SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From .......... to ..........
Commission file number 0-19989
Stratus Properties Inc.
(Exact name of Registrant as specified in Charter)
Delaware 72-1211572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
98 San Jacinto Blvd., Suite 220
Austin, Texas 78701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (512) 478-5788
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock Par Value $0.01 per Share
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $44,478,800 on
March 7, 2000.
On March 7, 2000, 14,288,270 shares of Common Stock, par
value $0.01 per share, of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement to be submitted
to the registrant's stockholders in connection with its 2000
Annual Meeting to be held on May 11, 2000, are incorporated by
reference into Part III of this Report.
TABLE OF CONTENTS
Page
Part I..........................................................1
Item 1. Business .............................................1
Overview...............................................1
Company Strategies.....................................1
Credit Facility........................................2
Transactions with Olympus Real Estate Corporation......2
Regulation and Environmental Matters...................3
Employees..............................................3
Cautionary Statements..................................3
Item 2. Properties.............................................5
Item 3. Legal Proceedings......................................5
Item 4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant ..................6
Part II.........................................................6
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................7
Item 6. Selected Financial Data................................7
Items 7. and 7A.
Management's Discussion and Analysis of Financial
Condition and Results of Operations and Disclosures
about Market Risks ....................................8
Item 8. Financial Statements and Supplementary Data...........14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................15
Part III ......................................................28
Item 10. Directors and Executive Officers of the Registrant....28
Item 11. Executive Compensation................................28
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................28
Item 13. Certain Relationships and Related Transactions........28
Part IV. ......................................................28
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...................................28
Signatures....................................................S-1
Financial Statement Schedules.................................F-1
Exhibits......................................................E-1
PART I
Item 1. Business
Overview
Our company was formed in March 1992, to hold, operate and
develop substantially all the domestic real estate then held for
development by, and substantially all of the domestic oil and gas
properties of, our former parent Freeport-McMoRan Inc. (see Note
1 to Notes To Financial Statements). All subsequent references to
"Notes" refer to the Notes To Financial Statements located in
Item 8, of this Form 10-K. We also assumed the related
liabilities associated with these properties, including
approximately $500 million of indebtedness, which was guaranteed
by Freeport-McMoRan. This guarantee was subsequently assumed by
IMC Global Inc. (see Notes 1 and 5). We have sold all of our oil
and gas properties and our current business is solely real estate
operations.
We are engaged in the acquisition, development, management
and sale of commercial and residential real estate properties. We
conduct real estate operations on properties we own and through
unconsolidated affiliates that we jointly own with Olympus Real
Estate Corporation (see "Transactions with Olympus Real Estate
Corporation" below).
Our principal real estate holdings are currently in the
Austin, Texas area. Our most significant acreage includes the
approximate 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,
located 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.
We also own 24 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.
Company Strategies
Since our formation, our primary objective has been to
reduce our indebtedness and to eliminate the debt guarantee. In
December 1999, as a result of our negotiation of a new credit
facility, we were able to eliminate the debt guarantee. Our
outstanding debt totaled $16.6 million at December 31, 1999
compared with $493.3 million in March 1992.
With the new credit facility, we now have more autonomy and
fewer restrictions on our business activities. We can now fully
concentrate our efforts on developing our properties and
increasing shareholder value. Key factors in accomplishing these
goals include:
. Our overall strategy is to enhance the value of our Austin
properties by securing and maintaining development
entitlements, developing and building real estate projects for
sale or investment, thereby increasing the potential return
from our core assets. We may own these future developments
outright or they may be developed through joint ventures with
others. We have had significant development activity through
joint ventures during the last half of 1998 and during 1999
and expect that activity to continue as we continue to expand
our relationship with Olympus (see below).
During 1999, we completed the development of the 75 residential
lots at the Wimberly Lane subdivision at Barton Creek and by the
end of 1999, 42 of the lots had been sold with the balance under
contract to close during 2000. We are continuing our efforts to
develop several new subdivisions around the new Tom Fazio designed
"Fazio Canyons" golf course, including our most recent joint venture
arrangement to develop 54 multi-acre residential lots at the Escala
Drive subdivision at Barton Creek. These lots will be completed and
intial sales will occur around mid-2000. Also during 1999, we completed and
fully leased the first 70,000 square foot office building at the 140,000
square foot Lantana Corporate Center. Construction and pre-leasing has
begun on the second 70,000 square foot office building, with its expected
completion date being mid-2000.
. We are currently permitting additional residential property at
Barton Creek, and we expect to secure final approval for the first
subdivision by the end of 2000.
Additional commercial and multi-family sites within Lantana are
also being permitted. Final approval for these sites are expected to
be received during 2000.
<PAGE> 1
. We believe that we have the right to receive up to $30 million
of future reimbursements associated with previously incurred
utility infrastructure development costs. Substantial
additional costs eligible for reimbursement will be incurred
in the future as our development activities continue. We
received $13.1 million of Municipal Utility District (MUD)
reimbursements during 1999 of which $2.8 million was
associated with the Barton Creek MUDs, while the remaining
$10.3 million was received from the City of Austin (the City)
as a partial payment of our Circle C MUD claim. We continue
to seek a final resolution or enforcement pertaining to our
entitlement rights to the approximate $9 million in remaining
Circle C MUD reimbursements. See Item 3, "Legal Proceedings,"
for more details on that matter.
. We face significant challenges to the development entitlements
of our core properties in Austin, which are more fully
discussed under Item 3, "Legal Proceedings." We will continue
to vigorously defend our rights to the development
entitlements of all our properties, but aggressive attempts to
restrict growth in the area of our holdings have had and are
expected to continue to have a negative effect on near term
development and sales activities.
. We are expanding our real estate management activities,
primarily as a result of our role as manager in the various
joint venture projects. We also continue to be retained by
third parties to provide management assistance on selective
real estate projects, including the Lakeway project, near
Austin.
. We also continue to investigate and pursue opportunities for
new projects which require minimal capital from us and which
offer the possibility of acceptable returns and limited risk.
Credit Facility
In December 1999, we established a new bank credit facility
with Comerica Bank-Texas, which provides for a $20 million term
loan and a $10 million revolving line of credit. We borrowed $20
million under the term loan portion of the facility and repaid
all our outstanding borrowings under the previous credit
facility, which was then terminated. This retirement of the
previous credit facility removed the guarantee of our
indebtedness by IMC Global, which assumed the guarantee from
Freeport-McMoRan in connection with the merger in 1997 (see Note
1). Our debt is no longer guaranteed by any third party. Under
terms of the new facility, we are required to make minimum
repayments under the term loan of $2.5 million in 2000 and an
additional $5.0 million in 2001. We have already met our 2000
requirement by repaying $6.1 million prior to December 31, 1999.
The facility will mature in December 2002, subject to our option
to extend the maturity until December 2003. For a further
discussion of the credit facility see Note 5, and Items 7 and 7A,
"Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosure About Market Risks."
Transactions with Olympus Real Estate Corporation
On May 22, 1998, we formed a strategic alliance with Olympus
Real Estate Corporation, an affiliate of Hicks, Muse, Tate and
Furst Incorporated, to develop certain of our existing properties
and to pursue new real estate acquisition and development
opportunities. Under the terms of the agreement, Olympus
purchased $10 million of our mandatorily redeemable preferred
stock, provided us a $10 million convertible debt facility and
agreed to make available up to $50 million of additional capital
representing its share of direct investments in joint
Stratus/Olympus projects. Olympus has the right to nominate one
member or up to 20 percent of our Board of Directors, whichever
is greater.
We have entered into three joint ventures with Olympus. We
own 49.9 percent of each joint venture and Olympus owns the
remaining 50.1 percent. We are the developer and manager for each
of the joint venture projects. Accordingly, we receive various
development fees, sales commissions and other management fees for
our services.
The first two joint ventures were formed on September 30,
1998. The first provided for the development of a 75 residential
lot project at the Barton Creek Wimberly Lane subdivision. We
sold the land to the joint venture for approximately $3.2 million
and paid approximately $0.5 million for our equity interest in
the now fully developed project. The other transaction involved
approximately 700 developed lots and 80 acres of platted but
undeveloped real estate at the Walden on Lake Houston project,
which Olympus purchased in April 1998 and we have managed ever
since. We acquired our interest in the related partnership
utilizing $2.0 million of funds available under the Olympus
convertible debt facility. During the third quarter of 1999, we
formed a third joint venture associated with the construction of
the first 70,000 square foot office building at the Lantana
Corporate Center. In this transaction we sold 5.5 acres of
commercial real estate to the joint venture for $1.0 million. In
December 1999, we sold 174 acres of our Barton Creek residential
property to the joint venture initially formed to develop the
lots at the Wimberly Lane subdivision (see above) for $11
million. The land will be developed into 54 multi-acre single-
family residential lots, which when completed will be the largest
lots developed to date within the Barton Creek community. For
a detailed
<PAGE> 2
discussion of these transactions see "Joint Ventures
with Olympus Real Estate Corporation" included in Items 7 and 7A
"Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures About Market Risks."
Regulation and Environmental Matters
Our real estate investments are subject to extensive local,
city, county and state rules and regulations regarding
permitting, zoning, subdivision, utilities and water quality as
well as federal rules and regulations regarding air and water
quality and protection of endangered species and their habitats.
Such regulation has delayed and will likely continue to delay
development of our properties and result in higher developmental
and administrative costs. See Item 3, "Legal Proceedings."
We are making, and will continue to make, expenditures for
the protection of the environment with respect to our real estate
development activities. Emphasis on environmental matters will
result in additional costs in the future. Based on an analysis of
our operations in relation to current and presently anticipated
environmental requirements, we currently do not anticipate that
these costs will have a material adverse effect on our future
operations or financial condition.
Employees
At December 31, 1999, we had 19 employees, who manage our
operations. We own 10 percent of a corporation which provides us
with certain management and administrative services, including
technical, administrative, accounting, financial, tax, and other
services, under a management services agreement. We may terminate
this contract at any time upon 90 days notice to the affiliated
corporation. Costs for services provided under this contract
prior to January 1, 1998 were fixed at $0.5 million per annum,
subject to annual cost of living adjustments. However, effective
January 1, 1998, these services are provided on a cost
reimbursement basis, which totaled $0.9 million in 1999 and $1.0
million in 1998.
Cautionary Statements
This report includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements are all statements other than statements of historical
fact included in this report, including, without limitation, the
statements under the headings "Business," "Properties," "Market
for Registrant's Common Equity and Related Stockholder Matters,"
and "Management's Discussion and Analysis of Financial Condition
and Results of Operations and Disclosures About Market Risks"
regarding our financial position and liquidity, payment of
dividends, strategic plans, future financing plans, development
and capital expenditures, business strategies, and our other
plans and objectives for future operations and activities.
Forward-looking statements are based on our assumptions and
analysis made in light of our experience and perception of
historical trends, current conditions, expected future
developments and other factors that we believe are appropriate
under the circumstances. These statements are subject to a
number of assumptions, risks and uncertainties, including the
risk factors discussed below and in our other filings with the
Securities and Exchange Commission, general economic and business
conditions, the 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. Readers are
cautioned that forward-looking statements are not guarantees of
future performance and the actual results or developments may
differ materially from those projected, predicted or assumed in
the forward-looking statements. Important factors that could
cause actual results to differ materially from our expectations
include, among others, the following:
If we are unable to generate sufficient cash from operations we
may find it necessary to curtail our development operations. We
have made substantial reductions in debt since our formation in
1992. However, significant capital resources will be required to
fund our development expenditures and our debt reduction
requirements under the new credit facility. Our performance
continues to be dependent on future cash flows from real estate
sales, and there can be no assurance that we will generate
sufficient cash flow or otherwise obtain sufficient funds to meet
the expected development plans for our properties and to meet the
debt reduction requirements under the facility.
Our real estate operations are also dependent upon the
availability and cost of mortgage financing for potential
customers, to the extent they finance their purchases, and for
buyers of the potential customers' existing residences.
<PAGE> 3
Our results of operations and financial condition are greatly
affected by the performance of the real estate industry. Our
real estate activities are subject to numerous factors beyond our
control, including local real estate market conditions (both
where our properties are located and in areas where our potential
customers reside), substantial existing and potential
competition, the cyclical nature of the real estate business,
general national, regional and local economic conditions,
fluctuations in interest rates and mortgage availability and
changes in demographic conditions. Real estate markets have
historically been subject to strong periodic cycles driven by
numerous factors beyond the control of market participants.
Real estate investments often cannot easily be converted
into cash and market values may be adversely affected by these
economic circumstances, market fundamentals, competition and
demographic conditions. Because of the effect these factors have
on real estate values, it is difficult to predict with certainty
the level of future sales or sales prices that will be realized
for individual assets.
Our operations are subject to an intensive regulatory approval
process. Before we can develop a property we must obtain a
variety of approvals from local and state governments with
respect to such matters as zoning, density, parking, subdivision,
architectural design and environmental issues. These approvals
are discretionary by nature. Because certain government agencies
and special interest groups have expressed concerns about our
development plans in or near Austin, our ability to develop these
properties and realize future income from our properties could be
delayed, reduced, prevented or made more expensive.
The City and certain special interest groups have long
opposed certain of our plans in the Austin area and have taken
various actions to partially or completely restrict development
in certain areas, including areas where some of our most valuable
properties are located. We are actively opposing these actions.
We currently do not believe unfavorable rulings would have a
significant long-term adverse effect on the overall value of our
property holdings. However, because of the regulatory environment
that continues to exist in the Austin area and the intensive
opposition of certain interest groups, there can be no assurance
that such expectations will prove correct. A more complete
discussion of these matters is set forth under Item 3, "Legal
Proceedings."
Our operations are subject to governmental environmental
regulation, which can change at any time and generally would
result in an increase to our costs. Real estate development is
subject to state and federal regulations and to possible
interruption or termination because of environmental
considerations, including, without limitation, air and water
quality and protection of endangered species and their habitats.
Certain of the Barton Creek properties include nesting
territories for the Golden Cheek Warbler, a federally listed
endangered species. In February 1995 we received a permit from
the U.S. Wildlife Service pursuant to the Endangered Species Act,
which to date has allowed the development of the Barton Creek
properties free of restrictions under the Endangered Species Act
related to the maintenance of habitat for the Golden Cheek
Warbler.
Additionally, in April 1997, the U.S. Department of Interior
listed the Barton Springs Salamander as an endangered species
after a federal court overturned a March 1997 decision by the
Department of Interior not to list the Barton Springs Salamander
based on a conservation agreement between the State of Texas and
federal agencies. The listing of the Barton Springs Salamander
hasn't affected, nor do we anticipate it will affect, our Barton
Creek and Lantana properties for several reasons, including the
results of technical studies and our U.S. Fish and Wildlife
Service 10(a) permit obtained in 1995. Our Circle C properties
may, however, be affected, although the extent of any impact
cannot be determined at this time. Special interest groups
provided written notice of their intention to challenge our 10(a)
permit and compliance with water quality regulations, but no
challenge has yet occurred.
We are making, and will continue to make, expenditures with
respect to our real estate development for the protection of the
environment. Emphasis on environmental matters will result in
additional costs in the future.
The real estate business is very competitive and many of our
competitors are larger and financially stronger than we are. The
real estate business is highly competitive. We compete with a
large number of companies and individuals, and many of them have
significantly greater financial and other resources than we have.
Our competitors include local developers who are committed
primarily to particular markets and also against national
developers who acquire properties throughout the United States.
We are vulnerable to risks because our operations are currently
exclusive to the Texas market. Our real estate activities are
located entirely in the Austin, Dallas, Houston and San Antonio,
Texas areas. Because of our geographic concentration and limited
number of projects, our operations are more vulnerable to local
economic downturns and adverse project-specific risks than those
of larger, more diversified companies.
<PAGE> 4
The performance of the Texas economy affects our sales and
consequently the underlying values of our properties. While the
Texas economy has remained healthy in recent years, its economy
has historically been subject to cyclical downturns primarily as
a result of adverse economic conditions within the oil and gas
industry.
Our operations are subject to natural risks. Our performance may
be adversely affected by weather conditions that delay
development or damage property.
Item 2. Properties
Our holdings, including our inventory of finished lots and
acreage to be developed but excluding our holdings in joint
ventures, are provided in the following table. The acreage to be
developed is broken down into anticipated uses for single-family
lots, multi-family units and commercial development based upon
our understanding of the properties' existing entitlements.
However, there is no assurance that the undeveloped acreage will
be so developed because of the nature of the approval and
development process and market demand for a particular use. See
Item 3, "Legal Proceedings," for more details. For information
concerning our unconsolidated affiliates' real estate holdings,
see "Transaction with Olympus Real Estate Corporation" above and
"Managements Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures About Market Risks" in Items
7 and 7A below.
<TABLE>
<CAPTION>
Potential Development Acreage
-----------------------------------------
Developed Single
Lots Family Multi-family Commercial Total
--------- ------ ------------ ---------- ------
<S> <C> <C> <C> <C> <C>
Austin
Barton Creek - 1,351 249 673 2,273
Lantana - 154 36 311 501
Circle C - - 212 1,062 1,274
Dallas
Bent Tree - - 10 - 10
Houston
Copper Lakes 16 120 - - 120
San Antonio
Camino Real 8 - 23 - 23
--------- ------ ------------ ---------- ------
Total 24 1,625 530 2,046 4,201
========= ====== ============ ========== ======
</TABLE>
Item 3. Legal Proceedings
Various regulatory matters and litigation involving the
development of our Austin properties are summarized below.
The City's WQPZ Action: The City of Austin, Texas v. Horse Thief
Hollow Ranch, Ltd., et al., Cause No. 98-00248 (Travis County
345th Judicial District Court, Texas filed 1/9/98). On January
9, 1998, the City filed suit in Travis County District Court
against 14 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.
<PAGE> 5
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 is expected to be set
during the second quarter of 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. Under the terms of the agreement, Stratus would be
required to return the money to the City and the City would be
required to 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. Stratus' remaining share is
estimated at approximately $9.0 million, exclusive of penalties
and interest. See Note 10 for further discussion of the City's
partial payment of the Circle C MUD reimbursement.
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 the outstanding delinquent
Circle C MUD reimbursements. 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 property and Lantana. In response,
Stratus undertook to assert and defend its grandfathered
entitlements vigorously. In April 1999, the Texas State House of
Representatives and Senate overwhelmingly approved H.B. 1704,
which reinstated the grandfathered rights previously
inadvertently repealed. This bill became law effective on May
11, 1999.
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.
We maintain liability insurance to cover some, but not all,
potential liabilities normally incident to the ordinary course of
our business as well as other insurance coverage customary in our
business, with such coverage limits as management deems prudent.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Executive Officers of the Registrant
Certain information, as of March 9, 2000, regarding our
executive officers is set forth in the following table and
accompanying text.
<PAGE> 6
Name Age Position or Office
---- --- ------------------
William H. Armstrong III 35 Chairman of the Board, President
and Chief Executive Officer
Kenneth N. Jones 40 General Counsel
Mr. Armstrong has been employed by us since our inception in
1992. He has served us as Chairman of the Board since August
1998, Chief Executive Officer since May 1998 and President since
August 1996. Previously Mr. Armstrong served as Chief Operating
Officer from August 1996 to May 1998 and as Chief Financial
Officer from May 1996 to August 1996. He served as Executive
Vice President from August 1995 to August 1996. Previously, Mr.
Armstrong was a member of the Finance and Business Development
Group of Freeport-McMoRan Inc. with responsibility for real
estate activities.
Mr. Jones has served as our General Counsel since August
1998. Mr. Jones is a partner with the law firm of Armbrust Brown
& Davis, L.L.P. and he provides legal and business advisory
services under a consulting arrangement with his firm.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Our common stock trades on the Nasdaq National Market under
the symbol STRS. The following table sets forth, for the periods
indicated, the range of high and low sales prices, as reported by
Nasdaq.
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
High Low High Low
------- ------- ------- ------
<S> <C> <C> <C> <C>
First Quarter $ 4.63 $ 3.13 $ 7.13 $ 4.63
Second Quarter 5.00 2.88 6.63 3.88
Third Quarter 5.25 3.75 4.75 3.00
Fourth Quarter 4.88 3.75 4.13 2.63
</TABLE>
As of February 28, 2000 there were 8,343 holders of record
of our common stock. We have not in the past paid, and do not
anticipated in the future paying, cash dividends on our common
stock. The decision whether or not to pay dividends and in what
amounts is solely within the discretion of our Board of
Directors. However, our current ability to pay dividends is also
restricted by the terms of our credit agreement, as discussed in
Note 5.
Item 6. Selected Financial Data
The following table sets forth our selected historical
financial data for each of the five years in the period ended
December 31, 1999. The historical financial information is
derived from our audited financial statements and is not
necessarily indicative of our future results. You should read
the information in the table below together with Items 7 and 7A
"Management's Discussion and Analysis of Financial Condition and
Results of Operations and Disclosures About Market Risks" and
Item 8 "Financial Statements and Supplemental Data."
<TABLE>
<CAPTION>
1999 1998 1997a 1996 1995
-------- -------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
Years Ended December 31:
Revenues $ 14,676 $ 17,590 $ 30,953 $ - $ -
Loss from Partnership - - - (346) (571)
Operating income (loss) 3,350 (572) 3,907 (566) (2,367)
Net income (loss) 2,871 (2,638) 7,006b 76 153
Basic net income (loss)
per share 0.20 (0.18) 0.49 0.01 0.01
Diluted net income (loss)
per share 0.18 (0.18) 0.48 0.01 0.01
Basic average shares
outstanding 14,288 14,288 14,288 14,286 14,286
Diluted average shares
outstanding 16,238c 14,288 14,517 14,390 14,312
<PAGE> 7
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
(in Thousands)
<S> <C> <C> <C> <C> <C>
At December 31:
Real estate and facilities,
net 91,664 96,556 105,274 - -
Investment in the
Partnership - - - 56,055 56,401
Total assets 115,672 111,829 112,754 60,985 60,897
Long-term debt 16,562 29,178 37,118 - d d
Stockholders' equity 66,840 63,969 66,607 59,599 59,523
</TABLE>
- ---------------------------
a. Prior to 1997, our operating results were reported
under the equity basis of accounting, reflecting our
investment in an operating partnership through which we conducted
our operations. See Note 1 of Notes To Financial Statements.
b. Includes a $4.5 million ($0.31 per share) gain from
sale of oil and gas properties.
c. Assumes the redemption of our 1.7 million shares of
outstanding mandatorily redeemable preferred stock for 1.7
million shares of common stock.
d. Long-term debt was not reflected in our consolidated
financial position because our investment in the operating
partnership was recorded under the equity method (see Note 1).
The separate debt amounts included in Investment in the
Partnership prior to 1997 were $58,325 for 1996 and $121,294
for 1995.
Items 7. and 7A. Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures About
Market Risks
Overview
We are engaged in the acquisition, development, management
and sale of commercial and residential real estate properties. We
conduct real estate operations on properties we own and through
unconsolidated affiliates we jointly own with Olympus Real Estate
Corporation (see "Joint Ventures with Olympus Real Estate
Corporation" below), pursuant to a strategic alliance formed in
May 1998.
Our principal real estate holdings are currently in the
Austin, Texas area. Our most significant acreage includes the
approximate 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,
located 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.
We also own 24 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. Unaffiliated
professional real estate developers who have been retained to
provide master planning, zoning, permitting, development,
construction and marketing services for the properties manage
these real estate interests. Under the terms of these
agreements, we fund operating expenses and development costs
associated with these properties, net of revenues. Also, the
developers are entitled to a management fee and a 25 percent
interest in the net profits, after we recover our investments and
a stated rate of return, resulting from the sale of properties
under their management. As of December 31, 1999 no amounts have
been or are expected to be paid in connection with these net
profit arrangements.
Joint Ventures With Olympus Real Estate Corporation (Olympus)
We have entered into three joint ventures with Olympus, an
affiliate of Hicks, Muse, Tate & Furst Incorporated, pursuant to
a strategic alliance entered into on May 22, 1998 (see Note 2 of
the Notes to Financial Statements). All subsequent references to
"Notes" refer o the Notes To Financial Statements located in Item
8, found elsewhere in this Form 10-K.
Olympus owns a 50.1 percent interest and we own a 49.9
percent interest in each joint venture. The first two joint
ventures were formed on September 30, 1998 and the third was
formed in the third quarter of 1999. One joint venture was
expanded to encompass a new project during the fourth quarter of
1999. See Note 4, for financial information about our
unconsolidated affiliates.
Barton Creek Joint Venture
The first joint venture involved our sale of the Wimberly
Lane tract (formerly called ABC West Phase I subdivision tract)
in Barton Creek, to the Oly Stratus Barton Creek I Joint Venture
(Barton Creek Joint Venture) (formerly the Oly Stratus ABC West I
Joint Venture) on September 30, 1998. The Barton Creek Joint
Venture agreed to
<PAGE> 8
pay $3.3 million for the 28-acre tract. We
received $2.1 million, a note for $1.2 million and made an equity
contribution of $0.5 million upon formation of the joint venture.
In November 1998, as manager of the project, we arranged a $3.9
million project loan for the joint venture. The assets held in
the joint venture secured the loan. We were also required, as
additional collateral for the loan, to deposit $0.5 million with
the bank in a restricted account until the loan was repaid in its
entirety. Initial borrowings on the project loan were used to
reimburse us $1.9 million for costs incurred on the development
prior to the formation of the joint venture. Subsequent
borrowings were used to complete the project. During the first
quarter of 1999, as developer, we completed the development of 75
residential lots. As manager, we have been marketing and selling
these 75 lots during 1999. As of December 31, 1999, 42 of the
residential lots have been sold and funded. The joint venture
used proceeds from these sales to repay all outstanding
borrowings on the project loan, which required the bank to
release the $0.5 million restricted deposit. We received a
development fee for completing the project and receive
commissions for the lot sales. We anticipate all of the remaining
lots owned by the joint venture will be sold by no later than the
end of 2000. The proceeds from these future lot sales will be
used in the development of the 54 lots recently added to the
joint venture, as more fully explained below.
In December 1999, we sold 174 acres of land encompassing 54
platted lots within the Barton Creek community near Austin, Texas
to the Barton Creek Joint Venture for $11.0 million. Upon closing
of the sale we received $6.0 million and a $5.0 million note. We
deferred our ownership interest in the $11.0 million of sales
proceeds, or $5.5 million, and the related gain of $6.0 million,
or $3.0 million. We will recognize these deferred amounts and the
note will be paid as the lots are developed and sold to third
parties. The 54 lots are currently being developed and will
average over 3 acres in size, which will make these lots the
largest homesites developed to date within the Barton Creek
community. All of these lots have scenic hill country settings
and some will overlook the new Tom Fazio-designed "Fazio Canyons"
golf course. The lots are being developed pursuant to the City's
more restrictive development requirments and could be completed as
early as the second quarter of 2000. The development of these
lots will be funded primarily through the initial equity
contributions of the partners and proceeds from sales of the
remaining lots at the Wimberly Lane section of the Barton Creek
Joint Venture (see above).
Walden Partnership
The second joint venture, also formed on September 30, 1998,
involved us acquiring a 49.9 percent interest in the Oly Walden
General Partnership (the Walden Partnership), which owns the
Walden on Lake Houston project in Houston, Texas that Olympus
purchased in April 1998. We have managed this project on
Olympus' behalf under the terms of a management agreement since
April 1998. We paid $2.0 million for our share of the Walden
Partnership, borrowing funds available to us under the $10
million convertible debt facility with Olympus (see Note 2). We
will continue to manage this property, which at December 31,
1999, included approximately 590 developed lots and 80 acres of
platted but undeveloped real estate, and will receive management
fees and commissions for our services. During the second quarter
of 1998, we negotiated agreements with homebuilders providing for
the sale of approximately 90 percent of the developed lots at
that time. These agreements require the purchasers to close on
the lots pursuant to a specific schedule that extends through
2002. As of December 31, 1999, approximately 340 lots have
already closed and funded under these agreements. The Walden
Partnership has an $8.2 million project loan, which is
nonrecourse to the partners and is secured by the assets of the
project. We were also required to make a restricted cash deposit
of $2.5 million as additional collateral for the loan, of which
$1.5 million was still restricted at December 31, 1999.
7000 West
On August 16, 1999, we sold Olympus a 50.1 percent interest
in a 70,000 square foot office building, which is the first phase
of the 140,000 square foot Lantana Corporate Center (7000 West).
Upon closing we received $1.1 million and recognized a $0.5
million gain. We deferred our retained interest, or $0.5
million, of the sales proceeds and related gain resulting from
the sale of the 5.5 acres of commercial real estate associated
with Phase I of the project to the joint venture. As developer,
we completed construction on the first building in November 1999
and as manager we have secured signed lease agreements which have
fully occupied the building. We are proceeding with construction
on the second 70,000 square foot office building. We anticipate
closing a transaction with Olympus for the sale of the 5.5 acres
of commercial real estate associated with Phase II, which will be
substantially the same as the Phase I transaction. Funds for the
construction of the first building at 7000 West were provided by
the $6.6 million project loan, which we arranged in April 1999.
The 18-month, variable rate, nonrecourse loan is secured by the
11 acres of land at 7000 West, related improvements and
approximately $2.0 million of utility infrastructure
reimbursements due from the City of Austin (the City) for the
Lantana pump station. This loan is being amended to provide an
additional $7.7 million for construction of the second building.
The amended loan will no longer require our $2.0 million
receivable from the City as security.
<PAGE> 9
Other Development Activities
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
surrounding the new Tom Fazio-designed "Fazio Canyons" golf
course, which was completed in September 1999. We expect that a
number of these homesites could be available for sale by late
2000. However, permitting and entitlement issues now being
litigated make the timing of completion of the projects at Barton
Creek uncertain.
Results Of Operations
Summary operating results follow (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Revenues
Undeveloped properties
Unrelated parties $ 3,024 $ 1,016 $ 13,230
Olympus 6,020 1,651 -
Recognition of deferred revenues 904 - -
------- -------- --------
Total undeveloped properties 9,948 2,667 13,230
Developed properties 3,371 14,457 17,723
Commissions, management fees and other 1,357 466 -
------- -------- --------
Total revenues 14,676 17,590 30,953
------- -------- --------
Operating income (loss) 3,350a,b (572)a,b 3,907a
Net income (loss) 2,871 (2,638) 7,006c
</TABLE>
a. Includes reimbursement of infrastructure cost expensed in
prior years of $2.8 million in 1999, $0.8 million in 1998 and
$3.1 million in 1997.
b. Includes $3.5 million of recognized gains associated with
transactions involving the 7000 West and Barton Creek Joint Ventures
in 1999 and a $0.6 million recognized gain in 1998 from the
formation of the Barton Creek Joint Venture.
c. Includes a $4.5 million gain from sale of oil and gas
property interests.
Our undeveloped property revenues include both sales of
undeveloped properties to third parties and the recognition of
previously deferred revenues from the sale of undeveloped real
estate to our unconsolidated affiliates. When we sell real estate
to an entity that we own jointly with Olympus, we defer
recognizing the portion of the revenue from the sale related to
our interest until all or a portion of the real estate is
ultimately sold to unrelated parties. Our 1999 undeveloped
property revenues to unrelated parties included (1) the sale of
44 acres of residential property in Houston, (2) the sale of 34
acres of multi-family real estate in San Antonio and (3) the sale
of 8 acres of multi-family real estate in Dallas. Sales of real
estate to joint ventures with Olympus included the sale of 174
acres of residential property to the Barton Creek Joint Venture
and the sale of 5.5 acres of commercial real estate to the 7000
West Joint Venture (see "Joint Ventures with Olympus Real Estate
Corporation" above). Our recognition of deferred revenues
resulted from the sale of 42 Wimberly Lane developed lots by the
Barton Creek Joint Venture. Sales of 75 single-family homesites
represent our 1999 developed property revenues.
By comparison, our 1998 undeveloped real estate sales to
unrelated parties included the sale of 2 acres of commercial
real estate in Dallas, 27 acres of residential property in San
Antonio and 17 acres of residential property in Barton Creek. Our
Olympus revenues resulted from the sale of 28 acres of Barton
Creek residential real estate to the Barton Creek Joint Venture,
of which $1.6 million was originally deferred. Our 1998 developed
property revenues resulted from the sale of 213 single-family
homesites. Our 1997 undeveloped revenues include the sale of 72
acres of commercial and multi-family real estate. Developed
property revenues during 1997 resulted from the sale of 198
single-family homesites and 46 acres of residential real estate.
Increased commissions, management fees and other revenues
reflect our effort to expand that part of our business through
our role as manager in the joint ventures with Olympus, as well
as our management of the 2,200 acre Lakeway project near Austin.
Costs of sales were $7.8 million in 1999, $14.1 million in
1998 and $24.3 million in 1997. The decrease in 1999 from 1998
primarily reflects the substantial reduction in sales,
particularly those related to the sales of developed lots.
Additionally, reimbursements of certain infrastructure costs,
which were previously charged to expense or related to properties
previously sold, reduced cost of sales by $2.8 million in 1999,
$0.8 million in 1998 and $3.1 million in 1997.
<PAGE> 10
Our general and administrative expenses totaled $3.5
million in 1999, $4.0 million in 1998 and $2.8 million during
1997. The variances between the respective years primarily are
the result of legal expenses. Legal expenses totaled $0.8 million
in 1999, $1.5 million in 1998, and $0.6 million in 1997. Our
legal costs primarily represent our ongoing efforts to resolve
through litigation attempts by the City and others to restrict
our development entitlements and to secure reimbursements from
the City of approximately $22 million, of which our share is
approximately $18 million, relating to the infrastructure costs
incurred in the development of the Circle C property which was
annexed by the City. In the fourth quarter of 1999, we received
partial payments totaling $10.3 million related to our Circle C
claim from the City (see "Capital Resources and Liquidity"). In
December 1998, the Texas Supreme Court heard oral argument on a
case that may resolve various issues between the City and us. A
ruling could be issued at any time. Lower legal costs during 1999
reflect the reduced litigation activity. See Item 3, "Legal
Proceedings" for further discussion concerning our legal matters.
Additionally, the increase in expenses during 1999 and 1998
reflect increased charges for general and administrative expense
relating to services provided by an affiliated services company
(see Note 8).
In September 1997, we sold several working interests and
numerous overriding royalty interests in oil and gas properties,
which we had held since our formation, to McMoRan Oil & Gas Co.
and Phosphate Resource Partners Limited Partnership. We received
$4.5 million from the sale, which resulted in a gain of $4.5
million. At the time of the sale, we were affiliates of McMoRan
Oil & Gas and Phosphate Resource Partners because Freeport-
McMoRan Inc., our former managing general partner (see Note 1),
held a similar role with Phosphate Resource Partners and because
we shared common management and a common director with McMoRan
Oil & Gas. These interests had no cost basis and represented all
of our remaining oil and gas interests. The gain is reflected in
Other Income, which also includes royalty income generated by
these properties prior to the sale totaling $0.8 million for
1997.
Net interest expense totaled $0.8 million in 1999, $2.0
million in 1998 and $2.2 million in 1997. The decrease
represents our repayment of debt over the three-year period
resulting in lower average debt outstanding in each of the three
years. Capitalized interest totaled $1.2 million in 1999, $0.4
million in 1998 and $1.4 million in 1997.
We are continually evaluating the development potential of
our properties and will continue to consider opportunities to
enter into significant transactions involving our properties. As
a result, and because of numerous other factors affecting our
business activities as described herein, our past operating
results are not necessarily indicative of our future results.
Capital Resources And Liquidity
Net cash provided by operating activities totaled $20.6
million in 1999, $11.1 million in 1998 and $29.5 million in 1997.
The increase in 1999 compared to 1998 resulted primarily from our
receipt of $10.3 million from the City as partial payment of our
Circle C reimbursement claims (see below and Item 3, "Legal
Proceedings"). The increase also reflects our receipt of
previously expensed infrastructure cost reimbursements totaling
$2.8 million during 1999 compared to $0.8 million for similar
reimbursements in 1998. The increase was partially offset by the
decrease in sales revenues during 1999. The decrease in the 1998
amount from 1997 primarily reflects a substantial decrease in our
sales of undeveloped properties. Operating cash flows in 1997
include the $4.5 million gain on the sale of oil and gas
properties (see discussion in "Results of Operations" above) and
$3.1 million for reimbursement of previously expensed
infrastructure costs.
Net cash used in investing activities totaled $8.9 million
in 1999, $8.8 million in 1998 and $9.5 million in 1997. Investing
activities for all three years reflect real estate and facilities
capital expenditure payments, net of any related capitalized
municipal utility district (MUD) reimbursements. In addition,
1999 investing activities included a $0.4 million additional
investment in the Walden Partnership. Our 1998 investing
activities include a $2.5 million investment in two joint
ventures (see "Joint Ventures with Olympus" above and Note 4).
Real estate and facility capital expenditures have generally
decreased, reflecting the constraints on our development
activities resulting from disputes with the City and others.
