SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2001
Commission File Number: 0-19989
Stratus Properties Inc.
Incorporated in Delaware 72-1211572
(IRS Employer Identification No.)
98 San Jacinto Blvd., Suite 220, Austin, Texas 78701
Registrant's telephone number, including area code: (512)478-5788
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _
On March 31, 2001, there were issued and outstanding 14,298,270
shares of the registrant's Common Stock, par value $0.01 per
share.
STRATUS PROPERTIES INC.
TABLE OF CONTENTS
Page
Part I. Financial Information
Financial Statements:
Condensed Balance Sheets 3
Statements of Income 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Remarks 9
Report of Independent Public Accountants 9
Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II. Other Information 14
Signature 15
Exhibit Index E-1
2
STRATUS PROPERTIES INC.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
STRATUS PROPERTIES INC.
CONDENSED BALANCE SHEETS (Unaudited)
March 31, December 31,
2001 2000
--------- ---------
(In Thousands)
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $1.2 million and
$0.6 million, respectively $ 1,434 $ 7,996
Accounts receivable:
Property sales 10 43
Other 547 553
Prepaid expenses 221 218
--------- ---------
Total current assets 2,212 8,810
Real estate and facilities, net 99,497 93,005
Investment in and advances to
unconsolidated affiliates 7,094 7,596
Other assets 4,774 2,482
--------- ---------
Total assets $ 113,577 $ 111,893
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 2,575 $ 1,920
Accrued interest, property taxes and other 435 1,486
--------- ---------
Total current liabilities 3,010 3,406
Long-term debt 11,640 8,440
Other liabilities 7,827 8,967
Mandatorily redeemable preferred stock 10,000 10,000
Stockholders' equity 81,100 81,080
--------- ---------
Total liabilities and stockholders' equity $ 113,577 $ 111,893
========= =========
The accompanying notes are an integral part of these financial
statements.
3
STRATUS PROPERTIES INC.
STATEMENTS OF INCOME (Unaudited)
Three Months Ended
March 31,
---------------------
2001 2000
------- --------
(In Thousands, Except
Per Share Amounts)
Revenues $ 1,426 $ 2,113
Costs and expenses:
Cost of sales 637 1,654
General and administrative expenses 743 981
-------- --------
Total costs and expenses 1,380 2,635
-------- --------
Operating income (loss) 46 (522)
Interest expense (93) (193)
Other income, net 219 7,805
-------- --------
Income before income taxes and
equity in affiliates 172 7,090
Income tax provision - (40)
Equity in unconsolidated affiliates'
(loss) income (152) 228
-------- --------
Net income $ 20 $ 7,278
======== ========
Net income per share
Basic $ - $0.51
==== =====
Diluted $ - $0.44
==== =====
Average shares outstanding
Basic 14,298 14,288
====== ======
Diluted 16,533 16,635
====== ======
The accompanying notes are an integral part of these financial
statements.
4
STRATUS PROPERTIES INC.
STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended
March 31,
----------------------
2001 2000
-------- --------
(In Thousands)
Cash flow from operating activities:
Net income $ 20 $ 7,278
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization 32 24
Cost of real estate sold 563 300
Recognition of deferred Circle C municipal
utility reimbursements - (7,430)
Equity in unconsolidated affiliates'
loss (income) 152 (228)
(Increase) decrease in working capital:
Accounts receivable and other 36 888
Accounts payable and accrued liabilities (97) (1,322)
Recognition of deferred revenues, long term
receivable and other (1,361) 567
-------- --------
Net cash (used in) provided by
operating activities (655) 77
-------- --------
Cash flow from investing activities:
Real estate and facilities (7,015) (893)
Investment in Lakeway project (2,000) -
-------- --------
Net cash used in investing activities (9,015) (893)
-------- --------
Cash flow from financing activities:
Net proceeds from credit facility 3,108 185
-------- --------
Net cash provided by financing activities 3,108 185
-------- --------
Net decrease in cash and cash equivalents (6,562) (631)
Cash and cash equivalents at beginning of year 7,996 3,964
-------- --------
Cash and cash equivalents at end of period $ 1,434 $ 3,333
======== ========
The accompanying notes are an integral part of these financial
statements.
