advances made by Lender
to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension
of the Note or of any other Loan Documents, (iv) the execution and delivery by
Borrower and Lender of any other loan or credit agreement or of Borrower's
execution and delivery of any promissory notes or other documents arising under
the Loan Documents or in connection with the Mortgaged Property (as defined in
the Loan Documents), (v) the occurrence of any breach by Borrower or Event of
Default (as defined in the Loan Documents), (vi) Lender's transfer or
disposition of the Guaranteed Debt, or any part thereof, (vii) sale or
foreclosure (or posting or advertising for sale or foreclosure) of any
collateral for the Guaranteed Debt, (viii) protest, proof of non-payment or
default by Borrower, or (ix) any other action at any time taken or omitted by
Lender, and, generally, all demands and notices of every kind in connection
with this Guaranty, the Loan Documents, any documents or agreements
evidencing, securing or relating to any of the Guaranteed Debt and the
obligations hereby guaranteed. The parties intend that Guarantor shall not be
considered a "debtor" as defined in Tex. Bus. & Com. Code Ann. & 9.105, as
amended (and any successor statute thereto).
I.8 Payment of Expenses. In the event that Guarantor should breach or fail
to timely perform any provisions of this Guaranty, Guarantor shall, immediately
upon demand by Lender, pay Lender all costs and expenses (including court
costs and attorneys' fees) incurred by Lender in the enforcement hereof or the
preservation of Lender's rights hereunder. The covenant contained in this
Section shall survive the payment of the Guaranteed Debt.
I.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency,
bankruptcy, reorganization, receivership or other debtor relief law, or any
judgment, order or decision thereunder, Lender must rescind or restore any
payment, or any part thereof, received by Lender in satisfaction of the
Guaranteed Debt, as set forth herein, any prior release or discharge from the
terms of this Guaranty given to Guarantor by Lender shall be without effect,
and this Guaranty shall remain in full force and effect. It is the intention
of Borrower and Guarantor that Guarantor's obligations hereunder shall not be
discharged except by Guarantor's performance of such obligations and then only
to the extent of such performance.
1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding
anything to the contrary contained in this Guaranty, Guarantor hereby
unconditionally and irrevocably waives, releases and abrogates any and all
rights it may now or hereafter have under any agreement, at law or in equity
(including, without limitation, any law subrogating the Guarantor to the rights
of Lender) to assert any claim against or seek contribution, indemnification or
any other form of reimbursement from Borrower or any other party liable for
payment of any or all of the Guaranteed Debt for any payment made by Guarantor
under or in connection with this Guaranty or otherwise until the Guaranteed
<PAGE> 4
Debt is paid in full.
I.10 "Borrower". The term "Borrower" as used herein shall include any new
or successor corporation, association, partnership (general or limited), joint
venture, trust or other individual or organization formed as a result of any
merger, reorganization, sale, transfer, devise, gift or bequest of Borrower
or any interest in Borrower.
I.11 Multiple Guarantors. If (i) this Guaranty is executed by more than one
party constituting the Guarantor, it is specifically agreed that Lender may
enforce the provisions hereof with respect to one or more of such parties
constituting the Guarantor without seeking to enforce the same as to all or
any such parties; or (ii) one or more additional guaranty agreements
("Other Guaranties") are executed by one or more additional guarantors
("Other Guarantors"), which guaranty, in whole or in part, any of the
indebtedness or obligations evidenced by the Loan Documents, it is
specifically agreed that Lender may enforce the provisions of this Guaranty
or of the Other Guaranties with respect to one or more of the parties
constituting the Guarantor and/or one or more of the Other Guarantors
under the Other Guaranties without seeking to enforce the provisions of this
Guaranty or the Other Guaranties as to all or any of the parties constituting
the Guarantor or the Other Guarantors. Each of the parties constituting the
Guarantor hereby waives any requirement of joinder of all or any other of
the parties constituting the Guarantor or all or any of the Other Guarantors
in any suit or proceeding to enforce the provisions of this Guaranty or of the
Other Guaranties. The liability hereunder of all parties constituting the
Guarantor shall be joint and several.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following, and agrees
that Guarantor's obligations under this Guaranty shall not be released,
diminished, impaired, reduced or adversely affected by any of the following,
and waives any common law, equitable, statutory or other rights (including
without limitation rights to notice) which Guarantor might otherwise have as
a result of or in connection with any of the following:
II.1 Modifications. Any renewal, extension, increase, modification,
alteration or rearrangement of all or any part of the Guaranteed Debt, Note,
Loan Documents, or other document, instrument, contract or understanding
between Borrower and Lender,or any other parties, pertaining to the
Guaranteed Debt or any failure of Lender to notify Guarantor of any such
action.
II.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that
might be granted or given by Lender to Borrower or any Guarantor.
<PAGE> 5
II.3 Condition of Borrower or Guarantor. The insolvency, bankruptcy,
arrangement, adjustment, composition, liquidation, disability, dissolution or
lack of power of Borrower, Guarantor or any other party at any time liable for
the payment of all or part of the Guaranteed Debt; or any dissolution of
Borrower or Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or Guarantor, or any changes in the shareholders, partners
or members of Borrower or Guarantor; or any reorganization of Borrower or
Guarantor.
II.4 Invalidity of Guaranteed Debt. The invalidity, illegality or
unenforceability of all or any part of the Guaranteed Debt, or any document or
agreement executed in connection with the Guaranteed Debt, for any reason
whatsoever, including without limitation the fact that (i) the Guaranteed Debt,
or any part thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires, (iii) the
officers or representatives executing the Note or the other Loan Documents or
otherwise creating the Guaranteed Debt acted in excess of their authority,
(iv) the Guaranteed Debt violates applicable usury laws, (v) the Borrower has
valid defenses, claims or offsets (whether at law, in equity or by agreement)
which render the Guaranteed Debt wholly or partially uncollectible from
Borrower, (vi) the creation, performance or repayment of the Guaranteed Debt
(or the execution, delivery and performance of any document or instrument
representing part of the Guaranteed Debt or executed in connection with the
Guaranteed Debt, or given to secure the repayment of the Guaranteed Debt) is
illegal, uncollectible or unenforceable, or (vii) the Note or any of the other
Loan Documents have been forged or otherwise are irregular or not genuine or
authentic, it being agreed that Guarantor shall remain liable hereon
regardless of whether Borrower or any other person be found not liable on the
Guaranteed Debt or any part thereof for any reason.
II.5 Release of Obligors. Any full or partial release of the liability of
Borrower on the Guaranteed Debt, or any part thereof, or of any co-guarantors,
or any other person or entity now or hereafter liable, whether directly or
indirectly, jointly, severally, or jointly and severally, to pay, perform,
guarantee or assure the payment of the Guaranteed Debt, or any part thereof,
it being recognized, acknowledged and agreed by Guarantor that Guarantor may be
required to pay the Guaranteed Debt in full without assistance or support of any
other party, and Guarantor has not been induced to enter into this Guaranty on
the basis of a contemplation, belief, understanding or agreement that other
parties will be liable to pay or perform the Guaranteed Debt, or that Lender
will look to other parties to pay or perform the Guaranteed Debt.