Additionally, our joint ventures' capital expenditures are not
reflected directly in the accompanying financial statements, as
the joint ventures' results are presented using the equity method
of accounting.
Financing activities provided (used) cash totaling ($12.9)
million in 1999, $2.1 million in 1998 and $(21.2) million in
1997. We reduced our net outstanding borrowings by $12.6 million
in 1999, $7.9 million in 1998 and $21.2 million in 1997. Our net
reductions in outstanding borrowings included proceeds of $0.4
million during 1999 and $2.0 million during 1998 from borrowings
on our convertible debt facility with Olympus (see Note 2).
Additionally, our financing activities during 1998 reflect $10.0
million from the issuance of mandatorily redeemable preferred
stock (see Note 3). The mandatorily redeemable preferred stock
proceeds were used to reduce outstanding bank debt, and the
convertible debt proceeds were used to fund our investment in the
Walden Partnership (see Note 4).
<PAGE> 11
Sales, limited development activities and the receipt of the
partial payment of our Circle C infrastructure reimbursements
enabled us to generate operating cash flows during the three
years ended December 31, 1999. We used these operating cash
flows to reduce our outstanding debt from $58.3 million at
December 31, 1996 to $16.6 million at December 31, 1999.
Historically, our funding needs were met largely from borrowings
under a revolving credit facility and term loan, which provided
for an aggregate $35 million of available proceeds through
December 31, 1999. This facility was replaced with a new facility
in December 1999 (see below and Note 5).
In December 1999, we established a new bank credit facility
with Comerica Bank-Texas, which provides for a term loan and a
revolving line of credit. We borrowed $20 million under the term
loan portion of the facility and used the proceeds to repay all
outstanding borrowings under our previous credit facility. This
debt retirement removed all third party guarantees of our
indebtedness (see Note 5). The new facility also makes available
to us up to an additional $10 million of borrowings under a
revolving line of credit. Our outstanding borrowings on the term
loan totaled $13.9 million at December 31, 1999. There were no
borrowings on the revolving line of credit as of December 31,
1999. We also have $2.7 million of outstanding borrowings on our
convertible debt facility with Olympus (see Note 2).
The new credit facility requires that we reduce the
outstanding balance of the term loan by at least $2.5 million in
2000 and by an additional $5.0 million prior to December 21,
2001. The debt will mature in December 2002, subject to our
option to extend the debt through December 2003. We have already
exceeded our year 2000 repayment obligation by reducing the
outstanding borrowings on the term loan by approximately $6.1
million, as further explained below. We are also required to
deposit funds into an interest reserve account with the bank.
The amount in this account must be sufficient to carry the debt
service for both the term loan and the revolving line of credit
for the ensuing twelve month period, adjusted quarterly. At
December 31, 1999, the amount included in the interest reserve
account totaled approximately $2 million. We can fund this
amount directly or it can be treated as a reduction of our
availability under the revolving line of credit. At December 31,
1999, the interest reserve requirement reduced our amount
available under the revolving line of credit to $8 million. We
subsequently funded $1.5 million to the interest reserve account
using proceeds from operations thereby increasing our
availability to $9.5 million under the revolving line of credit.
On October 29, 1999, the City agreed to pay us $9.8 million,
including interest of $1 million, as partial payment of our
Circle C MUD reimbursements. We have received a total of $10.3
million of partial payments from the City on our Circle C MUD
reimbursement claim through December 31, 1999. We received an
additional $0.3 million partial payment in January 2000. We used
all proceeds received to reduce our outstanding borrowings under
the applicable credit facilities at the time of the receipts.
Under certain conditions we could be required to return these
proceeds to the City. In this event, the City would be required
to return our Circle C utility infrastructure, and we would
reassert our claims related to the partial payments. Accordingly,
these proceeds have been classified on our balance sheet as
_other liabilities._ We are continuing to pursue the approximate
$9 million remaining on our Circle C MUD claims. See Item 3,
_Legal Proceedings_ and Notes 6 and 10 for additional information
concerning our Circle C MUD claims and the City's partial
payments.
In December 1999, we sold 174 acres of land encompassing 54
platted lots within the Barton Creek community near Austin,
Texas., to the Barton Creek Joint Venture owned 50.1 percent by
Olympus and 49.9 percent by us (see "Joint Ventures with Olympus
Real Estate Corporation," above and Note 4). We sold the land for
$11.0 million, receiving $6.0 million and a $5.0 million note.
We used the proceeds to reduce borrowings under the term loan
with Comerica Bank-Texas (see above).
We have pursued various financing arrangements available
through our relationship with Olympus. On September 30, 1998, the
Walden Partnership, an unconsolidated subsidiary in which we own
49.9 percent, (see "Joint Ventures with Olympus Real Estate
Corporation" above and Note 4), entered into an $8.2 million
project loan agreement with a commercial bank to fund the
remaining development of the Walden on Lake Houston project. The
three-year, variable rate loan is secured by the assets of the
Walden Partnership and is nonrecourse to the partners. In
addition, we secured the loan with a restricted cash deposit
(see discussion below). Interest is payable monthly and is based
on the bank's prime rate or the LIBOR rate at the Walden
Partnership's option. On October 1, 1998, the Walden Partnership
borrowed $6.1 million on this loan and used the proceeds to repay
its outstanding bank debt associated with land acquisition and
development costs incurred on the project. At December 31, 1999
outstanding borrowings on this project loan totaled $3.6 million.
In November 1998, the Barton Creek Joint Venture (see "Joint
Ventures with Olympus Real Estate Corporation" above), closed on
a $3.9 million project development loan facility with the same
bank as the Walden Partnership loan. The three-year, variable
rate loan was secured by the assets of the Barton Creek Joint
Venture and was nonrecourse to the partners. In addition, the
loan was secured by cash (see discussion below). Upon closing of
the
<PAGE> 12
project loan we were reimbursed $1.9 million for previously
incurred development costs associated with the project and
certain Travis County fiscal deposits. All outstanding borrowings
under this project loan have been repaid and we have terminated
the facility.
In April 1999, we and one of our wholly owned subsidiaries
finalized a $6.6 million project development loan facility with
Comerica Bank-Texas for the development of the first 70,000
square foot office building at the 140,000 square foot Lantana
Corporate Center (7000 West). We guaranteed the completion of the
project and we are responsible for any unpaid interest and
certain other limited obligations. The 18-month, variable rate,
nonrecourse loan is secured by approximately 11 acres of real
estate at 7000 West, the related improvements and approximately
$2.0 million of reimbursements due from the City for the Lantana
water pump station. In August 1999, as part of the joint venture
agreement with Olympus, we sold a 50.1 percent interest in the
subsidiary that held the project loan. Accordingly, the project
loan is no longer consolidated in our financial statements and is
now recorded by the joint venture (see "Joint Ventures with
Olympus Real Estate Corporation", above and Note 4). At December
31, 1999 outstanding borrowings on this project loan totaled $4.6
million. This project loan is being amended to provide an
additional $7.7 million for construction of the second 70,000
square foot office building and the release of the lien on the
$2.0 million receivable from the City.
The Walden Partnership and Barton Creek Venture loan
agreements required a cash deposit as additional collateral for
the respective loans. As required under the loan agreements, one
of our wholly owned subsidiaries deposited a total of $3.0
million with the bank. The Walden Partnership loan agreement
provides that the restricted cash balance ($2.5 million) may be
reduced by $0.30 for every $1.00 in principal reduction. The
Barton Creek Joint Venture loan's restricted cash requirement
($0.5 million) was eliminated because we repaid all our
outstanding borrowings under the facility. Olympus has agreed to
pay us interest at 12 percent per annum for their 50 percent
share of such restricted cash, net of related interest earned.
At December 31, 1999 we had $1.5 million of restricted cash
deposited with the bank for the Walden Partnership facility.
Our future operating cash flows and, ultimately, our ability
to develop our properties and expand our business will largely
depend 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 for our Austin-area properties prior to their eventual
sale. We anticipate 2000 capital expenditures 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 Item 3, "Legal Proceedings." We believe our
near-term capital resource needs can be met adequately during
2000 from operating cash flows and borrowings under our revolving
line of credit. We are able to obtain up to $37.2 million in
additional capital from Olympus for the development of existing
properties in which we desire third-party equity participation.
However, while financing for development of our existing
properties is available, obtaining land acquisition financing is
generally expensive and uncertain.
Impact Of Year 2000 Compliance
The Year 2000 (Y2K) issue is the result of computerized
systems being written to store and process the year portion of
dates using two digits rather than four. To date, all of our
systems have continued to operate without disruption related to
Y2K. We will continue to closely monitor areas of particular
risk including our business partners' ability to continue to meet
their commitments throughout the year. The incremental costs
associated with our Y2K efforts totaled less than $0.1 million
through 1999 and we do not expect to incur any additional costs.
Disclosures About Market Risks
We derive our revenues from the management, development and
sale of our real estate holdings. Our net income can vary
significantly with fluctuations in the market prices of real
estate, which are influenced by numerous factors, including
interest rate levels. Changes in interest rates also affect
interest expense on our debt. At the present time we do not
hedge our exposure to changes in interest rates. Based on
December 31, 1999 outstanding bank debt and interest rates, a
change of 100 basis points in applicable annual interest rates
would have an approximate $0.1 million impact on year 2000 net
income.
Environmental
Increasing emphasis on environmental matters is likely to
result in additional costs. Our future operations may require
substantial capital expenditures, which could adversely affect
the development of our properties and results of operations.
Additional cost will be charged against our operations in future
periods when such costs can be reasonably estimated. We cannot at
this time accurately predict the cost associated with future
environment obligations.
<PAGE> 13
Cautionary Statement
Management's Discussion and Analysis of Financial Condition
and Results of Operations and Disclosures about Market Risks
contains forward-looking statements regarding future
reimbursement for infrastructure costs, future events related to
financing and the anticipated outcome of the 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 Item 1,
"Cautionary Statements."
<PAGE> 14
Item 8. Financial Statements and Supplementary Data
REPORT OF MANAGEMENT
Stratus Properties Inc. (Stratus) is responsible for the
preparation of the financial statements and all other information
contained in this Annual Report. The financial statements have
been prepared in conformity with generally accepted accounting
principles and include amounts that are based on management's
informed judgments and estimates.
Stratus maintains a system of internal accounting controls
designed to provide reasonable assurance at reasonable costs that
assets are safeguarded against loss or unauthorized use, that
transactions are executed in accordance with management's
authorization and that transactions are recorded and summarized
properly. The system is tested and evaluated on a regular basis
by Stratus' internal auditors, PricewaterhouseCoopers LLP. In
accordance with generally accepted auditing standards, Stratus'
independent public accountants, Arthur Andersen LLP, have
developed an overall understanding of our accounting and
financial controls and have conducted other tests as they
consider necessary to support their opinion on the financial
statements.
The Board of Directors, through its Audit Committee composed
solely of non-employee directors, is responsible for overseeing
the integrity and reliability of Stratus' accounting and financial
reporting practices and the effectiveness of its system of
internal controls. Arthur Andersen LLP and PricewaterhouseCoopers
LLP meet regularly with, and have access to, this committee, with and
without management present, to discuss the results of their audit work.
William H. Armstrong III
Chairman of the Board, President
and Chief Executive Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF STRATUS PROPERTIES
INC.:
We have audited the accompanying balance sheets of Stratus
Properties Inc. (a Delaware Corporation) as of December 31, 1999
and 1998, and the related statements of operations, cash flow and
changes in stockholders' equity for each of the three years in
the period ended December 31, 1999. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Stratus Properties Inc. as of December 31, 1999 and 1998 and
the results of its operations and its cash flow for each of the
three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Austin, Texas
January 19, 2000
<PAGE> 15
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
BALANCE SHEETS
December 31,
-----------------------
1999 1998
--------- ---------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $2.1 million and
$2.8 million at December 31, 1999 and 1998,
respectively, (Notes 4 and 5) $ 3,964 $ 5,169
Accounts receivable:
Property sales 149 525
Other 1,160 408
Prepaid expenses 375 361
--------- ---------
Total current assets 5,648 6,463
Real estate and facilities, net (Note 6) 91,664 96,556
Investments in and advances to
unconsolidated affiliates (Note 4) 7,254 2,468
Other assets, including related party
receivable (Note 4) 11,106 6,342
--------- ---------
Total assets $ 115,672 $ 111,829
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 900 $ 583
Accrued interest, property taxes and other 1,537 1,861
--------- ---------
Total current liabilities 2,437 2,444
Long-term debt (Note 5) 16,562 29,178
Other liabilities 19,833 6,238
Mandatorily redeemable preferred stock (Note 3) 10,000 10,000
Stockholders' equity:
Preferred stock, par value $0.01, 50,000,000
shares authorized, and unissued - -
Common stock, par value $0.01, 150,000,000 shares
authorized, 14,288,270 issued and outstanding 143 143
Capital in excess of par value of common stock 176,447 176,447
Accumulated deficit (109,750) (112,621)
--------- ---------
Total stockholders equity 66,840 63,969
--------- ---------
Total liabilities and stockholders' equity $ 115,672 $ 111,829
========= =========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 16
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands, Except Per
Share Amounts)
<S> <C> <C> <C>
Revenues $ 14,676 $ 17,590 $ 30,953
Costs and expenses:
Cost of sales 7,819 14,118 24,294
General and administrative expenses 3,507 4,044 2,752
-------- -------- --------
Total costs and expenses 11,326 18,162 27,046
-------- -------- --------
Operating income (loss) 3,350 (572) 3,907
Other income, net 133 66 5,375
Interest expense, net (789) (2,019) (2,181)
-------- -------- --------
Income (loss) before income taxes,
equity in unconsolidated affiliates
and minority interest 2,694 (2,525) 7,101
Income tax provision (130) (87) (80)
Equity in unconsolidated affiliates
income (loss) 307 (26) -
Minority interest in net income of
the Partnership - - (15)
-------- -------- --------
Net income (loss) $ 2,871 $ (2,638) $ 7,006
======== ======== ========
Net income (loss) per share:
Basic $0.20 $(0.18) $0.49
===== ====== =====
Diluted $0.18 $(0.18) $0.48
===== ====== =====
Average shares outstanding:
Basic 14,288 14,288 14,288
====== ====== ======
Diluted 16,238 14,288 14,517
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
Capital
in
Excess
Preferred Common of Par Accumulated
Stock Stock Value Deficit Total
-------- ------ --------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ - $ 143 $ 176,445 $ (116,989) $ 59,599
Stock options exercised - - 2 - 2
Net income - - - 7,006 7,006
-------- ------ --------- ---------- --------
Balance at December 31, 1997 - 143 176,447 (109,983) 66,607
Net loss - - - (2,638) (2,638)
-------- ------ --------- ---------- --------
Balance at December 31, 1998 - 143 176,447 (112,621) 63,969
Net income - - - 2,871 2,871
-------- ------ --------- ---------- --------
Balance at December 31, 1999 $ - $ 143 $ 176,447 $ (109,750) $ 66,840
======== ====== ========= ========== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 17
<TABLE>
<CAPTION>
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOW
Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 2,871 $ (2,638) $ 7,006
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 87 76 104
Cost of real estate sales 10,018 14,989 23,729
Equity in income (loss) of unconsolidated
affiliates (307) 26 -
Minority interest's share of Partnership
net income - - -
(Increase) decrease in working capital:
Accounts receivable and prepaid expenses 600 620 2,582
Accounts payable, accrued liabilities
and other (7) (575) (2,734)
Proceeds from Circle C municipal utility
reimbursement 10,262 - -
Long term receivable and other (2,914) (1,422) (1,183)
-------- -------- --------
Net cash provided by operating activities 20,610 11,076 29,519
-------- -------- --------
Cash flow from investing activities:
Real estate and facilities (8,554) (6,346) (9,547)
Investment in Barton Creek Joint Venture - (494) -
Investment in Oly Walden Partnership (376) (1,999) -
-------- -------- --------
Net cash used in investing activities (8,930) (8,839) (9,547)
-------- -------- --------
Cash flow from financing activities:
Repayment of debt, net (27,118) (9,940) (21,207)
Proceeds from term loan 20,000 - -
Repayments of term loan (6,143) - -
Proceeds from convertible debt facility 376 1,999 -
Proceeds from preferred stock issuance - 10,000 -
-------- -------- --------
Net cash provided by (used in) financing
activities (12,885) 2,059 (21,207)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (1,205) 4,296 (1,235)
Cash and cash equivalents at beginning of year 5,169 873 2,108
-------- -------- --------
Cash and cash equivalents at end of year $ 3,964 $ 5,169 $ 873
======== ======== ========
Interest paid $ 1,716 $ 2,338 $ 3,351
======== ======== ========
Income taxes paid (refunded) $ 14 $ (118) $ 220
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE> 18
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Accounting. The real estate development and marketing
operations of Stratus Properties Inc. (Stratus) are conducted in
Austin and other urban areas of Texas through its investment in
Stratus Properties Operating Co., a Delaware general partnership
(the Partnership). Prior to December 22, 1997, Stratus owned a
99.8 percent general partnership interest in the Partnership and
Freeport-McMoRan Inc., Stratus' former parent, owned the
remaining 0.2 percent general partnership interest and served as
managing general partner. Freeport-McMoRan had certain rights
regarding the Partnership's operations as long as it guaranteed
any of the Partnership's debt (Note 5). Because of Freeport-
McMoRan's rights, Stratus reflected its investment in the
Partnership under the equity basis of accounting.
On December 22, 1997 Freeport-McMoRan merged into IMC Global
Inc. (the Merger). In connection with the Merger, Freeport-
McMoRan sold its 0.2 percent general partnership interest to
Stratus and a subsidiary of Stratus for $100,000. Stratus also
restructured and consolidated its existing debt in December 1997,
extending its availability until January 1, 2001 and providing
for staged reductions in available credit. IMC Global became
guarantor of this restructured debt in place of Freeport-McMoRan.
As a result of Freeport-McMoRan's sale of its interest and the
replacement of the Freeport-McMoRan guarantee with the IMC Global
guarantee, the accompanying financial statements and related
footnotes reflect the Partnership's financial position and
results of operations under consolidation accounting effective
January 1, 1997.
Use of Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in these financial statements and accompanying
notes. The more significant estimates include valuation
allowances for deferred tax assets, estimates of future cash
flows from development and sale of real estate properties, and
useful lives for depreciation and amortization. Actual results
could differ from those estimates.
Cash and Cash Equivalents. Highly liquid investments purchased
with a maturity of three months or less are considered cash
equivalents.
Financial Instruments. The carrying amounts of property sales
and other receivables, other current assets, accounts payable and
long-term borrowings reported in the balance sheet approximate
fair value.
Earnings Per Share. Basic net income (loss) per share was
calculated by dividing net income (loss) applicable to common
stock by the weighted-average number of common shares outstanding
during the years presented. Diluted net income (loss) per share
of common stock was calculated by dividing net income applicable
to common stock by the weighted-average number of common shares
outstanding during the year plus the net effect of dilutive stock
options. Stratus had dilutive options outstanding representing
238,000 shares of common stock in 1999. Additionally, the diluted
net income per share calculations for 1999 assumed the redemption
of Stratus' approximate 1.7 million shares of outstanding
mandatorily reedeemable preferred stock for approximately 1.7
million shares of common stock. Stratus' outstanding convertible
debt, which is convertible into approximately 370,000 shares of
common stock was excluded from the diluted net income per share
calculation for 1999 because of its anti-dilutive effect.
Interest accrued on the convertible debt outstanding totaled
$270,000 during 1999 and there have been no dividends accrued to
date on the mandatorily reedeemable preferred stock.
With respect to 1998, Stratus had options outstanding
representing 275,000 shares of common stock excluded from the
calculation as anti-dilutive considering the loss reported that
year. Stratus' outstanding mandatorily redeemable preferred
stock and outstanding convertible debt were not included in the
1998 computation of diluted net loss per share of common stock
because the conversion of these shares would have decreased the
net loss per share. As a result, the mandatorily redeemable
preferred stock convertible into approximately 1.7 million shares
of common stock and outstanding convertible debt convertible into
282,000 shares of common stock were not included in the 1998
diluted net loss per share calculation. During 1998 there were no
dividends accrued on the mandatorily redeemable preferred stock
and interest expense on the convertible debt totaled $61,000.
<PAGE> 19
Stratus had dilutive options outstanding which represented
229,000 shares of common stock included in its 1997 dilutive net
income per share calculation. There was no outstanding
convertible debt or mandatorily reedemable preferred stock during
1997.
Outstanding options to purchase approximately 295,000 shares
of common stock at an average exercise price of $6.14 per share
for both 1999 and 1998 and 235,000 shares of common stock at an
average exercise price of $5.23 per share in 1997 were not
included in the computation of diluted net income (loss) per
share because their exercise prices were greater than the average
market price for the years presented.
Investment in Real Estate. Real estate assets are stated at the
lower of cost or net realizable value and include acreage,
development, construction and carrying costs, and other related
costs through the development stage. Capitalized costs are
assigned to individual components of a project, as practicable,
whereas interest and other common costs are allocated based on
the relative fair value of individual land parcels. Carrying
costs are capitalized on properties currently under active
development. Revenues are recognized when the risks and rewards
of ownership are transferred to the buyer and the consideration
received can be reasonably determined.
When events or circumstances indicate that an asset's
carrying amount may not be recoverable, an impairment test is
performed. If the projected undiscounted cash flow from the
asset does not exceed the carrying amount then a reduction of the
carrying amount of the long-lived asset to fair value is
required. Measurement of the impairment loss is based on the
fair value of the asset. Generally, Stratus determines fair
value using valuation techniques such as discounted expected
future cash flows. No impairment losses are reflected in the
accompanying financial statements.
Investment in Unconsolidated Affiliates. Stratus' investment in
its affiliated 20 percent to 50 percent owned joint ventures and
partnerships are accounted for on the equity method. Currently,
Stratus owns a 49.9 percent interest in all of its investments in
unconsolidated affiliates (see Note 4). Stratus' real estate
sales to these entities are deferred to the extent of its
ownership interest in the unconsolidated affiliate. The deferred
revenues are recognized ratably as the unconsolidated affiliates
sell the real estate to unrelated third parties.
2. Olympus Transaction
On May 22, 1998, 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. Olympus has the right to nominate one member or up to
20 percent of Stratus' Board of Directors, whichever is greater.
The $10 million mandatorily redeemable preferred stock was
issued at a stated value of $5.84 per share, the average closing
price of Stratus' common stock during the 30 trading days ended
March 2, 1998. Stratus used the proceeds from the sale of these
securities to repay debt. For further discussion about
mandatorily redeemable preferred stock see Note 3 below.
The $10 million convertible debt facility is available to
Stratus in whole or in part until May 22, 2004 and is intended to
fund Stratus' equity investment in new Stratus/Olympus joint
venture opportunities involving properties not currently owned by
Stratus. On September 30, 1998, Stratus borrowed $2.0 million
under this convertible debt facility to fund its investment in
the Oly Walden General Partnership (Walden Partnership) (see Note
4). During the third quarter of 1999, Stratus borrowed an
additional $0.4 million under the convertible debt facility to
fund its share of an additional capital contribution to the
Walden Partnership. Interest under this facility accrues at 12
percent and is payable quarterly or added to principal at
Olympus' option. Through December 31, 1999, Olympus had elected
to add the interest to principal, resulting in an outstanding
amount on the facility of approximately $2.7 million. Outstanding
principal under the facility is convertible at any time by the
holder into Stratus' common stock at a conversion price of $7.31,
which is 125 percent of the average closing price of Stratus'
common stock during the 30 trading days ended March 2, 1998. If
not converted into common stock, the convertible debt matures on
May 22, 2004. If the combination of interest at 12 percent and
the value of the conversion right does not provide Olympus with
at least a 15 percent annual return on the convertible debt,
Stratus must pay Olympus additional interest upon retirement of
the convertible debt in an amount necessary to yield a 15 percent
annual return. The convertible debt is nonrecourse to Stratus
and will be secured solely by Stratus' interest in
Stratus/Olympus joint venture opportunities financed with the
<PAGE> 20
proceeds of the convertible debt.
Through May 22, 2001, Olympus has agreed to make available
up to $50 million, of which it had committed approximately $12.8
million at December 31, 1999, for its share of capital for direct
investments in Stratus/Olympus joint acquisition and development
activities. In return, Stratus has provided Olympus with a right
of first refusal to participate for no less than a 50 percent
interest in all new acquisition and development projects on
properties not currently owned by Stratus, as well as development
opportunities on existing properties in which Stratus seeks
third-party equity participation.
3. Mandatorily Redeemable Preferred Stock
Stratus has outstanding 1,712,328 shares of mandatorily
redeemable preferred stock, stated value of $5.84 per share.
Each share of preferred stock will share dividends and
distributions, if any, ratably with Stratus' common stock. The
preferred stock is redeemable at the holder's option at any time
after May 22, 2001, for cash in an amount per share equal to 95
percent of the average closing price per share of common stock
for the 10 trading days preceding the redemption date (the
"common stock equivalent value") or, at Stratus' option, after
May 22, 2003 for the greater of the common stock equivalent value
or their stated value per share, plus accrued and unpaid
dividends, if any. The preferred stock must be redeemed no later
than May 22, 2004. Stratus has the option to satisfy the
redemption with shares of its common stock on a one-for-one share
basis, subject to certain limitations.
4. Investment in Unconsolidated Affiliates
On September 30, 1998, Stratus entered into two separate joint
ventures with Olympus. The first provided for the development of
75 residential lots at the Barton Creek ABC West Phase I
subdivision known as Wimberly Lane. In this transaction Stratus
sold land to the Oly Stratus ABC West I Joint Venture (ABC Joint
Venture), which has subsequently been renamed (see below), for
approximately $3.3 million. Stratus deferred its equity interest
in the sale, or $1.65 million, for financial accounting purposes,
which will be recognized ratably as the developed lots are sold
to unrelated third parties. Upon closing, Stratus received $2.1
million and a $1.2 million note and invested approximately $0.5
million in the now fully developed project. The second
transaction involved approximately 700 developed lots and 80
acres of platted but undeveloped real estate at the Walden on
Lake Houston project (Walden). Olympus originally purchased
Walden in April 1998 when it contained 930 developed lots and 80
acres of undeveloped property. Stratus has served as manager of
this project since Olympus' purchase. Stratus acquired its
interest in the Walden Partnership for $2.0 million the funds of
which were borrowed under its convertible debt facility with
Olympus (see Note 2). On September 30, 1999, Stratus borrowed an
additional $0.4 million under the convertible debt facility to
fund its share of an additional capital contribution to the
Walden Partnership. Stratus accounts for its investment in both
of these affiliated entities using the equity method.
Stratus, as manager of the both the Walden Partnership and
the ABC Joint Venture, negotiated project development loan
facilities for both joint ventures with the same commercial bank.
These facilities, totaling $8.2 million for the Walden
Partnership and $3.9 million for the ABC Joint Venture, are
nonrecourse to the partners and are secured by the assets of the
respective projects. At December 31, 1999, borrowings of $3.6
million were outstanding on the Walden facility. The ABC Joint
Venture repaid all its outstanding obligations under its facility
and has terminated the related bank commitment. These facilities
required that a wholly owned subsidiary of Stratus deposit a
total of $3.0 million of restricted cash with the bank as
additional collateral for these facilities. The loan agreement
for the Walden Partnership permits a $0.30 reduction of this
restricted cash deposit for every $1.00 of principal repaid on
the Walden Partnership loan. The restriction on the $0.5 million
deposited as collateral for the ABC Joint Venture loan has been
removed because the loan has been repaid. At December 31, 1999,
Stratus had approximately $1.5 million of restricted cash
associated solely with the Walden Partnership facility agreement.
On August 16, 1999, Stratus sold Olympus a 50.1 percent
interest in a 70,000 square foot office building, which is the
first phase of the 140,000 square foot Lantana Corporate Center
(7000 West). Stratus received $1.1 million upon closing and
recognized a $0.5 million gain. Stratus deferred its retained
interest, or $0.5 million, of the sales proceeds and related gain
resulting from the sale of the 5.5 acres of commercial real
estate associated with phase I of the project. As developer,
Stratus completed construction on the first building in November
1999 and as manager has secured signed lease agreements which
have fully occupied the building. Stratus is proceeding with
construction on the second 70,000 square foot office building.
Stratus anticipates the remaining 5.5 acres of commercial real
estate associated with phase II of the project will be sold to
Olympus in a similar transaction in 2000. Funds for the
construction of the first building at 7000 West were provided by
a $6.6
<PAGE> 21
million project loan that Stratus negotiated in April
1999. The 18-month variable rate, nonrecourse loan is secured by
the 11 acres of land at 7000 West, related improvements and
approximately $2.0 million of reimbursements due from the City of
Austin (the City) for the Lantana pump station. This project loan
facility is in the process of being amended to provide an
additional $7.7 million of availability. Stratus accounts for its
investment in this joint venture using the equity method.
In December 1999, Stratus sold 174 acres of land
encompassing 54 platted lots within the Barton Creek community
near Austin, Texas to the ABC Joint Venture for $11 million. The
ABC Joint Venture was formed in September 1998 to develop and
sell other lots at the Wimberly Lane development within the
Barton Creek community (see above). The name of the joint venture
was changed and future references to it will reflect its new
name, Oly Stratus Barton Creek I Joint Venture (Barton Creek
Joint Venture). Upon the closing of the sale, Stratus received
$6.0 million and a $5.0 million note. Stratus deferred its
ownership interest in the $11.0 million of proceeds, or $5.5
million, and the related gain of $6.0 million, or $3.0 million.
Stratus will recognize these deferred amounts and the note will
be paid as the lots are developed and sold to unrelated third
parties. Sales of lots from the Wimberly Lane section of the
Barton Creek Joint Venture together with the initial equity
contributions of the partners are expected to fund the
construction of these lots. Stratus, as manager of the project,
sold 42 of the 75 developed lots at the Wimberly Lane portion of
the Barton Creek Joint Venture during 1999.
The Barton Creek Joint Venture distributed approximately
$0.4 million to the partners during 1999. Stratus recorded its
portion of the distribution, $0.2 million, as a reduction of its
$1.2 million note received from the initial sale of the 28 acres
to the Barton Creek Joint Venture. There have been no
distributions received from the Walden Partnership or 7000 West
since their formation. The summarized unaudited financial
information of Stratus' unconsolidated affiliates is shown below
as of December 31, 1999 and for the year then ended and as of
December 31, 1998 and the period from inception (September 30,
1998) to December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------- -------
<S> <C> <C> <C> <C>
Earnings data (year ended
December 31, 1999):
Revenue $ 4,446 $ 2,833 $ 21 $ 7,300
Operating income (loss) 1,039 (510) (83) 446
Net income (loss) 1,039 (485) (74) 480
Stratus' equity in net
income (loss) 518 (174)a (37) 307
Balance sheet data
(at December 31, 1999):
Current assets 2,328 1,207 1,069 4,604
Real estate and facilities, net 15,880 8,788 7,584 32,252
Total assets 18,482 10,094 8,999 37,575
Current liabilities 261 2,722 773 3,756
Total liabilities 12,180 9,355b 5,637 27,172
Net assets 6,302 740 3,362 10,404
Stratus' equity in net assets 3,145 369 1,678 5,192
Earnings data (inception to
December 31, 1998):
Revenue - 875 - 875
Operating loss - (75) - (75)
Net loss - (51) - (51)
Stratus' equity in net loss - (26) - (26)
Balance sheet data (at
December 31, 1998):
Current assets 21 726 - 747
Real estate and facilities, net 4,666 9,859 - 14,525
Total assets 4,687 10,662 - 15,349
Current liabilities 103 2,298 - 2,401
Total liabilities 3,698 9,630c - 13,328
Net assets 989 600 - 1,589
Stratus' equity in net assets 494 299 - 793
</TABLE>
<PAGE> 22
a. Includes recognition of $67,000 of a total $337,000 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.
b. Includes a $2.1 million note payable to Stratus.
c. Includes a $1.7 million note payable to Stratus.
5. Long-Term Debt
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
-------- ---------
(In Thousands)
<S> <C> <C>
Bank credit facility and term loan,
average rate 5.6% in 1999 and 6.0% in 1998 $ - $ 27,118
Comerica term loan, average rate 9.5 % 13,857 -
Convertible debt facility with Olympus,
average rate 12.0% in 1999 and 1998 (Note 2) 2,705 2,060
-------- ---------
$ 16,562 $ 29,178
======== =========
</TABLE>
Stratus had a commercial bank credit facility that provided
for borrowings of up to $35 million through December 31, 1999. In
December 1999, Stratus negotiated a new facility agreement with
Comerica Bank-Texas. The new facility provides for a $20 million
term loan and a $10 million revolving line of credit (see below).
Stratus borrowed $20 million under the term loan portion of the
facility and used the proceeds to repay all outstanding
borrowings under its previous credit facility, which was then
terminated. This debt retirement of the previous credit facility
removed the IMC Global Inc. guarantee of Stratus' indebtedness
(Note 1). As consideration for IMC Global's guarantee, Stratus
paid IMC Global an annual fee which totaled $0.2 million for both
1999 and 1998.
Interest on the Comerica facility is variable and accrues
at either the lender's prime rate plus 1 percent or LIBOR plus
300 basis points at Stratus' option. The term loan and revolving
line of credit are secured by a lien on all of Stratus' real
property assets, its interests in unconsolidated affiliates and
the future receipt of municipal utility district reimbursements
and other infrastructure receivables. The credit facility also
contains covenants restricting dividends or other distributions,
a change in management, additional debt and certain other
activities. Stratus is also required to deposit funds into an
interest reserve account with the bank. The amount in this
account must be sufficient to carry the debt service for both the
term loan and the revolving line of credit for the ensuing twelve
month period, adjusted quarterly. The amount of the interest
reserve totaled approximately $2.0 million at December 31, 1999.
The amount can be funded directly by Stratus or by reducing
Stratus' availability under the revolving line of credit. At
December 31, 1999, Stratus funded the interest reserve account by
reducing its availability under the revolving line of credit to
$8.0 million. Stratus is also required to reduce the balance on
the term loan by at least $2.5 million in 2000 and an additional
$5.0 million prior to December 21, 2001. Stratus has already met
its repayment commitment for 2000 by repaying $6.1 million prior
to December 31, 1999. The debt will mature in December 2002,
subject to Stratus' option to extend the maturity through
December 2003. As of December 31, 1999, Stratus had no borrowed
funds under the revolving line of credit. At December 31, 1999,
Stratus had deposited $0.6 million within a Comerica restricted
account. Capitalized interest totaled $1.2 million in 1999, $0.4
million in 1998 and $1.4 million in 1997.
6. Real Estate
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
--------- ---------
(In Thousands)
<S> <C> <C>
Land held for development or sale:
Austin, Texas area, net of accumulated depreciation
of $209,000 for 1999 and $122,000 for 1998 $ 86,178 $ 87,199
Other areas of Texas 5,486 9,357
--------- ---------
$ 91,664 $ 96,556
========= =========
</TABLE>
Stratus' investment in real estate includes approximately
4,200 acres of land located in Austin, Dallas, Houston and San
Antonio, Texas. The principal holdings of Stratus are located in
the Austin area and consist of approximately 2,300 acres of
undeveloped residential, multi-family and commercial property
within the Barton Creek community. Stratus' remaining Austin
properties include 500 acres of undeveloped residential, multi-
family and commercial property known as the Lantana tract, south
of and adjacent to the Barton Creek
<PAGE> 23
community and the approximate
1,300 acres of undeveloped commercial and multi-family property
within the Circle C Ranch development.
Stratus also owns 24 developed lots, 120 acres of
undeveloped residential property and 32 acres of undeveloped
commercial and multi-family residential property located in
Dallas, Houston and San Antonio, Texas. These properties are
being managed and actively marketed by unaffiliated professional
real estate developers. Under the terms of the related
development agreements, the operating expenses and development
costs, net of revenues, are funded by Stratus. The developers
are entitled to a management fee and a 25 percent interest in the
net profits, after Stratus recovers its investment and a stated
rate of return, resulting from the sale of the managed
properties. As of December 31, 1999 no amounts have been paid in
connection with these net profit arrangements.
Various regulatory matters and litigation involving Stratus'
development of its Austin-area properties are summarized below.
The City's WQPZ Action - On January 9, 1998, the City filed suit
in Travis County District Court against 14 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 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 - Circle C Land Corp., a wholly owned
subsidiary of Stratus, filed a WQPZ (Circle C WQPZ) covering a
portion of the Circle C development, covering 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 Litigation - 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 in Note 10. A
trial of the balance of Stratus' claim is expected to be set
during the second quarter of 2000.
The City's total reimbursement obligation to the Circle C
developers, resulting from its annexation, is estimated at $22
million, of which Stratus' remaining share is estimated at
approximately $9.0 million, exclusive of penalties and interest.
For a discussion of the City's partial payment of these costs
see Note 10.