5
STRATUS PROPERTIES INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications. Certain prior year amounts have been
reclassified to conform to the year 2001 presentation.
Recent Accounting Pronouncements. In June 1998, the Financial
Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133, as
subsequently amended, is effective for fiscal years beginning
after June 15, 2000 and establishes accounting and reporting
standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability
measured at its fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the
derivative and the resulting designation. Stratus adopted SFAS
133 effective January 1, 2001, with its adoption having no impact
on its financial position or results of operations. Stratus
currently has no derivative instruments, as defined in SFAS 133.
Share Purchase Program. In February 2001, Stratus' Board of
Directors authorized an open market stock purchase program for up
to 1.4 million shares of Stratus' common stock. The purchases
may occur over time depending on many factors, including the
market price of Stratus stock; Stratus' operating results, cash
flow and financial position; and general economic and market
conditions. No purchases have been made under this program
through April 27, 2001.
2. EARNINGS PER SHARE
Following is a reconciliation of net income and weighted average
common shares outstanding for purposes of calculating basic and
diluted net income per share (in thousands, except per share
amounts):
Three Months
Ended March 31,
------------------
2001 2000
------- --------
Basic net income per share of common stock:
Net income $ 20 $ 7,278
======= ========
Weighted average common shares outstanding 14,298 14,288
------- --------
Basic net income per share of common stock $0.00 $0.51
===== =====
Diluted net income per share of common stock:
Net Income $ 20 $ 7,278
Add: Interest expense from assumed conversion
of convertible debt, net of income
tax effect - 80
------- --------
$ 20 $ 7,358
======= ========
Weighted average common shares outstanding 14,298 14,288
Dilutive stock options 523 254
Assumed redemption of preferred stock 1,712 1,712
Assumed redemption of convertible debt - 381
Weighted average common shares outstanding
for purposes of calculating diluted net ------- --------
income per share 16,533 16,635
------- --------
Diluted net income per share $0.00 $0.44
===== =====
Interest accrued on the convertible debt outstanding totaled
approximately $91,000 for the first quarter of 2001 and $81,000
during the first quarter of 2000. Although the debt was
convertible into 429,000 shares in the first quarter of 2001, it
was excluded from the diluted net income per share calculation
because the effect of an assumed redemption of the convertible
debt was anti-dilutive. There have been no dividends accrued on
Stratus' mandatorily redeemable preferred stock through March 31,
2001.
Outstanding options to purchase approximately 284,000 shares
of common stock, at an average exercise price of $6.19 per share
during the first quarter of 2001, and 515,000 shares of common
stock, at an
6
average exercise price of $5.37 per share during the
first quarter of 2000, were not included in the computation of
diluted net income per share. These options were excluded
because their exercise prices were greater than the average
market price for Stratus' common stock during the respective
periods presented.
3. OLYMPUS RELATIONSHIP and INVESTMENT IN UNCONSOLIDATED
AFFILIATES
In May 1998, Stratus and Olympus Real Estate Corporation
(Olympus), 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 redeem the mandatorily
redeemable preferred stock at any time on or after May 22, 2001.
As of March 31, 2001, Stratus had $3.1 million of borrowings
outstanding on the convertible debt facility and Olympus had
invested approximately $13.4 million in joint Stratus/Olympus
projects, as further discussed below.
Stratus has investments in three joint ventures. Stratus
owns a 49.9 percent interest in each joint venture and Olympus
owns the remaining 50.1 percent interest. Accordingly, Stratus
accounts for its investments in the joint ventures utilizing the
equity method of accounting. Stratus develops and manages each
project undertaken by these joint ventures and receives
development fees, sales commissions, and other management fees
for its services.