II.6 Other Collateral. The taking or accepting of any other security,
collateral or guaranty, or other assurance of payment, for all or any part of
the Guaranteed Debt.
II.7 Release of Collateral. Any release, surrender, exchange, subordination,
deterioration, waste, loss or impairment (including without limitation
negligent, willful, unreasonable or unjustifiable impairment) of any collateral,
property or security, at any time existing in connection with, or assuring or
securing payment of, all or any part of the Guaranteed Debt.
II.8 Care and Diligence. The failure of Lender or any other party to exercise
diligence or reasonable care in the preservation, protection, enforcement, sale
or other handling or treatment
<PAGE> 6
of all or any part of such collateral, property
or security, including but not limited to any neglect, delay, omission, failure
or refusal of Lender (i) to take or prosecute any action for the collection of
any of the Guaranteed Debt or (ii) to foreclose, or initiate any action to
foreclose, or, once commenced, prosecute to completion any action to foreclose
upon any security therefor, or (iii) to take or prosecute any action in
connection with any instrument or agreement evidencing or securing all or any
part of the Guaranteed Debt.
II.9 Unenforceability. The fact that any collateral, security, security
interest or lien contemplated or intended to be given, created or granted as
security for the repayment of the Guaranteed Debt, or any part thereof,
shall not be properly perfected or created, or shall prove to be unenforceable
or subordinate to any other security interest or lien, it being recognized and
agreed by Guarantor that Guarantor is not entering into this Guaranty in
reliance on, or in contemplation of the benefits of, the validity,
enforceability, collectibility or value of any of the collateral for the
Guaranteed Debt.
II.10 Offset. The Note, the Guaranteed Debt and the liabilities and obligations
of Guarantor to Lender hereunder, shall not be reduced, discharged or released
because of or by reason of any existing or future right of offset, claim or
defense of Borrower against Lender, or any other party, or against payment of
the Guaranteed Debt, whether such right of offset, claim or defense arises in
connection with the Guaranteed Debt (or the transactions creating the Guaranteed
Debt) or otherwise.
II.11 Merger. The reorganization, merger or consolidation of Borrower into or
with any other corporation or entity.
II.12 Preference. Any payment by Borrower to Lender is held to constitute a
preference under bankruptcy laws, or for any reason Lender is required to refund
such payment or pay such amount to Borrower or someone else.
II.13 Other Actions Taken or Omitted. Any other action taken or omitted to
be taken with respect to the Loan Documents, as amended, the Guaranteed Debt,
or the security and collateral therefor, whether or not such action or omission
prejudices Guarantor or increases the likelihood that Guarantor will be required
to pay the Guaranteed Debt pursuant to the terms hereof, it is the unambiguous
and unequivocal intention of Guarantor that Guarantor shall be obligated to pay
the Guaranteed Debt when due, notwithstanding any occurrence, circumstance,
event, action, or omission whatsoever, whether contemplated or uncontemplated,
and whether or not otherwise or particularly described herein, which obligation
shall be deemed satisfied only upon the full and final payment and satisfaction
of the Guaranteed Debt.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
<PAGE> 7
To induce Lender to enter into the Loan Documents and extend credit to Borrower,
Guarantor represents and warrants to Lender as follows:
III.1 Benefit. Guarantor is an affiliate of Borrower, is the owner of a direct
or indirect interest in Borrower, and has received, or will receive, direct or
indirect benefit from the making of this Guaranty with respect to the
Guaranteed Debt.
III.2 Familiarity and Reliance. Guarantor is familiar with, and has
independently reviewed books and records regarding, the financial condition of
the Borrower and is familiar with the value of any and all collateral intended
to be created as security for the payment of the Note or Guaranteed Debt;
however, Guarantor is not relying on such financial condition or the collateral
as an inducement to enter into this Guaranty.
III.3 No Representation by Lender. Neither Lender nor any other party has made
any representation, warranty or statement to Guarantor in order to induce the
Guarantor to execute this Guaranty.
III.4 Guarantor's Financial Condition. As of the date hereof, and after giving
effect to this Guaranty and the contingent obligation evidenced hereby,
Guarantor is, and will be, solvent, and has and will have assets which, fairly
valued, exceed its obligations, liabilities (including contingent liabilities)
and debts, and has and will have property and assets sufficient to satisfy and
repay its obligations and liabilities.
III.5 Legality. The execution, delivery and performance by Guarantor of this
Guaranty and the consummation of the transactions contemplated hereunder do not,
and will not, contravene or conflict with any law, statute or regulation
whatsoever to which Guarantor is subject or constitute a default (or an event
which with notice or lapse of time or both would constitute a default) under,
or result in the breach of, any indenture, mortgage, deed of trust, charge,
lien, or any contract, agreement or other instrument to which Guarantor is a
party or which may be applicable to Guarantor. This Guaranty is a legal and
binding obligation of Guarantor and is enforceable in accordance with its terms,
except as limited by bankruptcy, insolvency or other laws of general application
relating to the enforcement of creditors' rights.
III.6 Financial Information. All of the financial information provided by
Guarantorto Lender is true and correct in all respects. Guarantor shall furnish
to Lender financial statements of Guarantor prepared in accordance the terms of
the Loan Agreement.
III.7 Survival. All representations and warranties made by Guarantor herein
shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
<PAGE> 8
IV.1 Subordination of All Guarantor Claims. As used herein, the term
"Guarantor Claims" shall mean all debts and liabilities of Borrower to
Guarantor, whether such debts and liabilities now exist or are hereafter
incurred or arise, or whether the obligations of Borrower thereon be direct,
contingent, primary, secondary, several, joint and several, or otherwise,
and irrespective of whether such debts or liabilities be evidenced by note,
contract, open account, or otherwise, and irrespective of the person or persons
in whose favor such debts or liabilities may, at their inception, have been,
or may hereafter be created, or the manner in which they have been or may
hereafter be acquired by Guarantor. The Guarantor Claims shall include without
limitation all rights and claims of Guarantor against Borrower (arising as
a result of subrogation or otherwise) as a result of Guarantor's payment of
all or a portion of the Guaranteed Debt. Upon the occurrence of an Event of
Default (as defined in the Loan Documents) or the occurrence of an event which
would, with the giving of notice or the passage of time, or both, constitute
an Event of Default, Guarantor shall not receive or collect, directly or
indirectly, from Borrower or any other party any amount upon the Guarantor
Claims.