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 the outstanding delinquent
Circle C MUD reimbursements. Stratus will continue to pursue
this action vigorously.
<PAGE> 24
Legislative Matters - In the 1997 Texas State legislative session,
a bill to reorganize a state governmental agency inadvertently
repealed the provisions of law (H.B. 4 and S.B. 1704), that
established grandfathered rights for previously permitted lands.
In response to the legislature's inadvertent repeal, the City
enacted an ordinance establishing regulations on land development that
effectively eliminated the grandfathered rights. The City
has attempted to apply these regulations to portions of Stratus'
Circle C property and Lantana. In response, Stratus undertook to
assert and defend its grandfathered entitlements vigorously. In
April 1999, the Texas State House of Representatives and Senate
overwhelmingly approved H.B. 1704, which reinstated the
grandfathered rights previously inadvertently repealed. This
bill became law effective on May 11, 1999.
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.
7. Income Taxes
Income taxes are recorded pursuant to SFAS 109 "Accounting for
Income Taxes." No benefit has been recognized for any period
presented with respect to Stratus' net deferred assets, as a full
valuation allowance has been provided because of Stratus'
operating history and its expectation of incurring tax losses for
the near future. Therefore the final determination of the gross
deferred tax asset amounts had no impact to Stratus' financial
statements. The components of deferred taxes follow:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
--------- --------
(In Thousands)
<S> <C> <C>
Deferred tax assets (liabilities):
Net operating losses (expire 2001-2018) $ 14,539 $ 15,079
Real estate and facilities, net 11,192 11,881
Alternative minimum tax credits and
depletion allowance (no expiration) 898 838
Other future deduction carryforwards
(expire 2000-2003) 347 390
Valuation allowance (26,976) (28,188)
--------- --------
$ - $ -
========= ========
Income taxes charged to income follow:
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- -----
(In Thousands)
<S> <C> <C> <C>
Current income tax provision
Federal $ (60) $ - $ -
State (70) (87) (80)
------ ----- -----
(130) (87) (80)
------ ----- -----
Income tax provision $ (130) $ (87) $ (80)
====== ===== =====
</TABLE>
Reconciliations of the differences between the income tax
(charges) benefits computed at the federal statutory tax rate and
the income tax provision recorded follow:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- -------------- ---------------
Amount Percent Amount Percent Amount Percent
-------- ------- ------ ------- ------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit (expense)
computed at the federal
statutory income tax rate $(1,050) (35)% $ 893 35 % $(2,485) (35)%
Increase (decrease) attributable
to:
Change in valuation allowance 1,212 40 (1,521) (59) 3,168 45
State taxes and other (292) (9) 541 21 (763) (11)
------- ------ ------ ------- ------- ------
Income tax provision $ (130) (4)% $ (87) (3)% $ (80) (1)%
</TABLE>
<PAGE> 25
8. Transactions with Affiliates
Management Services. Stratus owns 10 percent of FM Services
Company, which provides certain management and administrative
services to Stratus including technical, administrative,
accounting, financial, tax and other services, under a management
services agreement. Services provided to Stratus prior to January
1, 1998 were at a fixed annual fee of $0.5 million, subject to
annual cost of living increases. Effective January 1, 1998,
pursuant to a new management services agreement services are
provided on a cost reimbursement basis. Fees paid under this
services agreement totaled $0.9 million in 1999 and $1.0 million in
1998. Stratus believes the costs of these services do not differ
materially from those costs that would have been incurred had the
relevant personnel providing these services been employed
directly by Stratus during 1999 and 1998.
Sale of Oil & Gas Interests. In September 1997, Stratus sold
several working interests and numerous overriding royalty
interests in oil and gas properties, which had been held since
its formation, to McMoRan Oil & Gas Co. and Phosphate Resource
Partners Limited Partnership for $4.5 million cash, resulting in
a gain of $4.5 million. Phosphate Resource Partners was an
affiliate because of Freeport-McMoRan's role as administrative
managing general partner of Phosphate Resource Partners prior to
the Merger was similar to the role it had with Stratus (see Note
1). McMoRan Oil & Gas was an affiliate because at that time it
shared common management and a common director with Stratus.
These interests, had no cost basis and represented all of
Stratus' remaining oil and gas interests. The gain is reflected
in Other Income, which also includes royalty income generated by
these properties prior to the sale tthese properties prior to the sale
totaling $0.8 million in 1997.
9. Employee Benefits
Stock Options. Stratus' Stock Option Plan and Stock Option Plan
for Non-Employee Directors (the Plans) provide for the issuance
of up to a total of 1.3 million stock options and stock
appreciation rights at no less than market value at time of
grant. In May 1998, Stratus' shareholders approved the 1998
Stock Option Plan (the 1998 Plan). Under the terms of the 1998
plan Stratus can grant options representing 850,000 shares of
common stock. Generally, stock options are exercisable in 25
percent annual increments beginning one year from the date of
grant and expire 10 years after the date of grant. At December
31, 1999, 406,375 shares were available for new grants under the
Plans and 427,250 were available for grant under the 1998 Plan.
A summary of stock options outstanding, including 150,000 stock
appreciation rights, follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ----------------- ------------------
Average Average Average
Number of Option Number of Option Number of Option
Options Price Options Price Options Price
--------- ------- --------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of year 1,067,625 $ 3.42 1,050,000 $ 2.98 790,000 $ 2.77
Granted 196,250 3.92 304,000 6.05 280,000 3.55
Exercised - - (50,000) 1.75 (2,500) 1.50
Expired/Forfeited - - (236,375) 5.21 (17,500) 2.64
--------- --------- ---------
End of year 1,263,875 3.50 1,067,625 3.42 1,050,000 2.98
========= ========= =========
</TABLE>
Summary information of fixed stock options outstanding at
December 31, 1999 follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------- ----------------------------
Weighted Weighted Weighted
Averag Average Average
Number of Remaining Option Number of Option
Range of Exercise Prices Options Life Price Options Price
- ------------------------ --------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
$1.50 to $1.81 280,000 6.0 years $ 1.57 225,000 $ 1.58
$2.63 to $3.91 523,750 8.2 years 3.52 187,500 3.26
$4.03 to $6.19 310,125 8.5 years 6.04 76,750 6.10
--------- --------
1,113,875 489,250
========= ========
</TABLE>
Stratus has adopted the disclosure-only provisions of SFAS
123, "Accounting for Stock Based Compensation," and continues to
apply Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in
accounting for its stock-based compensation plans. Accordingly,
Stratus has recognized no compensation costs associated with its
stock option grants. If Stratus had determined compensation
costs for its stock option grants based on the fair value of the
awards at their grant dates its net income would have decreased
by $752,000 ($0.05 per share) in 1999, its net loss would have
increased by $523,000 ($0.04 per share) in 1998, and its net
income would have decreased by $252,000 ($0.02
<PAGE> 26
per share) in
1997. For the pro forma computations, the fair values of the
option grants were estimated on the dates of grant using the
Black-Scholes option pricing model. These values totaled $2.75 in
1999, $4.35 per option in 1998 and $2.76 per option in 1997. The
weighted average assumptions used include a risk-free interest
rate of 5.4 percent in 1999, 5.7 percent in 1998 and 6.7 percent
in 1997, expected lives of 10 years and expected volatility of 54
percent in 1999, 55 percent in 1998 and 62 percent in 1997. These
pro forma effects are not necessarily representative of future
years. No other discounts or restrictions related to vesting or
the likelihood of vesting of fixed stock options were applied.
10. Commitments and Contingencies. Stratus has made, and will
continue to make, expenditures at its operations for protection
of the environment. Increasing emphasis on environmental matters
can be expected to result in additional costs, which will be
charged against Stratus' operations in future periods. Present
and future environmental laws and regulations applicable to the
Stratus' operations may require substantial capital expenditures,
could adversely affect the development of its real estate
interests or may affect its operations in other ways that cannot
be accurately predicted at this time.
In late October 1999, Circle C Land Corp., a wholly owned
subsidiary of Stratus, and the City of Austin reached an
agreement regarding a portion of Circle C's claims against the
City. As a result of this agreement, Status received
approximately $9.8 million, including $1.0 million in interest
representing a partial payment of these claims. Stratus has
collected a total of $10.3 million of reimbursement from the City
as of December 31, 1999. Stratus will continue to vigorously
pursue its approximate $9.0 million of remaining claims against
the City. Stratus used the proceeds to reduce its outstanding
debt.
Under the terms of the agreement, Stratus would be required
to return the money to the City and the City would be required to
return the utility infrastructure to Stratus if the City's
annexation of the Circle C municipal utility districts is
reversed or otherwise rescinded, whether by legislative action,
final action of the appellate court, or other legal process. If
the transaction is rescinded, Stratus would pursue its
reimbursement claims for this amount, plus the additional amounts
Stratus considers due from the City, under Texas law. For
further discussion of Stratus' litigation and related
reimbursement issues see Note 6.
Stratus, in connection with the sale of one oil and gas
property in 1993, indemnified the purchaser for any future
abandonment costs in excess of net revenues received by the
purchaser. Stratus accrued $3.0 million relating to this
contingent liability at the time of the purchase, which it
believes to be adequate. The amount is included in Other
Liabilities. Stratus periodically assesses the reasonableness of
amounts recorded for this related liability through the use of
information provided by the operator of the property, including
its net production revenues. The carrying value of this
contingent liability may be adjusted, as additional information
becomes available.
11. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Net Income
Operating Net (Loss) Per Share
Income Income -----------------
Revenues (Loss) (Loss) Basic Diluted
-------- ------- ------- ------ -------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
1999
1st Quarter $ 1,586 $ (218)a $ (479) $(0.03) $(0.03)
2nd Quarter 2,744 733b 535 0.04 0.03
3rd Quarter 1,828 765c 760 0.05 0.05
4th Quarter 8,518 2,070d 2,055 0.14 0.13
-------- ------- -------
$ 14,676 $ 3,350 $ 2,871 0.20 0.18
======== ======= =======
1998
1st Quarter 2,655 $ (385)e $ (883) $(0.06) $(0.06)
2nd Quarter 3,408 (704) (1,160) (0.08) (0.08)
3rd Quarter 6,239 1,044 566 0.04 0.03
4th Quarter 5,288 (527) (1,161) (0.08) (0.08)
-------- ------- -------
$ 17,590 $ (572) $(2,638) (0.18) (0.18)
======== ======= =======
</TABLE>
<PAGE> 27
a. Includes a $0.8 million ($0.06 per share) reimbursement of
previously expensed infrastructure costs.
b. Includes a $2.0 million ($0.12 per share) reimbursement of
previously expensed infrastructure costs.
c. Includes a $0.5 million gain ($0.03 per share)on the sale of
50.1 percent of Phase I of the Lantana Corporate Center to
Olympus Real Estate Corporation in connection with the
formation of the 7000 West Joint Venture (see Note 4).
d. Includes a $3.0 million gain ($0.18 per share) on the sale
of 174 acres to the Barton Creek Joint Venture (see Note 4).
e. Includes a $0.8 million ($0.06 per share) reimbursement of
previously expensed infrastructure costs.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the caption "Information
About Nominees and Directors" of the Proxy Statement submitted to
the stockholders of the registrant in connection with its 2000
annual meeting to be held on May 11, 2000, is incorporated herein
by reference.
Item 11. Executive Compensation
The information set forth under the captions "Director
Compensation" and "Executive Officer Compensation" of the Proxy
Statement submitted to the stockholders of the registrant in
connection with its 2000 annual meeting to be held on May 11,
2000, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The information set forth under the captions "Common Stock
Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Directors and Executive Officer" of the Proxy
Statement submitted to the stockholders of the registrant in
connection with its 2000 annual meeting to be held on May 11,
2000, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Certain
Transactions" of the Proxy Statement submitted to the
stockholders of the registrant in connection with its 2000 annual
meeting to be held on May 11, 2000, is incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)(1) Financial Statements. Reference is made to the
Financial Statements beginning on page 16 hereof.
(a)(2) Financial Statement Schedules. Reference is made to
the Index to Financial Statements appearing on page F-1
hereof.
(a)(3) Exhibits. Reference is made to the Exhibit Index
beginning on page E-1 hereof.
(b) Reports on Form 8-K. The registrant filed a Current
Report on Form 8-K dated December 28, 1999 reporting an event
under Item 5.
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 13, 2000.
STRATUS PROPERTIES INC.
By: /s/ William H. Armstrong III
---------------------------
William H. Armstrong III
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities
indicated, on March 13, 2000.
/s/ William H. Armstrong III
---------------------------- Chairman of the Board, President
William H. Armstrong III and Chief Executive Officer
(principal executive and financial officer)
*
----------------------------
C. Donald Whitmire Vice President and Controller
(principal accounting officer)
*
-----------------------------
Robert L. Adair III Director
*
-----------------------------
James C. Leslie Director
*
-----------------------------
Michael D. Madden Director
*By: /s/ William H. Armstrong III
-----------------------------
William H. Armstrong III
Attorney-in-Fact
<PAGE> S-1
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of 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.
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.
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.
<PAGE> E-1
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.
Executive Compensation Plans and Arrangements (Exhibits
10.18 through 10.21)
10.18 Stratus' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to Stratus' 1998 Form 10-K.
10.19 Stratus Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.9 to Stratus's
1997 Form 10-K.
10.20 Stratus 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to Stratus' 1997 Form 10-K.
10.21 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.
21.1 List of subsidiaries.
23.1 Consent of Arthur Andersen LLP.
24.1 Certified resolution of the Board of Directors of
Stratus authorizing this report to be signed on behalf
of any officer or director pursuant to a Power of
Attorney.
24.2 Powers of attorney pursuant to which a report has been
signed on behalf of certain officers and directors of
Stratus.
27.1 Financial Data Schedule.
<PAGE> E-2
STRATUS PROPERTIES INC.
INDEX TO FINANCIAL STATEMENTS
The financial statements in the schedule listed below should
be read in conjunction with the financial statements of Stratus
contained elsewhere in this Annual Report on Form 10-K.
Page
Report of Independent Public Accountants F-1
Schedule III-Real Estate and Accumulated Depreciation F-2
Schedules other than the one listed above have been omitted
since they are either not required, not applicable or the
required information is included in the financial statements or
notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Stratus Properties Inc.:
We have audited, in accordance with generally accepted
auditing standards, the financial statements as of December 31,
1999 and 1998 and for each of the three years in the period ended
December 31, 1999 included elsewhere in Stratus Properties Inc.'s
Annual Report on Form 10-K, and have issued our report thereon
dated January 19, 2000. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a
whole. The accompanying schedule is the responsibility of the
Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Austin, Texas
January 19, 2000
<PAGE> F-1
<TABLE>
<CAPTION>
Stratus Properties Inc.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
(In Thousands)
SCHEDULE III
Cost Gross
Capitalized Amounts at
Subsequent to December 31,
Intial Cost Acquisitions 1999
---------------- ------------ ------------
Building Building
and and
Improve- Improv-
Land ments Land Land ements
-------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Developed Lots
Camino Real, San Antonio, TX $ 72 - $ 216 $ 288 -
Copper Lakes, Houston,TX 74 - 591 665 -
Undevloped Acerage
Camino Real, San Antonio, TX 391 - 44 435 -
Copper Lakes, Houston, TX 1,922 - 1,300 3,222 -
Bent Tree Apt./ Retail, Dallas TX 873 - - 873 -
Barton Creek (North), Austin, TX 5,825 - 29,482 35,307 -
Barton Creek (South), Austin, TX 14,764 - 9,220 23,984 -
Lantana, Austin, TX 3,934 - 1,310 5,244 -
Longhorn Properties, Austin, TX 15,792 - 5,606 21,398 -
Operating Properties
Barton Creek Utilities, Austin, TX - 457 - - 457
-------- ------- -------- ------- -------
$43,647 457 $ 47,769 $91,416 457
======== ======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Stratus Properties Inc.
REAL ESTATE AND ACCUMLATED DEPRECIATION (Continued)
December 31, 1999
Number of Lots
and Acres Accumulated
------------ Depre- Year
Total Lots Acres ciation Acquired
------- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Developed Lots
Camino Real, San Antonio, TX $ 288 8 - - 1990
Copper Lakes, Houston,TX 665 16 - - 1991
Undevloped Acerage
Camino Real, San Antonio, TX 435 - 23 - 1990
Copper Lakes, Houston, TX 3,222 - 120 - 1991
Bent Tree Apt./ Retail, Dallas TX 873 - 10 - 1990
Barton Creek (North), Austin, TX 35,307 - 650 - 1988
Barton Creek (South), Austin, TX 23,984 - 1,623 - 1988
Lantana, Austin, TX 5,244 - 501 - 1994
Longhorn Properties, Austin, TX 21,398 - 1,274 - 1992
Operating Properties
Barton Creek Utilities, Austin, TX 457 - - 209 1997
------- ----- ----- ------
$91,873 24 4,201 $ 209
======= ===== ===== ======
</TABLE>
<PAGE> F-2
Stratus Properties Inc.
Notes to Schedule III
(In Thousands)
(1) Reconciliation of Real Estate Properties:
The changes in real estate assets for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- ---------
(in Thousands)
<S> <C> <C>
Balance, beginning of year $ 96,678 $ 105,320
Acquisitions 40 728
Improvements and other 5,173 5,619
Cost of real estate sold (10,018) (14,989)
-------- ---------
Balance, end of year $ 91,873 $ 96,678
======== =========
</TABLE>
The aggregate net book value for federal income tax purposes as
of December 31, 1999 was $114,880,000.
(2) Reconciliation of Accumulated Depreciation:
The changes in accumulated depreciation for the years ended
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
(in Thousands)
<S> <C> <C>
Balance, beginning of year $ 122 $ 46
Depreciation expense 87 76
------ ------
Balance, end of year $ 209 $ 122
====== ======
</TABLE>
Depreciation of buildings and improvements reflected in the
statements of operations is calculated over estimated lives of 30
years.
(3) Concurrent with certain year-end 1994 debt negotiations, the
Partnership analyzed the carrying amount of its real estate
assets, using generally accepted accounting principles, and
recorded a $115 million pre-tax, non-cash write-down. The
actual amounts that will be realized depend on future market
conditions and may be more or less than the amounts recorded
in the Partnership's financial statements
<PAGE> F-3
Exhibit 4.4
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 16, 1999
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and delivered
effective as of the 16th day of December, 1999, by and between
STRATUS PROPERTIES INC., a Delaware corporation, ("Stratus"),
STRATUS PROPERTIES OPERATING CO., L.P., a Delaware limited
partnership, ("Stratus Operating"), CIRCLE C LAND CORP., a Texas
corporation, ("Circle C"), and AUSTIN 290 PROPERTIES, INC., a Texas
corporation, ("Austin"), (Stratus, Stratus Operating, Circle C and
Austin are sometimes referred to in this Agreement severally as
"Borrower" and jointly as "Borrowers"), and COMERICA BANK-TEXAS, a
Texas banking association ("Bank").
RECITALS
A. Borrowers desire to obtain certain credit facilities from
the Bank, and the Bank is willing to provide such credit facilities
to and in favor of Borrowers.
B. Such credit facilities are subject to the terms and
conditions set forth herein and in every other Loan Document.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the
mutual promises herein contained, Borrowers and Bank agree as
follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. The terms as used in this Agreement shall
have the meanings assigned to such terms in the Defined Terms
Addendum.
1.2 Accounting Terms. All accounting terms not specifically
defined in this Agreement shall be determined and construed in
accordance with GAAP.
1.3 Singular and Plural. Where the context herein requires,
the singular number shall be deemed to include the plural, the
masculine gender shall include the feminine and neuter genders, and
vice versa.
SECTION 2. TERMS, CONDITIONS AND PROCEDURES FOR BORROWING
Subject to the terms, conditions and procedures of this
Agreement and each other Loan Document including, but not limited
to, the terms, conditions and procedures set forth in the Defined
Terms Addendum and Loan Terms, Conditions and Procedures Addendum,
Bank agrees to make credit available to the Borrowers on such dates
and in such amounts as the Borrowers shall request from time to
time or as may otherwise be agreed to by Borrowers and Bank.
SECTION 3. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants as to itself and, as the
context requires, each Loan Party within its control, and such
representations and warranties shall be deemed to be continuing
representations and warranties during the entire life of this
Agreement, and so long as Bank shall have any commitment or
obligation to make any Advances hereunder, and so long as any
Indebtedness remains unpaid and outstanding under any Loan
Document, as follows:
3.1 Authority. Stratus, Circle C and Austin are each a
corporation. Stratus Operating is a limited partnership of which
Stratus is an indirect owner. Each of Stratus, Circle C, Austin
and Stratus Operating is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization and is duly qualified and authorized to do business in
the state where the Land it owns is located and in each other
jurisdiction in which the character of its assets or the nature of
its business makes such qualification necessary.
<PAGE> 1
3.2 Due Authorization. Each Loan Party has all requisite
power and authority to execute, deliver and perform its obligations
under each Loan Document to which it is a party or is otherwise
bound, all of which have been duly authorized by all necessary
action, and are not in contravention of law or the terms of any
Loan Party's organizational or other governing documents.
3.3 Title to Property. Each Loan Party has good title to all
property and assets purported to be owned by it, including those
assets identified on the Financial Statements most recently
delivered by Borrowers to Bank, subject to the Permitted
Encumbrances.
3.4 Encumbrances. There are no Liens on, and no financing
statements on file with respect to, any of the property or assets
of any Loan Party, except for Permitted Encumbrances.
3.5 Subsidiaries. As of the date hereof, none of the
Borrowers has any Subsidiaries, except as set forth in
Schedule 3.5, which Schedule sets forth the percentage of ownership
of such Borrower in each such Subsidiary as of the date of this
Agreement.
3.6 Taxes. Each Loan Party (i) has filed, on or before their
respective delinquency dates, all federal, state, local and foreign
tax returns that are required to be filed, or has obtained
extensions for filing such tax returns, (ii) is not delinquent in
filing such returns in accordance with such extensions, and (iii)
has paid all taxes which have become due pursuant to those returns
or pursuant to any assessments received by any such party, as the
case may be, to the extent such taxes have become due, except to
the extent such tax payments are being actively and diligently
contested in good faith by appropriate proceedings, and, if
requested by Bank, have been bonded or reserved in an amount and
manner satisfactory to Bank. Further, no Loan Party knows of any
additional assessments in respect of any such taxes and related
liabilities.
3.7 No-Defaults. There exists no default (or event which,
with the giving of notice or passage of time, or both, would result
in a default) under the provisions of any instrument or agreement
evidencing, governing, securing or otherwise relating to any Debt
of any Loan Party or pertaining to any of the Permitted
Encumbrances (other than Contested Items) except to the extent that
any such failure has been waived or that such failure to comply
would not have a material adverse effect.
3.8 Enforceability of Agreement and Loan Documents. Each
Loan Document has been duly executed and delivered by duly
authorized officer(s) or other representative(s) of each Loan Party
that is a party thereto, and constitutes the valid and binding
obligations of each such Loan Party, enforceable in accordance with
their respective terms, except to the extent that enforcement
thereof may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting the enforcement of
creditors' rights generally at the time in effect.
3.9 Non-contravention. The execution, delivery and
performance by each Loan Party of the Loan Documents to which such
Loan Party is a party or otherwise bound, are not in contravention
of the terms of any indenture, agreement or undertaking to which
any such Loan Party is a party or by which it is bound, except to
the extent that such terms have been waived or that failure to
comply with any such terms would not have a Material Adverse
Effect.
3.10 Actions, Suits, Litigation or Proceedings. Except as
shown on Schedule 3.10, there is no Material Litigation, and, to
the best knowledge of each Borrower, no Loan Party is under
investigation by, or is operating under any restrictions imposed
by, any Governmental Authority.
3.11 Consents, Approvals and Filings, Etc. Except as have
been previously obtained or as otherwise expressly provided in this
Agreement, no authorization, consent, approval, license,
qualification or formal exemption from, nor any filing, declaration
or registration with, any Governmental Authority and no material
authorization, consent or approval from any other Person, is
required in connection with the execution, delivery and performance
by each Loan Party of any Loan Document to which it is a party.
All such authorizations, consents, approvals, licenses,
qualifications, exemptions, filings, declarations and registrations
which have previously been obtained or made, as the case may be,
are in full force and effect and are not the subject of any
<PAGE> 2
attack,
or to the best knowledge of each Borrower, any threatened attack,
in any material respect, by appeal, direct proceeding or otherwise.
3.12 Contracts, Agreements and Leases. To each Borrower's
best knowledge and after due inquiry, no Loan Party is in default
(beyond any applicable period of grace or cure) in complying with
any provision of any material contract, agreement, indenture, lease
or instrument to which it is a party or by which it or any of its
properties or assets are bound, where such default would have a
Material Adverse Effect. To each Borrower's knowledge, each such
material contract, commitment, undertaking, agreement, indenture
and instrument is in full force and effect and is valid and legally
binding.
3.13 ERISA. Except as shown on Schedule 3.14, no Loan Party
maintains or contributes to any employee benefit plan subject to
Title IV of ERISA. Furthermore, no Loan Party has incurred any
accumulated funding deficiency within the meaning of ERISA or
incurred any liability to the PBGC in connection with any employee
benefit plan established or maintained by such Loan Party, and no
reportable event or prohibited transaction, as defined in ERISA,
has occurred with respect to such plans.
3.14 No Investment Company. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended, nor is any Loan Party "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940,
as amended.
3.15 No Margin Stock. No Loan Party is engaged principally,
or as one of its important activities, directly or indirectly, in
the business of extending credit for the purpose of purchasing or
carrying margin stock, and none of the proceeds of any of the Loans
will be used, directly or indirectly, to purchase or carry any
margin stock or made available by any Loan Party in any manner to
any other Person to enable or assist such Person in purchasing or
carrying margin stock, or otherwise used or made available for any
other purpose which might violate the provisions of Regulations G,
T, U, or X of the Board of Governors of the Federal Reserve System.
3.16 Environmental Representations.
(a) No Loan Party has received any notice of any
violation of any Environmental Law(s); and no Loan Party is a
party to any litigation or administrative proceeding, nor, so
far as is known by any Borrower, is any litigation or
administrative proceeding threatened against any Loan Party
which, in any event, (i) asserts or alleges that any Loan
Party violated any Environmental Law(s), (ii) asserts or
alleges that any Loan Party is required to clean up, remove or
take any other remedial or response action due to the
disposal, depositing, discharge, leaking or other release of
any Hazardous Materials, or (iii) asserts or alleges that any
Loan Party is required to pay all or a portion of any past,
present or future clean-up, removal or other remedial or
response action which arises out of or is related to the
disposal, depositing, discharge, leaking or other release of
any Hazardous Materials by any Loan Party, and which in each
case of (i)-(iii), either singularly or in the aggregate,
could have a Material Adverse Effect.
(b) To Borrowers' knowledge, there are no conditions
existing currently which could subject any Loan Party to
damages, penalties, injunctive relief or clean-up costs under
any applicable Environmental Law(s), or which require, or are
likely to require, clean-up, removal, remedial action or other
response pursuant to any applicable Environmental Law(s) by
any Loan Party, and which, in any event, either singularly or
in aggregate, could have a Material Adverse Effect.
(c) No Loan Party is subject to any judgment, decree,
order or citation related to or arising out of any applicable
Environmental Law(s), which, either singularly or in the
aggregate, could have a Material Adverse Effect; and, to
Borrowers' knowledge, no Loan Party has been named or listed
as a potentially responsible party by any Governmental
Authority in any matter arising under any applicable
Environmental Law(s), except as disclosed in Schedule 3.16,
and, in the event that any such matters are disclosed in said
<PAGE> 3
Schedule 3.16 they will not, either singularly or in the
aggregate, have a Material Adverse Effect.
(d) Each Loan Party has all permits, licenses and
approvals required under applicable Environmental Laws, where
the failure to so obtain or maintain any such permits,
licenses or approvals could have a Material Adverse Effect.
3.17 Accuracy of Information. The Financial Statements
previously furnished to Bank have been prepared in accordance with
GAAP and fairly present the financial condition of Borrower and, as
applicable, the consolidated financial condition of Borrower and
such other Person(s) as such Financial Statements purport to
present, and the results of their respective operations as of the
dates and for the periods covered thereby; and since the date(s) of
said Financial Statements, there has been no material adverse
change in the financial condition of Borrower or any other Person
covered by such Financial Statements. No Loan Party, nor any such
other Person has any material contingent obligations, liabilities
for taxes, long-term leases or long-term commitments not disclosed
by, or reserved against in, such Financial Statements. Each Loan
Party is solvent, able to pay its respective debts as they mature,
has capital sufficient to carry on its business and has assets the
fair market value of which exceed its liabilities, and no Loan
Party will be rendered insolvent, under-capitalized or unable to
pay debts generally as they become due by the execution or
performance of any Loan Document to which it is a party or by which
it is otherwise bound.
3.18 Equity Ownership. Stratus's entire issued and
outstanding capital stock consists of 14,288,270 shares of common
stock, $.01 par value; and the names of all Persons who own
beneficially five percent (5%) or more of such shares, together
with the amount of such ownership, are set forth in Schedule 3.19,
Part 1 attached hereto. Circle C's entire issued and outstanding
capital stock consists of 1,000 shares of common stock, $1.00 par
value; and the names of all Persons who own beneficially five
percent (5%) or more of such shares, together with the amount of
such ownership, are set forth in Schedule 3.19, Part 2 attached
hereto. Austin's entire issued and outstanding capital stock
consists of 1,000 shares of common stock, $1.00 par value; and the
names of all Persons who own beneficially five percent (5%) or more
of such shares, together with the amount of such ownership, are set
forth in Schedule 3.19, Part 3 attached hereto. All of the
partnership interests in Stratus Operating are owned beneficially
and of record by the Persons and in the amounts/percentages set
forth in Schedule 3.19, Part 3. To the extent that any such
partner is a corporation (other than Stratus, Austin or Circle C),
limited liability company or partnership, similar information with
respect to the beneficial and record owners of all equity ownership
interests in each such entity is set forth in Schedule 3.19, Part
3. There are no outstanding options, warrants or rights to
purchase, nor any agreement for the subscription, purchase or
acquisition of, any equity ownership interests of any Loan Party,
except described in Schedule 3.19, Part 4.
3.19 Business Loan. The Loans are business loan transactions
in the stated amounts solely for the purpose of carrying on the
businesses of Borrowers and none of the proceeds of the Loans will
be used for the personal, family, household or agricultural
purposes of any Borrower.
3.20 Relationship. The relationship between each Borrower and
Bank is solely that of borrower and lender, and Bank has no
fiduciary or other special relationship with any Borrower or any
other Loan Party, and no term or condition of any of the Loan
Documents shall be construed so as to deem the relationship between
any Borrower or any other Loan Party and Bank to be other than that
of borrower and lender.
3.21 Experience. The principals of each Borrower are
knowledgeable businessmen with experience in real estate
transactions and real estate financing. In all of their
transactions with Bank, each Borrower and its principals have been
represented by (or have had the opportunity to be represented by)
legal counsel independent of Bank and independent of counsel for
Bank.
3.22 Compliance with Laws. The Land and any Improvements
thereon comply, in all material respects, with all applicable
Governmental Requirements and restrictive covenants, including,
without limitation, zoning laws, building codes, handicap or
disability legislation, and all rules, regulations and orders
relating thereto, and all Environmental Laws, and the use to which
a Borrower is using or intends to use its Land and Improvements
complies with all Governmental
<PAGE> 4
Regulations in all material respects
specifically including, but not limited to, any and all land use
and development entitlements and Municipal Utility District
requirements for the Primary Collateral and the Other Collateral,
and that Borrower has taken all action necessary to preserve and
maintain the land use and development entitlements, and has taken
no action which would cause a loss of any such entitlements.
3.23 Access. Access by vehicles to the Land exists over paved
roadways that have been completed, dedicated to the public use and
accepted by the appropriate Governmental Authority.
3.24 Statements. No certificate, statement, report or other
information delivered heretofore, concurrently herewith or
hereafter by any Loan Party to Bank in connection herewith, or in
connection with any transaction contemplated hereby, contains or
will contain any untrue statement of a material fact or fails to
state any material fact necessary to keep the statements contained
therein from being materially misleading, and same were true,
complete and accurate as of the date hereof in all material
respects.
3.25 Disclaimer of Permanent Financing. Each Borrower
acknowledges and agrees that Bank has not made any commitments,
either express or implied, to extend the terms of the Loans past
their stated maturity dates or to provide Borrowers with any
permanent financing, except to the extent, if any, that the same is
expressly stated in this Agreement and the other Loan Documents.
3.26 Not a Broker Or Dealer. No Loan Party is a "broker" or
a "dealer" within the meaning of the Securities Exchange Act of
1934, as amended from time to time, and any rules or regulations
promulgated thereunder.
SECTION 4. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, so long as Bank is
committed to make any Advance under this Agreement, and until all
instruments and agreements evidencing any Loan which is payable on
demand or which conditions Advances upon the Bank's discretion are
fully discharged and terminated, and thereafter, so long as any
Indebtedness remains outstanding, it will, and, as applicable, it
will cause each Loan Party within its control or under common
control to:
4.1 Preservation of Existence, Etc. Preserve and maintain
its existence and preserve and maintain such of its rights,
licenses, and privileges as are material to the business and
operations conducted by it; qualify and remain qualified to do
business in each jurisdiction in which the Land it owns is located
and where such qualification is material to its business and
operations or ownership of its properties; continue to conduct and
operate its business substantially as conducted and operated during
the present and preceding calendar year; at all times maintain,
preserve and protect all of its franchises and trade names and
preserve all the remainder of its property and keep the same in
good repair, working order and condition; and from time to time
make, or cause to be made such repairs or betterments as Borrower
is obligated to make under any Governmental Requirements.
4.2 Keeping of Books. Keep proper books of record and
account in which full and correct entries shall be made of all of
its financial transactions and its assets and businesses so as to
permit the presentation of financial statements (including, without
limitation, those Financial Statements to be delivered to Bank
pursuant to Section 4.3 hereof) prepared in accordance with GAAP;
and permit Bank, or its representatives, at reasonable times and
intervals after forty-eight (48) hours prior notice, at Borrowers'
cost and expense, to visit any office of any Loan Party, discuss
its financial matters with its officers, employees and independent
certified public accountants, and by this provision, each Borrower
authorizes such officers, employees and accountants to discuss the
finances and affairs of any Loan Party and to examine any of its
books and other corporate records; provided, however, if no Event
of Default exists, such visit will not occur more often than four
(4) times in any calendar year.
4.3 Reporting Requirements. Stratus shall furnish to Bank,
or cause to be furnished to Bank, the following:
<PAGE> 5
(a) As soon as possible, and in any event within five
(5) calendar days after becoming aware of the occurrence or
existence of each Default or Event of Default hereunder or of
any Material Adverse Effect, a written statement of the chief
financial officer or other appropriate authorized
representative of Stratus, setting forth details of such
Default, Event of Default or Material Adverse Effect, and the
action which Stratus has taken, or has caused to be taken, or
proposes to take, or to cause to be taken, with respect
thereto.
(b) As soon as available, and in any event within ninety
(90) days after and as of the end of each fiscal year of
Stratus, audited consolidated Financial Statements of Stratus,
including a balance sheet, income statement, statement of
profit and loss, statement of changes in shareholders equity,
statement of cash flows and contingent obligations, for and as
of such fiscal year then ending, with comparative numbers for
the preceding fiscal year, in each case, prepared by Stratus
or such other Person, as applicable, and completed in such
detail as Bank shall require, and certified by the chief
financial officer or other appropriate authorized
representative of Stratus or of such other Person, as
applicable, as to consistency with prior financial reports and
accounting periods, accuracy and fairness of presentation.
Such audited Financial Statements shall be prepared in
accordance with GAAP by independent certified public
accountants of recognized standing selected by Borrower and
approved by Bank and shall contain unqualified opinions as to
the fairness of the statements therein contained.
(c) As soon as available, and in any event not later
than thirty (30) days prior to the start of each fiscal year
of Stratus, the business plan of Stratus for such forthcoming
fiscal year.
(d) As soon as available, and in any event within thirty
(30) days after and as of the end of each calendar quarter,
including the last such reporting period of each calendar
year, consolidated Financial Statements of Stratus and, to the
extent not covered in the Stratus Financial Statements, from
such of the other Loan Parties as may be required by the Bank,
Consolidated, as applicable, for and as of such reporting
period, including a balance sheet, income statement, statement
of profit and loss, surplus reconciliation statement and
statement of cash flows and contingency for and as of such
reporting period then ending and for and as of that portion of
the calendar year then ending, with comparative numbers for
the same period of the preceding calendar year, in each case,
certified by the chief financial officer or other appropriate
authorized representative of Stratus and, as applicable, each
other Loan Party as to consistency with prior financial
reports and accounting periods, accuracy and fairness of
presentation.