Stratus' three joint ventures are the Oly Stratus Barton
Creek I Joint Venture (Barton Creek Joint Venture), the Oly
Walden General Partnership (Walden Partnership) and the Stratus
7000 West Joint Venture (7000 West Joint Venture). The Barton
Creek Joint Venture currently consists of two separate
subdivisions, "Wimberly Lane" and "Escala Drive", located in
southwest Austin, Texas. At March 31, 2001 there was one
remaining single-family homesite at the Wimberly Lane subdivision
and 22 remaining single-family homesites at the Escala Drive
subdivision. The Walden Partnership had 491 single-family
homesites available at the Walden on Lake Houston development in
Houston, Texas at March 31, 2001. The 7000 West Joint Venture
consists of two fully constructed and leased 70,000 square foot
office buildings located in the Lantana development in southwest
Austin.
For a detailed discussion of the Olympus alliance and the
initial formation and subsequent transactions of the joint
ventures and partnership, see Notes 2, 3 and 4 of the "Notes To
Financial Statements" included in Stratus' 2000 Annual Report on
Form 10-K. Also refer to "Transactions with Olympus Real Estate
Corporation" and "Capital Resources and Liquidity" included in
Items 7 and 7A. "Management's Discussion and Analysis of
Financial Condition and Results of Operations and Disclosures of
Market Risks" included in Stratus' 2000 Annual Report on Form 10-K.
The Barton Creek Joint Venture distributed approximately $0.7
million to the partners during the first quarter of 2001 ($17.1
million from its inception through March 31, 2001). Stratus'
portion of the distributions, approximately $8.6 million, have
been recorded as repayment of the Barton Creek notes receivable
and related accrued interest ($6.9 million) and a $1.7 million
reduction of its investment in the Barton Creek Joint Venture.
Stratus recorded the entire amount of its portion of the first-
quarter 2001 distribution, approximately $0.4 million, as a
reduction of its investment in the Barton Creek Joint Venture.
All future distributions by the Barton Creek Joint Venture will
reduce Stratus' investment in the joint venture as a return of
partner's capital. No other joint venture made a distribution
during the first quarter of 2001. The summarized unaudited
financial information of Stratus' unconsolidated affiliates is
shown below (in thousands):
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------ --------
Earnings data for the three
months ended March 31, 2001:
Revenues $ 223 $ 437 $ 701 $ 1,361
Operating loss (39) (272) (118) (429)
Net loss (33) (212) (79) (324)
Stratus' equity in net loss (16) (98)a (38) (152)
7
Barton Creek Walden 7000
Joint Venture Partnership West Total
------------- ----------- ------ --------
Earnings data for the three
months ended March 31, 2000:
Revenues $ 3,688 $ 459 $ 169 $ 4,316
Operating income (loss) 913 (218) (349) 346
Net income (loss) 977 (192) (345) 440
Stratus' equity in net income
(loss) 488 (88)a (172) 228
a. Includes recognition of deferred income totaling $8,000 in
the both the first quarter of 2001 and 2000, representing the
difference in Stratus' investment in the Walden Partnership and
its underlying equity at the date of acquisition. Stratus will
recognize the remaining deferred income as the related real
estate is sold. Through March 31, 2001, Stratus had recognized
$117,000 of a total of $337,000 of deferred income associated
with the Walden Partnership.
4. LAKEWAY TRANSACTION
Stratus, since mid-1998, has provided development,
management, operating and marketing services for the Lakeway
project, located near Austin, Texas, for a fixed monthly fee. In
January 2001, Stratus and the owner of the project entered into
an expanded development management agreement covering a 552-acre
portion of the Lakeway project known as the "Schramm/Spillman
Tract." Stratus invested $2.0 million in the project and has the
right to receive enhanced management and development fees and
sales commissions as well as a net profits interest in the
property. Stratus will serve as an exclusive management agent
for the purposes of developing, managing, maintaining, operating
and marketing the project's property. Stratus' future services
may require it to obtain project development financing of up to
$4.0 million. Such additional project development financing, if
any, would be non-recourse to the owner and secured by the
property at the project. Any such project development financing would
not be an obligation of Stratus and accordingly, would not be
consolidated within its financial statements.