IV.2 Claims in Bankruptcy. In the event of receivership, bankruptcy,
reorganization, arrangement, debtor's relief, or other insolvency proceedings
involving Guarantor as debtor, Lender shall have the right to prove its claim
in any such proceeding so as to establish its rights hereunder and receive
directly from the receiver, trustee or other court custodian dividends and
payments which would otherwise be payable upon Guarantor Claims. Guarantor
hereby assigns such dividends and payments to Lender. Should Lender receive,
for application upon the Guaranteed Debt, any such dividend or payment which
is otherwise payable to Guarantor, and which, as between Borrower and Guarantor,
shall constitute a credit upon the Guarantor Claims, then upon payment to Lender
in full of the Guaranteed Debt, Guarantor shall become subrogated to the rights
of Lender to the extent that such payments to Lender on the Guarantor Claims
have contributed toward the liquidation of the Guaranteed Debt, and such
subrogation shall be with respect to that proportion of the Guaranteed Debt
which would have been unpaid if Lender had not received dividends or payments
upon the Guarantor Claims.
IV.3 Payments Held in Trust. In the event that, notwithstanding anything to
the contrary in this Guaranty, Guarantor should receive any funds, payment,
claim or distribution which is prohibited by this Guaranty, Guarantor agrees to
hold in trust for Lender an amount equal to the amount of all funds, payments,
claims or distributions so received, and agrees that it shall have absolutely
no dominion over the amount of such funds, payments, claims or distributions so
received except to pay them promptly to Lender, and Guarantor covenants promptly
to pay the same to Lender.
IV.4 Liens Subordinate. Guarantor agrees that any liens, security interests,
judgment liens, charges or other encumbrances upon Borrower's assets securing
payment of the Guarantor Claims shall be and remain inferior and subordinate to
any liens, security interests, judgment liens, charges or other encumbrances
upon Borrower's assets securing payment of the Guaranteed Debt, regardless of
whether such encumbrances in favor of Guarantor or Lender presently exist or
are hereafter created or attach. Without the prior written consent of Lender,
Guarantor shall not (i) exercise or enforce any creditor's right it may have
against Borrower, or(ii) foreclose, repossess, sequester or otherwise take steps
or institute any action or proceedings (judicial or otherwise, including without
<PAGE> 9
limitation the commencement of, or joinder in, any liquidation, bankruptcy,
rearrangement, debtor's relief or insolvency proceeding) to enforce any liens,
mortgages, deeds of trust, security interest, collateral rights, judgments or
other encumbrances on assets of Borrower held by Guarantor.
ARTICLE V
MISCELLANEOUS
V.1 Waiver. No failure to exercise, and no delay in exercising, on the part
of Lender, any right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right. The rights of Lender hereunder
shall be in addition to all other rights provided by law. No modification or
waiver of any provision of this Guaranty, nor consent to departure therefrom,
shall be effective unless in writing and no such consent or waiver shall extend
beyond the particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other action in the
same, similar or other instances without such notice or demand.
V.2 Notices. All notices or other communications required or permitted to
be given pursuant hereto shall be in writing and shall be deemed properly given
if (i) mailed by first class United States mail, postage prepaid, registered or
certified with return receipt requested; (ii) by delivering same in person to
the intended addressee; or (iii) by delivery to an independent third party
commercial delivery service for same day or next day delivery and providing
for evidence of receipt at the office of the intended addressee. Notice so
mailed shall be effective upon its deposit with the United States Postal
Service or any successor thereto; notice sent by a commercial delivery service
shall be effective upon delivery to such commercial delivery service; notice
given by personal delivery shall be effective only if and when received by the
addressee; and notice given by other means shall be effective only if and when
received at the designated address of the intended addressee. Either party
shall have the right to change its address for notice hereunder to any other
location within the continental United States by the giving of thirty (30)
days notice to the other party in the manner set forth herein. For purposes
of such notices, the addresses of the parties shall be as follows:
Lender:Comerica Bank-Texas
1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Attn: National Real Estate Services
Guarantor:Stratus Properties Inc.
98 San Jacinto Boulevard, Suite 220
Austin, Texas 78791
Attn: William H. Armstrong, III
With a copy to:Armbrust Brown & Davis, L.L.P.
100 Congress Avenue
Suite 1300
Austin, Texas 78701
Attn: Kenneth Jones, Esq.
<PAGE> 10
V.3 GOVERNING LAW. THIS GUARANTY IS EXECUTED AND DELIVERED
AS AN INCIDENT TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED,
AND PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
ANY ACTION OR PROCEEDING AGAINST GUARANTOR UNDER OR IN
CONNECTION WITH THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR
FEDERAL COURT IN DALLAS COUNTY, TEXAS. GUARANTOR HEREBY
IRREVOCABLY (i) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH
COURTS, AND (ii) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE
AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH
COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. GUARANTOR
AGREES THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED
HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE
PROCESS IN ANY OTHER MATTER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT OF LENDER TO BRING ANY ACTION OR PROCEEDING AGAINST
GUARANTOR OR WITH RESPECT TO ANY OF GUARANTOR'S PROPERTY IN
COURTS IN OTHER JURISDICTIONS. ANY ACTION OR PROCEEDING BY
GUARANTOR AGAINST LENDER SHALL BE BROUGHT ONLY IN A COURT
LOCATED IN DALLAS COUNTY, TEXAS.
V.4 Invalid Provisions. If any provision of this Guaranty is held to be
illegal,invalid, or unenforceable under present or future laws effective
during the term of this Guaranty, such provision shall be fully severable and
this Guaranty shall be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part of this Guaranty, and
the remaining provisions of this Guaranty shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance from this Guaranty, unless such continued effectiveness of this
Guaranty, as modified, would be contrary to the basic understandings and
intentions of the parties as expressed herein.
V.5 Amendments. This Guaranty may be amended only by an instrument in
writing executed by the party or an authorized representative of the party
against whom such amendment is sought to be enforced.
V.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure
to the benefit of the parties hereto and their respective successors, assigns
and legal representatives; provided, however, that Guarantor may not, without
the prior written consent of Lender, assign any of its rights, powers, duties
or obligations hereunder.
V.7 Headings. Section headings are for convenience of reference only and
shall in no way affect the interpretation of this Guaranty.
<PAGE> 11
V.8 Recitals. The recital and introductory paragraphs hereof are a part
hereof, form a basis for this Guaranty and shall be considered prima facie
evidence of the facts and documents referred to therein.
V.9 Counterparts. To facilitate execution, this Guaranty may be executed in
as many counterparts as may be convenient or required. It shall not be
necessary that the signature or acknowledgment of, or on behalf of, each party,
or that the signature of all persons required to bind any party, or the
acknowledgment of such party, appear on each counterpart. All counterparts
shall collectively constitutea single instrument. It shall not be necessary in
making proof of this Guaranty to produce or account for more than a single
counterpart containing the respective signatures of, or on behalf of, and the
respective acknowledgments of, each of the parties hereto. Any signature or
acknowledgment page to any counterpart may be detached from such counterpart
without impairing the legal effect of the signatures or acknowledgments thereon
and thereafter attached to another counterpart identical thereto except having
attached to it additional signature or acknowledgment pages.