(e) As soon as available, and in any event within thirty
(30) days after and as of the end of each calendar month, a
statement of Stratus's sales as of such reporting period then
ending and for and as of that portion of the calendar year
then ending, with comparative numbers for the same period of
the preceding calendar year, in each case, certified by the
chief financial officer of Stratus as to consistency with
prior reports and accounting periods, accuracy and fairness of
presentation ended and the year-to-date.
(f) As soon as available, and in any event within thirty
(30) days after and as of the end of each calendar quarter, a
statement of the status of MUD Reimbursables and Material
Litigation as of such reporting period then ending certified
by the chief financial officer of Stratus as to accuracy and
completeness.
(g) Promptly upon receipt thereof, copies of all
management letters and other substantive reports submitted to
any Loan Party by independent certified public accountants in
connection with any annual audit of any such party.
(h) Promptly after filing the same, a copy of Stratus's
annual federal income tax return.
<PAGE> 6
(i) Simultaneously with the Financial Statements to be
delivered to Bank pursuant to Sections (b) and (d) above, a
Compliance Certificate dated as of the end of such quarter or
year, as the case may be.
(j) Promptly, and in form and detail reasonably
satisfactory to Bank, such other information as Bank may
reasonably request from time to time.
4.4 Inspections. Permit Bank, through its authorized
attorneys, accountants and representatives, at Borrowers' cost and
expense, to examine each Loan Party's books, accounts, records,
ledgers, assets and properties of every kind and description,
wherever located, at all reasonable times during normal business
hours, upon forty-eight (48) hours prior oral or written request of
Bank.
4.5 Further Assurances; Financing Statements. Furnish Bank,
at Borrowers' expense, upon Bank's request and in form reasonably
satisfactory to Bank, and execute and deliver or cause to be
executed and delivered, such additional pledges, assignments,
mortgages, lien instruments or other security instruments,
consents, acknowledgments, subordinations and financing statements
covering any or all of the Mortgaged Property pledged, assigned,
mortgaged or encumbered pursuant to any Loan Document, of every
nature and description, whether now owned or hereafter acquired by
the Person providing such Mortgaged Property, together with such
other documents or instruments as Bank may require to effectuate
more fully the express purposes of any Loan Document.
4.6 Compliance with Leases. Comply with all material terms
and conditions of the Leases, if any, and all other lease or rental
agreements covering any premises or property (real or personal)
wherein any of the Mortgaged Property is or may be located, or
covering any of the other material personal or real property now or
hereafter owned, leased or otherwise used by any Loan Party in the
conduct of its business, and any Governmental Requirement, except
where the failure to so comply could not cause a Material Adverse
Effect.
4.7 INDEMNIFICATION. INDEMNIFY, DEFEND AND SAVE BANK
HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, COSTS, DAMAGES,
LIABILITIES, OBLIGATIONS AND EXPENSES, INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES, INCURRED BY BANK BY REASON
OF ANY DEFAULT OR EVENT OF DEFAULT, IN DEFENDING OR PROTECTING THE
LIENS WHICH SECURE OR PURPORT TO SECURE ALL OR ANY PORTION OF THE
INDEBTEDNESS, WHETHER EXISTING UNDER ANY LOAN DOCUMENT OR OTHERWISE
OR THE PRIORITY THEREOF, OR IN ENFORCING THE OBLIGATIONS OF ANY
BORROWER OR ANY OTHER PERSON UNDER OR PURSUANT TO ANY LOAN
DOCUMENT, OR IN THE PROSECUTION OR DEFENSE OF ANY ACTION OR
PROCEEDING CONCERNING ANY MATTER GROWING OUT OF OR CONNECTED WITH
THE MORTGAGED PROPERTY OR ANY LOAN DOCUMENT, INCLUDING ANY CLAIMS,
LOSSES, COSTS, DAMAGES, LIABILITIES, OBLIGATIONS, AND EXPENSES
RESULTING FROM BANK'S OWN NEGLIGENCE, EXCEPT AND TO THE EXTENT BUT
ONLY TO THE EXTENT CAUSED BY BANK'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. WITHOUT LIMITING IN ANY MANNER ANY OF THE FOREGOING,
IT IS SPECIFICALLY AGREED THAT THE OBLIGATIONS OF BORROWERS UNDER
THIS SECTION SHALL EXTEND TO ANY AND ALL CLAIMS, LOSSES, COSTS,
DAMAGES, LIABILITIES, OBLIGATIONS AND EXPENSES, INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES, INCURRED BY BANK BY REASON
THAT THE LEGAL DESCRIPTION OF ANY OF THE MORTGAGED PROPERTY IN ANY
LOAN DOCUMENT IS INCORRECT IN ANY RESPECT OR BECAUSE THE LIENS OF
ANY OF THE DEEDS OF TRUST ARE OTHER THAN FIRST AND PRIOR LIENS.
4.8 Governmental and Other Approvals. To the extent
necessary to be in compliance, comply with all Governmental
Requirements in a timely matter and apply for, obtain and/or
maintain in effect, as applicable, all authorizations, consents,
approvals, licenses, qualifications, exemptions, filings,
declarations and registrations (whether with any Governmental
Authority, securities
<PAGE> 7
exchange or otherwise) which are necessary in
connection with the execution, delivery and/or performance by any
Loan Party of any Loan Document to which it is a party specifically
including, but not limited to, the entitlements necessary to
develop the Mortgaged Property.
4.9 Insurance. Each Borrower shall obtain and maintain or
cause to be obtained and maintained at such Borrower's sole expense
with respect to the portions of the Mortgaged Property owned by it:
(a) all-risk property insurance with respect to all insurable
Mortgaged Property, if any, against loss or damage by fire,
lightening, windstorm, explosion, hail, tornado and such hazards as
are presently included in so-called "all-risk" coverage and against
such other insurable hazards as Bank may reasonably require, in an
amount not less than 100% of the full replacement cost, including
the cost of debris removal, without deduction for depreciation and
sufficient to prevent Borrowers or Bank from becoming a coinsurer;
(b) if and to the extent any insurable Improvements are in a
special flood hazard area, a flood insurance policy in an amount
equal to the lesser of the principal balance of the Indebtedness or
the maximum amount available or the replacement cost of the
insurable Mortgaged Property; (c) commercial general public
liability insurance, on an "occurrence" basis, for the benefit of
Borrowers with Bank named as loss payee in respect to the Land and
Improvements; (d) statutory worker's compensation insurance with
respect to any work on or about the Mortgaged Property; and (e)
such other insurance on the insurable Mortgaged Property as may
from time to time be reasonably required by Bank and against other
insurable hazards or casualties which at the time are commonly
insured against in the case of premises similarly situated, due
regard being given to the height, type, construction, location, use
and occupancy of buildings and improvements. All insurance
policies shall be issued and maintained by insurers, in amounts,
with deductibles, and in form reasonably satisfactory to Bank, and
shall require not less than fifteen (15) days' prior written notice
to Bank of any cancellation or material change of coverage. All
insurance policies maintained, or caused to be maintained, by a
Borrower with respect to any of the Mortgaged Property shall
provide that each such policy shall be primary without right of
contribution from any other insurance that may be carried by such
Borrower or Bank and that all of the provisions thereof, except the
limits of liability, shall operate in the same manner as if there
were a separate policy covering each insured. If any insurer which
has issued a policy of title, hazard, liability or other insurance
required pursuant to this Agreement or any other Loan Document
becomes insolvent or the subject of any bankruptcy, receivership or
similar proceeding or if Bank, in good faith, believes that the
financial responsibility of such insurer is or becomes inadequate,
the applicable Borrower shall, in each instance, promptly, upon the
request of Bank and at such Borrower's expense, obtain and deliver
to Bank a certificate of insurance issued by another insurer, which
insurer and policy meet the requirements of this Agreement or such
other Loan Document, as the case may be and shall furnish a copy of
the policy upon Bank's request. Without limiting the discretion of
Bank with respect to required endorsements to insurance policies,
all such policies for loss of or damage to the Mortgaged Property
shall contain a standard mortgage clause (without contribution)
naming Bank as mortgagee with loss proceeds payable to Bank
notwithstanding (i) any act, failure to act or negligence of or
violation of any warranty, declaration or condition contained in
any such policy by any named insured; (ii) the occupation or use of
the Mortgaged Property for purposes more hazardous than permitted
by the terms of any such policy; (iii) any foreclosure or other
similar action by Bank under the Loan Documents; or (iv) any change
in title to or ownership of the Mortgaged Property or any portion
thereof, such proceeds to be held for application as provided in
the Loan Documents. The originals of each initial insurance policy
(or to the extent permitted by Bank, a copy of the original policy
and a satisfactory certificate of insurance) shall be delivered to
Bank at the time of execution of this Agreement, with no delinquent
premium payments, and each renewal certificate shall be delivered
to Bank prior to the expiration of the policy it renews or replaces
with no delinquent premium payments; provided that all insurance
premiums shall be prepaid on an annual basis. Borrower shall pay
all premiums on policies required hereunder as they become due and
payable. If any loss occurs at any time when any Borrower has
failed to perform any Borrower's covenants and agreements in this
Paragraph, Bank shall nevertheless be entitled to the benefit of
all insurance covering the loss and held by or for all Borrowers,
to the same extent as if it had been made payable to Bank. Upon
any foreclosure hereof or transfer of title to the Mortgaged
Property in extinguishment of the whole or any part of the
Indebtedness, all of Borrowers' right, title and interest in and to
the insurance policies referred to in this Paragraph (including
unearned premiums) and all proceeds payable thereunder shall
thereupon vest in the purchaser at foreclosure or other such
transferee, to the extent permissible under such policies. Bank
shall have the right (but not the obligation) to make proof of loss
for, settle and adjust
<PAGE> 8
any claim under, and receive the proceeds
of, all insurance for loss of or damage to the Mortgaged Property,
and the expenses incurred by Bank in the adjustment and collection
of insurance proceeds shall be a part of the Indebtedness, shall be
due and payable to Bank on demand and shall bear interest from the
date paid by Bank until reimbursed at the highest rate of interest
applicable to any of the Indebtedness (but not in excess of the
highest rate permitted by applicable law). Bank and Bank's
employees are each irrevocably appointed attorney-in-fact for
Borrowers and are authorized to adjust and compromise each loss
without the consent of Bank, to collect, receive and receipt for
all insurance proceeds in the name of Bank and/or Borrowers, and to
endorse Borrowers' name upon any check in payment of the loss.
Bank shall not be, under any circumstances, liable or responsible
for failure to collect or exercise diligence in the collection of
any of such proceeds or for the obtaining, maintaining or adequacy
of any insurance or for failure to see to the proper application of
any amount paid over to any Borrower.
4.10 Compliance with ERISA. In the event that any Loan Party
or any of its Subsidiaries maintain(s) or establish(es) a Pension
Plan subject to ERISA, (a) comply in all material respects with all
requirements imposed by ERISA as presently in effect or hereafter
promulgated, including, but not limited to, the minimum funding
requirements thereof; (b) promptly notify Bank upon the occurrence
of a "reportable event" or "prohibited transaction" within the
meaning of ERISA, or that the PBGC or any Loan Party has instituted
or will institute proceedings to terminate any Pension Plan,
together with a copy of any proposed notice of such event which may
be required to be filed with the PBGC; and (c) furnish to Bank (or
cause the plan administrator to furnish Bank) a copy of the annual
return (including all schedules and attachments) for each Pension
Plan covered by ERISA, and filed with the Internal Revenue Service
by any Loan Party not later than thirty (30) days after such report
has been so filed.
4.11 Environmental Covenants.
(a) Comply with all applicable Environmental Laws in all
material respects, including, but not limited to, the
demolition of any existing house or other buildings, in
accordance with Texas Department of Health Regulations, and
maintain all permits, licenses and approvals required under
applicable Environmental Laws, where the failure to do so
could have a Material Adverse Effect. Further, Borrower
acknowledges that certain petroleum hydrocarbons have been
released from Exxon and Shell Oil pipelines located on or in
the vicinity of the Land, and in the event the subsurface
soil affected by such releases on the Land are to be
disturbed, Borrower will take such health and safety measures
as necessary to protect any person coming into contact with
such releases, and all impacted soil resulting from site
excavations will be disposed of in accordance with applicable
regulations.
(b) Promptly notify Bank, in writing, as soon as any
Borrower becomes aware of any condition or circumstance which
makes any of the environmental representations or warranties
set forth in this Agreement or any other Loan Document
incomplete, incorrect or inaccurate in any material respect as
of any date; and promptly provide to Bank, immediately upon
receipt thereof, copies of any material correspondence,
notice, pleading, citation, indictment, complaint, order,
decree, or other document from any source asserting or
alleging a violation of any Environmental Laws by any Loan
Party, or of any circumstance or condition which requires or
may require, a financial contribution by any Loan Party, or a
clean-up, removal, remedial action or other response by or on
behalf of any Loan Party, under applicable Environmental
Law(s), or which seeks damages or civil, criminal or punitive
penalties from any Loan Party or any violation or alleged
violation of Environmental Law(s).
(c) BORROWER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD
BANK, AND ANY OF BANK'S PAST, PRESENT AND FUTURE OFFICERS,
DIRECTORS, SHAREHOLDERS, EMPLOYEES, REPRESENTATIVES AND
CONSULTANTS, HARMLESS FROM ANY AND ALL CLAIMS, LOSSES,
DAMAGES, SUITS, PENALTIES, COSTS, LIABILITIES, OBLIGATIONS AND
EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE LEGAL
EXPENSES AND ATTORNEYS' FEES, WHETHER INSIDE OR OUTSIDE
COUNSEL IS USED) INCURRED OR ARISING OUT OF ANY CLAIM, LOSS OR
<PAGE> 9
DAMAGE OF ANY PROPERTY, INJURIES TO OR DEATH OF ANY PERSONS,
CONTAMINATION OF OR ADVERSE EFFECTS ON THE ENVIRONMENT, OR
OTHER VIOLATION OF ANY APPLICABLE ENVIRONMENTAL LAW(S), IN ANY
CASE, CAUSED BY ANY LOAN PARTY OR IN ANY WAY RELATED TO ANY
PROPERTY OWNED OR OPERATED BY ANY LOAN PARTY OR DUE TO ANY
ACTS OF ANY LOAN PARTY OR ANY OF ITS OFFICERS, DIRECTORS,
SHAREHOLDERS, EMPLOYEES, CONSULTANTS AND/OR REPRESENTATIVES
INCLUDING ANY CLAIMS, LOSSES, DAMAGES, SUITS, PENALTIES,
COSTS, LIABILITIES, OBLIGATIONS OR EXPENSES, RESULTING FROM
BANK'S OWN NEGLIGENCE; PROVIDED HOWEVER, THAT THE FOREGOING
INDEMNIFICATION SHALL NOT BE APPLICABLE, AND BORROWER SHALL
NOT BE LIABLE FOR ANY SUCH CLAIMS, LOSSES, DAMAGES, SUITS,
PENALTIES, COSTS, LIABILITIES, OBLIGATIONS OR EXPENSES, TO THE
EXTENT (BUT ONLY TO THE EXTENT) THE SAME ARISE OR RESULT FROM
ANY GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF BANK OR ANY OF
ITS AGENTS OR EMPLOYEES.
4.12 Year 2000 Compliant. Perform all acts reasonably
necessary to ensure that (a) each Loan Party and (b) all customers,
suppliers and vendors that are material to any Loan Party's
business, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive
review and assessment of all of any Loan Party's systems and
adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used in
this Section, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or
systems utilized by or material to the business operations or
financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000.
Borrower shall, promptly following Bank's request, provide to Bank
such certifications or other evidence of each Loan Party's
compliance with the terms of this Section as Bank may from time to
time reasonably require.
4.13 Bank's Expenses. Pay or reimburse to Bank on demand all
costs and expenses of Bank, including, without limitation,
reasonable attorneys' fees and legal expenses, incurred in
connection with the preparation, execution, delivery,
administration and performance of the Loan Documents, the Mortgaged
Property, and the transactions contemplated by this Agreement
including, without limitation, title insurance and examination
charges, survey costs, insurance premiums, filing and recording
fees, attorneys' fees and expenses, and other expenses payable to
third parties incurred by Bank in connection with the consummation
of the transactions contemplated by this Agreement.
4.14 Surveys. Furnish Bank within sixty (60) days after the
date hereof, and thereafter from time to time at the request of
Bank but no more often than once per year, at Borrowers' expense
recertified and updated Surveys of the Primary Collateral. All
Surveys shall be in form and substance reasonably acceptable to
Bank.
4.15 Estoppel Certificates. Deliver to Bank, within ten (10)
days after request therefor, estoppel certificates or written
statements, duly acknowledged, stating to Borrowers' knowledge
after diligent inquiry the amount that has then been advanced to
Borrowers under this Agreement, the amount due on the Notes, and
whether any offsets or defenses exist against the Notes or any of
the other Loan Documents.
4.16 Personalty and Fixtures. Deliver to Bank, on demand, any
contracts, bills of sale, statements, receipted vouchers or
agreements under which any Borrower claims title to any items of
personal property incorporated in any Improvements or subject to
the lien of any of the Deeds of Trust or to the security interest
of any of the Security Agreements.
4.17 Leases. Deliver to Bank executed copies of all Leases;
and all said Leases will contain a written provision reasonably
acceptable to Bank whereby all rights of the tenant in the Lease
and the Mortgaged Property are subordinated to the liens and
security interests granted in the Loan Documents. Furthermore, if
requested by Bank, Borrowers shall cause to be executed and
delivered to Bank a Subordination, Non-Disturbance and Attornment
Agreement, in form and
<PAGE> 10
substance reasonably acceptable to Bank,
relating to each Lease and fully executed by Bank, Borrowers and
such tenant.
4.18 Approval to Lease Required. Borrowers will obtain the
prior written consent of Bank as to the form and substance of each
proposed Lease specifically including, but not limited to, any
ground lease transaction, and of each prospective tenant prior to
entering into any such Lease, which approval will not be
unreasonably withheld, conditioned or delayed.
4.19 Brokers. Pay all fees, commissions and other
compensation payable to all brokers, if any, involved in this
transaction at or prior to the disbursement of the Initial Advance.
BORROWERS HEREBY AGREE TO INDEMNIFY AND HOLD HARMLESS BANK FROM
AND AGAINST ANY LOSS, DAMAGE, EXPENSE OR CLAIMS OF BROKERS (EXCEPT
FOR BROKERS EXPRESSLY CONTRACTED WITH BY BANK) ARISING BY REASON OF
THE EXECUTION HEREOF OR THE CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED HEREBY, INCLUDING BUT NOT LIMITED TO, ANY TRANSACTIONS
INVOLVING OR RELATING TO ANY LEASE.
4.20 Appraisals. Supply Bank, at Borrowers' expense, with new
or recertified Primary Collateral Appraisals from time to time upon
Bank's request; provided, so long as no Default or Event of Default
shall have occurred and be continuing, Borrowers shall not be
obligated to pay for any such appraisals more frequently than once
during any calender-year; subject, however, to the updated
information regarding reconciliation of value as may be required by
Bank in connection with a Partial Release, as more fully set forth
in Addendum 3.
4.21 Interest Reserve Amount and Interest Reserve Escrow
Account. Notwithstanding the Revolving Loan Amount or any term or
provision of this Agreement or the other Loan Documents to the
contrary, the amount available to be advanced to Borrowers on the
Revolving Loan at any one time shall be reduced by the difference,
if any, between the Interest Reserve Amount and the amount on
deposit in the Interest Reserve Escrow Account. If the amount on
deposit in the Interest Reserve Escrow Account is at least equal to
the Interest Reserve Amount, there shall be no reduction under this
Section to the amount available to be advanced on the Revolving
Loan. If Borrowers at any time elect to establish the Interest
Reserve Escrow Account, Borrowers shall deposit with Bank a sum in
cash earmarked for deposit to an interest bearing account in
Borrowers' name at Bank styled "Stratus Interest Reserve Escrow
Account" (the "Interest Reserve Escrow Account"). Borrowers hereby
pledge to Bank, and grant to Bank a security interest in, any and
all monies now or hereafter deposited in the Interest Reserve
Escrow Account as additional security for the payment of the Loans.
If Borrower establishes the Interest Reserve Escrow Account and
provided that no Default or Event of Default shall exist, Bank
shall make disbursements each month from the Interest Reserve
Escrow Account as requested, in writing, by Borrowers to pay all or
a portion of the accrued interest then due and payable on the
Notes; but if Borrower shall not establish the Interest Reserve
Escrow Account or the amount on deposit in such account is not
sufficient to pay all then accrued interest on the Loans, Bank may,
at its option and without a Request for Advance, make an Advance on
the Revolving Loan for the purpose of paying all accrued interest
then due and payable on the Notes if Borrower otherwise fails to
pay such interest timely. All earnings or interest, if any, on the
Interest Reserve Escrow Account shall be and become part of such
Interest Reserve Escrow Account and shall be disbursed as provided
in this Section 4.21. Upon the occurrence of an Event of Default,
Bank may apply any sums then present in the Interest Reserve Escrow
Account to the payment of the Loans in any order of priority in its
sole discretion. The Interest Reserve Escrow Account shall not
constitute a trust fund and may be commingled with other monies
held by Bank.
SECTION 5. NEGATIVE COVENANTS
Each Borrower covenants and agrees that, so long as Bank is
committed to make any Advance under this Agreement and until all
instruments and agreements evidencing any Loan which is payable on
demand or which conditions Advances upon the Bank's discretion are
fully discharged and terminated and, thereafter, so long as any
Indebtedness remains outstanding, it will not, and it will not
allow any Loan Party within its control to, without the prior
written consent of the Bank:
<PAGE> 11
5.1 Capital Structure, Business Objects or Purpose.
Purchase, acquire or redeem any of its equity ownership interests,
or enter into any reorganization or recapitalization or reclassify
its equity ownership interests, or make any material change in its
capital structure or general business objects or purpose.
5.2 Mergers or Dispositions. Change its name, enter into any
merger or consolidation, whether or not the surviving entity
thereunder, or sell, lease, transfer, relocate or dispose of all,
substantially all, or any material part of its assets (whether in
a single transaction or in a series of transactions), except as
expressly permitted under this Agreement or the other Loan
Documents.
5.3 Guaranties. Guarantee, endorse, or otherwise become
secondarily liable for or upon the obligations or Debt of others
(whether directly or indirectly), except:
(a) guaranties in favor of and satisfactory to Bank; and
(b) endorsements for deposit or collection in the
ordinary course of business.
5.4 Debt. Become or remain obligated for any Debt, except:
(a) Indebtedness and other Debt from time to time
outstanding and owing to Bank;
(b) unsecured trade, utility or non-extraordinary
accounts payable arising in the ordinary course of business
and other unsecured Debt of Borrowers or the Loan Parties on
a Consolidated basis at any one time not to exceed
$500,000.00;
(c) contingent liabilities of Borrowers on a
consolidated basis at any one time not to exceed
$20,000,000.00;
(d) Debt of a Related Party but only to the extent of
the lesser of seventy-five percent (75%) of the appraised
value of the real estate project owned by such Related Party
or eighty percent (80%) of the total costs associated with the
real estate project owned by such Related Party;
(e) Debt subordinated to the prior payment in full of
the Indebtedness upon terms and conditions approved in writing
by Bank;
(f) Debt outstanding as of the date hereof that is shown
on the Financial Statements previously delivered to Bank; and
(g) Debt of Loan Party to any other Loan Party.
5.5 Encumbrances. Create, incur, assume or suffer to exist
any Lien upon, or create, suffer or permit to exist any Lien upon
any of its property or assets, whether now owned or hereafter
acquired, except for Permitted Encumbrances.
5.6 Acquisitions. Except as expressly permitted under this
Agreement, purchase or otherwise acquire or become obligated for
the purchase of all or substantially all of the assets or business
interests of any Person or any shares of stock or other ownership
interests of any Person or in any other manner effectuate or
attempt to effectuate an expansion of present business by
acquisition.
5.7 Dividends. Declare or pay dividends on, or make any
other distribution (whether by reduction of capital or otherwise)
in respect of any shares of its capital stock or other ownership
interests, including but not limited to dividends payable by
Stratus or any dividends payable solely in stock except (a)
dividends payable by a Subsidiary of a Borrower to a Borrower or by
the Subsidiary of another Loan Party to such other Loan Party; or
(b) the redemption, repurchase or acquisition of any shares of its
capital stock payable upon an employee's termination pursuant to
its employee stock option, repurchase, or similar plan; provided,
however, that after giving effect to
<PAGE> 12
such redemption, repurchase or
acquisition, such Borrower or such other Loan Party, as applicable,
shall be in full compliance with the terms of this Agreement.
5.8 Investments. Except as otherwise permitted in
Section 2.18 of Addendum 2, make or allow to remain outstanding any
investment (whether such investment shall be of the character of
investment in shares of stock, evidences of indebtedness or other
securities or otherwise) in, or any loans, advances or extensions
of credit to, any Person, other than:
(a) Each Borrower's current ownership in its respective
Subsidiaries and Related Parties; and
(b) any investment in direct obligations of the United
States of America or any agency thereof, or in certificates of
deposit issued by Bank, maintained consistent with a
Borrower's or such Subsidiary's business practices prior to
the date hereof; provided, that no such investment shall
mature more than ninety (90) days after the date when made or
the issuance thereof.
5.9 Transactions with Affiliates. Enter into any transaction
with any of their stockholders, officers, employees, partners or
any of their Affiliates or Related Parties, except subject to the
terms hereof, transactions in the ordinary course of business and
on terms not less favorable than would be usual and customary in
similar transactions between Persons dealing at arm's length, or
transfer any assets to any Related Party which is not a Borrower
hereunder without Bank's prior consent.
5.10 Defaults on Other Obligations. Fail to perform, observe
or comply duly with any covenant, agreement or other obligation to
be performed, observed or complied with by any Loan Party, subject
to any grace or cure periods provided therein, which failure could
have a Material Adverse Effect.
5.11 Prepayment of Debt. Prepay (or take any actions which
impose an obligation to prepay), except, subject to the terms
hereof or thereof, Indebtedness.
5.12 Pension Plans. Except in compliance with this Agreement,
enter into, maintain, or make contribution to, directly or
indirectly, any Pension Plan that is subject to ERISA.
5.13 Subordinate Indebtedness. Subordinate any indebtedness
due to it from any Person to indebtedness of other creditors of
such Person.
5.14 No Further Negative Pledges. Enter into or become
subject to any agreement (other than this Agreement or the Loan
Documents) (a) prohibiting the guaranteeing by any Loan Party of
any obligations, (b) prohibiting the creation or assumption of any
Lien upon the properties or assets of any Loan Party, whether now
owned or hereafter acquired or (c) requiring an obligation to
become secured (or further secured) if another obligation is
secured or further secured.
5.15 No License Restrictions. Permit any restriction in any
license or other agreement that restricts any Borrower or any other
Loan Party from granting a Lien to Bank upon any of any Borrower's
or such other Loan Party's rights under such license or agreement.
5.16 Olympus Agreements. Terminate or agree to any material
modification or amendment to any of the Olympus Agreements without
Bank's prior consent.
SECTION 6. EVENTS OF DEFAULT
6.1 Events of Default. The occurrence or existence of any
one or more of the following conditions or events shall constitute
an "Event of Default" hereunder:
(a) Non-payment of any principal, interest or other sum
due under the terms of this Agreement, the Note, or under any
other Loan Document when due in accordance with
<PAGE> 13
the terms
hereof or thereof, which non-payment continues for five (5)
days beyond its due date.
(b) Default by any Borrower in the observance or
performance of any of the other conditions, covenants or
agreements of Borrowers set forth in this Agreement or under
any other Loan Document, which default continues for thirty
(30) days following the date on which written notice is
delivered by Bank to Borrower with respect to such default or
event of default; provided, however, that such thirty (30) day
period will be extended for up to ninety (90) days in Bank's
sole discretion so long as a Borrower commences to cure such
default during such thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(c) Any representation or warranty made by any Loan
Party in any Loan Document shall be untrue or incorrect in any
material respect.
(d) Any default by any Loan Party, in the payment of any
Debt (other than Debt owing to Bank) in an individual amount
of $50,000.00 or greater, or in an aggregate amount exceeding
$100,000.00, or in the material observance or performance of
any conditions, covenants or agreements related or given with
respect thereto and, in each such case, continuation thereof
beyond any applicable grace or cure period.
(e) The rendering of one or more judgments or decrees
for the payment of money, against any Loan Party, and such
judgment(s) or decree(s) has not been vacated, bonded or
stayed, by appeal or otherwise, for a period of sixty (60)
consecutive days after the date of final entry.
(f) If there shall be any change in the management,
ownership (other than the publicly traded stock of Stratus) or
control of Borrowers, whether by reason of incapacity, death,
resignation, termination or otherwise, and if within a
reasonable period following such change, Borrowers have not
provided for the replacement of such manager to Bank's
reasonable satisfaction.
(g) The failure by any Loan Party, to meet the minimum
funding requirements under ERISA with respect to any Pension
Plan established or maintained by it; the occurrence of any
"reportable event", as defined in ERISA, which could
constitute grounds for termination by the PBGC of any Pension
Plan or for the appointment by the appropriate United States
District Court of a trustee to administer such Pension Plan,
and such reportable event is not corrected and such
determination is not revoked within sixty (60) days after
notice thereof has been given to the plan administrator or any
Loan Party, as the case may be; or the institution of any
proceedings by the PBGC to terminate any such Pension Plan or
to appoint a trustee by the appropriate United States District
Court to administer any such Pension Plan.
(h) If any Loan Party, becomes insolvent or generally
fails to pay, or admits in writing its inability to pay, its
debts as they mature, or applies for, consents to, or
acquiesces in the appointment of a trustee, receiver,
liquidator, conservator or other custodian for any Loan Party,
or a substantial part of its property, or makes a general
assignment for the benefit of creditors; or in the absence of
such application, consent or acquiescence, a trustee,
receiver, liquidator, conservator or other custodian is
appointed for any Loan Party, or for a substantial part of its
property, and the same is not discharged within sixty (60)
days; or any bankruptcy, reorganization, debt arrangement, or
other proceedings under any bankruptcy or insolvency law, or
any dissolution or liquidation proceeding, is instituted by or
against any Loan Party, and, if instituted against any Loan
Party, the same is consented to or acquiesced in by any such
Loan Party or otherwise is not dismissed for sixty (60) days;
or any warrant of attachment is issued against any substantial
part of the property of any Loan Party, which is not released
within thirty (30) days of service thereof.
<PAGE> 14
(i) If any Loan Document shall be terminated, revoked,
or otherwise rendered void or unenforceable, in any case,
without Bank's prior written consent and Borrower fails to
re-execute same within five (5) days of notice requesting
same.
(j) Any Borrower shall dissolve, terminate or liquidate,
or merge with or be consolidated into any other entity without
Bank's prior written consent.
(k) Without the Bank's prior written consent, any
Borrower creates, places, or permits to be created or placed,
or through any act or failure to act, acquiesces in the
placing of, or allows to remain, any Lien with respect to the
Mortgaged Property, or any portion thereof, other than the
Permitted Encumbrances and, in the case of non-consensual
Liens, such Borrower fails to cure same within forty-five (45)
days from date incurred.
(l) Except as otherwise expressly permitted under the
Loan Documents, any Borrower sells, conveys, transfers or
assigns all or any portion of the Mortgaged Property other
than to a Loan Party and the Mortgaged Property remains
subject to the Lien in favor of the Bank.
(m) There is a transfer, sale, assignment or conveyance
of any beneficial interest in any Borrower or any entity that
directly or indirectly holds a beneficial interest in any
Borrower, except for Permitted Dispositions.
(n) Any Borrower abandons all or any portion of the
Mortgaged Property.
(o) Bank deems itself insecure, believing in good faith
that the prospect of payment or performance of any of the
Indebtedness is impaired.
6.2 Remedies Upon Event of Default. Upon the occurrence and
at any time during the existence or continuance of any Event of
Default, but without impairing or otherwise limiting the Bank's
right to demand payment of all or any portion of the Indebtedness
which is payable on demand, at Bank's option, Bank may give notice
to Borrowers declaring all or any portion of the Indebtedness
remaining unpaid and outstanding, whether under the Notes or
otherwise, to be due and payable in full without presentation,
demand, protest, notice of dishonor, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all
of which are hereby expressly waived, whereupon all such
Indebtedness shall immediately become due and payable.
Furthermore, upon the occurrence of a Default or Event of Default
and at any time during the existence or continuance of any Default
or Event of Default, but without impairing or otherwise limiting
the right of Bank, if reserved under any Loan Document, to make or
withhold financial accommodations at its discretion, to the extent
not yet disbursed, any commitment by Bank to make any further
Advances to Borrowers under this Agreement shall automatically
terminate; provided, should such Default or Event of Default be
cured to Bank's satisfaction, Bank may, but shall be under no
obligation to, reinstate any such commitment by written notice to
Borrowers. Notwithstanding the foregoing, in the case of an Event
of Default under Section 6.1(i), and notwithstanding the lack of
any notice, demand or declaration by Bank, the entire Indebtedness
remaining unpaid and outstanding shall become automatically due and
payable in full, and any commitment by Bank to make any further
Advances to Borrowers shall be automatically and immediately
terminated, without any requirement of notice or demand by Bank
upon Borrowers, each of which are hereby expressly waived by
Borrowers. Bank may, without waiving any Default or Event of
Default advance Loan proceeds to correct Borrowers' violation
giving rise to the Event of Default. Any Loan proceeds so advanced
will either, at Bank's option, be evidenced by the Notes or
constitute Indebtedness of Borrowers to Bank payable on demand,
bearing interest at the Default Rate from the date advanced by
Bank. All such demand indebtedness will be a part of the
Indebtedness and will be secured by the liens and security
interests of the Loan Documents. Each Loan Party that is a
partnership agrees that Bank is not required to comply with
Section 3.05(d) of the Texas Revised Partnership Act and agrees
that Bank may proceed directly against one or more general (but not
limited) partners or their property without first seeking
satisfaction from partnership property. The foregoing rights and
remedies are in addition to any other rights, remedies and
privileges Bank may otherwise have or which may be available to it,
whether under this Agreement, any other Loan Document, by law, or
otherwise.
<PAGE> 15
6.3 Setoff. In addition to any other rights or remedies of
Bank under any Loan Document, by law or otherwise, upon the
occurrence and during the continuance or existence of any Event of
Default, Bank may, at any time and from time to time, without
notice to Borrowers (any requirements for such notice being
expressly waived by Borrowers), setoff and apply against any or all
of the Indebtedness (whether or not then due), any or all deposits
(general or special, time or demand, provisional or final) at any
time held by Borrowers and other indebtedness at any time owing by
Bank to or for the credit or for the account of Borrowers, and any
property of Borrowers, from time to time in possession or control
of Bank, irrespective of whether or not Bank shall have made any
demand hereunder or for payment of the Indebtedness and although
such obligations may be contingent or unmatured, and regardless of
whether any Mortgaged Property then held by Bank is adequate to
cover the Indebtedness. The rights of Bank under this Section are
in addition to any other rights and remedies (including, without
limitation, other rights of setoff) which Bank may otherwise have.
Borrowers hereby grant Bank a Lien on and security interest in all
such deposits, indebtedness and other property as additional
collateral for the payment and performance of the Indebtedness.
6.4 Waiver of Certain Laws. To the extent permitted by
applicable law, Borrowers hereby agree to waive, and do hereby
absolutely and irrevocably waive and relinquish, the benefit and
advantage of any valuation, stay, appraisement, extension or
redemption laws now existing or which may hereafter exist, which,
but for this provision, might be applicable to any sale made under
the judgment, order or decree of any court, on any claim for
interest on the Notes, or to any security interest or other Lien
contemplated by or granted under or in connection with this
Agreement or the Indebtedness.
6.5 Waiver of Defaults. No Default or Event of Default shall
be waived by Bank except in a written instrument specifying the
scope and terms of such waiver and signed by an authorized officer
of Bank, and such waiver shall be effective only for the specific
time(s) and purpose(s) given. No single or partial exercise of any
right, power or privilege hereunder, nor any delay in the exercise
thereof, shall preclude other or further exercise of Bank's rights.
No waiver of any Default or Event of Default shall extend to any
other or further Default or Event of Default. No forbearance on
the part of Bank in enforcing any of Bank's rights or remedies
under any Loan Document shall constitute a waiver of any of its
rights or remedies. Borrowers expressly agree that this Section
may not be waived or modified by Bank by course of performance,
estoppel or otherwise.
6.6 Receiver. In any action or suit to foreclose upon any of
the Mortgaged Property, Bank shall be entitled, without notice or
consent, and completely without regard to the adequacy of any
security for the Indebtedness, to the appointment of a receiver of
the business and premises in question and of the rents and profits
derived therefrom. This appointment shall be in addition to any
other rights, relief or remedies afforded Bank. Such receiver, in
addition to any other rights to which he shall be entitled, shall
be authorized to sell, foreclose or complete foreclosure on
Mortgaged Property for the benefit of Bank, pursuant to provisions
of applicable law.