5. RESTRICTED CASH
At March 31, 2001, Stratus had restricted cash
deposits totaling $1.2 million. Stratus had $0.6 million
deposited in a special account representing additional collateral
associated with the Walden Partnership's project development
loan. This deposit is reduced by $0.30 for every $1.00 in
principal the Walden Partnership repays on the loan. The
remaining $0.6 million of restricted cash represents funds made
available to the bank as partial payment of Stratus' borrowings
outstanding on the $20 million revolving credit facility that
were not applied to Stratus' account until early April 2001. For
additional discussion of the Walden Partnership project
development loan, see Item 2. "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-Q and Note 4 of "Notes to
Financial Statements" included in Stratus' 2000 Annual Report on
Form 10-K.
6. SUBSEQUENT EVENT.
On May 10, 2001, the shareholders of Stratus approved an
amendment to Stratus' certificate of incorporation to permit a
reverse 1-for-50 common stock split followed immediately by a
forward 25-for-1 common stock split. This transaction will allow
Stratus' shareholders who hold fewer than 50 common stock shares
to convert their shares into less than one share in the reverse 1-
for-50 split and receive cash payments equal to the fair value of
those fractional interests. Stratus shareholders who hold more
than 50 shares of Stratus' common stock will hold one-half the
number of shares common stock immediately after this transaction,
with any shareholder holding an odd number of shares, which
results in a fractional share being retained, being entitled to a
cash payment equal to the fair value of the fractional share.
Fair value of the fractional shares will be calculated by valuing
each outstanding share of Stratus common stock held at the close
of business on the effective date, May 25, 2001, at the average
daily closing price per share of Stratus' common stock for the
ten trading days immediately preceding the effective date. The
number of shares outstanding of Stratus' mandatorily redeemable
preferred stock (see Note 3 of "Notes To Financial Statements"
included in Stratus' 2000 Annual Report on Form 10-K) are not
affected by this transaction; however, the conversion price in
effect immediately prior to the transaction would effectively be
doubled to reflect the effects of the transaction. The earnings
per share amounts reflected in this Quarterly Report on Form 10-Q
do not reflect this transaction.
8
--------------------
Remarks
The information furnished herein should be read in conjunction
with Stratus' financial statements contained in its 2000 Annual
Report on Form 10-K. The information furnished herein reflects
all adjustments which are, in the opinion of management,
necessary for a fair statement of the results for the periods.
All such adjustments are, in the opinion of management, of a
normal recurring nature.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Stratus Properties Inc.:
We have reviewed the accompanying condensed balance sheet of
Stratus Properties Inc. (a Delaware Corporation) as of March 31,
2001, and the related statements of income and cash flows for the
three-month periods ended March 31, 2001 and 2000. These
financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with auditing standards generally
accepted in the United States, the objective of which is the
expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with accounting
principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards
generally accepted in the United States, the balance sheet of
Stratus Properties Inc. as of December 31, 2000, and the related
statements of operations, stockholders' equity and cash flows for
the year then ended (not presented herein), and, in our report
dated January 25, 2001, we expressed an unqualified opinion on
those financial statements. In our opinion, the information set
forth in the accompanying condensed balance sheet as of December
31, 2000, is fairly stated, in all material respects, in relation
to the balance sheet from which it has been derived.
/S/ ARTHUR ANDERSEN LLP
Austin, Texas
April 27, 2001 (except with
respect to the matter discussed
in Note 6, as to which the
date is May 10, 2001)
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
OVERVIEW
Management's discussion and analysis presented below should be
read in conjunction with our discussion and analysis of financial
results contained in our 2000 Annual Report on Form 10-K. The
operating results summarized in this report are not necessarily
indicative of our future operating results.
We acquire, develop, manage and sell commercial and
residential real estate. We conduct real estate operations on
properties we own and through unconsolidated affiliates we
jointly own with Olympus Real Estate Corporation (Olympus)
pursuant to a strategic alliance formed in May 1998 (see Note 3).
DEVELOPMENT ACTIVITIES
Stratus Properties
In the fourth quarter of 2000 we received final subdivision
plat approval from the City of Austin (the City) to develop
approximately 170 acres of commercial and multi-family real
estate within our Lantana development. The required
infrastructure development at the site, known as "Rialto Drive,"
is proceeding as planned with completion expected in fourth
quarter of 2001. We also broke ground on the first of two 75,000
square foot office buildings at Rialto Drive during the first
quarter of 2001. Full development of the 170 acres is expected
to consist of over 800,000 square feet of office and retail space
and 400 multi-family units, which will be developed by an
apartment developer pursuant to our sale of a 36.4-acre multi-
family tract in December 2000 (see "Result of Operations" below).