V.10 Rights and Remedies. If Guarantor becomes liable for any indebtedness
owing by Borrower to Lender, by endorsement or otherwise, other than under this
Guaranty, such liability shall not be in any manner impaired or affected hereby
and the rights of Lender hereunder shall be cumulative of any and all other
rights that Lender may ever have against Guarantor. The exercise by Lender of
any right or remedy hereunder or under any other instrument, or at law or in
equity, shall not preclude the concurrent or subsequent exercise of any other
right or remedy.
V.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE
AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S
GUARANTY OF THE GUARANTEED DEBT AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS
GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE
EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING
BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE
PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY
NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY
TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS
BETWEEN GUARANTOR AND LENDER.
V.12 Release of Guaranty. Upon full and final payment of the indebtedness
evidenced by the Note, performance of all obligations under the Loan Documents
and satisfaction of the Guaranteed Debt, this Guaranty will be released and of
no further force and effect.
V.13 Capitalized Terms. Capitalized terms used herein shall have the same
meaning as provided in the Loan Agreement, except as otherwise specified herein.
<PAGE> 12
EXECUTED as of the day and year first above written.
GUARANTOR:
STRATUS PROPERTIES INC.,
a Delaware corporation
By:/s/ William H. Armstrong, III
-----------------------------
Name: William H. Armstrong, III
Title: Chairman of the Board, President
and Chief Executive Officer
STATE OF TEXAS &
&
COUNTY OF ___________ &
This instrument was ACKNOWLEDGED before me this _____ day of _______________,
2000, by William H. Armstrong, III, the Chairman of the Board, President and
Chief Executive Officer of STRATUS PROPERTIES INC., a Delaware corporation, on
behalf of said corporation.
[S E A L]
Notary Public - State of Texas
My Commission Expires:
______________________ Printed Name of Notary Public
<PAGE> 13
GUARANTY - Page 1
Exhibit 10.19
GUARANTY
This GUARANTY ("Guaranty") is executed as of February 24,
2000, by STRATUS PROPERTIES, INC., a Delaware corporation
("Guarantor"), for the benefit of COMERICA BANK-TEXAS, a state
banking association ("Lender").
W I T N E S S E T H :
WHEREAS, Lender has entered into a Construction Loan Agreement
("Loan Agreement") of even date herewith, with Stratus 7000 West
Joint Venture, a Texas joint venture ("Borrower"), pursuant to
which Borrower has executed that certain Promissory Note dated of
even date herewith payable to the order of the Lender in the
original principal amount of $7,700,000.00 (together with all
renewals, modifications, increases and extensions thereof, the
"Note") under which Borrower has become indebted, and may from time
to time be further indebted, to Lender with respect to a loan
("Loan") made or to be made by Lender to Borrower, up to the
principal amount of the Note, to finance the cost of development
and construction of an office building consisting of approximately
66,475 square feet of leasable space and related amenities and
improvements (the "Phase II Improvements") upon certain real
property (the "Land") located in Travis County, Texas, which Loan
is secured by the liens and security interests of a Second Amended
and Restated Deed of Trust ("Deed of Trust") upon the Land (as more
fully defined in the Loan Agreement) executed by Borrower for the
benefit of Lender of even date herewith, which amends and restates
that prior Amended and Restated Deed of Trust dated effective as of
April 9, 1999, recorded under Document No. 1999009453 of the
Official Records of Travis County, Texas, as modified by the
Modification Agreement dated August 16, 1999 and recorded under
Document No. 1999093007 of the Official Records of Travis County,
Texas, covering both the Phase I and Phase II Improvements (as more
fully defined in the Loan Agreement) (the Phase I and Phase II
Improvements are hereinafter sometimes collectively referred to as
the "Project"), of even date herewith, and is further evidenced,
secured or governed by other instruments and documents executed in
connection with the Loan of even date herewith (collectively the
"Loan Documents"); and
WHEREAS, Lender is not willing to make the Loan, or otherwise
extend credit, to Borrower unless Guarantor unconditionally
guarantees payment to Lender of the Guaranteed Obligations (as
herein defined) and unless Guarantor is willing to guarantee the
completion of the Phase II Improvements; and
WHEREAS, Guarantor is the owner of a direct or indirect
interest in Borrower, and Guarantor will directly benefit from
Lender's making the Loan to Borrower.
WHEREAS, any capitalized terms not otherwise defined herein
shall have the meaning ascribed to said term in the Loan Agreement.
NOW, THEREFORE, as an inducement to Lender to enter into the
Loan Agreement and to make the Loan to Borrower as described
therein, and to extend such additional credit as Lender may from
time to time agree to extend, and for other good and valuable
consideration, the receipt and legal sufficiency of which are
hereby acknowledged, the parties do hereby agree as follows:
ARTICLE I
NATURE AND SCOPE OF GUARANTY
I.1 Guaranty of Obligation. Guarantor hereby irrevocably and
unconditionally guarantees to Lender and its successors and assigns
the payment and performance of the "Guaranteed Debt" (as herein
defined) as and when the same shall be due and payable, whether by
lapse of time, by acceleration of maturity or otherwise. Guarantor
hereby irrevocably and unconditionally covenants and agrees that it
is liable for the Guaranteed Debt as a primary obligor.
I.2 Definition of Guaranteed Debt. As used herein, the term
"Guaranteed Debt" means all of the following:
<PAGE> 1
(a) all principal, interest, attorneys' fees, commitment
fees, liabilities for costs and expenses and other
indebtedness, obligations and liabilities of Borrower to
Lender at any time created or arising in connection with the
Loan, or any amendment thereto or substitution therefor, and
all indebtedness, obligations and liabilities of Borrower to
Lender arising under the Note, or under any renewals,
modifications, increases and extensions of the Note, the Loan
Agreement, or under any of the Loan Documents;
(b) all liabilities of Borrower for future advances,
extensions of credit, sales on account or other value at any
time given or made by Lender to Borrower arising under the
Loan Documents, as amended, whether or not the advances,
credit or value are given pursuant to commitment;
(c) any and all other indebtedness, liabilities,
obligations and duties of every kind and character of Borrower
to Lender arising under the Loan Documents, whether now or
hereafter existing or arising, regardless of whether such
present or future indebtedness, liabilities, obligations or
duties be direct or indirect, related or unrelated, liquidated
or unliquidated, primary or secondary, joint, several, or
joint and several, or fixed or contingent;
(d) any and all post-petition interest and expenses
(including attorney's fees) whether or not allowed under any
bankruptcy, insolvency, or other similar law; and
(e) all costs, expenses and fees, including but not
limited to court costs and attorneys' fees, arising in
connection with the collection of any or all amounts,
indebtedness, obligations and liabilities of Borrower to
Lender described in items (a) through (d) of this Section.