6.7 Discretionary Credit and Credit Payable Upon Demand. To
the extent that any of the Indebtedness shall, at anytime, be
payable upon demand, nothing contained in this Agreement, or any
other Loan Document, shall be construed to prevent Bank from making
demand, without notice and with or without reason, for immediate
payment of all or any part of such Indebtedness at any time or
times, whether or not a Default or Event of Default has occurred or
exists. In the event that such demand is made in accordance with
the Loan Documents upon any portion of the Indebtedness and
Borrower fails to meet any such demand within any applicable cure
periods, the Bank, at its election, may terminate any commitment by
Bank to make any further Advances to Borrowers under this Agreement
or otherwise. Furthermore, to the extent any Loan Document
authorizes the Bank, at its discretion, to make or to decline to
make financial accommodations to the Borrowers, nothing contained
in this Agreement or any other Loan Document shall be construed to
limit or impair such discretion or to commit or otherwise obligate
the Bank to make any such financial accommodation.
6.8 Application of Proceeds of Mortgaged Property.
Notwithstanding anything to the contrary set forth in any Loan
Document, during the existence of any Event of Default, the
proceeds of any of the Mortgaged Property, together with any
offsets, voluntary payments, and any other sums
<PAGE> 16
received or
collected in respect of the Indebtedness, may be applied in such
order and manner as determined by Bank in its sole and absolute
discretion.
SECTION 7. BANK'S DISCLAIMERS - BORROWERS' INDEMNITIES
7.1 No Obligation by Bank. Bank has no liability or
obligation whatsoever or howsoever in connection with any of the
Mortgaged Property, and has no obligation except to disburse the
proceeds of the Loans as herein agreed.
7.2 No Obligation by Bank to Operate. Any term or condition
of any of the Loan Documents to the contrary notwithstanding, Bank
shall not have, and by its execution and acceptance of this
Agreement hereby expressly disclaims, any obligation or
responsibility for the management, conduct or operation of the
business and affairs of any Loan Party. Any term or condition of
the Loan Documents which permits Bank to disburse funds, whether
from the proceeds of the Loans or otherwise, or to take or refrain
from taking any action with respect to any Loan Party, the
Mortgaged Property or any other collateral for repayment of the
Loans, shall be deemed to be solely to permit Bank to audit and
review the management, operation and conduct of the business and
affairs of any Loan Party, and to maintain and preserve the
security given by Borrowers to Bank for the Loans, and may not be
relied upon by any other person. Further, Bank shall not have, has
not assumed and by its execution and acceptance of this Agreement
hereby expressly disclaims any liability or responsibility for the
payment or performance of any indebtedness or obligation of any
Loan Party and no term or condition of the Loan Documents, shall be
construed otherwise. BORROWERS, JOINTLY AND SEVERALLY, HEREBY
INDEMNIFY AND AGREE TO HOLD BANK HARMLESS FROM AND AGAINST ANY
COST, EXPENSE OR LIABILITY INCURRED OR SUFFERED BY BANK AS A RESULT
OF ANY ASSERTION OR CLAIM OF ANY OBLIGATION OR RESPONSIBILITY OF
BANK FOR THE MANAGEMENT, OPERATION AND CONDUCT OF THE BUSINESS AND
AFFAIRS OF ANY BORROWER OR ANY OTHER LOAN PARTY, OR AS A RESULT OF
ANY ASSERTION OR CLAIM OF ANY LIABILITY OR RESPONSIBILITY OF BANK
FOR THE PAYMENT OR PERFORMANCE OF ANY INDEBTEDNESS OR OBLIGATION OF
ANY BORROWER OR ANY OTHER LOAN PARTY.
7.3 INDEMNITY BY BORROWERS. BORROWERS, JOINTLY AND
SEVERALLY, HEREBY INDEMNIFY BANK AND EACH AFFILIATE THEREOF AND
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND
AGENTS FROM, AND HOLDS EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES, CLAIMS, DAMAGES, COSTS, AND EXPENSES TO WHICH
ANY OF THEM MAY BECOME SUBJECT, INSOFAR AS SUCH LOSSES,
LIABILITIES, CLAIMS, DAMAGES, COSTS, AND EXPENSES ARISE FROM OR
RELATE TO ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREBY OR FROM ANY INVESTIGATION, LITIGATION, OR
OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING RELATING TO ANY OF
THE FOREGOING, INCLUDING ANY CLAIMS, LOSSES, COSTS, DAMAGES,
LIABILITIES, OBLIGATIONS, AND EXPENSES RESULTING FROM BANK'S OWN
NEGLIGENCE, EXCEPT AND TO THE EXTENT BUT ONLY TO THE EXTENT CAUSED
BY BANK'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT
INTENDING TO LIMIT THE REMEDIES AVAILABLE TO BANK WITH RESPECT TO
THE ENFORCEMENT OF ITS INDEMNIFICATION RIGHTS AS STATED HEREIN OR
AS STATED IN ANY LOAN DOCUMENT, IN THE EVENT ANY CLAIM OR DEMAND IS
MADE OR ANY OTHER FACT COMES TO THE ATTENTION OF BANK IN CONNECTION
WITH, RELATING OR PERTAINING TO, OR ARISING OUT OF THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT, WHICH BANK REASONABLY BELIEVES
MIGHT INVOLVE OR LEAD TO SOME LIABILITY OF BANK, BORROWERS SHALL,
IMMEDIATELY UPON RECEIPT OF WRITTEN NOTIFICATION OF ANY SUCH CLAIM
OR DEMAND, ASSUME IN FULL THE PERSONAL RESPONSIBILITY FOR AND THE
DEFENSE OF ANY SUCH CLAIM OR DEMAND AND PAY IN CONNECTION THEREWITH
ANY LOSS, DAMAGE, DEFICIENCY, LIABILITY OR OBLIGATION, INCLUDING,
WITHOUT LIMITATION,
<PAGE> 17
LEGAL FEES AND COURT COSTS INCURRED IN
CONNECTION THEREWITH. IN THE EVENT OF COURT ACTION IN CONNECTION
WITH ANY SUCH CLAIM OR DEMAND, BORROWERS SHALL ASSUME IN FULL THE
RESPONSIBILITY FOR THE DEFENSE OF ANY SUCH ACTION AND SHALL
IMMEDIATELY SATISFY AND DISCHARGE ANY FINAL DECREE OR JUDGMENT
RENDERED THEREIN. BANK MAY, IN ITS SOLE BUT REASONABLE DISCRETION,
MAKE ANY PAYMENTS SUSTAINED OR INCURRED BY REASON OF ANY OF THE
FOREGOING; AND BORROWERS SHALL IMMEDIATELY UPON RECEIPT OF NOTICE
REPAY TO BANK, IN CASH, THE AMOUNT OF SUCH PAYMENT, WITH INTEREST
THEREON AT THE MAXIMUM RATE OF INTEREST PERMITTED BY APPLICABLE LAW
FROM THE DATE OF SUCH PAYMENT. BANK SHALL HAVE THE RIGHT TO JOIN
BORROWERS, OR ANY OF THEM, AS A PARTY DEFENDANT IN ANY LEGAL ACTION
BROUGHT AGAINST BANK, AND BORROWERS HEREBY CONSENT TO THE ENTRY OF
AN ORDER MAKING BORROWERS, OR ANY OF THEM, A PARTY DEFENDANT TO ANY
SUCH ACTION.
7.4 No Agency. Nothing herein shall be construed as making
or constituting Bank as the agent of any Loan Party in making
payments pursuant to any construction contracts or subcontracts
entered into by any Loan Party for construction of the Improvements
or otherwise. The purpose of all requirements of Bank hereunder is
solely to allow Bank to check and require documentation (including,
but not limited to, lien waivers) sufficient to protect Bank and
the Loans contemplated hereby.
7.5 Assignment of Reimbursables and Assignment of Partnership
Interests. As additional security for the Loan, Borrower or
certain Loan Parties of even date herewith has transferred and
assigned to Bank all of Borrowers' right, title and interest in and
to certain reimbursements due Borrower from various municipal
utility districts and cities, certain management and other fees,
and certain partnership interests, all as more fully set forth in
the Assignment of Reimbursables and Other Fees and in the
Assignment of Partnership Interests executed of even date herewith
by certain of the Borrowers (collectively, the "Assignments"). Any
default which remains uncured beyond an grace or cure period under
the Assignments shall also constitute an Event of Default
hereunder. Said Assignments shall inure to the benefit of Bank and
its successors and assigns, any purchaser upon foreclosure of the
Deed of Trust, any receiver in possession of the Mortgaged Property
and any corporation affiliated with Bank which assumes Bank's
rights and obligations under this Agreement.
SECTION 8. MISCELLANEOUS
8.1 Taxes and Fees. Unless otherwise prohibited by
applicable law, should any tax (other than a tax based upon the net
income of Bank) or recording or filing fee become payable in
respect of any Loan Document, any of the Mortgaged Property, any of
the Indebtedness or any amendment, modification or supplement
hereof or thereof, Borrowers agree to pay such taxes (or reimburse
Bank therefor upon demand for reimbursement), together with any
interest or penalties thereon, and agrees to hold Bank harmless
with respect thereto.
8.2 Governing Law. Each Loan Document shall be deemed to
have been delivered in the State of Texas, and shall be governed by
and construed and enforced in accordance with the laws of the State
of Texas, except to the extent that the Uniform Commercial Code,
other personal property law or real property law of another
jurisdiction where Mortgaged Property is located is applicable, and
except to the extent expressed to the contrary in any Loan
Document. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall
be prohibited by or invalid under applicable law, such provision
shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or
the remaining provisions of this Agreement.
8.3 Audits of Mortgaged Property; Fees. Bank shall have the
right from time to time to audit the Mortgaged Property, provided
that such audits will be conducted no more than two (2) times in
any calendar year unless an Event of Default has occurred.
Borrowers agree to reimburse Bank, on demand, for customary and
reasonable fees and costs incurred by Bank for such audits and
<PAGE> 18
financial analysis and examination of Borrowers or any other Loan
Party performed from time to time.
8.4 Costs and Expenses. Borrowers shall pay Bank, on demand,
all costs and expenses, including, without limitation, reasonable
attorneys' fees and legal expenses (whether inside or outside
counsel is used), incurred by Bank in perfecting, revising,
protecting or enforcing any of its rights or remedies against any
Loan Party or any Mortgaged Property, or otherwise incurred by Bank
in connection with any Default or Event of Default or the
enforcement of the Loan Documents or the Indebtedness. Following
Bank's demand upon Borrowers for the payment of any such costs and
expenses, and until the same are paid in full, the unpaid amount of
such costs and expenses shall constitute Indebtedness and shall
bear interest at the Default Rate.
8.5 Notices. All notices and other communications provided
for in any Loan Document (unless otherwise expressly stipulated
therein) or contemplated thereby, given thereunder or required by
law to be given, shall be in writing (unless expressly provided to
the contrary). If personally delivered, such notices shall be
effective when delivered, and in the case of mailing or delivery by
overnight courier, such notices shall be effective when placed in
an envelope and deposited at a post office or official depository
under the exclusive care and custody of the United States Postal
Service or delivered to an overnight courier, postage prepaid, in
each case addressed to the parties as set forth on the signature
page of this Agreement, or to such other address as a party shall
have designated to the other in writing in accordance with this
Section. In the case of mailing, the mailing shall be by certified
or first class mail. Except as set forth to the contrary in a Deed
of Trust, the giving of at least five (5) days' notice before Bank
shall take any action described in any notice shall conclusively be
deemed reasonable for all purposes; provided, that this shall not
be deemed to require Bank to give such five (5) days' notice, or
any notice, if not specifically required to do so in this
Agreement.
8.6 Further Action. Borrowers, from time to time, upon
written request of Bank, will promptly make, execute, acknowledge
and deliver, or cause to be made, executed, acknowledged and
delivered, all such further and additional instruments, and
promptly take all such further action as may be reasonably required
to carry out the intent and purpose of the Loan Documents, and to
provide for the Loans thereunder and payment of the Notes,
according to the intent and purpose therein expressed.
8.7 Successors and Assigns; Participation. This Agreement
shall be binding upon and shall inure to the benefit of Borrowers
and Bank and their respective successors and assigns. The
foregoing shall not authorize any assignment or transfer by any
Borrower of any of its respective rights, duties or obligations
hereunder, such assignments or transfers being expressly
prohibited. Bank, however, may freely assign, whether by
assignment, participation or otherwise, its rights and obligations
hereunder, and is hereby authorized to disclose to any such
assignee or participant (or proposed assignee or participant) any
financial or other information in its knowledge or possession
regarding any Loan Party or the Indebtedness.
8.8 Indulgence. No delay or failure of Bank in exercising
any right, power or privilege hereunder or under any of the Loan
Documents shall affect such right, power or privilege, nor shall
any single or partial exercise thereof preclude any further
exercise thereof, nor the exercise of any other right, power or
privilege available to Bank. The rights and remedies of Bank
hereunder are cumulative and are not exclusive of any rights or
remedies of Bank.
8.9 Amendment and Waiver. No amendment or waiver of any
provision of any Loan Document, or consent to any departure by any
Loan Party therefrom, shall in any event be effective unless the
same shall be in writing and signed by Bank, and then such waiver
or consent shall be effective only in the specific instance(s) and
for the specific time(s) and purpose(s) for which it is given.
8.10 Severability. In case any one or more of the obligations
of any Loan Party under any Loan Document shall be invalid, illegal
or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining obligations of such Loan Party
shall not in any way be affected or impaired thereby, and such
invalidity, illegally or unenforceability in one jurisdiction shall
not
<PAGE> 19
affect the validity, legality or enforceability of the
obligations of such Loan Party under any Loan Document in any other
jurisdiction.
8.11 Headings and Construction of Terms. The headings of the
various subsections hereof are for convenience of reference only
and shall in no way modify or affect any of the terms or provisions
hereof. Where the context herein requires, the singular number
shall include the plural, and any gender shall include any other
gender.
8.12 Independence of Covenants. Each covenant hereunder shall
be given independent effect so that if a particular action or
condition is not permitted by any such covenant, the fact that it
would be permitted by an exception to, or would be otherwise within
the limitations of, another covenant shall not avoid the occurrence
of any Default or Event of Default.
8.13 Reliance on and Survival of Various Provisions. All
terms, covenants, agreements, indemnities, representations and
warranties of any Loan Party made in any Loan Document, or in any
certificate, report, financial statement or other document
furnished by or on behalf of any Loan Party in connection with any
Loan Document, shall be deemed to have been relied upon by Bank,
notwithstanding any investigation heretofore or hereafter made by
Bank or on Bank's behalf, and those covenants and agreements of
Borrowers set forth in Sections 4.7, 4.11, 4.19, 7.2 and 7.3 hereof
(together with any other indemnities of Borrowers contained
elsewhere in any Loan Document) shall survive the termination of
this Agreement and the repayment in full of the Indebtedness.
8.14 Effective Upon Execution. This Agreement shall become
effective upon the execution hereof by Bank and Borrowers, and
shall remain effective until the Indebtedness under this Agreement
and the Notes and the related Loan Documents shall have been repaid
and discharged in full and no commitment to extend any credit
hereunder (whether optional or obligatory) remains outstanding.
8.15 No Third Party Beneficiaries. The benefits of this
Agreement shall not inure to any third party. This Agreement shall
not be construed to make or render Bank liable to any materialmen,
subcontractors, contractors, laborers or others for goods and
materials supplied or work and labor furnished in connection with
any of the Mortgaged Property or for debts or claims accruing to
any such persons or entities against any Borrower. Bank shall not
be liable for the manner in which any Advances under this Agreement
may be applied by Borrowers. Notwithstanding anything contained in
the Loan Documents, or any conduct or course of conduct by the
parties hereto, before or after signing the Loan Documents, this
Agreement shall not be construed as creating any rights, claims or
causes of action against Bank, or any of its officers, directors,
agents or employees, in favor of any contractor, subcontractor,
supplier of labor or materials, or any of their respective
creditors, or any other person or entity other than Borrowers.
Without limiting the generality of the foregoing, Advances made to
any Person pursuant to any requests for Advances, whether or not
such request is required to be approved by Borrowers, shall not be
deemed a recognition by Bank of a third-party beneficiary status of
any such person or entity.
8.16 Complete Agreement; Conflicts. The Loan Documents
contain the entire agreement of the parties thereto, and none of
the parties shall be bound by anything not expressed in writing.
In the event that and to the extent that any of the terms,
conditions or provisions of any of the other Loan Documents are
inconsistent with or in conflict with any of the terms, conditions
or provisions of this Agreement, the applicable terms, conditions
and provisions of this Agreement shall govern and control.
8.17 Exhibits and Addenda and Schedules. The following
Addenda and Exhibits and Schedules are attached to this Agreement
and are incorporated into this Agreement by this reference and made
a part hereof for all purposes:
<PAGE> 20
Addenda:
Addendum 1 - Defined Terms Addendum
Addendum 2 - Loan Terms, Conditions and Procedures Addendum
Addendum 2(a) - Priority Application of Proceeds Schedule
Addendum 3 - Release Provisions
Addendum 3-1 - Schedule of Appraised Value
Addendum 3-2 - Schedule of Assigned Value
Exhibits:
Exhibit A - Primary Collateral
Exhibit B - Other Collateral
Exhibit C - Intentionally Deleted
Exhibit D - MUD Reimbursables
Exhibit E - Request for Advance
Exhibit F - Form of Compliance Certificate
Schedules:
Schedule 3.5 - Subsidiaries
Schedule 3.10 - Material Litigation
Schedule 3.14 - Employee Benefit Plans
Schedule 3.16 - Environmental Disclosures
Schedule 3.19 - Equity Ownership
8.18 ORAL AGREEMENTS INEFFECTIVE. THIS AGREEMENT AND THE
OTHER "LOAN AGREEMENTS" (AS DEFINED IN SECTION 26.02(A)(2) OF THE
TEXAS BUSINESS & COMMERCE CODE, AS AMENDED) REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES, AND THIS AGREEMENT AND THE OTHER
WRITTEN LOAN AGREEMENTS MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
Remainder of the Page
Left Blank Intentionally
Signature Page Follows
<PAGE> 21
WITNESS the due execution hereof as of the day and year first
above written.
BANK:
COMERICA BANK - TEXAS
By:
Name:
Title:
Bank's Address:
1601 Elm Street
Dallas, Texas 75201
P.O. Box 650282
Dallas, Texas 75262-0282
Attn:
Telefax No.:
BORROWERS:
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
STRATUS PROPERTIES OPERATING
CO., L.P.,
a Delaware limited partnership
By: STRS L.L.C.,
a Delaware limited
liability company,
General Partner
By: Stratus Properties Inc.,
a Delaware corporation,
Sole Member
By: /s/ William H. Armstrong,III
------------------------------
Name: William H. Armstrong, III,
Title: Chairman of the Board,
President and Chief
Executive Officer
CIRCLE C LAND CORP.,
a Texas corporation
By: /s/ William H. Armstrong, III
--------------------------------
Name: William H. Armstrong, III
Title: President
AUSTIN 290 PROPERTIES, INC.,
a Texas corporation
By: William H. Armstrong, III
-------------------------
Name: William H. Armstrong, III
Title: President
Borrowers' Address:
98 San Jacinto Blvd.,
Suite 220
Austin, Texas 78701
Attn: William H. Armstrong, III
Telefax No.: (512) 478-6340
<PAGE> 22
ADDENDUM 1
DEFINED TERMS ADDENDUM
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following respective meanings:
"Accounts," "Chattel Paper," "Documents", "Fixtures," "General
Intangibles," "Goods," "Instruments" and "Inventory" shall have the
respective meanings assigned to them in the UCC on the date of this
Agreement.
"Advance" shall mean a disbursement by Bank, whether by
journal entry, deposit to Borrower's account, check to third party
or otherwise of any of the proceeds of the Loan or any insurance
proceeds.
"Affiliate" shall mean, when used with respect to any Person,
any other Person which, directly or indirectly, controls or is
controlled by or is under common control with such Person. For
purposes of this definition, "control" (including, with correlative
meanings, the terms "controlled by" and "under common control
with"), with respect to any Person, shall mean possession, directly
or indirectly, of the power to generally direct or cause the
direction of the management and policies of such Person, whether
through the ownership of voting securities, by contract or
otherwise.
"Agreement" shall mean this Loan Agreement, including the
Defined Terms Addendum and the Loan Terms, Conditions and
Procedures Addendum, and Partial Release Addendum, together with
all exhibits and schedules, as it may be amended from time to time.
"Assignment of Reimbursables and Other Fees" shall mean the
Assignment of Reimbursables and Other Fees of even date herewith
executed by Stratus Properties Inc., Stratus Properties Operating
Co., L.P., Circle C Land Corp. and Austin 290 Properties, Inc. and
assigning to Bank all reimbursements, receivables and proceeds due
to any Co-Borrower including, but not limited to, the MUD
Reimbursables, all utility reimbursements, fees for property
management, commission fees and other fee income as more
specifically set forth therein.
"Assignment of Partnership Interest" shall mean the Assignment
of Partnership Interests of even date herewith executed by the
following partnerships: Stratus 7000 West, Ltd., Stratus ABC West
I, L.P. and Stratus Ventures I Walden, L.P. (collectively, the
"Partnerships"), assigning to Bank their respective partnership
interests in the joint ventures or partnerships more fully
described therein and those future partnerships executed after the
date hereof by any Related Party assigning to Bank their respective
partnership interests in the joint ventures or partnerships more
fully described therein (the "Future Partnerships").
"Bankruptcy Code" shall mean Title 11 of the United States
Code, as amended, or any successor act or code.
"Business Day" shall mean any day, other than a Saturday,
Sunday or holiday, on which the Bank is open to carry on all or
substantially all of its normal commercial lending business in
Dallas, Texas.
"Commitment Fee" shall mean the sum of $300,000.00 to be paid
by Borrowers to Bank pursuant to the applicable provisions of this
Agreement.
"Compliance Certificate" shall mean a certificate to be
furnished by each Borrower to Bank, in the form of Exhibit F,
certified by the chief financial officer of each Borrower (or in
such officer's absence, another responsible officer of each
Borrower) pursuant to Section 4.3 of this Agreement, certifying
that, as of the date thereof, no Default or Event of Default shall
have occurred and be continuing,
<PAGE> 1
or if any Default or Event of
Default shall have occurred and be continuing, specifying in detail
the nature and period of existence thereof and any action taken or
proposed to be taken by the applicable Borrower with respect
thereto, and also certifying as to whether Borrowers are in
compliance with the financial covenants contained in this
Agreement.
"Consolidated" or "consolidated" shall mean, when used with
reference to any financial term in this Agreement, the aggregate
for two or more persons of the amounts signified by such term for
all such persons determined on a consolidated basis in accordance
with GAAP. Unless otherwise specified herein, references to
"consolidated" financial statements or data of the Borrowers
includes consolidation with their respective Subsidiaries in
accordance with GAAP.
"Contested Item" shall mean any Lien asserted against all or
any portion of the Mortgaged Property if, and so long as (i)
Borrowers have notified Bank of same within five (5) days of
obtaining knowledge thereof, (ii) Borrowers shall diligently and in
good faith contest the same by appropriate legal proceedings which
shall operate to prevent the enforcement of collection of the same
and the sale of the Mortgaged Property or any part thereof, to
satisfy the same, (iii) pending resolution of such Contested Item,
Borrowers shall have furnished to Bank a cash deposit or an
indemnity bond reasonably satisfactory to Bank with a surety
reasonably satisfactory to Bank in the amount of such imposition or
lien claim, plus a reasonable additional sum to pay all costs,
interest and penalties that may be imposed or incurred in
connection therewith, to ensure payment of the matters under
contest and to prevent any sale or forfeiture of the Mortgaged
Property or any part thereof, (iv) Borrowers shall promptly upon
final determination thereof pay the amount of any such imposition
or lien claim so determined, together with all costs, interest and
penalties which may be payable in connection therewith, (v) the
failure to pay such imposition or lien claim does not constitute a
default under any other deed of trust, mortgage or security
interest covering or affecting any part of the Mortgaged Property,
and (vi) notwithstanding the foregoing, Borrowers shall immediately
upon request of Bank pay any such imposition or lien claim
notwithstanding such contest if, in the reasonable opinion of Bank
the Mortgaged Property shall be in jeopardy or in danger of being
forfeited or foreclosed. Bank may pay over any such cash deposit
or part thereof to the claimant entitled thereto at any time when,
in the reasonable judgment of Bank, the entitlement of such
claimant is established.
"Debt" shall mean, as of any applicable date of determination
thereof, all items of indebtedness, obligation or liability of a
Person, whether matured or unmatured, liquidated or unliquidated,
direct or indirect, absolute or contingent, joint or several, that
should be classified as liabilities in accordance with GAAP. In
the case of Borrowers, the term "Debt" shall include, without
limitation, the Indebtedness.
"Deeds of Trust" shall mean the Deeds of Trust of even date
herewith pursuant to which the Land (and any Improvements located
thereon) is mortgaged to a trustee for the benefit of Bank to
secure the Loans.
"Default" shall mean, any condition or event which, with the
giving of notice or the passage of time, or both, would constitute
an Event of Default.
"Default Rate" shall mean, at any time of determination
thereof with respect to the applicable portion of the Indebtedness,
the Maximum Lawful Rate (as defined in the Notes) or if no Maximum
Lawful Rate is in effect, the sum of the Base Rate (as defined in
the Notes) plus six percent (6%).
"Disbursement Date" shall mean the date upon which Bank makes
an Advance of Loan proceeds under this Agreement.
"Distribution" shall mean any dividend on or other
distribution (whether by reduction of capital or otherwise) with
respect to any shares of capital stock (or other ownership
interests), except for dividends from a Subsidiary to its parent.
"Environmental Law(s)" shall mean all laws, codes, ordinances,
rules, regulations, orders, decrees and directives issued by any
federal, state, local, foreign or other governmental or quasi
<PAGE> 2
governmental authority or body (or any agency, instrumentality or
political subdivision thereof) pertaining to Hazardous Materials or
otherwise intended to regulate or improve health, safety or the
environment, including, without limitation, any hazardous materials
or wastes, toxic substances, flammable, explosive or radioactive
materials, asbestos, and/or other similar materials; any so-called
"superfund" or "superlien" law, pertaining to Hazardous Materials
on or about any of the Mortgaged Property, or any other property at
any time owned, leased or otherwise used by any Loan Party, or any
portion thereof, including, without limitation, those relating to
soil, surface, subsurface ground water conditions and the condition
of the ambient air; and any other federal, state, foreign or local
statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, toxic, radioactive, flammable or
dangerous waste, substance or material, as now or at anytime
hereafter in effect.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended, or any successor act or code.
"Event of Default" shall mean any of those conditions or
events listed in Section 6.1 of this Agreement.
"Extension Fee" shall mean a sum equal to fifty hundredths
percent (0.50%) of the sum of the then outstanding principal
balance on the Term Loan plus the Revolving Loan Maximum Amount as
of the date of the Loan Extension to be paid by Borrowers to Bank
at Loan Extension.
"Extension Loans" shall mean, to the extent Loan Extension
occurs, the Loans, as so converted.
"Financing Statements" shall mean the financing statement or
financing statements (on Standard Form UCC-1 or otherwise) executed
and delivered by Borrowers in connection with the Loan Documents.
"Financial Statements" shall mean all balance sheets, income
statements, statements of profit and loss, statements of changes in
stockholder equity, statements of cash flow and contingency
obligations and other financial data, statements and reports
(whether of any Borrower, any of their respective Subsidiaries, or
any other Loan Party or otherwise) which are required to, have
been, or may from time to time hereafter, be furnished to Bank, for
the purposes of, or in connection with, this Agreement, the
transactions contemplated hereby or any of the Indebtedness.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"Good Faith" or "good faith" shall have the meaning ascribed
to the term "good faith" in Article 1.201(19) of the UCC on the
date of this Agreement.
"Governmental Authority" shall mean the United States, each
state, each county, each city, and each other political subdivision
in which all or any portion of the Mortgaged Property is located,
and each other political subdivision, agency, or instrumentality
exercising jurisdiction over Bank, any Loan Party or any Mortgaged
Property.
"Governmental Requirements" shall mean all laws, ordinances,
rules, and regulations of any Governmental Authority applicable to
any Loan Party, any of the Indebtedness or any Mortgaged Property.
"Hazardous Material" shall mean and include any hazardous,
toxic or dangerous waste, substance or material defined as such in,
or for purposes of, any Environmental Law(s).
"Improvements" shall mean any buildings, structures or other
permanent improvements to or located on any of the Land.
"Indebtedness" shall mean all loans, advances, indebtedness,
obligations and liabilities of any Loan Party to Bank under any
Loan Document, together with all other indebtedness, obligations
<PAGE> 3
and liabilities whatsoever of any Borrower to Bank, whether matured
or unmatured, liquidated or unliquidated, direct or indirect,
absolute or contingent, joint or several, due or to become due, now
existing or hereafter arising, voluntary or involuntary, known or
unknown, or originally payable to Bank or to a third party and
subsequently acquired by Bank including, without limitation, any
late charges, loan fees or charges, overdraft indebtedness. costs
incurred by Bank in establishing, determining, continuing or
defending the validity or priority of any Lien or in pursuing any
of its rights or remedies under any Loan Document or in connection
with any proceeding involving Bank as a result of any financial
accommodation to any Borrower; debts, obligations and liabilities
for which any Borrower would otherwise be liable to the Bank were
it not for the invalidity or enforceability of them by reason of
any bankruptcy, insolvency or other law or for any other reason,
and reasonable costs and expenses of attorneys and paralegals,
whether any suit or other action is instituted, and to court costs
if suit or action is instituted, and whether any such fees, costs
or expenses are incurred at the trial court level or on appeal, in
bankruptcy, in administrative proceedings, in probate proceedings
or otherwise; provided that the term Indebtedness shall not include
any consumer loan to the extent treatment of such loan as part of
the Indebtedness would violate any Governmental Requirement.
"Initial Advance" shall mean the Advance to be made at the
time Borrowers satisfy the conditions set forth in Section 2.14 of
Addendum 2.
"Interest Reserve Amount" shall mean an amount determined by
Bank as the amount sufficient to pay all interest that Bank
anticipates will accrue on the Loans during the twelve month period
from the date such calculation is made by Bank. As of the first
day of each January, April, July and October during the terms of
the Loans, Bank shall recalculate the Interest Reserve Amount it
determines is necessary to pay all interest that it anticipates as
of such date to accrue on the Notes during the forthcoming twelve
month period.
"Interest Reserve Escrow Account" has the meaning given to it
Section 4.21.
"Land" shall mean the tracts of real property owned by any
Loan Party, whether designated as Primary Collateral, Other
Collateral or Related Party Asset..
"Leases" shall mean all written leases or rental agreements,
if any, by which any Borrower, as landlord, grants to a tenant a
leasehold interest in all or any portion of the Land or
Improvements.
"Lien" shall mean any valid and enforceable interest in any
property, whether real, personal or mixed, securing an
indebtedness, obligation or liability owed to or claimed by any
Person other than the owner of such property, whether such
indebtedness is based on the common law or any statute or contract
and including, but not limited to, a security interest, pledge,
mortgage, assignment, conditional sale, trust receipt, lease,
consignment or bailment for security purposes.
"Loan Documents" shall mean collectively, this Agreement, the
Notes, the Deeds of Trust, the Financing Statements, and any other
documents, instruments or agreements evidencing, governing,
securing, guaranteeing or otherwise relating to or executed
pursuant to or in connection with any of the Indebtedness or any
Loan Document (whether executed and delivered prior to,
concurrently with or subsequent to this Agreement), as such
documents may have been or may hereafter be amended from time to
time.
"Loan Extension" shall mean the Extension of the Loans in
accordance with the requirements and provisions of Section 1.16 of
Addendum 2, the effective date of which shall not be later than
December 16, 2001.
"Loan Party" shall mean each Borrower, each of their
respective Subsidiaries (whether or not a party to any Loan
Document) and each other Person who or which shall be liable for
the payment or performance of all or any portion of the
Indebtedness or who or which shall own any property that is subject
to (or purported to be subject to) a Lien which secures all or any
portion of the Indebtedness.
<PAGE> 4
"Loans" shall mean, collectively, the Revolving Loans and the
Term Loans, and "Loan" shall mean any of them.
"Material Adverse Effect" shall mean any act, event, condition
or circumstance which could be expected to materially and adversely
affect the business, operations, condition (financial or
otherwise), performance or assets of any Loan Party, the ability of
any Loan Party to perform its obligations under any Loan Document
to which it is a party or by which it is bound or the
enforceability of any Loan Document.
"Material Litigation" shall mean any existing or threatened
action, suit or litigation reported or required by applicable law
to be reported by Stratus in any filing with the Securities and
Exchange Commission and any other action, suit, litigation or
proceeding, at law or in equity, or before any arbitrator or by or
before any Governmental Authority, pending, or, to the best
knowledge of any Borrower, threatened against or affecting any Loan
Party, which has a reasonable prospect of adverse determination
and, if adversely determined, could reasonably be expected to
materially impair the right of the Loan Party to carry on its
business substantially as now conducted or could have a Material
Adverse Effect.
"Maximum Legal Rate" shall mean the maximum rate of
nonusurious interest per annum permitted to be paid by Borrowers
or, if applicable, another Loan Party or received by Bank with
respect to the applicable portion of the Indebtedness from time to
time under applicable state or federal law as now or as may be
hereafter in effect, including, as to Chapter 1 D of Title 79
Vernon's Texas Civil Statutes (and as the same may be incorporated
by reference in other Texas statutes), but otherwise without
limitation, that rate based upon the "weekly ceiling rate" (as
defined in '303 of the Texas Finance Code).
"Maximum Loan Amount"shall mean (i) prior to Loan Extension,
thirty-five percent (35%) of the fair market value of the Primary
Collateral as indicated by the Primary Collateral Appraisals
delivered to and accepted by Bank on or prior to the date hereof,
and (ii) at and following Loan Extension, twenty-five percent
(25%) of the fair market value of the Primary Collateral as
indicated by either, at Bank's option and Borrowers' expense, newly
prepared Primary Collateral Appraisals or recertifications of the
accuracy and values presented in the Primary Collateral Appraisals
delivered to and accepted by Bank on or about the date hereof.
"Mortgaged Property" shall mean the Land, Improvements, MUD
Reimbursables, Interest Reserve Escrow Account (if Borrowers
establish the same), Stratus's ownership interests, direct or
indirect, in all Related Parties, and all other property, assets
and rights in which a Lien or other encumbrance in favor of or for
the benefit of Bank is or has been granted or arises or has arisen,
or may hereafter be granted or arise, under or in connection with
any Loan Document, or otherwise, including all other property,
assets and rights in which any Borrower obtains an ownership
interest, directly or indirectly, with proceeds of either of the
Loans.
"MUD Reimbursables" shall mean those reimbursements due to any
one or more of the Borrowers from the Municipal Utility Districts,
including, but not limited to, those payments due to one or more of
the Borrowers from the City of Austin, as more fully identified in
Exhibit D attached hereto.
"Notes" shall mean, collectively, whether one or more, the
Revolving Loan Note and the Term Note, and "Note" shall mean any of
them, executed and delivered by Borrowers payable to the order of
Bank, evidencing the Loans, as the same may be renewed, extended,
modified, increased or restated from time to time.
"Other Collateral" shall mean the tracts of Land listed on
Exhibit B, attached hereto, and no other part or portion of the
Mortgaged Property.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or
any Person succeeding to the present powers and functions of the
Pension Benefit Guaranty Corporation.
<PAGE> 5
"Pension Plan(s)" shall mean any and all employee benefit
pension plans of Borrower and/or any of its Subsidiaries in effect
from time to time, as such term is defined in ERISA.
"Permitted Disposition" shall mean (i) a transfer of a
beneficial interest in any Borrower or any entity holding a direct
or indirect interest in any Borrower by any person or entity
holding such an interest to any other person or entity holding such
an interest as of the date of this Agreement (the "Interest
Holders"); (ii) any transfer of a legal or beneficial interest in
any publicly-traded stock of Stratus; or (iii) a transfer of a
legal or beneficial interest in any Borrower or any entity holding
a direct or indirect interest in any Borrower for bona fide estate
planning purposes to: (A) members of such transferor=s immediate
family or (B) a trust, the holders of the beneficial interests of
which are a current Interest Holder or a member of the Interest
Holder's immediate family; provided, however, that a Permitted
Disposition shall not include any transfer or series of transfers
which (1) after taking into account any prior Permitted Disposition
shall result in (x) the proposed transferee owning (directly or
indirectly) more than 49% of the interests in any Borrower or any
entity holding a direct or indirect interest in any Borrower unless
such transferee owned more than 49% of such interests as of the
date of this Agreement, or (y) a transfer of more than 49% of the
interests in any Borrower or any entity holding a direct or
indirect interest in any Borrower; (2) shall result in a change of
control of any Borrower or the day to day operations of the
Mortgaged Property; (3) any Borrower shall not have given Bank
notice of such transfer together with copies of all instruments
effecting such transfer later than seven (7) business days prior to
the effective date of such transfer; or (4) occurs at any time when
an Event of Default has occurred and remains uncured. For the
purposes of Permitted Dispositions, a change of control of any
Borrower or any entity holding a direct or indirect interest in any
Borrower shall be deemed to have occurred if there is any change in
the identity of the individual or group of individuals who have the
right, by virtue of the articles of incorporation, articles of
organization, the by-laws or an agreement, with or without taking
any formative action, to cause such Borrower or such entity to take
some action or to block such Borrower or such entity from taking
some action which, in either case, such Borrower or such entity
could take or could refrain from taking were it not for the rights
of such stockholders, partners or members of such Borrower or such
entity, as the case may be.