We commenced construction of a new subdivision within the
Barton Creek community during the fourth quarter of 2000. This
subdivision, Mirador, adjoins the successful Escala Drive
subdivision, which is owned by our Barton Creek Joint Venture
(see below). Our development plan for the Mirador subdivision
consists of 34 estate lots, averaging 3.5 acres in size, which we
expect will be completed in September 2001.
Unconsolidated Affiliates
We own 49.9 percent of three joint ventures and Olympus owns
the remaining 50.1 percent interests. Accordingly, we account
for our investments in these joint ventures using the equity
method of accounting. We develop and manage each project
undertaken by these joint ventures and receive development fees,
sales commissions, and other management fees for our services.
See Note 3 included elsewhere in this Form 10-Q for the
summarized unaudited results of operations of our unconsolidated
affiliates for the three month periods ended March 31, 2001 and
2000.
Barton Creek Joint Venture
The Oly Stratus Barton Creek I Joint Venture (Barton Creek
Joint Venture) currently consists of two separate subdivisions:
"Wimberly Lane" and "Escala Drive." Construction of the Wimberly
Lane subdivision, consisting of 75 developed residential lots,
was completed during the first quarter of 1999. We had only one
Wimberly Lane lot remaining to be sold at March 31, 2001. We
sold two Wimberly Lane lots during the first quarter of 2001 for
a total of $0.2 million. During the first quarter of 2000 we
sold 12 Wimberly Lane lots, which represented $1.3 million of the
Barton Creek Joint Venture's revenues for that period.
Construction of the Escala Drive subdivision was completed
during the second quarter of 2000. As of March 31, 2001, 32 of
the original 54 multi-acre residential lots had been sold. These
residential lots are the largest developed to date within the
Barton Creek community, although our planned Mirador subdivision
will have similar sized developed lots (see "Stratus Properties"
above). There were no Escala Drive residential lot sales
during the first quarter of 2001 (see "Capital Resources and
Liquidity" below). During the first quarter of 2000, we sold the
initial five Escala Drive lots, which represented $2.1 million of
the Barton Creek Joint Venture's revenues for that period.
The Barton Creek Joint Venture distributed approximately
$0.7 million to the partners in the first quarter of 2001. We
recorded our share of these distributions, approximately $0.4
million, as a return of our investment in the joint venture.
10
Walden Partnership
At March 31, 2001, the Walden Partnership had 491 single-
family homesites to market at the Walden on Lake Houston
development in Houston, Texas. The Partnership sold eight single-
family homesites during the first quarter of 2001 compared with
sales of 17 single-family homesites during the first quarter of
2000. At March 31, 2001, the Walden Partnership's borrowings
outstanding under its project development loan facility totaled
$1.4 million. In September 1998, we deposited $2.5 million of
restricted cash as additional collateral for the related project
development loan facility. For every $1.00 of this facility's
principal that is repaid by the Partnership, there is a $0.30
reduction of our restricted amount. Remaining funds deposited in
this restricted account totaled $0.6 million at March 31, 2001
and December 31, 2000.
7000 West
We have two fully leased and occupied 70,000 square foot
office buildings at the Lantana Corporate Center, known as 7000
West. In our role as manager of 7000 West, we arranged for a
$6.6 million project loan facility to finance construction of the
first office building. The construction of the second building
required additional financing, which was provided by an
additional $7.7 million financing under the 7000 West development
loan facility negotiated in the first quarter of 2000.
Borrowings outstanding under 7000 West's project loan facility
totaled $12.6 million at March 31, 2001 and $12.0 million at
December 31, 2000.