I.3 Nature of Guaranty. This Guaranty is an irrevocable,
absolute, continuing guaranty of payment and performance and not a
guaranty of collection. This Guaranty may not be revoked by
Guarantor and shall continue to be effective with respect to any
Guaranteed Debt arising or created after any attempted revocation
by Guarantor and after (if Guarantor is a natural person)
Guarantor's death (in which event this Guaranty shall be binding
upon Guarantor's estate and Guarantor's legal representatives and
heirs). The fact that at any time or from time to time the
Guaranteed Debt may be increased, reduced or paid in full shall not
release, discharge or reduce the obligation of Guarantor to Lender
with respect to indebtedness or obligations of Borrower thereafter
incurred (or other Guaranteed Debt thereafter arising) under the
Note or otherwise. This Guaranty may be enforced by Lender and any
subsequent holder of the Guaranteed Debt and shall not be
discharged by the assignment or negotiation of all or part of the
Guaranteed Debt.
I.4 Guaranteed Debt Not Reduced by Offset. The Guaranteed
Debt and the liabilities and obligations of Guarantor to Lender
hereunder, shall not be reduced, discharged or released because or
by reason of any existing or future offset, claim or defense of
Borrower, or any other party, against Lender or against payment of
the Guaranteed Debt, whether such offset, claim or defense arises
in connection with the Guaranteed Debt (or the transactions
creating the Guaranteed Debt) or otherwise. Without limiting the
foregoing or the Guarantor's liability hereunder, to the extent
that Lender advances funds or extends credit to Borrower, and does
not receive payments or benefits thereon in the amounts and at the
times required or provided by applicable agreements or laws,
Guarantor is absolutely liable to make such payments to (and confer
such benefits on) Lender, on a timely basis.
I.5 Payment by Guarantor. If all or any part of the
Guaranteed Debt shall not be punctually paid when due, whether at
maturity or earlier by acceleration or otherwise, Guarantor shall,
immediately upon demand by Lender, and without presentment,
protest, notice of protest, notice of non-payment, notice of
intention to accelerate the maturity, notice of acceleration of the
maturity, or any other notice whatsoever, pay in lawful money of
the United States of America, the amount due on the Guaranteed Debt
to Lender at Lender's address as set forth herein. Such demand(s)
may be made at any time coincident with or after the time for
payment of all or part of the Guaranteed Debt, and may be made from
time to time with respect to the same or different items
<PAGE> 2
of
Guaranteed Debt. Such demand shall be deemed made, given and
received in accordance with the notice provisions hereof.
I.6 No Duty to Pursue Others. It shall not be necessary for
Lender (and Guarantor hereby waives any rights which Guarantor may
have to require Lender), in order to enforce such payment by
Guarantor, first to (i) institute suit or exhaust its remedies
against Borrower or others liable on the Guaranteed Debt or any
other person, (ii) enforce Lender's rights against any collateral
which shall ever have been given to secure the Guaranteed Debt,
(iii) enforce Lender's rights against any other guarantors of the
Guaranteed Debt, (iv) join Borrower or any others liable on the
Guaranteed Debt in any action seeking to enforce this Guaranty,
(v) exhaust any remedies available to Lender against any collateral
which shall ever have been given to secure the Guaranteed Debt, or
(vi) resort to any other means of obtaining payment of the
Guaranteed Debt. Lender shall not be required to mitigate damages
or take any other action to reduce, collect or enforce the
Guaranteed Debt.
I.7 Waivers. Guarantor agrees to the provisions of the Loan
Documents, as amended, and hereby waives notice of (i) any loans or
advances made by Lender to Borrower, (ii) acceptance of this
Guaranty, (iii) any amendment or extension of the Note or of any
other Loan Documents, (iv) the execution and delivery by Borrower
and Lender of any other loan or credit agreement or of Borrower's
execution and delivery of any promissory notes or other documents
arising under the Loan Documents or in connection with the Project,
(v) the occurrence of any breach by Borrower or Event of Default
(as defined in the Loan Documents), (vi) Lender's transfer or
disposition of the Guaranteed Debt, or any part thereof, (vii) sale
or foreclosure (or posting or advertising for sale or foreclosure)
of any collateral for the Guaranteed Debt, (viii) protest, proof of
non-payment or default by Borrower, or (ix) any other action at any
time taken or omitted by Lender, and, generally, all demands and
notices of every kind in connection with this Guaranty, the Loan
Documents, any documents or agreements evidencing, securing or
relating to any of the Guaranteed Debt and the obligations hereby
guaranteed. The parties intend that Guarantor shall not be
considered a "debtor" as defined in Tex. Bus. & Com. Code Ann.
& 9.105, as amended (and any successor statute thereto).
I.8 Payment of Expenses. In the event that Guarantor should
breach or fail to timely perform any provisions of this Guaranty,
Guarantor shall, immediately upon demand by Lender, pay Lender all
costs and expenses (including court costs and attorneys' fees)
incurred by Lender in the enforcement hereof or the preservation of
Lender's rights hereunder. The covenant contained in this Section
shall survive the payment of the Guaranteed Debt.
I.9 Effect of Bankruptcy. In the event that, pursuant to any
insolvency, bankruptcy, reorganization, receivership or other
debtor relief law, or any judgment, order or decision thereunder,
Lender must rescind or restore any payment, or any part thereof,
received by Lender in satisfaction of the Guaranteed Debt, as set
forth herein, any prior release or discharge from the terms of this
Guaranty given to Guarantor by Lender shall be without effect, and
this Guaranty shall remain in full force and effect. It is the
intention of Borrower and Guarantor that Guarantor's obligations
hereunder shall not be discharged except by Guarantor's performance
of such obligations and then only to the extent of such
performance.
1.10 Waiver of Subrogation, Reimbursement and Contribution.
Notwithstanding anything to the contrary contained in this
Guaranty, Guarantor hereby unconditionally and irrevocably waives,
releases and abrogates any and all rights it may now or hereafter
have under any agreement, at law or in equity (including, without
limitation, any law subrogating the Guarantor to the rights of
Lender) to assert any claim against or seek contribution,
indemnification or any other form of reimbursement from Borrower or
any other party liable for payment of any or all of the Guaranteed
Debt for any payment made by Guarantor under or in connection with
this Guaranty or otherwise until the Guaranteed Debt is paid in
full.
I.10 "Borrower". The term "Borrower" as used herein shall
include any new or successor corporation, association, partnership
(general or limited), joint venture, trust or other individual or
organization formed as a result of any merger, reorganization,
sale, transfer, devise, gift or bequest of Borrower or any interest
in Borrower.
<PAGE> 3
I.11 Multiple Guarantors. If (i) this Guaranty is executed by
more than one party constituting the Guarantor, it is specifically
agreed that Lender may enforce the provisions hereof with respect
to one or more of such parties constituting the Guarantor without
seeking to enforce the same as to all or any such parties; or
(ii) one or more additional guaranty agreements ("Other
Guaranties") are executed by one or more additional guarantors
("Other Guarantors"), which guaranty, in whole or in part, any of
the indebtedness or obligations evidenced by the Loan Documents, it
is specifically agreed that Lender may enforce the provisions of
this Guaranty or of the Other Guaranties with respect to one or
more of the parties constituting the Guarantor and/or one or more
of the Other Guarantors under the Other Guaranties without seeking
to enforce the provisions of this Guaranty or the Other Guaranties
as to all or any of the parties constituting the Guarantor or the
Other Guarantors. Each of the parties constituting the Guarantor
hereby waives any requirement of joinder of all or any other of the
parties constituting the Guarantor or all or any of the Other
Guarantors in any suit or proceeding to enforce the provisions of
this Guaranty or of the Other Guaranties. The liability hereunder
of all parties constituting the Guarantor shall be joint and
several.