"Permitted Encumbrances" shall mean Liens in favor of the
Bank, all matters shown on Schedule B of the Title Policies, Liens
for taxes not yet due and payable, Liens not delinquent arising in
the ordinary course of business and created by statute in
connection with worker's compensation, unemployment insurance,
social security and similar statutory obligations, and Contested
Items.
"Person" or "person" shall mean any individual, corporation,
partnership, joint venture, limited liability company, association,
trust, unincorporated association, joint stock company, government,
municipality, political subdivision or agency, or other entity.
"Primary Collateral" shall mean the tracts of Land listed on
Exhibit A, attached hereto, and no other part or portion of the
Mortgaged Property; provided, however, the Primary Collateral may
be expanded by adding additional collateral to Exhibit A and
obtaining an appraisal, an environmental audit and other documents
that may be required by Bank.
"Primary Collateral Appraisals" shall mean appraisals prepared
and obtained at Borrowers' expense covering the Primary Collateral
in form and content and conducted and prepared by one or more
appraisers reasonably acceptable to Bank. Each Primary Collateral
Appraisal shall comply with all appraisal requirements of Bank and
any Governmental Authority having jurisdiction over Bank.
"Related Party" shall mean any corporation, partnership,
limited liability company or any other legal entity in which
Stratus owns or holds, directly or indirectly, any legal or
beneficial ownership interest.
"Related Party Assets" shall mean the assets owned by the
Borrower which may be transferred to the Related Parties from time
to time.
<PAGE> 6
"Related Party Shortfall" shall mean the difference between
(A) seventy percent (70%) of the appraised value of any real estate
asset sold to a Related Party and (B) the net proceeds received by
Bank for application to the Loans upon the sale of such real estate
asset to a Related Party (which net proceeds shall in no event be
less than the greater of (i) fifty percent (50%) of the gross sales
price or (ii) fifty percent (50%) of the Appraised Value of the
Primary Collateral or the Assigned Value of the Other Collateral of
such asset).
"Release Provisions" shall mean the provisions set forth on
Addendum 3, attached hereto.
"Request for Advance" shall mean an oral or written request or
authorization for an Advance of Loan proceeds which if made in
writing shall be in the form annexed hereto as Exhibit E, or in
such other form as is acceptable to Bank.
"Revolving Loan" shall mean the Loan made, or to be made, by
Bank to or for the credit of Borrowers in one or more Advances not
to exceed at any one time the Revolving Loan Maximum Amount,
pursuant to the Loan Terms, Conditions and Procedures Addendum
"Revolving Loan Maturity Date" shall mean December 16, 2001,
unless Loan Extension occurs, in which case such term shall mean
December 16, 2002, or, and regardless of whether Loan Extension
occurs, such earlier date on which the entire unpaid principal
amount of the Revolving Loan becomes due and payable whether by the
lapse of time, acceleration or otherwise; provided, however, if any
such date is not a Business Day, then the Revolving Loan Maturity
Date shall be the next succeeding Business Day.
"Revolving Loan Maximum Amount" shall mean Ten Million Dollars
($10,000,000.00).
"Revolving Loan Note" shall mean the Revolving Loan Note of
even date herewith in the original principal amount of
$10,000,000.00 made by Borrowers payable to the order of the Bank,
as the same may be renewed, extended, modified, increased or
restated from time to time.
"Section 2.18 Assets" shall have the meaning given to the term
in Section 2.18 of Addendum 2.
"Subsidiary" shall mean as to any particular parent entity,
any corporation, partnership, limited liability company or other
entity (whether now existing or hereafter organized or acquired) in
which more than fifty percent (50%) of the outstanding equity
ownership interests having voting rights as of any applicable date
of determination, shall be owned directly, or indirectly through
one or more Subsidiaries, by such parent entity.
"Surveys" shall mean a survey of each tract of the Primary
Collateral in form and content reasonably satisfactory and
acceptable to the Bank and sufficient to allow the Title Company to
endorse the standard survey exception in the Title Policies to
"shortages in area" only.
"Telephone Notice Authorization" shall mean an agreement in
form satisfactory to Bank authorizing telephonic and facsimile
notices of borrowing and establishing a codeword system of
identification in connection therewith.
"Term Loan" shall mean the Loan made, or to be made, by Bank
to or for the credit of Borrowers in one Advance not to exceed the
lesser of Twenty Million Dollars($20,000,000.00) or the sum
advanced on the Term Note to Borrower as of the date hereof
pursuant to the Loan Terms, Conditions and Procedures Addendum.
"Term Loan Maturity Date" shall mean December 16, 2001, unless
Loan Extension occurs, in which case such term shall mean December
16, 2002, or, and regardless of whether Loan Extension occurs,
such earlier date on which the entire unpaid principal amount of
the Term Loan becomes due and payable whether by the lapse of time,
acceleration or otherwise; provided, however, if any such date is
not a Business Day, then the Term Loan Maturity Date shall be the
next succeeding Business Day.
<PAGE> 7
"Term Note" shall mean that certain promissory note of even
date herewith in the original principal amount of $20,000,000.00
executed by Borrowers, payable to the order of Bank as the same may
be renewed, extended, modified, increased or restated from time to
time.
"Title Company" shall mean the Title Company (and its issuing
agent, if applicable) issuing the Title Policies, which shall be
acceptable to Bank in its sole and absolute discretion.
"Title Policies" shall mean mortgagee policies of title
insurance issued by the Title Company, on a coinsurance or
reinsurance basis (with direct access endorsement or rights) if and
as required by Bank, in the aggregate maximum amount of
$30,000,000.00 insuring that the Deeds of Trust covering the
Primary Collateral constitute valid liens covering the Primary
Collateral subject only to those exceptions which Bank may approve
and containing such endorsements as Bank may require.
"UCC" shall mean the Uniform Commercial Code as adopted and in
force in the State in which the Land is located, as amended.
<PAGE> 8
ADDENDUM 2
LOAN TERMS, CONDITIONS AND PROCEDURES ADDENDUM
SECTION 1. THE LOAN
1.1 Agreements to Lend. Bank hereby agrees to lend to
Borrowers up to but not in excess of the Revolving Loan Maximum
Amount and the Term Loan, and Borrowers hereby agree to borrow such
sums from Bank, all upon and subject to the terms and provisions of
this Agreement, such sums to be evidenced by, respectively, the
Revolving Loan Note and Term Note. Subject to the terms and
provisions of this Agreement and the other Loan Documents,
principal repaid on the Revolving Loan may be reborrowed by
Borrowers. No principal amount repaid by Borrower on the Term Loan
may be reborrowed by Borrowers. Borrowers' liability for repayment
of the interest on account of the Loans shall be limited to and
calculated with respect to Loans proceeds actually disbursed to
Borrowers pursuant to the terms of this Agreement and the Notes and
only from the date or dates of such disbursements. Bank may, in
Bank's discretion, disburse Loans proceeds by journal entry to pay
interest and financing costs and disburse Loan proceeds directly to
third parties to pay costs or expenses required to be paid by
Borrowers pursuant to this Agreement. Loan proceeds disbursed by
Bank by journal entry to pay interest or financing costs, and Loan
proceeds disbursed directly by Bank to pay costs or expenses
required to be paid by Borrowers pursuant to this Agreement, shall
constitute Advances to Borrowers.
1.2 Advances. The entire amount of the Term Loan shall be
disbursed to Borrowers in one Advance upon satisfaction of the
conditions to the Initial Advance set forth in this Agreement. The
proceeds of the Revolving Loan shall be disbursed to Borrowers in
one or more Advances upon satisfaction of the applicable conditions
to Advances set forth in this Agreement.
1.3 Limitation on Advances. Under no circumstances shall
Bank be required to disburse any proceeds of the Revolving Loan
that would cause the outstanding balance thereof at any one time to
exceed the Revolving Loan Maximum Amount or disburse any proceeds
of either of the Loans that would cause the aggregate outstanding
balance of the Loans at any one time to exceed the Maximum Loan
Amount.
1.4 Regulatory Restrictions. Notwithstanding anything in
this Agreement or the other Loan Documents to the contrary, in no
event shall Bank be required to disburse, nor shall Borrowers be
entitled to demand that Bank disburse, all or any portion of any of
the Loans if the amounts of the Loans would, in Bank's sole and
absolute discretion, cause Bank to exceed the lending limit to a
single borrower under any applicable state or federal law,
regulation or ruling. If Bank determines, in its sole and absolute
discretion, at any time (including after any portion or all of the
Loans have been disbursed) that the transactions evidenced by this
Agreement and the other Loan Documents violates such lending limit
restriction, then Bank shall have the right to immediately declare
the Notes to be due and payable and shall thereafter have no
further obligations to disburse any further proceeds of the Loans.
In such event, Borrowers shall be required to immediately pay all
outstanding Indebtedness and shall have no further rights and
privileges under this Agreement and the other Loan Documents.
1.5 Repayment of and Interest on Loans. The Indebtedness
from time to time outstanding under and evidenced by the Notes
shall bear interest at the respective rates per annum set forth in
the Notes until the occurrence of an Event of Default and
thereafter at the Default Rate and shall otherwise be repaid in
accordance with the terms of the respective Notes. All unpaid
principal, accrued and unpaid interest and other amounts owing
under the Revolving Loan Note and Term Note shall be due and
payable on the Revolving Loan Maturity Date and Term Loan Maturity
Date, respectively.
1.6 Loan Extension. The Loans may be converted ("Loan
Extension") to the Extension Loans upon written request of
Borrowers given to Bank not less than thirty (30) days before the
anticipated date for Loan Extension, and upon satisfaction of the
following:
<PAGE> 1
(a) Payment to Bank, in cash, of the Extension Fee.
(b)No Event of Default or any event, circumstance or
action which, with the giving of notice, passage of time or
failure to cure would give rise to an Event of Default shall
have occurred and be then existing.
(c) No event, claim, liability or circumstance shall
have occurred which, in Bank's determination, could be
expected to have or have had a Material Adverse Effect.
(d) The amount outstanding on the Term Loan and the
Revolving Loan in the aggregate shall not exceed the Maximum
Loan Amount.
(e) At Borrowers' expense, an updated appraisal on the
remaining Primary Collateral.
Loan Extension shall occur or be deemed to have occurred upon
Borrowers' satisfaction of all conditions precedent to Loan
Extension, as determined by Bank and the effective date of such
Loan Extension will be December 15, 2001. To the extent Borrowers
have not satisfied all conditions precedent to Loan Extension, as
determined by Bank, as of December 16, 2001, then Borrowers shall
not thereafter be eligible for Loan Extension.
SECTION 2. ADVANCES, PAYMENTS, RECOVERIES AND COLLECTIONS
2.1 Advance Procedure. Except as hereinafter provided,
Borrowers may request an Advance by submitting to Bank a Request
for Advance by an authorized representative of Borrowers, subject
to the following:
(a)each such Request for Advance shall include, without
limitation, the proposed amount of such Advance and the
proposed Disbursement Date, which date must be a Business Day;
(b) a Request for Advance, once communicated to Bank,
shall not be revocable by Borrowers;
(c) each Request for Advance, once communicated to Bank,
shall constitute a representation, warranty and certification
by Borrowers as of the date thereof that:
(i) both before and after the making of such
Advance, all of the Loan Documents are and shall be
valid, binding and enforceable against each Loan Party,
as applicable;
(ii) all terms and conditions precedent to the
making of such Advance have been satisfied, and shall
remain satisfied through the date of such Advance;
(iii) the making of such Advance will not cause
(A) the aggregate principal amount of all Advances on the
Term Note to exceed the original principal amount of the
Term Note, (B) the aggregate principal amount outstanding
on the Revolving Loan Note to exceed the Revolving Loan
Maximum Amount or (C) the aggregate principal amount
outstanding on both the Term Note and Revolving Loan Note
to exceed the Maximum Loan Amount;
(iv) no Default or Event of Default shall have
occurred or be in existence, and none will exist or arise
upon the making of such Advance;
(v) the representations and warranties contained
in this Agreement, and the other Loan Documents are true
and correct in all material respects and shall be true
and correct in all material respects as of the making of
such Advance; and
<PAGE> 2
(vi) the Advance will not violate the terms or
conditions of any contract, indenture, agreement or other
borrowing of any Loan Party.
Bank may elect (but without any obligation to do so) to make an
Advance upon the telephonic or facsimile request of Borrowers,
provided that Borrowers have first executed and delivered to Bank
a Telephone Notice Authorization. If any such Advance based upon
a telephonic or facsimile request is made by Borrowers, Bank may
require Borrowers to confirm said telephonic or facsimile request
in writing by delivering to Bank, on or before 11:00 a.m. (Dallas,
Texas time) on the next Business Day following the Disbursement
Date of such Advance, a duly executed written Request for Advance,
and all other provisions of this Section 2.1 shall be applicable
with respect to such Advance. In addition, Borrowers may authorize
the Bank to automatically make Advances pursuant to such other
written agreements as may be entered into by Bank and Borrowers.
Except as set forth in this Agreement, all Advances are to be made
by direct deposit into the Special Account.
2.2 Voluntary Prepayment. Borrowers may prepay all or part
of the outstanding balance under the Term Note and/or the Revolving
Loan Note at any time, without premium, penalty or, in the case of
the Revolving Loan Note, prejudice to the right of Borrowers to
reborrow sums of the Revolving Loan under the terms of this
Agreement, subject to the terms and conditions of the Loan
Documents; provided that without the Bank's prior written consent,
which consent may be withheld in the Bank's sole discretion,
Borrowers shall not be permitted to prepay more than Five Million
Dollars ($5,000,000.00) of the outstanding balance of the Revolving
Loan during any calendar year while the Term Note is outstanding.
2.3 Revolving Loan Maximum Amount and Reduction of
Indebtedness. Notwithstanding anything contained in this Agreement
to the contrary, the aggregate principal amount of the Revolving
Loan at any time outstanding shall not exceed the Revolving Loan
Maximum Amount. If said limitation is exceeded at anytime,
Borrowers shall immediately, without demand by Bank, pay to Bank an
amount not less than such excess, or, if Bank, in its sole
discretion, shall so agree, Borrowers shall provide Bank cash
collateral in an amount not less than such excess, and Borrowers
hereby pledge and grant to Bank a security interest in such cash
collateral so provided to Bank.
2.4 Maximum Loan Amount and Reduction of Indebtedness.
Notwithstanding anything contained in this Agreement to the
contrary, the aggregate principal amounts of the Term Loan and the
Revolving Loan at any time outstanding shall not exceed the Maximum
Loan Amount. If said limitation is exceeded at anytime, Borrowers
shall immediately, without demand by Bank, pay to Bank an amount
not less than such excess, or, if Bank, in its sole discretion,
shall so agree, Borrowers shall provide Bank cash collateral in an
amount not less than such excess, and Borrowers hereby pledge and
grant to Bank a security interest in such cash collateral so
provided to Bank.
2.5 Use of Proceeds of Loans. The proceeds of the Term Loan
shall be used to repay existing and outstanding Debt of Borrowers
and the costs and expenses incurred by Borrowers in connection with
the transactions contemplated by this Agreement, and Borrowers
shall promptly provide written evidence satisfactory to Bank that
such Debt has been paid and discharged, and that any and all
security interests, mortgages and other Liens and encumbrances
securing such Debt have been fully discharged and terminated. The
proceeds of the Revolving Loan shall be used for pre-development
costs, such as earnest money deposits, and property improvements in
connection with the Land and other working capital needs of
Borrowers, including corporate and project general, administrative
and operating costs, pursuit costs, entitlement costs, taxes,
business endeavors associated with the development of commercial
and residential real properties and for land acquisitions in
accordance with the terms of Section 2.18 of this Addendum.
2.6 Non-Application of Chapter 346 of Texas Finance Code.
The provisions of Chapter 346 of the Texas Finance Code are
specifically declared by the parties not to be applicable to any of
the Loan Documents or the transactions contemplated thereby.
2.7 Place of Advances. All Advances are to be made at the
office of Bank, or at such other place as Bank may designate.
<PAGE> 3
2.8 Bank's Books and Records. The amount and date of each
Advance hereunder, the amount from time to time outstanding under
the Notes, the interest rate in respect of the Loans, and the
amount and date of any repayment hereunder or under the Notes,
shall be noted on Bank's books and records, which shall be
conclusive evidence thereof, absent manifest error; provided,
however, any failure by Bank to make any such notation, or any
error in any such notation, shall not relieve Borrowers of their
obligations to pay to Bank all amounts owing to Bank under or
pursuant to the Loan Documents, in each case, when due in
accordance with the terms hereof or thereof.
2.9 Payments on Non-Business Day. In the event that any
payment of any principal, interest, fees or any other amounts
payable by Borrowers under or pursuant to any Loan Document shall
become due on any day which is not a Business Day, such due date
shall be extended to the next succeeding Business Day, and, to the
extent applicable, interest shall continue to accrue and be payable
at the interest rate set forth in the applicable Note for and
during any such extension.
2.10 Payment Procedures. Unless otherwise expressly provided
in a Loan Document, all sums payable by Borrowers to Bank under or
pursuant to any Loan Document, whether principal, interest, or
otherwise, shall be paid, when due, directly to Bank at the office
of Bank identified on the signature page of this Agreement, or at
such other office of Bank as Bank may designate in writing to
Borrowers from time to time, in immediately available United States
funds, and without setoff, deduction or counterclaim. Bank may, in
its discretion, charge any and all deposit or other accounts
(including, without limitation, any account evidenced by a
certificate of deposit or time deposit) of any Borrower maintained
with Bank for all or any part of any Indebtedness which is not paid
when due and payable; provided, however, that such authorization
shall not affect any Borrower's obligations to pay all
Indebtedness, when due, whether or not any such account balances
maintained by such Borrower with Bank are insufficient to pay any
amounts then due.
2.11 Maximum Interest Rate. At no time shall any interest
rate or Default Rate under this Agreement or the Notes, or
otherwise in respect of the Loans or any Indebtedness hereunder,
exceed the Maximum Legal Rate, giving due consideration to the
execution of this Agreement and the Notes. In the event that any
interest is charged or otherwise received by Bank in excess of the
Maximum Legal Rate, Borrowers hereby acknowledge and agree that any
such excess interest shall be the result of an accidental and bona
fide error, and any such excess shall be deemed to have been
payments of principal, and not of interest, and shall be applied,
first, to reduce the principal Indebtedness then outstanding,
second, any remaining excess, if any, shall be applied to reduce
any other Indebtedness, and third, any remaining excess, if any,
shall be returned to Borrowers. Notwithstanding the foregoing or
anything to the contrary contained in this Agreement or any other
Loan Document, but subject to all limitations contained in this
paragraph, if at anytime any interest rate or Default Rate
applicable to any portion of the Indebtedness is computed on the
basis of the Maximum Legal Rate, any subsequent reduction in such
interest rate or Default Rate shall not reduce such interest rate
thereafter payable below the Maximum Legal Rate until the aggregate
amount of interest accrued equals the total amount of interest that
would have accrued if interest had, at all times, been computed
solely on the basis of the applicable interest rate or Default
Rate. This paragraph shall control all agreements between the
Borrowers and the Bank.
2.12 Receipt of Payments by Bank. Any payment by Borrowers of
any of the Indebtedness made by mail will be deemed tendered and
received by Bank only upon actual receipt thereof by Bank at the
address designated for such payment, whether or not Bank has
authorized payment by mail or in any other manner, and such payment
shall not be deemed to have been made in a timely manner unless
actually received by Bank on or before the date due for such
payment, time being of the essence. Borrowers expressly assume all
risks of loss or liability resulting from non-delivery or delay of
delivery of any item of payment transmitted by mail or in any other
manner. Acceptance by Bank of any payment in an amount less than
the amount then due shall be deemed an acceptance on account only,
and any failure to pay the entire amount then due shall constitute
and continue to be an Event of Default hereunder. Bank shall be
entitled to exercise any and all rights and remedies conferred upon
and otherwise available to Bank under any Loan Document upon the
occurrence and during the continuance of any such Event of Default.
Borrower further agrees that after the occurrence and during the
continuance of any Default Bank shall have the continuing
<PAGE> 4
exclusive
right to apply and to reapply any and all payments received by Bank
at any time or times, whether as voluntary payments, proceeds from
any Mortgaged Property, offsets, or otherwise, against the
Indebtedness in such order and in such manner as Bank may, in its
sole discretion, deem advisable, notwithstanding any entry by Bank
upon any of its books and records. Borrowers hereby expressly
agree that, to the extent that Bank receives any payment or benefit
of or otherwise upon any of the Indebtedness, and such payment or
benefit, or any part thereof, is subsequently invalidated, declared
to be fraudulent or preferential, set aside, or required to be
repaid to a trustee, receiver, or any other Person under any
bankruptcy act, state or federal law, common law, equitable cause
or otherwise, then to the extent of such payment or benefit, the
Indebtedness, or part thereof, intended to be satisfied shall be
revived and continued in full force and effect as if such payment
or benefit had not been made or received by Bank, and, further, any
such repayment by Bank shall be added to and be deemed to be
additional Indebtedness.
2.13 Security. Payment and performance of the Indebtedness
shall be secured by Liens on the assets, other collateral and
properties of Borrowers and of such other Loan Parties as Bank may
require from time to time.
2.14 Conditions Precedent to the Term Loan and Initial
Advance. The obligation of the Bank to make the sole Advance on
the Term Loan and the initial Advance on the Revolving Loan
pursuant to this Agreement shall be subject to the satisfaction of
all of conditions precedent set forth in this Section. In the
event that any condition precedent is not so satisfied but Bank
elects to make the sole Advance on the Term Loan and the initial
Advance on the Revolving Loan notwithstanding the same, such
election shall not constitute a waiver of such condition and the
condition shall be satisfied prior to any subsequent Advance.
(a) All of the Loan Documents shall be in full force and
effect and binding and enforceable obligations of Borrowers
and, to the extent that it is a party thereto or otherwise
bound thereby, of each other Person who may be a party thereto
or bound thereby.
(b) All actions, proceedings, instruments and documents
required to carry out the borrowings and transactions
contemplated by this Agreement or any other Loan Document or
incidental thereto, and all other related legal matters, shall
have been satisfactory to and approved by legal counsel for
Bank, and said counsel shall have been furnished with such
certified copies of actions and proceedings and such other
instruments and documents as they shall have requested.
(c) Each Loan Party shall have performed and complied
with all agreements and conditions contained in the Loan
Documents applicable to it and which are then in effect.
(d) Borrowers shall have delivered, or caused to have
been delivered, to Bank or done or caused to have been done,
to Bank's satisfaction each and every of the following items:
(1) This Agreement (together with all addenda,
schedules, exhibits, certificates, opinions, financial
statements and other documents to be delivered pursuant
hereto), the Notes, the Deeds of Trust and all other Loan
Documents duly executed, acknowledged (if required) and
delivered by Borrowers and any Person who is a party
thereto.
(2) (i) Copies of resolutions of the board of
directors, partners or members or managers, as
applicable, of each Loan Party evidencing approval of the
borrowing hereunder and the transactions contemplated by
the Loan Documents, and authorizing the execution,
delivery and performance by each Loan Party of each Loan
Document to which it is a party or by which it is
otherwise bound, which resolutions shall have been
certified by a duly authorized officer, partner or other
representative, as applicable, of each Loan Party as of
the date of this Agreement as being complete, accurate
and in full force and effect; (ii) incumbency
certifications of a duly authorized officer, partner or
other representative, as applicable, of each
<PAGE> 5
Loan Party,
in each case, identifying those individuals who are
authorized to execute the Loan Documents for and on
behalf of such Person(s), respectively, and to otherwise
act for and on behalf of such Person(s); (iii) certified
copies of each of such Person(s)' articles of
incorporation and bylaws, partnership agreement,
certificate of limited partnership, articles of
organization, regulations or operating agreement, as
applicable, and all amendments thereto; and
(iv) certificates of existence, good standing and
authority to do business, as applicable, certified
substantially contemporaneously with the date of this
Agreement, from the state or other jurisdiction of each
of such Person(s)' organization and from every other
state or jurisdiction in which such Person is required,
under applicable law, to be qualified to do business.
(3) Proof that appropriate security agreements,
financing statements, mortgages, deeds of trust,
collateral and such additional documents or certificates
as may be required by Bank and/or contemplated under the
terms of any and every Loan Document, and such other
documents or agreements of security and appropriate
assurances of validity, perfection and priority of Lien
as Bank may request shall have been executed and
delivered by the appropriate Persons and recorded or
filed in such jurisdictions and such other steps shall
have been taken as necessary to perfect, subject only to
Permitted Encumbrances, the Liens granted thereby.
(4) An opinion of Borrowers' legal counsels, dated
as of the date of this Agreement, as to enforceability
and authority issues and covering such other matters as
are required by Bank and which are otherwise reasonably
satisfactory in form and substance to Bank.
(5) An opinion of Drenner & Stuart, L.L.P., dated
as of the date of this Agreement, covering such
entitlement issues for the Primary Collateral as are
required by Bank and which is otherwise reasonably
satisfactory in form and substance to Bank.
(6) A UCC, tax lien and judgment lien record
search, disclosing no notice of any Liens or encumbrances
filed against any of the Mortgaged Property, other than
the Permitted Encumbrances.
(7) Evidence of insurance coverage as required by
this Agreement and the Deeds of Trust.
(8) The Title Policies (or the Title Company's
unconditional commitment to issue the Title Policies upon
recordation of the Deeds of Trust).
(9) An environmental audit report covering the
Primary Collateral, in form and content and conducted and
prepared by an environmental consultant reasonably
acceptable to Bank. Borrowers agree that Bank may
disclose the contents of such environmental audit report
to Governmental Authorities and Borrowers shall deliver
to Bank the written consent to such disclosure from the
respective environmental consultant.
(10) The Primary Collateral Appraisals.
(11) Evidence that none of the Primary Collateral
is located within any designated flood plain or special
flood hazard area or, in lieu thereof at Bank's request,
evidence that Borrowers have applied for and received
flood insurance covering the insurable Improvements in
the maximum coverage available to Bank.
(12) To the extent portions of the Primary
Collateral have been platted, full-size, single sheet
copies of all recorded subdivision or plat maps of the
Primary Collateral approved (to the extent required by
Governmental Requirements) by all
<PAGE> 6
Governmental
Authorities, if applicable, and legible copies of all
instruments representing exceptions to the state of title
to the Primary Collateral.
(13) Evidence of the applicable zoning ordinances
and restrictive covenants affecting the Land.
(14) Current Financial Statements of Borrowers.
(15) If requested by Bank, a soils and geological
report covering the Primary Collateral issued by a
laboratory approved by Bank, which report shall be
reasonably satisfactory in form and substance to Bank,
and shall include a summary of soils test borings.
(e) Bank shall have received payment of the Commitment
Fee.
(f) Bank shall have received such other instruments,
documents and evidence (not inconsistent with the terms hereof)
as Bank may reasonably request in connection with the making
of the Loans hereunder, and all such instruments,
documents and evidence shall be satisfactory in
form and substance to Bank.
(g) Upon making the Term Loan and the initial Advance on
the Revolving Loan, the aggregate amount outstanding on both
Loans shall not exceed the Maximum Loan Amount.
2.15 Conditions to Subsequent Advances. Bank has no
obligation to make any Advance on the Revolving Loan subsequent to
the initial Advance unless the following conditions precedent are
satisfied on or before the Disbursement Date for such Advance:
(a) If the Disbursement Date is ninety (90) days after
the date hereof, and thereafter at Bank's request, Borrower
shall furnish to Bank an endorsement to the Title Policies (or
if an endorsement is not available, a letter from the Title
Company) showing "nothing further" of record affecting the
Primary Collateral from the date of recording of the Deeds of
Trust, except such matters as Bank specifically approves.
(b) All Loan Documents shall be in full force and effect
and binding and enforceable obligations of each Loan Party.
(c) Each of the representations and warranties of each
Loan Party under any Loan Document shall be true and correct
in all material respects.
(d) No Default or Event of Default shall have occurred and be
continuing; there shall exist no Material Adverse Effect; and
no provision of law, any order of any Governmental Authority, or
any regulation, rule or interpretation thereof, shall have had any
material adverse effect on the validity or enforceability of any
Loan Document.
<PAGE> 7
(e) Upon making the Advance on the Revolving Loan then
requested, the amount outstanding on both the Revolving Loan
and Term Loan in the aggregate shall not exceed the Maximum
Loan Amount.
(f) If the Disbursement Date is sixty (60) or more days
after the date hereof, Bank shall be in receipt of all
Surveys.
2.16 Advance Not A Waiver. No Advance of the proceeds of the
Revolving Loan shall constitute a waiver of any of the conditions
of Bank's obligation to make further Advances, nor, in the event
Borrowers are unable to satisfy any such condition, shall any such
Advance have the effect of precluding Bank from thereafter
declaring such inability to be an Event of Default.
2.17 Advance Not An Approval. Bank shall have no obligation
to make any Advance or part thereof during the existence of any
Default or Event of Default, but shall have the right and option so
to do; provided that if Bank elects to make any such Advance, no
such Advance shall be deemed to be either a waiver of the right to
demand payment of the Loans, or any part thereof, or an obligation
to make any other Advance.
2.18 Additional Land Acquisitions. Subject to the
satisfaction of all conditions precedent to Advances on the
Revolving Loan, Bank hereby agrees to make one or more Advances on
the Revolving Loan to Borrowers in an amount not to exceed at any
one time or in the aggregate $2,000,000.00 for the purpose of the
acquisition of fee title to real property, provided that Borrowers
(i) provide Bank with information about such real property as Bank
may reasonably request, (ii) execute and deliver to Bank a deed of
trust, substantially in the form of the Deeds of Trust, granting to
Bank a deed of trust first lien on such real property, and (iii)
execute and deliver to Bank its proposed disposition plan of such
real property which must be reasonably satisfactory to Bank. Any
<PAGE> 8
and all real estate assets acquired in whole or part with Advances
made under this Section are sometimes referred to as "Section 2.18
Assets."
2.19 Mandatory Prepayments. Borrowers shall immediately pay
to Bank for application to the Loans in accordance with the terms
of this Agreement, unless otherwise agreed by Bank in writing, the
following sums: (i) one-hundred percent (100%) of the net proceeds
received by or on behalf of any Borrower from the sale of all or
any portion of the Mortgaged Property or upon the taking of all or
any portion of the Mortgaged by condemnation; provided that, if
such sale is to a Related Party, the mandatory prepayment shall be
in an amount equal to the greater of fifty percent (50%) of the
gross sales price or fifty percent (50%) of the corresponding
Partial Release Price as shown on Addendum 3 of such portion of the
Mortgaged Property, (ii) one-hundred percent (100%) of the net
proceeds of MUD Reimbursables, (iii) one-hundred percent (100%) of
the net proceeds received upon the sale of any Section 2.18 Asset,
(iv) and one-hundred percent (100%) of the distributions received
by any Borrower from any Partnership or any Future Partnership upon
the sale by such Related Party of any real property interest.
2.20 Application of Payments. Notwithstanding anything to the
contrary set forth in the Loan Documents, so long as no Event of
Default exists, all payments made on any of the Loans shall be
applied in the following order of priority:
I. "REIMBURSABLES". Net proceeds received from MUD Reimbursables shall be
applied in the following sequence:
A. Current Interest
First, apply proceeds to pay interest current on both the
Term Loan and Revolving Loan or withhold an amount
necessary to pay interest current at month end.
B. Remaining proceeds to be applied equally between #1 and
#2 below:
1. Term Loan
(i) Reduce Term Loan principal
(ii) Apply any remaining proceeds as follows: to
repay any outstanding balance on the Revolving
Loan Note, and then the remaining proceeds
shall be distributed to Borrowers at their
direction.
2. Revolving Loan
At the Borrowers' election, remaining funds may be
allocated between (i) and (ii) below:
(i) Establish or replenish the Interest Reserve
Escrow Account.
(ii) Reduce principal balance of the Revolving Loan
Note in an amount not to exceed Five Million
and No/100 Dollars ($5,000,000.00) in
accordance with Section 2.2, Addendum 2. Any
remaining proceeds under this provision shall
be applied in the following order of priority:
(a) First, to repay the principal balance of
the Term Note.
(b) Second, to repay any outstanding balance
on the Revolving Loan Note.
(c) Third, upon repayment of the Revolving
Loan Note, remaining proceeds shall be
distributed to Borrower at their
direction.
<PAGE> 9
II. SECTION 2.18 ASSETS
Net proceeds from the sale of a Section 2.18 Asset will be
applied in the following order of priority:
A. Current Interest
First, apply proceeds to pay interest current on both the
Term Note and Revolving Loan Note or withhold an amount
necessary to pay interest current at month end.
B. Revolving Loan Note
Remaining proceeds to be applied to the Revolving Loan
Note in an amount not to exceed the funds used under the
Revolving Loan Note to acquire the Section 2.18 Asset.
C. Term Note
Remaining proceeds to be applied to the Term Note
principal balance until such time as the Term Note
balance has been reduced Five Million and No/100 Dollars
($5,000,000.00) from any source in any given calendar
year.
D. Any remaining proceeds shall be applied equally to #1 and
#2 below:
1. Term Note
(i) Reduce Term Loan principal.
(ii) Apply any remaining proceeds to repay
Revolving Loan Note as follows: to repay any
outstanding balance on the Revolving Loan
Note, and then the remaining proceeds shall be
distributed to Borrowers at their direction.
2. Revolving Loan Note
Remaining proceeds to be applied in the following
order of priority:
(i) At the Borrower=s discretion, establish or
replenish the Interest Reserve Escrow Account.
(ii) To the extent that any Related Party Shortfall
balance exists, repay Term Loan in an amount
up to the Related Party Shortfall amount then
outstanding.
(iii) Reduce principal balance of the Revolving
Loan Note subject to the Five Million and
No/100 Dollar ($5,000,000.00) limitation set
forth in Section 2.20 of Addendum 2. Any
remaining proceeds under this provision shall
be applied in the following order of priority:
(a) To repay the principal balance of the
Term Note.
(b) To repay any outstanding balance on the
Revolving Loan Note.
(c) Upon repayment of the Revolving Note,
remaining proceeds shall be distributed
to Borrower at their direction.
III. PRIMARY COLLATERAL OR OTHER COLLATERAL SALES OR
PARTNERSHIP DISTRIBUTIONS
Net proceeds from the sale of Primary Collateral or Other
Collateral or Partnership distributions will be applied in the
following order of priority:
A. Current Interest
<PAGE> 10
First, apply proceeds to pay interest current on both the
Term Note and Revolving Loan Note or withhold an amount
necessary to pay interest current at month end.
B. Term Note
Remaining proceeds to be applied to the Term Note
principal balance until such time as the Term Note
balance has been reduced Five Million and No/100 Dollars
($5,000,000.00) from any source in any given calendar
year (with the first calendar year being from the date
hereof to December 31, 2000).
C. Any remaining proceeds shall be applied equally to #1 and
#2 below:
1. Term Note
(i) Reduce Term Loan principal.
(ii) Apply any remaining proceeds to repay
Revolving Loan Note as follows: to repay any
outstanding balance on the Revolving Loan
Note, and then the remaining proceeds shall be
distributed to Borrowers at their direction.
2. Revolving Loan Note
Remaining proceeds to be applied in the following
order of priority:
(i) At the Borrower's discretion, establish or
replenish the Interest Reserve Escrow Account.
(ii) To the extent that any Related Party Shortfall
balance exists, repay Term Loan in an amount
up to the Related Party Shortfall amount then
outstanding.
(iii) Reduce principal balance of the Revolving
Loan Note subject to the Five Million and
No/100 Dollar ($5,000,000.00) limitation set
forth in Section 2.20 of Addendum 2. Any
remaining proceeds under this provision shall
be applied in the following order of priority:
(a) To repay the principal balance of the
Term Note.
(b) To repay any outstanding balance on the
Revolving Loan Note.
(c) Upon repayment of the Revolving Loan,
remaining proceeds shall be distributed
to Borrower at their direction.