RESULTS OF OPERATIONS
Summary operating results follow (in thousands):
First Quarter
--------------------
2001 2000
--------- -------
Revenues:
Undeveloped properties:
Recognition of deferred revenues $ 1,112 $ 811
--------- -------
Total undeveloped properties 1,112 811
Developed properties - 403
Commissions, management fees and other 314 899
--------- -------
Total revenues $ 1,426 $ 2,113
========= =======
Operating income (loss) $ 46 $ (522)
Net income 20 7,278
Operating Results
Our undeveloped properties revenues consisted solely of the
recognition of previously deferred revenues during both the first
quarter of 2001 and 2000. The majority of the deferred revenue
recognized during the first quarter of 2001 was associated with
the sale of a 36.4-acre multi-family Lantana tract in December
2000. In this transaction we sold the property for $5.3 million,
but deferred $3.5 million of the revenues and $1.6 million of the
related gain. We are recognizing these deferred amounts pro rata
as the required infrastructure construction is completed. As
discussed in "Development Activities" above, construction at the
Rialto Drive project is proceeding, resulting in our recognizing
$1.1 million of the deferred revenues and $0.5 million of the
related gain during the first quarter of 2001.
When we sell real estate to an entity we jointly own with
Olympus, we defer recognizing revenues from the sale related to
our ownership interest until sales are made to unrelated parties.
The sale of two Wimberly Lane single-family homesites by the
Barton Creek Joint Venture during the first quarter resulted in
our recognition of previously deferred revenues of less than $0.1
million for the period. The Barton Creek Joint Venture sold 17
Wimberly Lane single-family homesites and five Escala Drive
residential lots during the first quarter of 2000, which resulted
in our recognition of previously deferred revenues totaling $0.8
million in that period. At March 31, 2001 we had a total of $3.4
million of deferred revenues and $1.8 million of related gains
remaining to be recognized associated with our sales of real
estate to the Barton Creek Joint Venture.
We currently have no developed property inventory but we are
developing lots that may be available in the third quarter of
2001 (see "Development Activities," above). Our first-quarter
2000 developed property revenues included the sale of 15 single-
family homesites. Lots available for sale by our unconsolidated
affiliates are not included in our developed property revenues
(see "Unconsolidated Affiliates" above).
11
Commissions, management fees and other income decreased to
$0.3 million during the first quarter of 2001 compared to $0.9
million during the first quarter of 2000. Generally, our
commissions, management fees and other income have been
increasing over the past three years as we continue to expand
that aspect of our business. The decrease during the first
quarter of 2001 from the same period last year primarily reflects
the decrease in sales by our unconsolidated affiliates. See
"Capital Resources and Liquidity" below for a discussion of our
expanded management services agreement associated with the
Lakeway project near Austin, Texas.
Cost of sales totaled $0.6 million during the first quarter
of 2001 compared to $1.7 million during the first quarter of
2000. The decrease primarily reflects a reimbursement of certain
infrastructure costs previously charged to expense or relating to
properties previously sold, which reduced the first quarter of
2001 cost of sales by $0.8 million. The decrease in cost of
sales also reflects the reduced sales activity during the first
quarter of 2001.
Our general and administrative expense totaled $0.7 million
during the first quarter of 2001 compared with $1.0 million
during the first quarter of 2000. The decrease between the
periods primarily reflects reduced administrative costs resulting
from the implementation of a new accounting system and other
initiatives to reduce costs.
Non-Operating Results
Interest expense, net of capitalized interest, totaled $0.1
million during the first quarter of 2001 compared to $0.2 million
for the first quarter of 2000, reflecting our reduced borrowings
outstanding. Capitalized interest totaled $0.2 million in the
first quarter of 2001 and $0.3 million in the first quarter of
2000.
In March 2000, the City approved a settlement agreement of
all its disputes with other Austin-area real estate developers
and landowners concerning the Circle C community. Under terms of
this settlement, the lawsuits contesting the City's December 1997
annexation of all land within the four Circle C MUDs and the
dissolution of the four MUDs were dismissed with prejudice.