ARTICLE II
EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTOR'S OBLIGATIONS
Guarantor hereby consents and agrees to each of the following,
and agrees that Guarantor's obligations under this Guaranty shall
not be released, diminished, impaired, reduced or adversely
affected by any of the following, and waives any common law,
equitable, statutory or other rights (including without limitation
rights to notice) which Guarantor might otherwise have as a result
of or in connection with any of the following:
II.1 Modifications. Any renewal, extension, increase,
modification, alteration or rearrangement of all or any part of the
Guaranteed Debt, Note, Loan Documents, or other document,
instrument, contract or understanding between Borrower and Lender,
or any other parties, pertaining to the Guaranteed Debt or any
failure of Lender to notify Guarantor of any such action.
II.2 Adjustment. Any adjustment, indulgence, forbearance or
compromise that might be granted or given by Lender to Borrower or
any Guarantor.
II.3 Condition of Borrower or Guarantor. The insolvency,
bankruptcy, arrangement, adjustment, composition, liquidation,
disability, dissolution or lack of power of Borrower, Guarantor or
any other party at any time liable for the payment of all or part
of the Guaranteed Debt; or any dissolution of Borrower or
Guarantor, or any sale, lease or transfer of any or all of the
assets of Borrower or Guarantor, or any changes in the
shareholders, partners or members of Borrower or Guarantor; or any
reorganization of Borrower or Guarantor.
II.4 Invalidity of Guaranteed Debt. The invalidity,
illegality or unenforceability of all or any part of the Guaranteed
Debt, or any document or agreement executed in connection with the
Guaranteed Debt, for any reason whatsoever, including without
limitation the fact that (i) the Guaranteed Debt, or any part
thereof, exceeds the amount permitted by law, (ii) the act of
creating the Guaranteed Debt or any part thereof is ultra vires,
(iii) the officers or representatives executing the Note or the
other Loan Documents or otherwise creating the Guaranteed Debt
acted in excess of their authority, (iv) the Guaranteed Debt
violates applicable usury laws, (v) the Borrower has valid
defenses, claims or offsets (whether at law, in equity or by
agreement) which render the Guaranteed Debt wholly or partially
uncollectible from Borrower, (vi) the creation, performance or
repayment of the Guaranteed Debt (or the execution, delivery and
performance of any document or instrument representing part of the
Guaranteed Debt or executed in connection with the Guaranteed Debt,
or given to secure the repayment of the Guaranteed Debt) is
illegal, uncollectible or unenforceable, or (vii) the Note or any
of the other Loan Documents have been forged or otherwise are
irregular or not genuine or authentic, it being agreed that
Guarantor shall remain liable hereon regardless of whether Borrower
or any other person be found not liable on the Guaranteed Debt or
any part thereof for any reason.
<PAGE> 4
II.5 Release of Obligors. Any full or partial release of the
liability of Borrower on the Guaranteed Debt, or any part thereof,
or of any co-guarantors, or any other person or entity now or
hereafter liable, whether directly or indirectly, jointly,
severally, or jointly and severally, to pay, perform, guarantee or
assure the payment of the Guaranteed Debt, or any part thereof, it
being recognized, acknowledged and agreed by Guarantor that
Guarantor may be required to pay the Guaranteed Debt in full
without assistance or support of any other party, and Guarantor has
not been induced to enter into this Guaranty on the basis of a
contemplation, belief, understanding or agreement that other
parties will be liable to pay or perform the Guaranteed Debt, or
that Lender will look to other parties to pay or perform the
Guaranteed Debt.
II.6 Other Collateral. The taking or accepting of any other
security, collateral or guaranty, or other assurance of payment,
for all or any part of the Guaranteed Debt.
II.7 Release of Collateral. Any release, surrender, exchange,
subordination, deterioration, waste, loss or impairment (including
without limitation negligent, willful, unreasonable or
unjustifiable impairment) of any collateral, property or security,
at any time existing in connection with, or assuring or securing
payment of, all or any part of the Guaranteed Debt.
II.8 Care and Diligence. The failure of Lender or any other
party to exercise diligence or reasonable care in the preservation,
protection, enforcement, sale or other handling or treatment of all
or any part of such collateral, property or security, including but
not limited to any neglect, delay, omission, failure or refusal of
Lender (i) to take or prosecute any action for the collection of
any of the Guaranteed Debt or (ii) to foreclose, or initiate any
action to foreclose, or, once commenced, prosecute to completion
any action to foreclose upon any security therefor, or (iii) to
take or prosecute any action in connection with any instrument or
agreement evidencing or securing all or any part of the Guaranteed
Debt.
II.9 Unenforceability. The fact that any collateral,
security, security interest or lien contemplated or intended to be
given, created or granted as security for the repayment of the
Guaranteed Debt, or any part thereof, shall not be properly
perfected or created, or shall prove to be unenforceable or
subordinate to any other security interest or lien, it being
recognized and agreed by Guarantor that Guarantor is not entering
into this Guaranty in reliance on, or in contemplation of the
benefits of, the validity, enforceability, collectibility or value
of any of the collateral for the Guaranteed Debt.
II.10 Offset. The Note, the Guaranteed Debt and the
liabilities and obligations of Guarantor to Lender hereunder, shall
not be reduced, discharged or released because of or by reason of
any existing or future right of offset, claim or defense of
Borrower against Lender, or any other party, or against payment of
the Guaranteed Debt, whether such right of offset, claim or defense
arises in connection with the Guaranteed Debt (or the transactions
creating the Guaranteed Debt) or otherwise.
II.11 Merger. The reorganization, merger or consolidation
of Borrower into or with any other corporation or entity.
II.12 Preference. Any payment by Borrower to Lender is
held to constitute a preference under bankruptcy laws, or for any
reason Lender is required to refund such payment or pay such amount
to Borrower or someone else.
II.13 Other Actions Taken or Omitted. Any other action
taken or omitted to be taken with respect to the Loan Documents, as
amended, the Guaranteed Debt, or the security and collateral
therefor, whether or not such action or omission prejudices
Guarantor or increases the likelihood that Guarantor will be
required to pay the Guaranteed Debt pursuant to the terms hereof,
it is the unambiguous and unequivocal intention of Guarantor that
Guarantor shall be obligated to pay the Guaranteed Debt when due,
notwithstanding any occurrence, circumstance, event, action, or
omission whatsoever, whether contemplated or uncontemplated, and
whether or not otherwise or particularly described herein, which
obligation shall be deemed satisfied only upon the full and final
payment and satisfaction of the Guaranteed Debt.