IV. CONVEYANCE OF PRIMARY COLLATERAL AND OTHER COLLATERAL TO
RELATED PARTIES
Net proceeds from the conveyance of Primary Collateral or
Other Collateral to a Related Party will be applied in the
following sequence:
A. Current Interest
First, apply proceeds to pay interest current on both the
Term Note and Revolving Loan Note or withhold an amount
necessary to pay interest current at month end.
<PAGE> 11
B. Term Note
1. Reduce Term Note principal
2. Apply any remaining proceeds to repay Revolving Loan
Note as follows: to repay any outstanding balance
on the Revolving Loan Note, and then the remaining
proceeds shall be distributed to Borrowers at their
direction.
Attached for informational purposes to this Addendum 2 as
Addendum 2(a) is a Priority Application of Proceeds Schedule. In
the event of a conflict between the terms of said Priority
Application of Proceeds Schedule and this Addendum 2, this
Addendum 2 shall control.
<PAGE> 12
ADDENDUM 3
RELEASE PROVISIONS
(Terms used with initial capital letters in this Addendum 3 that
are not specifically defined in this Agreement shall have the
meanings ascribed to them in the Deeds of Trust.)
The Partial Release Price for Primary Collateral shall be as
follows: The payment to Bank of a Partial Release Price equal
to one hundred percent (100%) of the Net Proceeds (i.e., all
proceeds less only reasonable closing costs, surveying costs,
title insurance premiums, attorneys' fees and a broker's
commission not to exceed six percent (6.0%) with aggregate
deductions not to exceed eight percent(8%) of the sales
price), which Net Proceeds shall in no event be less than
eighty-five percent (85%) of the appraised value (using year
one undiscounted unit prices) (hereinafter referred to as
"Appraised Value") of the Primary Collateral being released.
See Addendum 3-1 (a) - (c) attached hereto for the schedule
of Appraised Value.
The Partial Release Price for Other Collateral shall be as
follows: The payment to Bank of a Partial Release Price equal
to one hundred percent (100%) of the Net Proceeds (i.e., all
proceeds less only reasonable closing costs, surveying costs,
title insurance premiums, attorneys' fees and a broker's
commission not to exceed six percent (6%) with aggregate
deductions not to exceed eight percent (8%) of the sales
price), which Net Proceeds shall in no event be less than
eighty-five percent (85%) of the assigned value (hereinafter
referred to as "Assigned Value") established by Bank and
Borrowers for each of the Lots [or Tracts] of Other Collateral
(the "Minimum Release Prices"). See Addendum 3-2 attached
hereto for the schedule of Assigned Value.
The foregoing notwithstanding, the Partial Release Price for
Primary Collateral or Other Collateral for sale to a Related
Party shall be as follows: The payment of a Partial Release
Price equal to one hundred percent (100%) of all cash proceeds
received by Borrowers, which cash proceeds shall in no event
be less than the greater of (i) fifty percent (50%) of the
Appraised Value for Primary Collateral or fifty percent (50%)
of the Assigned Value for Other Collateral, as applicable, of
the Primary Collateral or Other Collateral being released; or
(ii) fifty percent (50%) of the gross sales price paid by the
Related Party. The gross sales price (i.e., cash proceeds and
all other considerations) for the sale to the Related Party
will not be less than eighty-five percent (85%) of the
applicable Appraised Value or Assigned Value.
Notwithstanding anything contained herein to the contrary, the
location and configuration of the Lot or Lots [Tract or
Tracts] to be released shall be reasonably satisfactory to
Bank and no Partial Release shall result in any remaining Lot
[or Tract] being without access to a public street. Any and
all Partial Releases shall be in accordance with the following
procedures:
(1) Borrowers's request for a Partial Release
shall be given to Bank and accompanied by (i) the legal
description of the Lot or Lots [or Tract] to be released,
together with a draft closing statement prepared for the
proposed sale; (ii) information necessary to process the
request for Partial Release, including whether the
property to be released is Primary Collateral or Other
Collateral and whether it is being sold to a Related
Party; (iii) any appraisal reconciliation of value
information as may be required by Bank, together with a
reimbursement of the cost of same, which cost shall not
exceed $750.00; and (iv) the name and address of the
title company, if any, to whose attention the Partial
Release Instrument (as hereinafter defined) should be
directed, numbers that should be referenced (order
number, loan number, etc.) and the date when such Partial
Release is to be made. Borrowers shall also specify the
name and address of the prospective purchaser and the
intended use of the Lot [or Tract] to be released and
shall supply such other
<PAGE> 1
documents and information
concerning such Partial Release as Bank may reasonably
request.
(2) Within five (5) days after receipt of such
request, and in accordance with and pursuant to the terms
and conditions of this Addendum 3 and the other
applicable provisions of this Agreement, Bank shall
execute an instrument effecting such Partial Release
("Partial Release Instrument") and deliver same to the
title company so specified; provided that all costs and
expenses of Bank associated with such Partial Release
(including, but not limited to, reasonable legal fees)
shall be paid by Borrowers. Borrowers shall also obtain
all title insurance endorsements reasonably required by
Bank in connection with such Partial Release.
(3) The execution and delivery of such Partial
Release Instrument shall not affect any of Borrowers's
obligations under the Loan Documents, except that the
payment of the Partial Release Price must be actually
received by Bank. Regardless of the time such Partial
Release is executed, delivered and recorded, the payment
made by Borrowers to Bank in respect to such Partial
Release shall be credited against the Indebtedness in
accordance with the terms of this Agreement only upon
receipt by Bank of the Partial Release Price. The
Partial Release Instrument shall be delivered, in escrow,
by Bank to the title company so designated, to be held,
released, delivered and recorded in accordance with
Bank's escrow instructions, which shall require payment,
in cash, of the Partial Release Price to Bank prior to
delivery and recordation of the Partial Release
Instrument.
<PAGE> 2
OLY STRATUS BARTON CREEK I JOINT VENTURE
(A Texas Joint Venture)
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
__________________________________
Dated as of December _____, 1999
__________________________________
TABLE OF CONTENTS
Page
ARTICLE 1 1
1.1 Definitions 1
ARTICLE 2 7
2.1 Formation of Joint Venture 7
2.2 Name 7
2.3 Character of Business 8
2.4 Registered Office and Agent 8
2.5 Fiscal Year 8
ARTICLE 3 8
3.1 Acquisition of New Property
and Capital Contributions to the
Partnership 8
3.2 Additional Capital
Contributions 9
3.3 No Return of Capital
Contributions 11
3.4 Interest 11
ARTICLE 4 11
4.1 Management of Partnership 11
4.2 Management Committee 12
4.3 Major Decisions 13
4.4 Budgets and Reports 13
4.5 Powers of the Operating
Partner 14
4.6 Liability of Partners 14
4.7 Other Activities of
Partners 14
ARTICLE 5 15
5.1 Exculpation 15
5.2 Indemnity 15
ARTICLE 6 16
6.1 Distributions 16
6.2 Tax Allocations 16
ARTICLE 7 16
7.1 Admission of New Partners 16
7.2 Transfer of Partnership
Interests 16
7.3 Buy/Sell 17
7.4 No Substituted Partners 20
7.5 Withdrawal of Partners 20
ARTICLE 8 20
8.1 Books of Account; Tax
Returns 20
8.2 Place Kept; Inspection 20
8.3 Tax Matters Partner 20
ARTICLE 9 21
9.1 Amendments and Waivers 21
9.2 Certain Other Amendments 21
ARTICLE 10 22
10.1 Dissolution 22
10.2 Accounting on Dissolution 22
10.3 Termination 23
10.4 No Negative Capital Account
Obligation 23
10.5 No Other Cause of
Dissolution 23
10.6 Merger 23
ARTICLE 11 24
11.1 Waiver of Partition 24
11.2 Entire Agreement 24
11.3 Severability 24
11.4 Notices 24
11.5 Governing Laws 24
11.6 Successors and Assigns 24
11.7 Counterparts 24
11.8 Headings 25
11.9 Other Terms 25
11.10 Power of Attorney 25
11.11 Transfer and Other
Restrictions 26
OLY STRATUS BARTON CREEK I JOINT VENTURE
AMENDED AND RESTATED
JOINT VENTURE AGREEMENT
This Amended and Restated Joint Venture Agreement (this "Agreement") of OLY
STRATUS BARTON CREEK I JOINT VENTURE, a Texas joint venture (the "Partnership"),
is made effective as of December ___, 1999 (the "Effective Date"), by and
between Oly ABC West I, L.P., a Texas limited partnership, as the financial
partner (the "Financial Partner") and Stratus ABC West I, L.P., a Texas
limited partnership, as the operating partner (the "Operating Partner"). (The
Financial Partner and the Operating Partner are collectively referred to herein
as the "Partners").
RECITALS
A. The parties hereto formed the Partnership under the Act (as defined
below) pursuant to the terms of that certain Joint Venture Agreement of Oly
Stratus ABC West I Joint Venture, dated as of September 30, 1998 (the "Original
JV Agreement").
B. The Partnership was originally formed for the purpose of acquiring,
owning, developing and reselling that certain property located in Travis County,
Texas and known as Lots 1 through 26 and Lots 137 through 185, inclusive,
Block A, Barton Creek ABC West Phase I (the "Original Property"). The parties
hereto have decided thatit is in the best interests of the undersigned parties
and the Partnership that the purpose of the Partnership be amended to include
acquiring, owning, developing and reselling the Original Property and that
certain property located in Travis County,Texas and known as Lots 1 through 41,
Block A, and Lots 2 through 14, Block B, Barton Creek Section J, Phase 2 (the
"New Property" and together with the Original Property being collectively
referred to herein as the "Property").
C. The Partners hereto desire to amend and restate the provisions of the
Original Agreement as set forth herein and to enter into this Agreement to
establish their respective rights and obligations with respect to the
Partnership and to provide for the orderly management of the affairs of the
Partnership.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Partners
hereby agree as follows:
ARTICLE 1
Definitions
1.1 Definitions. As used in this Agreement, the following terms shall
have the following meanings:
<PAGE> 1
"Act" shall have the meaning set forth in Section 2.1.
"Agreement" shall have the meaning set forth in the preamble to this
Agreement.
"Affiliate" shall mean, when used with reference to a specified Person,
any other Person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
the specified Person. As used in this definition of Affiliate, the term
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract, or otherwise.
"Amended and Restated Mezzanine Loan Agreement" shall mean that
certain document entitled "Amended and Restated Mezzanine Loan Agreement"
of even effective date herewith, by and between the Mezzanine Lender and
the Partnership.
"Business" shall mean all tangible and intangible property of the
Partnership as of the date of the Buy/Sell offer and any proceeds therefrom
subject to all obligations or liabilities associated therewith.
"Business Day" shall mean any day other than a Saturday, Sunday, or
holiday on which national banking associations in the State of Texas are
authorized or required to be closed.
"Business Plan" shall mean the business plan attached hereto as Exhibit A
and incorporated herein, and as may be amended from time to time in
accordance with the provisions hereof or as may attached hereto within sixty
(60) days of the execution of this Agreement upon approval of the Management
Committee.
"Buy-Sell" shall have the meaning set forth in Section 7.3.
"Buy/Sell Closing Date" shall have the meaning set forth in Section 7.3.
"Buy/Sell Election Period" shall have the meaning set forth in Section 7.3.
"Buy/Sell Offer" shall have the meaning set forth in Section 7.3.
"Buy/Sell Purchaser" shall have the meaning set forth in Section 7.3.
"Buy/Sell Seller" shall have the meaning set forth in Section 7.3.
"Capital Account" shall mean a separate account maintained for each
Partner in accordance with the provisions of Regulation section 1.704-1(b)
(2)(iv).
Each Partner shall have only one Capital Account, regardless of the number of
classes of units or other interests in the Partnership owned by such Partner.
Initially, the Capital Account of each Partner shall have a positive balance
equal
<PAGE> 2
to its initial Capital Contribution. Such Capital Account shall
thereafter be adjusted in accordance with the following provisions:
(a) Additions. The Capital Account shall be increased by the sum of
(i) except as otherwise provided in paragraph (f) below in the case of a
contribution of a promissory note, the amount of cash and the fair market
value (determined as of the date of contribution, without regard to
section 7701(g) of the Code, including a constructive contribution resulting
from a termination and reconstitution of the Partnership under section
708(b)(1)(B) of the Code) of property contributed, or deemed to have been
contributed, to the capital of the Partnership by the Partner, net of any
liabilities assumed by the Partnership in connection with such contribution or
to which the contributed property is subject under section 752 of the Code,
plus (ii) the amount of any net income or other item of income or gain
allocated to the Partner pursuant to Article 6 hereof.
(b) Subtractions. The Capital Account shall be reduced by the sum of
(i) the amount of any net loss or other item of expense, loss or deduction
allocated to the Partner pursuant to Article 6 hereof, plus (ii) the
Distribution Value (determined without regard to section 7701(g) of the Code)
of any cash or other property distributed, or deemed to have been
distributed, by the Partnership to the Partner, net of any liabilities assumed
by the distributee in connection with the distribution or to which the cash
or other distributed property is subject under section 752 of the Code.
(c) Other Adjustments. The Capital Account shall otherwise be
adjusted by the Financial Partner in accordance with the other capital
account maintenance rules of Regulation section 1.704-1(b)(2)(iv). In
connection with the foregoing:
(d) Determination of Fair Market Value. In determining the balance
of each Partner's Capital Account, and for all other purposes of this
Agreement, the fair market value of an asset contributed to or distributed
by the Partnership shall be determined in good faith by the Partners
(which shall use their reasonable efforts not to overstate or understate
the fair market value of any such asset). Notwithstanding the preceding
sentence, it is understood that no Partner shall have any obligation to
contribute any real property asset to the Partnership unless all Partners
have agreed to the fair market value of the asset.
(e) Capital Account of Transferee. A transferee of all or part of an
interest in the capital and profits of the Partnership shall succeed to the
Capital Account of the transferor to the extent that such Capital Account
relates to the transferred interest.
(f) Contribution of Note. Notwithstanding any other provision of this
definition of Capital Account, if a Partner has contributed his promissory
note to the capital of the Partnership and such note is not readily traded
on an established securities market, then the principal of such note shall
not be credited to the
<PAGE> 3
Partner's Capital Account until and to the extent that
either (i) the Partnership makes a taxable disposition of the note or
(ii) principal payments are made on the note, all in accordance with
Regulation section 1.704-1(b)(2)(iv)(d)(2). "Capital Contribution" shall mean
the gross amount of cash or the fair market value of other property contributed
or caused to be contributed to the capital of the Partnership by a Partner with
respect to such Partner's capital account.
"Cash Flow" of the Partnership for any period shall mean any and all cash
revenues generated from the ownership, sale of lots, sale of undeveloped
parcels, lease and other operation of the Partnership assets and any and all
capital transaction proceeds minus the sum of (i) any operating and capital
expenses incurred in the operation of the business of the Partnership,
including without limitation any payments of interest and principal (other
than payments of principal that are refinanced by the Partnership) on
Partnership indebtedness required by the lender of such indebtedness during
the quarterly period in question, and (ii) a reasonable reserve for necessary
or desirable operating and capital expenses of the Partnership that are
anticipated to be incurred or to become due and payable within six (6) months
as the Management Committee, in the exercise of its reasonable discretion and
as is consistent with the Operating Budget and the Business Plan, shall
determine.
"Code" shall mean the Internal Revenue Code of 1986 and any successor
statute, as amended from time to time.
"Contribution Agreement" shall mean that certain document entitled
"Contribution Agreement" of even effective date herewith, by and among the
Financial Partner, the Operating Partner and the Partnership.
"Contribution Percentage" of a Partner shall be based on the actual equity
capital contributions of such Partner in relation to the total equity
capital contributions of all Partners.
"Deadlock" shall mean the failure of the Partners to agree with respect to
any Major Decision or other issue with respect to the Partnership which could
have a material adverse effect or impact to the Partnership if such issue
remains unresolved between the Partners.
"Deemed Recipient" shall have the meaning set forth in Section 3.2.
"Default Amount" shall have the meaning set forth in Section 3.2.
"Default Date" shall have the meaning set forth in Section 3.2.
"Defaulting Partner" shall have the meaning set forth in Section 3.2.
<PAGE> 4
"Distribution Period" shall mean (i) the period beginning on the Effective
Date and ending on December 31, 1998 and (ii) each calendar quarter thereafter.
"Distribution Value" shall mean the dollar amount of any cash distribution
and the fair market value, as jointly determined in good faith by the
Partners (each of which shall use its reasonable efforts not to overstate or
understate fair market value), of any non-cash property distribution at the
time of the distribution, net of the distributee's share of any liabilities to
which the distributed property is subject and net of any liabilities assumed
by the distributee.
"Effective Date" shall have the meaning set forth in the preamble to this
Agreement.
"Escrow Agent" shall have the meaning set forth in Section 7.3.
"Financial Partner" shall mean Oly ABC West I, L.P., together with its
successors and assigns.
"Indemnified Parties" shall have the meaning set forth in Section 7.3.
"Major Decision" means any decision with respect to (1) approval of the
Business Plan, including the decision to make additional Capital
Contributions except as provided in Section 3.2(a), (2) approval of the
Operating Budget, (3) approval of the plans and specifications for the
Property, and the subsequent approval of all material change orders or
amendments given in substitution for such approved plans and specifications,
(4) approval of any financing or refinancing, whether secured or unsecured,
unless previously approved in the Business Plan or annual Operating Budget,
(5) approval of acquisition of any additional property, (6) approval of
admission or withdrawal of any Partners to the Partnership, (7) approval of
any sale, exchange or other disposition of the Property unless pursuant to
governance deadlock provision in Section 7.3 below or in the Business Plan or
annual Operating Budget, (8) approval of any amendments to the Agreement,
(9) approval of any termination or dissolution of the Partnership and
(10) appointment of a successor property manager pursuant to Section 4.1.
"Management Agreement" shall have the meaning set forth in Section 4.1.
"Management Committee" shall have the meaning set forth in Section 4.2.
"Mandatory Additional Contribution" shall have the meaning set forth in
Section 3.2.
"Mezzanine Lender" shall have the meaning set forth in Section 3.5.
"New Property" shall have the meaning set forth in the recitals to this
Agreement.
<PAGE> 5
"Non-Defaulting Partners" shall have the meaning set forth in Section 3.2.
"Offer Amount" shall have the meaning set forth in Section 7.3.
"Offer Deposit" shall mean the sum of Five Hundred Thousand and
No/100 Dollars ($500,000.00) in cash.
"Offeree" shall have the meaning set forth in Section 7.3.
"Offeror" shall have the meaning set forth in Section 7.3.
"Olympus" shall have the meaning set forth in the preamble of this
Agreement.
"Olympus Representative" shall have the meaning set forth in Section 4.2.
"Operating Budget" shall mean the budget attached hereto as Exhibit B
and incorporated herein, as may be amended from time to time in accordance
with the provisions hereof, or to be attached hereto within sixty (60) days
of the execution of this Agreement upon approval by the Management Committee
in accordance with this Agreement.
"Operating Partner" shall mean Stratus ABC West I, L.P., together with its
successors or assigns.
"Original JV Agreement" shall have the meaning set forth in the recitals to
this Agreement.
"Original Property" shall have the meaning set forth in the recitals to this
Agreement.
"Other Assets" shall mean those certain assets (constituting personal
property) further described in the Contribution Agreement.
"Partner" shall mean any Person executing this Agreement as of the
Effective Date as a partner or hereafter admitted to the Partnership as a
partner as provided in this Agreement, but does not include any Person who has
ceased to be a Partner of the Partnership.
"Partnership" shall have the meaning set forth in the preamble to this
Agreement.
"Partnership Interest" shall have the meaning set forth in Section 7.3.
"Person" shall mean an individual, partnership, joint venture, limited
partnership, limited liability company, foreign limited liability company,
trust, business trust, estate, corporation, custodian, trustee, executor,
administrator, nominee, association, cooperative or entity in a representative
capacity.
<PAGE> 6
"Property" shall have the meaning set forth in the recitals to this
Agreement.
"Receipt Amount" shall have the meaning set forth in Section 7.3.
"Regulation" shall mean Treasury Regulations promulgated under Title 26
of the United States Code.
"Replacement Loan" shall have the meaning set forth in Section 3.2.
"Representative" shall have the meaning set forth in Section 4.2.
"Required Capital Contributions" shall have the meaning set forth in
Section 3.1.
"Required Interest" shall mean both of the Partners.
"Sale and Purchase Agreement" shall mean that certain agreement entitled
"Sale and Purchase Agreement" of even effective date herewith, by and between
Stratus Properties Operating Co., L.P., a Delaware limited partnership,
as seller and the Partnership as purchaser.
"Sharing Ratio" shall have the meaning set forth on Schedule I attached
hereto.
"Stratus" shall have the meaning set forth in the preamble of this
Agreement.
"Stratus Representative" shall have the meaning set forth in Section 4.2.
ARTICLE 2
Organization
2.1 Formation of Joint Venture. The Partners formed the Partnership, a
Texas joint venture, pursuant to and in accordance with the provisions of
the Texas Revised Partnership Act (as amended from time to time, the "Act")
effective as of September 30, 1998 pursuant to the Original JV Agreement. The
Partners hereby continue the Partnership pursuant to the terms and provisions
of this Agreement. Upon the Effective Date, all of the terms and provisions
of the Original JV Agreement are amended, restated and superceded in their
entirety by the terms and provisions of this Agreement.
2.2 Name. Prior to the Effective Date, the name of the Partnership was Oly
Stratus ABC West I Joint Venture. Upon the Effective Date, and unless and
until such name shall be changed hereunder, the name of the Partnership shall
be Oly Stratus Barton Creek I Joint Venture. The Management Committee may
change the name of the Partnership from time to time and shall give prompt
written notice thereof to the Operating Partner; provided, however,
<PAGE> 7
that such
changed name may not contain any portion of the name or mark of the Operating
Partner without the Operating Partner's consent.
2.3 Character of Business. The purpose of the Partnership shall be (i) to
acquire, hold, develop, sell, encumber, or otherwise act with respect to
investments, direct or indirect, in the Property, and (ii) to engage in such
other business as may be conducted by a joint venture organized under the
laws of the State of Texas.
2.4 Registered Office and Agent. The name and address of the Partnership's
initial registered agent are Olympus Real Estate Corporation, 200 Crescent Court
Suite 1650, Dallas, Texas 75201. The Partnership's initial principal place of
business shall be 200 Crescent Court, Suite 1650, Dallas, Texas 75201. The
Financial Partner may change such registered agent, registered office, or
principal place of business from time to time. The Financial Partner shall
give prompt written notice of any such change to the Operating Partner.
The Partnership may from time to time have such other place or places of
business within or without the State of Texas as may be determined by the
Financial Partner.
2.5 Fiscal Year. The fiscal year of the Partnership shall end on
December 31 of each calendar year unless, for United States federal income tax
purposes, another fiscal year is required. The Partnership shall have the same
fiscal year for United States federal income tax purposes and for accounting
purposes.
ARTICLE 3
New Property Acquisition and Capital Contributions
3.1 Acquisition of New Property and Capital Contributions to the
Partnership. Upon the Effective Date, the Partnership shall enter into and
execute that certain Sale and Purchase Agreement and that certain Contribution
Agreement. Upon the Effective Date, the Partnership shall acquire the New
Property in accordance with the Sale and Purchase Agreement. Upon the
Effective Date, the Financial Partner shall make a cash contribution to the
Partnership in the sum of $1,609,052 and no later than sixty (60) days after
the Effective Date, the Financial Partner shall make an additional cash
contribution to the Partnership in the sum of $529,926 which shall increase
the amount of the Capital Contribution of the Financial Partner as reflected on
Schedule I to this Agreement (collectively, the "Olympus Contribution"). Upon
the Effective Date, (i) the Operating Partner shall make a contribution in-kind
of the Other Assets to the Partnership pursuant to the Contribution Agreement
(the "Stratus Contribution") and (ii) the Partnership shall make a cash
distribution to the Operating Partner in the sum of $566,776 (the "Stratus
Distribution"). The Partners agree that as of the Effective Date the agreed
fair market value of the Stratus Contribution is $2,702,902. Upon the
Effective Date and following the Olympus Contribution, the Stratus Contribution
and the Stratus Distribution, each Partner shall be deemed to have contributed
capital to the Partnership in the amount set forth opposite its name on
Schedule I to this Agreement (collectively, the "Required Capital
Contributions"). Any such Required Capital Contributions shall be in addition
to any other Capital Contributions made by the Partners to the Partnership
prior to the Effective Date.
<PAGE> 8
3.2 Additional Capital Contributions.
(a) After the funding of the Required Capital Contribution set forth
above (including any amounts deemed to have been contributed), if the
Partnership requires additional funds, either (i) the Partners may agree to
make additional Capital Contributions to the Partnership as are deemed
advisable by the Partners (each exercising their independent discretion) and by
amendment to the Business Plan, or (ii) if either (A) there has been a default
or an event of default with respect to any indebtedness of the Partnership;
(B) additional capital is necessary to complete any capital improvement program
approved in the Business Plan, or (C) funds are necessary for continued
operation of the Property consistent with the Business, then the Financial
Partner may elect to call or not call for additional Capital Contributions
(in each case, the "Mandatory Additional Contribution") to be made to the
Partnership to cure any default or event of default with respect to any
indebtedness of the Partnership, to complete such capital improvement program
or fund operations. The Mandatory Additional Contribution in question shall be
made by the Partners pro rata, based on the Contribution Percentages of the
Partners. This Section 3.2 is solely for the benefit of the Partners, and
shall not, nor shall it be deemed to, create any rights in, or provide any
benefit to, any other person or entity, and the decision to make additional
contributions to the Partnership shall be made in the sole and absolute
discretion of the Financial Partner, except as may be provided in the
Business Plan.
(b) Each Partner shall be required to make its Mandatory Additional
Contribution to the Partnership on or before twenty-one (21) days after
written notice to such Partner ("Default Date"). In the event any Partner
fails to make a Mandatory Additional Contribution as required by this
Section 3.2 within the time period set forth herein (such Partner, being
herein referred to as the "Defaulting Partner"), then, the "Non-Defaulting
Partners" (herein so called) shall be entitled, as their sole and exclusive
remedy for such failure, by giving written notice to the Defaulting Partner to
make a loan (the "Replacement Loan") to the Defaulting Partner in the amount
of such Mandatory Additional Contribution, which Replacement Loan (i) shall be
applied solely to fund the delinquent Mandatory Additional Contribution,
(ii) shall have a term of one hundred twenty (120) days from the date of such
loan and (iii) shall bear interest at the lesser of (A) eighteen percent (18%)
per annum and (B) the maximum rate of interest which may be charged, collected
or contracted for under applicable law, with accrued interest due at the
maturity of such loan (each such Replacement Loan together with all accrued
interest thereon from time to time, the "Default Amount"). Anything contained
in this Agreement to the contrary notwithstanding, any Partner who
becomes a Defaulting Partner shall immediately and without any further demand,
notice or cure period (time being of the essence herein) automatically cease
to have a right to vote on all Partnership decisions from and after the Default
Date for any purposes hereunder for the remainder of the life of the
Partnership (unless reinstated as described below); provided, however, if a
Defaulting Partner shall pay the Default Amount in full to the Non-Defaulting
Partners who elected to
<PAGE> 9
make such loan, on or before the expiration of the
120-day term of the Replacement Loan to such Defaulting Partner, such Defaulting
Partner's voting rights hereunder shall be automatically reinstated (effective
as of the date such Default Amount is paid in full) for all purposes including
voting rights. If the Default Amount is not paid in full on or before the
expiration of the 120-day period, the Defaulting Partner's voting rights shall
not be reinstated upon the subsequent payment of the Default Amount.
(c) The Partners further agree that if the Default Amount is not repaid
to the Non-Defaulting Partners within the 120-day term, then, without demand,
notice or cure period (time being of the essence herein), such Default Amount
shall for all purposes hereunder be deemed to be a Capital Contribution by the
Non-Defaulting Partners to the Partnership effective as of the expiration of
such 120-day term of such Replacement Loan, which deemed Capital Contribution
shall be credited as an amount equal to the product of 200% times the Default
Amount, and the Capital Account of the Defaulting Partner shall for all
purposes be appropriately reduced to reflect such treatment; provided,
however, with respect to any Default Amount attributable to a Replacement Loan
made more than one hundred twenty (120) days after the initial Replacement
Loan (which is not repaid during its 120-day term) is made by one or more
Non-Defaulting Partner, the deemed Capital Contribution shall be credited as
an amount equal to the product of 300% times the Default Amount, and in each
case the distribution percentages of the Defaulting Partner (i.e., the pro rata
share of the particular distribution which such Partner would otherwise receive
under such sections) shall be reduced by, and the distribution percentages of
each Non-Defaulting Partner who makes its pro rata share of such loan shall
be increased by an amount equal to the quotient of (i) 200% (or 300%, as the
case may be) times the Default Amount, divided by (ii) the aggregate Capital
Contributions made by the Partners to the Partnership prior to the date of
calculation (including the Mandatory Additional Contributions of all
Non-Defaulting Partners but excluding the Default Amount then in question).
(d) The new distribution percentages computed in accordance with this
Section 3.2 shall remain in effect under this Agreement unless and until
there is a subsequent adjustment to the distribution percentages.
Notwithstanding the foregoing, no Partner's distribution percentage shall be
reduced under any circumstance to less than zero, nor shall any Partner's
distribution percentage be increased under any circumstance to more than 100%.
Mandatory Additional Contributions shall be made pro rata, based on the
relative Contribution Percentages of the Partners.
(e) Each Partner which becomes a Defaulting Partner hereby
irrevocably grants to the other Partners a continuing, first priority,
perfected security interest in the Partnership Interest of such Defaulting
Partner to secure the prompt payment of each Replacement Loan made to such
Defaulting Partner until such time, if ever, as the Default Amount with respect
to the Replacement Loan under consideration has been converted to a deemed
Capital Contribution
<PAGE> 10
pursuant to Section 3.2(c). On or before fifteen (15)
days after any written request of any Non-Defaulting Partner, the Defaulting
Partner shall execute and deliver a UCC-1 financing statement in form and
substance acceptable to such Non-Defaulting Partner to evidence such security
interest, the failure of which shall constitute a default under the
Replacement Loan. Prior to a default or maturity of a Replacement Loan, and
without limiting the remedies of the Non-Defaulting Partners, at the election
of the Non-Defaulting Partners, all distributions payable to any Defaulting
Partner under this Agreement shall be payable directly to the Non-Defaulting
Partners (pro rata based on the relative amount of the Replacement Loan made
by such Non-Defaulting Partner) until the Replacement Loan(s) of such
Defaulting Partner are paid in full (or converted to a deemed Capital
Contribution), shall be paid directly to the Non-Defaulting
Partners until the entire amount of the Replacement Loan is paid in full.
Any amounts paid directly to a Non-Defaulting Partner pursuant to the terms
of the preceding sentence shall be treated as paid to the person (the
"Deemed Recipient") entitled to receive the amount of the distribution in the
absence of the requirements of the preceding sentence (thereby discharging the
Partnership's obligation to make the payment in question to the Deemed
Recipient) and then as applied by the Deemed Recipient on behalf of the
Defaulting Partner to the repayment of the Defaulting Partner's loan.
(f) EXCEPT AS SET FORTH IN SECTION 3.1 OR THIS
SECTION 3.2, NO ADDITIONAL CAPITAL CONTRIBUTIONS SHALL BE
REQUIRED BY ANY PARTNER UNLESS AN EXPRESS WRITTEN CALL
FOR A CAPITAL CONTRIBUTION IS MADE BY THE MANAGEMENT
COMMITTEE TO EACH OF THE PARTNERS.
3.3 No Return of Capital Contributions. No Partner is entitled to a
return of its Capital Contribution, but shall look solely to distributions
from the Partnership as provided for in Article 6 of this Agreement.
3.4 Interest. No Partner shall be entitled to interest on its Capital
Contribution or its Capital Account. Any interest actually received by
reason of temporary investment of any part of the Partnership's funds shall
be included in the Partnership's funds.
ARTICLE 4
Rights and Obligations of Partners
4.1 Management of Partnership. The management, control and direction of
the Partnership and its operations, business and affairs shall be vested
exclusively in the Management Committee, which shall have the right, power and
authority, acting solely by itself and without the necessity of approval by
any Partner or any other person, to carry out any and all of the purposes of
the Partnership and to perform or refrain from performing any and all acts
that the Management Committee may deem necessary, desirable, appropriate or
incidental thereto, except as otherwise provided in this Agreement; provided,
however, that the Operating Partner
<PAGE> 11
shall manage the Partnership and its
operations, business and affairs solely as described in Section 4.5. The
Management Committee may assume the management duties and responsibilities of
the Operating Partner as set forth in Section 4.5 at any time in the event the
Management Committee determines in its good faith discretion that either
(i) the Operating Partner has acted negligently or with willful misconduct in
performing its duties or (ii) the monthly financial reports of the Partnership
reveal a material adverse deviation from the Business Plan more than three
(3) times within any twelve (12) month period. The Management Committee
agrees that prior to its exercise of its right to assume the management duties
and responsibilities of the Operating Partner as result of either default by
the Operating Partner, the Management Committee shall first deliver written
notice of said default to the Operating Partner and give the Operating Partner
ten (10) days thereafter in which to cure said default, the Operating Partner
so elects. Notwithstanding anything to the contrary provided herein, the
Property shall be managed in accordance with the terms and conditions of that
certain Management Agreement (the "Management Agreement") dated of even date
herewith by and between the Partnership and Stratus Management L.L.C.
4.2 Management Committee.
(a) The "Management Committee" (herein so called) shall consist of
four (4) representatives, two (2) of which shall be designated by Stratus
(jointly, the "Stratus Representative") and two (2) of which shall be
designated by Olympus (jointly, the "Olympus Representative") (individually,
a "Representative and collectively, the "Representatives"). The
Representatives designated by Stratus and Olympus are set forth opposite such
Partner's name below:
Partner Initial Representative
- ------ ----------------------
Stratus William H. Armstrong, III
Stratus J.B. Brown
Olympus Hal R. Hall
Olympus Greg Adair
Olympus and Stratus may appoint alternates for the Representatives appointed
by it, which alternates shall have all the powers of the Representatives in
their absence or inability to serve. Olympus hereby appoints Ron J. Hoyl as
an alternate Representative. Stratus hereby appoints John E. Baker as an
alternate Representative. Olympus and Stratus may change its designated
Representatives effective upon written notice from Olympus or Stratus
designating such Representative to the other Partners. One of the
Olympus Representatives shall serve as Chairman of the Management Committee
and shall set the agenda for such meetings.
(b) The Representatives shall meet quarterly (or more often as the
Management Committee may reasonably determine) in the offices of the
Partnership or by telephone conference, unless the Representatives jointly
agree
<PAGE> 12
that the meeting is unnecessary or that a different schedule or
location for the meeting is appropriate, to discuss current material
management issues (but not day-to-day operations matters which are in
accordance with the operation parameters set forth in the Business Plan,
Operating Budget or otherwise set forth in writing) or Major Decisions. At
each meeting the Representatives shall each receive one (1) vote. All action
taken by the Management Committee shall require the approval or consent of at
least three (3) Representatives except Major Decisions which require unanimous
consent as described in Section 4.3 below. Representatives may bring to any
meeting such employees, agents, professionals and advisors as they deem
necessary or appropriate to assist them at such meeting. A quorum shall
consist of at least one Stratus Representative and one Olympus
Representative.
(c) The Financial Partner, at the direction of the Management
Committee, shall be authorized and empowered to (i) make all day-to-day
management decisions (provided that such decisions are consistent with the
operation parameters set forth in the Business Plan, Operating Budget or
otherwise in writing) except for Major Decisions, (ii) direct the Operating
Partner, (iii) perform all acts and enter into and perform all contracts
and other undertakings that the Financial Partner may, in the exercise of
its reasonable discretion, deem necessary, advisable, appropriate or
incidental thereto and (provided that the performance of such acts are
consistent with the operation parameters set forth in the Business Plan,
Operating Budget or otherwise in writing), (iv) terminate the property
manager in the event of a default in the Management Standard (as that term
is defined in the Management Agreement), provided, if the property manager
is terminated, then the Partnership (as a Major Decision) shall designate a
successor property manager.
4.3 Major Decisions. All Major Decisions shall be made by both the Stratus
Representatives and the Olympus Representatives. Accordingly, neither Stratus
nor Olympus, on behalf of the Management Committee, shall have the right or
the power to make any binding commitment on behalf of the Partnership in
respect of a Major Decision unless and until all of the Representatives have
authorized the same in writing.
4.4 Budgets and Reports.
(a) By November 1st of each calendar year hereafter during the term
hereof, the Operating Partner shall prepare a revised Operating Budget and the
Business Plan for the operation of the Partnership for the next succeeding
calendar year of the Partnership. The Management Committee shall have thirty
(30) days after receipt thereof to either approve the submitted Business Plan
and Operating Budget or respond with required changes to same. A copy of the
revised Business Plan of the Partnership approved by the Management Committee
as of the Effective Date is attached hereto as Exhibit A and a copy of the
revised Operating Budget of the Partnership approved by the Management
Committee shall be attached hereto as Exhibit B within sixty (60) days
after the Effective Date.
<PAGE> 13
(b) The Operating Partner agrees to use diligence and to employ all
reasonable efforts to ensure that the actual costs of operating the
Partnership shall not exceed the Operating Budget, either in total or for
any one accounting category. The Operating Partner shall secure the
written approval of the Management Committee for any expenditure that
(i) exceeds fifteen percent (15%) of the annual budgeted amount for the
Partnership in any one accounting category on such Operating Budget or
(ii) exceeds ten percent (10%) of the annual budgeted amount for the
Partnership in all accounting categories of the Operating Budget. During
each applicable calendar year, the Operating Partner agrees to promptly
inform the Management Committee of any major increases in costs and
expenses or any major decreases in revenue that were not foreseen
during the budget preparation period and thus were not reflected in the
Operating Budget.
(c) The Operating Partner shall also submit any additional financial
or operational reports as the Financial Partner may from time to time
reasonably request.
4.5 Powers of the Operating Partner. Subject to Section 4.3, the
Operating Partner shall have the duties, rights and obligations to implement
the operations of the Partnership as described in the Business Plan,
Operating Budget or approved in writing by the Management Committee. Without
limiting the generality of Section 4.1, but subject to Section 4.3, the
Operating Partner, acting on behalf of the Partnership, shall oversee the
activities of property manager, or, if the Management Agreement is terminated,
until a successor property manager is appointed, perform the duties, rights
and obligations of the property manager; provided, however, neither the
Operating Partner nor the property manager shall take any action
that has a material economic affect on the Partnership without the prior
approval of the Management Committee, including, without limitation,
approving the form and substance of all contracts, loan documents or other
documents necessary to operate the business of the Partnership.
4.6 Liability of Partners. The Partners shall be personally liable for
the debts and obligations of the Partnership if (but solely to the extent)
required by applicable law; provided, however, that all such debts and
obligations shall be paid or discharged first with the property of the
Partnership (including insurance proceeds) before the Partners shall be
obligated to pay or discharge any such debt or obligation with its personal
assets. Notwithstanding the preceding sentence, the Partners shall not be
personally liable for any debts or obligations which are nonrecourse or
which, under the terms thereof, do not create or impose such liability.
4.7 Other Activities of Partners. Except as otherwise agreed in writing,
each Partner (i) may carry on and conduct in any way or in any capacity,
including, but not limited to, for such Partner's own right and for such
Partner's own personal account, as a partner in any other partnership, as a
venturer in any joint venture, as a member or manager in any limited liability
company, as an employee, officer, director or stockbroker of any corporation,
or as a participant in any syndicate, pool, trust, association or other
business organization, a business that competes, directly or indirectly,
with the business of the Partnership, (ii) will be free in any capacity to
conduct business activities the same or similar as conducted by the
<PAGE> 14
Partnership and (iii) may make investments in any kind of property. The
Partnership will have absolutely no claim or right to any such business or
assets thereof. Further, the Partnership will have claim to and will own
only those assets contributed to the Partnership or acquired with Partnership
funds or credit. Neither this Agreement nor any principle of law or equity
shall preclude or limit, in any respect, the right of any Partner or any
affiliate thereof to engage in or derive profit or compensation from any
activities or investments, nor give any other Partner any right to
participate or share in such activities or investments or any profit or
compensation derived therefrom.
ARTICLE 5
Exculpation and Indemnity
5.1 Exculpation. Neither the Partners nor any affiliate of the Partners,
nor any officer, director, manager, member, employee, agent, stockholder, or
partner of the Partners or any of its affiliates, shall be liable,
responsible, or accountable in damages or otherwise to the Partnership or any
Partner by reason of, or arising from or relating to the operations, business,
or affairs of, or any action taken or failure to act on behalf of, the
Partnership, except (i) to the extent that such liability is expressly
provided for herein or in any other written agreement executed by any such
Partner or affiliate thereof (including, without limitation, the Contribution
Agreement and/or the Management Agreement) or (ii) to the extent that any of
the foregoing is determined, by a final, nonappealable order of a court of
competent jurisdiction, to have been primarily caused by the gross
negligence, willful misconduct, or bad faith of the person claiming
exculpation.
5.2 Indemnity. The Partnership shall indemnify the Partners, each
affiliate of the Partners, and each officer, director, stockholder, manager,
member, and partner of the Partners or any of its affiliates, and if so
determined by the Partners, each employee or agent of the Partners or any of
its affiliates, against any claim, loss, damage, liability, or expense
(including reasonable attorneys' fees, court costs, and costs of investigation
and appeal) suffered or incurred by any such indemnitee by reason of, or
arising from or relating to the operations, business, or affairs of, or any
action taken or failure to act on behalf of, the Partnership, except to
the extent any of the foregoing (i) is determined by final, nonappealable
order of a court of competent jurisdiction to have been primarily caused by
the gross negligence, willful misconduct, or bad faith of the person claiming
indemnification or constitutes a material breach of any provision of this
Agreement, the Management Agreement or the Contribution Agreement
or (ii) is suffered or incurred as a result of any claim (other than a claim
for indemnification under this Agreement) asserted by the indemnitee as
plaintiff against the Partnership. Unless a determination has been made
(by final, nonappealable order of a court of competent jurisdiction) that
indemnification is not required, the Partnership shall, upon the request
of any indemnitee, advance or promptly reimburse such indemnitee's
reasonable costs of investigation, litigation, or appeal, including
reasonable attorneys' fees; provided, however, that the affected indemnitee
shall, as a condition of such indemnitee's right to receive such
advances and reimbursements, undertake in writing to repay promptly the
Partnership for all such advancements or reimbursements if a court of
competent jurisdiction determines that such indemnitee is not then entitled
to indemnification under this Section 5.2. No Partner shall be
<PAGE> 15
required to
contribute capital in respect of any indemnification claim under this
Section 5.2 unless otherwise provided in any other written agreement to
which such Partner is a party.
ARTICLE 6
Distributions and Allocations
6.1 Distributions. No later than thirty (30) days after the end of each
Distribution Period during which the Partnership has Cash Flow, such Cash
Flow shall be distributed, after the payment of all third party obligations,
to each Partner in proportion to the Sharing Ratios.
6.2 Tax Allocations. For United States federal income tax purposes,
allocations of items of income, gain, loss, deduction, expense, and credit
for each fiscal year of the Partnership shall be in accordance with each
Partner's economic interest in the respective
item, as determined by the Management Committee pursuant to Section 704(b)
of the Code, and the regulations promulgated thereunder and subject to the
requirements of Section 704(c) of the Code and the regulations promulgated
thereunder. Unless the Management Committee determines otherwise,
allocations shall be made to each Partner in the same manner as such Partner
(i) would be required to contribute to the Partnership or (ii) would receive
as distributions if the Partnership were to liquidate the assets of the
Partnership at their book value and distribute the proceeds in accordance
with Section 6.1; provided, however, that if any such allocation is not
permitted by applicable law, the Partnership's subsequent income, gain, loss,
deduction, expense and credit shall be allocated among the Partners so as to
reflect as nearly as possible the allocation used in computing capital
accounts.
ARTICLE 7
Admissions, Transfers and Withdrawals
7.1 Admission of New Partners. After the Effective Date, new Partners may
be admitted to the Partnership only with the written consent of, and upon
such terms and conditions as are approved by the unanimous approval of the
Management Committee. No admission of any new Partner shall cause the
Partner's interest in Partnership allocations, distributions and capital
to be less than one percent (1%), and no Partner's Sharing Ratio in the
Partnership shall be reduced or diluted in connection with any such admission
of any new Partner unless approved in writing by such Partner or unless
otherwise provided in any other written agreement to which such Partner
is a party.
7.2 Transfer of Partnership Interests. No Partner may transfer or encumber
all or any portion of such Partner's interest in the Partnership without the
prior written consent of the Management Committee; provided, however, that
Olympus may transfer all or any portion of its interest in the Partnership to
an Affiliate of Olympus Real Estate Corporation without the consent of Stratus,
and provided, further, that Stratus may transfer all or any portion of its
interest in the Partnership to a wholly owned subsidiary of Stratus Properties
Inc. without the
<PAGE> 16
consent of Olympus. Additionally, any interest in the
Partnership held by Olympus or its Affiliates may be transferred in the exercise
of rights of the limited partners of Olympus Real Estate Fund II, L.P.
("Fund II") to remove the general partner under the limited partnership
agreement of Fund II.
7.3 Buy/Sell Option.
(a) In the event of a Deadlock at any time during the term of the
Partnership, either Partner may exercise a "buy-sell" right (the "Buy-Sell")
as follows: either Partner (the "Offeror") exercising such Buy-Sell (A)
shall deliver to the other Partner (the "Offeree") a written notice
(the "Buy/Sell Offer") stating the Offeror's exercise of such right and
setting forth the Buy/Sell Offer and a description of any negotiations or
discussions with third parties that Offeror may have had with respect to the
sale of the Partnership Interest and the Business, which Buy/Sell Offer
shall represent the dollar amount (without reduction for any deemed or
imputed expenses of sale) that the Offeror would be willing to pay to
the Partnership in cash for the Business (the "Offer Amount") and
(B) simultaneously with the delivery of the Buy/Sell Offer, shall deliver
into escrow with a title insurance company located in Dallas, Texas
selected by the Offeror (the "Escrow Agent"), a good faith deposit in
the amount of the Offer Deposit. The Offeror hereby instructs the
Escrow Agent that the Escrow Agent shall either (i) in the event the
Offeree elects to sell its interest in the Partnership (the "Partnership
Interest") in accordance with the terms hereof, apply such Offer Deposit to
the purchase price as of the Buy/Sell Closing Date (as hereinafter defined)
or if the Offeror fails to timely purchase the Offeree's Partnership
Interest in accordance with the terms hereof, disburse such Offer Deposit
in accordance with Section 7.3(g), or (ii) in the event the Offeree elects
to purchase the Offeror's Partnership Interest, disburse such Offer
Deposit in accordance with Section 7.3(e).
(b) The notice transmitting the Buy/Sell Offer shall be deemed to
constitute an offer by the Offeror to purchase the Offeree's Partnership
Interest for a price equal to the Receipt Amount. "Receipt Amount" shall
mean the aggregate amount which the Partner whose Partnership Interest is
to be transferred, whether Offeror or Offeree, would receive as a
Partnership distribution if (i) the Business were sold for cash for the
Offer Amount, (ii) all debts and liabilities of the Partnership but without
taking into account any deemed or imputed expenses which would occur for
the sale to third parties (e.g. imputed brokerage fees, etc.) were paid in
full from such proceeds and (iii) prorations were made with respect to all
current assets and current liabilities of the Partnership.
(c) The Offeree shall have forty-five (45) days from the date of the
Buy/Sell Offer to elect, by written notice to the Offeror signed by the
Partner constituting the Offeree, whether to sell such Offeree's Partnership
Interest to the Offeror or whether to purchase (or cause its designee to
purchase) the Offeror's Partnership Interest in the Partnership (the
"Buy/Sell Election Period").
<PAGE> 17
(d) If the Offeree fails to make an election within such forty-five (45)
day period, or fails to comply with subsection (e) below, such Offeree shall
be conclusively deemed to have elected to sell its Partnership Interest in
the Partnership to the Offeror according to the terms of this Section 7.3.
(e) If the Offeree makes an election to purchase within such forty-five
(45) day period by sending written notice to the Offeror as required by
subsection (c), and by delivering into escrow with the Escrow Agent a good
faith deposit in the amount of the Offer Deposit, then, the original Offeror
shall be conclusively deemed to have elected to sell its Partnership Interest
in the Partnership to the Offeree for a price equal to the applicable Receipt
Amount. In the event the Offeree timely makes an election to purchase, the
Offeree hereby instructs the Escrow Agent that the Escrow Agent shall (i)
return the Offeror's Offer Deposit to the Offeror and (ii) hold the
Offeree's Offer Deposit and shall either apply such Offeree's Offer Deposit
to the purchase price or disburse such Offeree's Offer Deposit in accordance
with Section 7.3(g).
(f) The Partner (the "Buy/Sell Purchaser") that is obligated to
purchase the Partnership Interest in the Partnership of the other Partner
(the "Buy/Sell Seller") pursuant to this Section 7.3 shall fix a closing
date (the "Buy/Sell Closing Date") for such purchase that is not a Business
Day that is not later than forty-five (45) days after the expiration of the
Buy/Sell Election Period, by written notice to the Buy/Sell Seller at least
fifteen (15) days in advance of Buy/Sell Closing Date. The closing of such
purchase shall take place on the Buy/Sell Closing Date at the address of
the Escrow Agent. At such closing, the Partner constituting the Buy/Sell
Seller shall execute and deliver to the Buy/Sell Purchaser (or its
designee) such instruments of assignment, bills of sale, amendments to this
Agreement and other instruments and documents as the Buy/Sell Purchaser and
the Buy/Sell Seller (or such designee) may reasonably require for the
conveyance to such Buy/Sell Purchaser (or such designee) of all of the
Buy/Sell Seller's right, title and interest in and to the Buy/Sell Seller's
Partnership Interest in the Partnership against receipt by the Buy/Sell
Seller of a wire transfer of immediately available funds in an amount
equal to the applicable Receipt Amount; and the Buy/Sell Seller hereby
irrevocably constitutes and appoints the Buy/Sell Purchaser as its
attorney-in-fact to execute, acknowledge and deliver any of such
instruments or documents. Each of the Buy/Sell Seller and Buy/Sell
Purchaser shall each bear their respective closing costs and expenses
(including, but not limited to, all attorney's fees and costs and all
applicable transfer and income taxes) incurred in the purchase or sale
of the Buy/Sell Seller's Partnership Interest in the Partnership
hereunder. Such sale of such Partnership Interest shall be made without
representation, warranty or recourse, except for representations and
warranties in form and substance reasonably acceptable to the Buy/Sell
Purchaser and the Buy/Sell Seller with respect to existence, good standing,
title, no encumbrance, authority, authorization, no conflicts, and such
other customary matters as may be reasonably requested by the Buy/Sell
Purchaser. If the Buy/Sell Offer or the closing of the purchase
contemplated thereby causes the maturity of any Partnership indebtedness
to be accelerated, the
<PAGE> 18
Buy/Sell Seller shall be released from liability
resulting from such accelerated indebtedness and the Buy/Sell Purchaser
shall pay such indebtedness in full (including without limitation, any
accrued but unpaid interest and any prepayment premiums or penalties)
at Buy/Sell Purchaser's sole cost and expense and shall indemnify and
hold Buy/Sell Seller harmless from and against any losses, damages,
costs or expenses (including attorneys' fees) incurred by Buy/Sell
Seller, or the Buy/Sell Seller's Affiliates, employees, agents,
representatives, consultants, attorneys, fiduciaries, servants, officers,
directors, partners, predecessors, successors and assigns and Affiliates
of the foregoing (the "Indemnified Parties"), as a direct or indirect result
thereof, other than any losses, damages, costs or expenses (including
attorneys' fees) incurred by any of the Indemnified Parties as a direct
result of such Indemnified Party's bad conduct. As a precondition to the
closing of the Buy/Sell transaction, the Buy/Sell Seller shall be released
from liability from any indebtedness of the Partnership, including,
without limitation, the release of any guaranty and collateral pledged to
secure any guaranty debt. Anything contained in this Agreement to the
contrary notwithstanding, in the event the sale of the Partnership Interest
is not consummated because of a default on the part of Buy/Sell Seller or
if a condition precedent cannot be fulfilled because Buy/Sell Seller
frustrated such fulfillment, Buy/Sell Purchaser may, at its election, pursue
an action for specific performance and/or costs and expenses.
(g) In the event that the Buy/Sell Purchaser defaults in its obligation
to purchase the Partnership Interest of the Buy/Sell Seller in the Partnership
on the Buy/Sell Closing Date, the Buy/Sell Seller shall have the right to
(i) solicit third party offers on behalf of the Partnership for the purchase
of the Business, to accept the best such offer, as determined by the Buy/Sell
Seller in its sole and absolute discretion, and to consummate the sale of
the Business to such third party pursuant to such offer, (ii) purchase the
Partnership Interest of the Buy/Sell Purchaser for a purchase price equal to
ninety percent (90%) of the aggregate Partnership distributions that the
Buy/Sell Purchaser would be entitled to receive under this Agreement if the
Business were sold for cash for the Offer Amount and all debts and
liabilities of the Partnership (excluding imputed sale expenses) were paid
in full from such proceeds and proration were made with respect to all
current assets and current liabilities of the Partnership, (iii)
specifically enforce the Buy/Sell Purchaser's obligation to purchase the
Partnership interest of the Buy/Sell Seller, and (iv) notify the Escrow
Agent holding the Offer Deposit of the Buy/Sell Purchaser immediately to
deliver such Offer Deposit to the Buy/Sell Seller as liquidated damages
for the breach by such Buy/Sell Purchaser (and the Buy/Sell Purchaser
covenants and agrees to cause, and hereby instructs, the Escrow Agent to
deliver such Offer Deposit to the Buy/Sell Seller). The delivery of the
Offer Deposit to the Buy/Sell Seller shall not constitute a return of
capital. The Buy/Sell Purchaser hereby constitutes and appoints the
Buy/Sell Seller as its attorney-in-fact to execute and deliver on behalf of
the Buy/Sell Purchaser all documents as may be reasonably required in
connection with the delivery by the Escrow Agent of the Offer Deposit to
the Buy/Sell Seller.
<PAGE> 19
7.4 No Substituted Partners. Except as permitted by Section 7.1, no
transferee of any partnership interest in the Partnership may become a
substituted Partner. Rather, any transferee of any Partnership interest of
a Partner shall be entitled solely to rights as assignee of the rights to
receive all or part of the share of the income, gains, losses, deductions,
expenses, credits, distributions, or returns of capital to which his or its
transferor would otherwise be entitled with respect to the Partnership
interest so transferred.
7.5 Withdrawal of Partners. Except as permitted by Section 7.2 hereof, no
Partner shall have any right to withdraw or resign from the Partnership
without the unanimous consent of the Management Committee.
ARTICLE 8
General Accounting Provisions and Books
8.1 Books of Account; Tax Returns. The Financial Partner shall prepare and
file, or shall cause to be prepared and filed, all United States federal,
state, and local income and other tax returns required to be filed by the
Partnership and shall keep or cause to be kept complete and appropriate
records and books of account in which shall be entered all such transactions
and other matters relative to the Partnership's operations, business and
affairs as are usually entered into records and books of account that are
maintained by persons engaged in business of like character or are required
by the Act. Except as otherwise expressly provided herein, such books and
records shall be maintained in accordance with the basis utilized in
preparing the Partnership's United States federal income tax returns, which
returns, if allowed by applicable law, may upon the approval of the Management
Committee be prepared on an accrual basis.
8.2 Place Kept; Inspection. The books and records shall be maintained at
the principal place of business of the Partnership, and all such books and
records shall be available for inspection and copying at the reasonable
request, and at the expense, of any Partner during the ordinary business hours
of the Partnership.
8.3 Tax Matters Partner. The Financial Partner shall be the tax matters
partner of the Partnership and, in such capacity, shall exercise all rights
conferred, and perform all duties imposed, upon a tax matters partner under
Sections 6221 through 6233 of the Code and the regulations promulgated
thereunder; provided, however, that the Operating Partner shall have the right
to review and approve any actions taken by the Financial Partner in its
capacity as the tax matters partner. Notwithstanding the foregoing, the
Financial Partner shall have the right to select the methodology to be used
pursuant to Section 704(c) of the Code subject to the Operating Partner's
consent, which consent shall not be unreasonably withheld.
<PAGE> 20
ARTICLE 9
Amendments and Waivers
9.1 Amendments and Waivers. Except as expressly provided in Section 9.2
of this Agreement, the Management Committee may amend or waive any provision
of this Agreement which merely (i) corrects an error or clarifies an
ambiguity in this Agreement, (ii) does not adversely affect the Financial
Partner or the Operating Partner in any material respect or (iii) changes
Schedule I to this Agreement to reflect the Sharing Ratios or Partnership
Interests of the Partners as from time to time amended in accordance with
this Agreement. The Management Committee shall amend Schedule I to this
Agreement to reflect any additional Capital Contributions. The Partners
agree to look to the books and records of the Partnership for determination
of the actual amount of Capital Contributions made to the Partnership, as
provided in Section 3.1 of this Agreement.
9.2 Certain Other Amendments. Notwithstanding any provision to the
contrary contained herein, no amendment to or waiver of any provision of
this Agreement shall be effective against a given Partner without the consent
or vote of such Partner if such amendment or waiver would (i) cause the
Partnership to fail to be treated as a joint venture under the Act, (ii) change
Section 3.1 of this Agreement to increase a Partner's obligation to contribute
to the capital of the Partnership, (iii) change Section 5.1 or 5.2 of this
Agreement to affect adversely any Partner's rights to exculpation or
indemnification, (iv) change Section 6.1 or 6.2 of this Agreement to affect
adversely the participation of such Partner in the income, gains, losses,
deductions, expenses, credits, capital or distributions of the Partnership
(excluding any amendments to Schedule I hereof to accurately reflect the
Capital Account balances, Contribution Percentages, Unreturned Capital
Contributions, Sharing Ratios and/or Partnership Interests of the Partners
following any failure of a Defaulting Partner to timely repay the Default
Amount to the Non-Defaulting Partners, as further described in Section 3.2(c)
or any transfer of a Partnership Interest expressly permitted pursuant to
the provisions of Section 7.2 hereof but including any amendments to admit
one or more new Partner or Partners), (v) change Section 7.1 of this
Agreement to affect adversely the anti-dilution rights of such Partner,
(vi) change the percentage of Partners necessary for any consent or vote
required hereunder to the taking of any action or (vii) amend Section 9.2
of this Agreement.
<PAGE> 21
ARTICLE 10
Dissolution and Termination
10.1 Dissolution. The Partnership shall be dissolved upon the first to
occur of the following events:
(i) the election of both Partners to dissolve the
Partnership;
(ii) the election of the Financial Partner to dissolve the
Partnership if all or substantially all Partnership assets shall have been
sold or disposed of or shall consist of cash;
(iii) both the Partners shall have withdrawn from the
Partnership within the meaning of the Act, or any other dissolution event
specified in the Act shall have occurred;
(iv) the Financial Partner shall have (A) made a general
assignment for the benefit of creditors, (B) filed a voluntary petition in
bankruptcy, (C) filed a petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any bankruptcy or debtor relief law,
(D) filed an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any bankruptcy or
insolvency proceeding brought against it or (E) sought, consented to, or
acquiesced in the appointment of a trustee, receiver or liquidator
of the Financial Partner or of all or any substantial part of its property;
(v) if within sixty (60) days after the commencement of
any proceeding against the Financial Partner seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any bankruptcy or debtor relief law, the proceeding shall not
have been dismissed; or
(vi) if within sixty (60) days after the appointment
(without the Financial Partner's consent or acquiescence) of a trustee,
receiver or liquidator of the Financial Partner or of all or any substantial
part of its property, the appointment shall not have been vacated or stayed
if within sixty (60) days after the expiration of any such stay, the
appointment shall not have been vacated. Notwithstanding the foregoing, the
Partnership shall not be dissolved upon the occurrence of an event specified
in (iii) through (vi) of this Section 10.1 if within ninety (90) days after
such occurrence a majority in interest (under applicable federal income tax
principles) of the remaining Partners agree in writing to continue the
business of the Partnership and to the appointment, effective as of the date
of withdrawal, of a successor Financial Partner.
10.2 Accounting on Dissolution. Following the dissolution of the
Partnership pursuant to Section 10.1 of this Agreement, the books of the
Partnership shall be closed, and a
<PAGE> 22
proper accounting of the Partnership's
assets, liabilities and operations shall be made by the Financial Partner,
all as of the most recent practicable date. The Financial Partner shall
serve as the liquidator of the Partnership unless it has been removed or
unless it otherwise fails or refuses to serve. If the Financial Partner
does not serve as the liquidator, one or more other persons or entities
may be selected to serve by the Operating Partner. The expenses incurred
by the liquidator in connection with the dissolution, liquidation and
termination of the Partnership shall be borne by the Partnership.
10.3 Termination. As expeditiously as practicable, but in no event later
than one year (except as may be necessary to realize upon any material
amount of property that may be illiquid), after the dissolution of the
Partnership pursuant to Section 10.1 of this Agreement, the liquidator
shall cause the Partnership to pay the current liabilities of the Partnership
and (i) establish a reserve fund (which may be in the form of cash or other
property, as the liquidator shall determine) for any and all other
liabilities, including contingent liabilities, of the Partnership in a
reasonable amount determined by the liquidator to be appropriate for such
purposes or (ii) otherwise make adequate provision for such other liabilities.
To the extent that cash required for the foregoing purposes is not otherwise
available, the liquidator may sell property, if any, of the Partnership for
cash. Thereafter, all remaining cash or other property, if any, of the
Partnership shall be distributed to the Partners in accordance with the
provisions of Section 6.1 of this Agreement. The Partners must agree on
the value and distributee for all in-kind distributions or else all
property must be sold and the proceeds distributed in accordance herewith.
At the time final distributions are made in accordance with Section 6.1 of
this Agreement, if applicable, a certificate of cancellation shall be filed
in accordance with the Act, and the legal existence of the Partnership shall
terminate, but if at any time thereafter any reserved cash or property is
released because in the judgment of the liquidator the need for such reserve
has ended, then such cash or property shall be distributed in accordance
with Section 6.1 of this Agreement.
10.4 No Negative Capital Account Obligation. Notwithstanding any other
provision of this Agreement to the contrary, in no event shall any Partner
who has a negative capital account upon final distribution of all cash and
other property of the Partnership be required to restore such negative
account to zero.
10.5 No Other Cause of Dissolution. The Partnership shall not be dissolved,
or its legal existence terminated, for any reason whatsoever except as
expressly provided in this Article 10.
10.6 Merger. Subject to the rights of the Partners pursuant to Section 9.2,
the Partnership may, with the written consent of the Financial Partner acting
with the unanimous approval of the Management Committee, adopt a plan of
merger and engage in any merger permitted by applicable law.
<PAGE> 23
ARTICLE 11
Miscellaneous
11.1 Waiver of Partition. Each Partner hereby irrevocably waives any
and all rights that he or it may have to maintain an action for partition of
any of the Partnership's property.
11.2 Entire Agreement. This Agreement constitutes the entire agreement
among the Partners with respect to the subject matter hereof and supersedes
any prior agreement or understanding among them with respect to such subject
matter.
11.3 Severability. If any provision of this Agreement, or the application
of such provision to any person or circumstance, shall be held invalid under
the applicable law of any jurisdiction, the remainder of this Agreement or the
application of such provision to other persons or circumstances or in other
jurisdictions shall not be affected thereby. Also, if any provision of this
Agreement is invalid or unenforceable under any applicable law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such law. Any provision
hereof that may prove invalid or unenforceable under any law shall not affect
the validity or enforceability of any other provision hereof.
11.4 Notices. All notices, requests, demands, and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
sent by overnight courier, hand delivered, mailed (first class registered
mail or certified mail, postage prepaid), or sent by telex or telecopy if to
the Partners, at the addresses or telex or facsimile numbers set forth
on Schedule I hereto, and if to the Partnership, at the address of its
principal place of business at 200 Crescent Court, Suite 1650, Dallas, Texas
75201 (fax 214/740-7340), or to such other address as the Partnership or any
Partner shall have last designated by notice to the Partnership and all other
parties hereto in accordance with this Section 11.4. Notices sent by hand
delivery shall be deemed to have been given when received; notices mailed in
accordance with the foregoing shall be deemed to have been given three days
following the date so mailed; notices sent by telex or telecopy shall be
deemed to have been given when electronically confirmed; and notices sent by
overnight courier shall be deemed to have been given on the next business day
following the date so sent.
11.5 Governing Laws. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Texas (without regard
to principles of conflicts of laws).
11.6 Successors and Assigns. Except as otherwise specifically provided, this
Agreement shall be binding upon and inure to the benefit of the Partners and
their respective successors and permitted assigns.
11.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall constitute one and the same instrument.
<PAGE> 24
11.8 Headings. The section and article headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or affect the
meaning or interpretation of any provision hereof.
11.9 Other Terms. All references to "Articles" and "Sections" contained in
this Agreement are, unless specifically indicated otherwise, references to
articles, sections, subsections, and paragraphs of this Agreement. Whenever
in this Agreement the singular number is used, the same shall include the
plural where appropriate (and vice versa), and words of any gender shall
include each other gender where appropriate. As used in this Agreement,
the following words or phrases shall have the meanings indicated: (i) "or"
shall mean "and/or", (ii) "day" shall mean a calendar day, (iii)
"including" or "include" shall mean "including without limitation", and
(iv) "law" or "laws" shall mean statutes, regulations, rules, judicial
orders, and other legal pronouncements having the effect of law. Whenever
any provision of this Agreement requires or permits a Partner to take or
omit to take any action, or make or omit to make any decision, unless the
context clearly requires otherwise, such provision shall be interpreted to
authorize an action taken or omitted, or a decision made or omitted, by the
Partner acting alone and in good faith.
11.10 Power of Attorney. By execution of this Agreement, the Operating
Partner hereby makes, constitutes and appoints the Financial Partner, with
full power of substitution and re-substitution in the Financial Partner
(in its sole discretion), such Partner's true and lawful attorney-in-fact
(the "Attorney") for and in the Operating Partner's name, place and stead
and for its use and benefit, to prepare, execute, certify, acknowledge,
swear to, file, deliver or record any or all of the following, authorized
pursuant to the terms of this Agreement:
(i) any agreement, certificate, report, consent,
instrument, filing or writing made by or relating to the Partnership that
the Attorney deems necessary, desirable, or appropriate for the lawful
purpose of (A) organizing or continuing the Partnership under the Act,
(B) admitting Partners with respect to the Partnership, (C) pursuing
or effecting any rights or remedies available under this Agreement or
otherwise with respect to a defaulting Partner, (D) qualifying the
Partnership to do business in any jurisdiction and (E) complying with any
law, agreement or obligation applicable to the Partnership;
(ii) any agreement, certificate, report, consent,
instrument, filing or writing made by or relating to the Partnership
necessary, desirable or appropriate to effectuate the business purposes of,
or the dissolution, termination or liquidation of, the Partnership pursuant
to applicable law or the respective terms of this Agreement; and
(iii) any amendment to or modification or restatement of
this Agreement or any other agreement, certificate, report, consent,
instrument, filing or writing of any type described in subsection (i)
or (ii) of this Section 11.10, provided that any amendment of or
modification to this Agreement shall first have been adopted in accordance
with Article 9 of this Agreement.
<PAGE> 25
11.11 Transfer and Other Restrictions. INTERESTS IN THE
PARTNERSHIP HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD UNLESS SUCH
INTERESTS HAVE BEEN REGISTERED UNDER SUCH ACT OR UNLESS AN
EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. INTERESTS IN THE
PARTNERSHIP ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, VOTING
AND OTHER TERMS AND CONDITIONS SET FORTH IN (1) ARTICLE 7 AND
(2) VARIOUS INVESTMENT AGREEMENTS BETWEEN OR AMONG CERTAIN
PARTNERS. COPIES OF SUCH AGREEMENTS MAY BE OBTAINED FROM THE
PARTNERSHIP OR THE FINANCIAL PARTNER AT THEIR PRINCIPAL EXECUTIVE
OFFICES.
<PAGE> 26
IN WITNESS WHEREOF, the undersigned have executed this instrument effective
as of the Effective Date.
FINANCIAL PARTNER:
OLY ABC WEST I, L.P.,
a Texas limited partnership
By: Oly Texas GP II, LLC,
a Texas limited liability company,
its sole general partner
By:
Name:
Title:
OPERATING PARTNER:
STRATUS ABC WEST I, L.P.,
a Texas limited partnership
By: STRS L.L.C.,
a Delaware limited liability company,
General Partner
By: Stratus Properties Inc.,
a Delaware corporation,
its sole member
By:/s/ William H. Armstrong,III
-----------------------------
William H. Armstrong, III,
President & CEO
Exhibit 21.1
List of Subsidiaries of
STRATUS PROPERTIES INC.
Name Under Which
Entity Organized It Does Business
- ------------------------------------- ---------- ------------------
Stratus Properties Operating Co. L.P. Delaware Same
Circle C Land Corp. Texas Same
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into Stratus Properties Inc.'s
previously filed Registration Statements on Forms S-8 (File Nos. 33-78798,
333-31059 and 333-52995).
/s/ Arthur Andersen LLP
Austin, Texas
March 10, 2000
Exhibit 24.1
Stratus Properties Inc.
Secretary's Certificate
I, Douglas N. Currault II, Assistant Secretary of Stratus
Properties Inc. (the "Corporation"), a Delaware corporation, do
hereby certify that the following resolution was duly adopted by
the Board of Directors of the Corporation at a meeting held on
February 10, 1993, and that such resolution has not been amended,
modified or rescinded and is in full force and effect:
RESOLVED, That any report, registration statement
or other form filed on behalf of this corporation
pursuant to the Securities Exchange Act of 1934, or any
amendment to any such report, registration statement or
other form, may be signed on behalf of any director or
officer of this corporation pursuant to a power of
attorney executed by such director or officer.
IN WITNESS WHEREOF, I have hereunto set my name and the seal
(Seal) /s/ Douglas N. Currault II
---------------------------
Douglas N. Currault II
Assistant Secretary
F5002516.1
Exhibit 24.2
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer
and/or a member of the Board of Directors of Stratus Properties Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and appoint
WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him,in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year ended
December 31, 1999, and any amendment or amendments thereto and any other
document in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the foregoing
as the undersigned might or could do personally or in the capacity or capacities
as aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 18th day of February, 2000.
/s/ Robert L. Adair III
- --------------------------
Robert L. Adair III
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer
and/or a member of the Board of Directors of Stratus Properties Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and appoint
WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him,in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year ended
December 31, 1999, and any amendment or amendments thereto and any other
document in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the foregoing
as the undersigned might or could do personally or in the capacity or capacities
as aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 18th day of February, 2000.
/s/ William H. Armstrong III
- ------------------------------
William H. Armstrong III
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer
and/or a member of the Board of Directors of Stratus Properties Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and appoint
WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him,in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year ended
December 31, 1999, and any amendment or amendments thereto and any other
document in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the foregoing
as the undersigned might or could do personally or in the capacity or capacities
as aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 18th day of February, 2000.
/s/ James C. Leslie
- -------------------
James C. Leslie
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer
and/or a member of the Board of Directors of Stratus Properties Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and appoint
WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him,in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year ended
December 31, 1999, and any amendment or amendments thereto and any other
document in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the foregoing
as the undersigned might or could do personally or in the capacity or capacities
as aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 18th day of February, 2000.
/s/ Michael D. Madden
- -----------------------
Michael D. Madden
POWER OF ATTORNEY
BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer
and/or a member of the Board of Directors of Stratus Properties Inc., a Delaware
corporation (the "Company"), does hereby make, constitute and appoint
WILLIAM H. ARMSTRONG III and KENNETH N. JONES, and each of them acting
individually, his true and lawful attorney-in-fact with power to act without
the others and with full power of substitution, to execute, deliver and file,
for and on behalf of him,in his name and in his capacity or capacities as
aforesaid, an Annual Report of the Company on Form 10-K for the year ended
December 31, 1999, and any amendment or amendments thereto and any other
document in support thereof or supplemental thereto, and the undersigned hereby
grants to said attorneys, and each of them, full power and authority to do and
perform each and every act and thing whatsoever that said attorney or attorneys
may deem necessary or advisable to carry out fully the intent of the foregoing
as the undersigned might or could do personally or in the capacity or capacities
as aforesaid, hereby ratifying and confirming all acts and things which said
attorney or attorneys may do or cause to be done by virtue of this Power of
Attorney.
EXECUTED this 18th day of February, 2000.
/s/ C. Donald Whitmire, Jr.
- ---------------------------
C. Donald Whitmire, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary finacial information extracted from Stratus
Properties Inc.'s financial statements at December 31, 1999 and the year 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> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,964
<SECURITIES> 0
<RECEIVABLES> 149
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,648
<PP&E> 91,873
<DEPRECIATION> 209
<TOTAL-ASSETS> 115,672
<CURRENT-LIABILITIES> 2,437
<BONDS> 16,562
10,000
0
<COMMON> 143
<OTHER-SE> 66,697
<TOTAL-LIABILITY-AND-EQUITY> 115,672
<SALES> 14,676
<TOTAL-REVENUES> 14,676
<CGS> 7,819
<TOTAL-COSTS> 7,819
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 789
<INCOME-PRETAX> 2,694
<INCOME-TAX> 130
<INCOME-CONTINUING> 2,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,871
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.18
</TABLE>