<PAGE> 5
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into the Loan Documents and extend
credit to Borrower, Guarantor represents and warrants to Lender as
follows:
III.1 Benefit. Guarantor is an affiliate of Borrower, is
the owner of a direct or indirect interest in Borrower, and has
received, or will receive, direct or indirect benefit from the
making of this Guaranty with respect to the Guaranteed Debt.
III.2 Familiarity and Reliance. Guarantor is familiar
with, and has independently reviewed books and records regarding,
the financial condition of the Borrower and is familiar with the
value of any and all collateral intended to be created as security
for the payment of the Note or Guaranteed Debt; however, Guarantor
is not relying on such financial condition or the collateral as an
inducement to enter into this Guaranty.
III.3 No Representation by Lender. Neither Lender nor any
other party has made any representation, warranty or statement to
Guarantor in order to induce the Guarantor to execute this
Guaranty.
III.4 Guarantor's Financial Condition. As of the date
hereof, and after giving effect to this Guaranty and the contingent
obligation evidenced hereby, Guarantor is, and will be, solvent,
and has and will have assets which, fairly valued, exceed its
obligations, liabilities (including contingent liabilities) and
debts, and has and will have property and assets sufficient to
satisfy and repay its obligations and liabilities.
III.5 Legality. The execution, delivery and performance
by Guarantor of this Guaranty and the consummation of the
transactions contemplated hereunder do not, and will not,
contravene or conflict with any law, statute or regulation
whatsoever to which Guarantor is subject or constitute a default
(or an event which with notice or lapse of time or both would
constitute a default) under, or result in the breach of, any
indenture, mortgage, deed of trust, charge, lien, or any contract,
agreement or other instrument to which Guarantor is a party or
which may be applicable to Guarantor. This Guaranty is a legal and
binding obligation of Guarantor and is enforceable in accordance
with its terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of
creditors' rights.
III.6 Financial Information. All of the financial
information provided by Guarantor to Lender is true and correct in
all respects. Guarantor shall furnish to Lender financial
statements of Guarantor prepared in accordance the terms of the
Loan Agreement.
III.7 Survival. All representations and warranties made
by Guarantor herein shall survive the execution hereof.
ARTICLE IV
SUBORDINATION OF CERTAIN INDEBTEDNESS
IV.1 Subordination of All Guarantor Claims. As used herein,
the term "Guarantor Claims" shall mean all debts and liabilities of
Borrower to Guarantor, whether such debts and liabilities now exist
or are hereafter incurred or arise, or whether the obligations of
Borrower thereon be direct, contingent, primary, secondary,
several, joint and several, or otherwise, and irrespective of
whether such debts or liabilities be evidenced by note, contract,
open account, or otherwise, and irrespective of the person or
persons in whose favor such debts or liabilities may, at their
inception, have been, or may hereafter be created, or the manner in
which they have been or may hereafter be acquired by Guarantor.
The Guarantor Claims shall include without limitation all rights
and claims of Guarantor against Borrower (arising as a result of
subrogation or otherwise) as a result of Guarantor's payment of all
or a portion of the Guaranteed Debt. Upon the occurrence of an
Event of Default (as defined in the Loan Documents) or the
occurrence of an event which would, with the giving of notice or
the
<PAGE> 6
passage of time, or both, constitute an Event of Default,
Guarantor shall not receive or collect, directly or indirectly,
from Borrower or any other party any amount upon the Guarantor
Claims.
IV.2 Claims in Bankruptcy. In the event of receivership,
bankruptcy, reorganization, arrangement, debtor's relief, or other
insolvency proceedings involving Guarantor as debtor, Lender shall
have the right to prove its claim in any such proceeding so as to
establish its rights hereunder and receive directly from the
receiver, trustee or other court custodian dividends and payments
which would otherwise be payable upon Guarantor Claims. Guarantor
hereby assigns such dividends and payments to Lender. Should
Lender receive, for application upon the Guaranteed Debt, any such
dividend or payment which is otherwise payable to Guarantor, and
which, as between Borrower and Guarantor, shall constitute a credit
upon the Guarantor Claims, then upon payment to Lender in full of
the Guaranteed Debt, Guarantor shall become subrogated to the
rights of Lender to the extent that such payments to Lender on the
Guarantor Claims have contributed toward the liquidation of the
Guaranteed Debt, and such subrogation shall be with respect to that
proportion of the Guaranteed Debt which would have been unpaid if
Lender had not received dividends or payments upon the Guarantor
Claims.
IV.3 Payments Held in Trust. In the event that,
notwithstanding anything to the contrary in this Guaranty,
Guarantor should receive any funds, payment, claim or distribution
which is prohibited by this Guaranty, Guarantor agrees to hold in
trust for Lender an amount equal to the amount of all funds,
payments, claims or distributions so received, and agrees that it
shall have absolutely no dominion over the amount of such funds,
payments, claims or distributions so received except to pay them
promptly to Lender, and Guarantor covenants promptly to pay the
same to Lender.
IV.4 Liens Subordinate. Guarantor agrees that any liens,
security interests, judgment liens, charges or other encumbrances
upon Borrower's assets securing payment of the Guarantor Claims
shall be and remain inferior and subordinate to any liens, security
interests, judgment liens, charges or other encumbrances upon
Borrower's assets securing payment of the Guaranteed Debt,
regardless of whether such encumbrances in favor of Guarantor or
Lender presently exist or are hereafter created or attach. Without
the prior written consent of Lender, Guarantor shall not
(i) exercise or enforce any creditor's right it may have against
Borrower, or (ii) foreclose, repossess, sequester or otherwise take
steps or institute any action or proceedings (judicial or
otherwise, including without limitation the commencement of, or
joinder in, any liquidation, bankruptcy, rearrangement, debtor's
relief or insolvency proceeding) to enforce any liens, mortgages,
deeds of trust, security interest, collateral rights, judgments or
other encumbrances on assets of Borrower held by Guarantor.
ARTICLE V
MISCELLANEOUS
V.1 Waiver. No failure to exercise, and no delay in
exercising, on the part of Lender, any right hereunder shall
operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or
the exercise of any other right. The rights of Lender hereunder
shall be in addition to all other rights provided by law. No
modification or waiver of any provision of this Guaranty, nor
consent to departure therefrom, shall be effective unless in
writing and no such consent or waiver shall extend beyond the
particular case and purpose involved. No notice or demand given in
any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice
or demand.
<PAGE> 7
V.2 Notices. All notices or other communications required or
permitted to be given pursuant hereto shall be in writing and shall
be deemed properly given if (i) mailed by first class United States
mail, postage prepaid, registered or certified with return receipt
requested; (ii) by delivering same in person to the intended
addressee; or (iii) by delivery to an independent third party
commercial delivery service for same day or next day delivery and
providing for evidence of receipt at the office of the intended
addressee. Notice so mailed shall be effective upon its deposit
with the United States Postal Service or any successor thereto;
notice sent by a commercial delivery service shall be effective
upon delivery to such commercial delivery service; notice given by
personal delivery shall be effective only if and when received by
the addressee; and notice given by other means shall be effective
only if and when received at the designated address of the intended
addressee. Either party shall have the right to change its address
for notice hereunder to any other location within the continental
United States by the giving of thirty (30) days notice to the other
party in the manner set forth herein. For purposes of such
notices, the addresses of the parties shall be as follows:
Lender: Comerica Bank-Texas
1601 Elm Street, 2nd Floor
Dallas, Texas 75201
Attn: National Real Estate Services
Guarantor: Stratus Properties Inc.
98 San Jacinto Boulevard, Suite 220
Austin, Texas 78791
Attn: William H. Armstrong, III
With a copy to: Armbrust Brown & Davis, L.L.P.
100 Congress Avenue
Suite 1300
Austin, Texas 78701
Attn: Kenneth Jones, Esq.
V.3 GOVERNING LAW. THIS GUARANTY IS EXECUTED AND DELIVERED
AS AN INCIDENT TO A LENDING TRANSACTION NEGOTIATED, CONSUMMATED,
AND PERFORMABLE IN DALLAS COUNTY, TEXAS, AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
ANY ACTION OR PROCEEDING AGAINST GUARANTOR UNDER OR IN CONNECTION
WITH THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN
DALLAS COUNTY, TEXAS. GUARANTOR HEREBY IRREVOCABLY (i) SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (ii) WAIVES ANY
OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN
INCONVENIENT FORUM. GUARANTOR AGREES THAT SERVICE OF PROCESS UPON
IT MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT
REQUESTED, AT ITS ADDRESS SPECIFIED HEREIN. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER MATTER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING ANY
ACTION OR PROCEEDING AGAINST GUARANTOR OR WITH RESPECT TO ANY OF
GUARANTOR'S PROPERTY IN COURTS IN OTHER JURISDICTIONS. ANY ACTION
OR PROCEEDING BY GUARANTOR AGAINST LENDER SHALL BE BROUGHT ONLY IN
A COURT LOCATED IN DALLAS COUNTY, TEXAS.
V.4 Invalid Provisions. If any provision of this Guaranty is
held to be illegal, invalid, or unenforceable under present or
future laws effective during the term of this Guaranty, such
provision shall be fully severable and this Guaranty shall be
construed and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part of this Guaranty, and the
remaining provisions of this Guaranty shall remain in full force
and effect and shall not be affected by the illegal, invalid or
unenforceable provision or by its severance from this Guaranty,
unless such
<PAGE> 8
continued effectiveness of this Guaranty, as modified,
would be contrary to the basic understandings and intentions of the
parties as expressed herein.
V.5 Amendments. This Guaranty may be amended only by an
instrument in writing executed by the party or an authorized
representative of the party against whom such amendment is sought
to be enforced.
V.6 Parties Bound; Assignment. This Guaranty shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors, assigns and legal representatives;
provided, however, that Guarantor may not, without the prior
written consent of Lender, assign any of its rights, powers, duties
or obligations hereunder.
V.7 Headings. Section headings are for convenience of
reference only and shall in no way affect the interpretation of
this Guaranty.
V.8 Recitals. The recital and introductory paragraphs hereof
are a part hereof, form a basis for this Guaranty and shall be
considered prima facie evidence of the facts and documents referred
to therein.
V.9 Counterparts. To facilitate execution, this Guaranty may
be executed in as many counterparts as may be convenient or
required. It shall not be necessary that the signature or
acknowledgment of, or on behalf of, each party, or that the
signature of all persons required to bind any party, or the
acknowledgment of such party, appear on each counterpart. All
counterparts shall collectively constitute a single instrument. It
shall not be necessary in making proof of this Guaranty to produce
or account for more than a single counterpart containing the
respective signatures of, or on behalf of, and the respective
acknowledgments of, each of the parties hereto. Any signature or
acknowledgment page to any counterpart may be detached from such
counterpart without impairing the legal effect of the signatures or
acknowledgments thereon and thereafter attached to another
counterpart identical thereto except having attached to it
additional signature or acknowledgment pages.
V.10 Rights and Remedies. If Guarantor becomes liable for any
indebtedness owing by Borrower to Lender, by endorsement or
otherwise, other than under this Guaranty, such liability shall not
be in any manner impaired or affected hereby and the rights of
Lender hereunder shall be cumulative of any and all other rights
that Lender may ever have against Guarantor. The exercise by
Lender of any right or remedy hereunder or under any other
instrument, or at law or in equity, shall not preclude the
concurrent or subsequent exercise of any other right or remedy.
V.11 ENTIRETY. THIS GUARANTY EMBODIES THE FINAL, ENTIRE
AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR'S
GUARANTY OF THE GUARANTEED DEBT AND SUPERSEDES ANY AND ALL PRIOR
COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF.
THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND
COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF
DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO
TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC
EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY,
SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE
ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.
V.12 Release of Guaranty. Upon full and final payment of the
indebtedness evidenced by the Note, performance of all obligations
under the Loan Documents and satisfaction of the Guaranteed Debt,
this Guaranty will be released and of no further force and effect.
V.13 Capitalized Terms. Capitalized terms used herein shall
have the same meaning as provided in the Loan Agreement, except as
otherwise specified herein.
<PAGE> 9
EXECUTED as of the day and year first above written.
GUARANTOR:
STRATUS PROPERTIES INC.,
a Delaware corporation
By: /s/ William H. Armstrong, III
-------------------------------------
Name: William H. Armstrong, III
Title:Chairman of the Board,
President and Chief Executive Officer
STATE OF TEXAS &
&
COUNTY OF ______&
This instrument was ACKNOWLEDGED before me this 24 day of
February, 2000, by William H. Armstrong, III, the Chairman of the
Board, President and Chief Executive Officer of STRATUS PROPERTIES
INC., a Delaware corporation, on behalf of said corporation.
[S E A L]
Notary Public - State of Texas
My Commission Expires:
______________________ Printed Name of Notary Public
<PAGE> 10
Exhibit 15.1
May 1, 2000
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 March 31, 2000, which
includes our report dated May 1, 2000 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 March 31, 2000 and the three months
then ended, and is qualified in its entirety by reference to such statements.
</LEGEND>
<CIK> 0000885508
<NAME> STRATUS PROPERTIES INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,333
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,120
<PP&E> 89,343
<DEPRECIATION> 223
<TOTAL-ASSETS> 111,750
<CURRENT-LIABILITIES> 1,035
<BONDS> 16,828
10,000
0
<COMMON> 143
<OTHER-SE> 73,975
<TOTAL-LIABILITY-AND-EQUITY> 111,750
<SALES> 2,060
<TOTAL-REVENUES> 2,060
<CGS> 1,601
<TOTAL-COSTS> 1,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193
<INCOME-PRETAX> 7,090
<INCOME-TAX> 40
<INCOME-CONTINUING> 7,278
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,278
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.44
</TABLE>