Accordingly, the City's partial payments of our reimbursement
claim, totaling $10.5 million as of March 31, 2000, were no
longer subject to a repayment contingency. As a result, we
recorded approximately $7.4 million of these previously deferred
proceeds in other income during the first quarter of 2000. This
amount represents that portion of the reimbursed infrastructure
expenditures in excess of our remaining basis in these assets, as
well as related interest income on the reimbursements. The
remaining $3.1 million was recorded as a reduction of our
investment in Circle C. We settled our disputes with the City
related to the remaining amounts of the Circle C MUDs in the
fourth quarter of 2000, when we received $6.9 million from the
City as full and final settlement of our claim. See Note 6 to
the "Notes To Financial Statements" included within our 2000
Annual Report on Form 10-K for discussion of the settlement of
our Circle C MUD reimbursement claim.
CAPITAL RESOURCES AND LIQUIDITY
Net cash provided by (used in) operating activities totaled
$(0.7) million during the first quarter of 2001 compared with
$0.1 million during the first quarter of 2000. The decrease
primarily reflects reduced distributions received from the Barton
Creek Joint Venture and reduced revenues from lower sales
activity. Cash used in investing activities totaled $9.0 million
during the first quarter of 2001 compared with $0.9 million
during the same period in 2000, reflecting an increase in our net
real estate and facilities expenditures (see "Development
Activities" above) and the $2.0 million investment in the Lakeway
project, near Austin, Texas (see below). Financing activities
provided cash of $3.1 million during the first quarter of 2001
and $0.2 million during the first quarter of 2000 reflecting net
borrowings on our commercial bank lines of credit.
At March 31, 2001, we had debt of $11.6 million compared to
debt of $8.4 million at December 31, 2000 and $16.8 million at
March 31, 2000. Our debt outstanding at March 31, 2001 included
$5.0 million of borrowings outstanding on our unsecured term
loan, which matures in December 2005, $3.5 million of borrowings
under our $20 million revolver, which matures in December 2002,
and $3.1 million of borrowings under our $10 million convertible
debt facility with Olympus (see Note 3), which matures in May
2004. The availability under the $20 million revolving line of
credit was reduced to $18 million to satisfy the $2.0 million
interest reserve account requirement at March 31, 2001. We are
currently considering an offer from the lender of the unsecured
term loan, First American Asset Management, that provides for an
additional $5 million unsecured term loan. For a discussion of
our bank credit facilities see Note 5 included in the "Notes To
Financial Statements" included in our 2000 Annual Report on Form
10-K.
12
Since mid-1998, we have provided development, management,
operating, and marketing services for the Lakeway project,
located near Austin, for a fixed monthly fee. In January 2001,
we and the owner of the project entered into an expanded
development management agreement covering a 552-acre portion of
the Lakeway development known as the "Schramm/Spillman Tract" and
we invested $2.0 million in the project. Under the expanded
development management agreement, we will receive enhanced
management and development fees and sales commissions as well as
a net profits interest in the property. As exclusive managing
agent of the project, we have negotiated a tentative sale of the
entire 552-acre tract to a purchaser, who intends to close the
sale over four installments over the next twelve months, with the
first installment scheduled for late May 2001. However, in the
event that the sale does not close as anticipated, we have a
preliminary agreement with a bank that would provide the
necessary financing to develop the project.
In February 2001, our Board of Directors authorized an open
market stock purchase program for up to 1.4 million shares of our
common stock representing approximately 10 percent of our then
outstanding common stock. The purchases may occur over time
depending on many factors, including: the market price of our
common stock; our operating results, cash flows and financial
position; possible redemption of our mandatorily redeemable
preferred stock held by Olympus (Olympus may redeem the preferred
stock any time on or after May 22, 2001); and general economic
and market conditions. We have yet to make any open market share
purchases under this program as of May 14, 2001.
On May 10, 2001, our shareholders approved an amendment to
our certificate of incorporation to permit a reverse 1-for-50
common stock split followed immediately by a forward 25-for-1
common stock split. This transaction will allow our shareholders
who hold fewer than 50 shares of common stock to convert them
into less than one share of our common stock in the reverse 1-for-
50 split and receive cash payments equal to the fair value of
those fractional interests. Our shareholders who hold more than
50 shares of our common stock will hold one-half the number of
shares common stock immediately after this transaction, with any
shareholder holding an odd number of shares, which results in a
fractional share being retained, being entitled to a cash payment
equal to the fair value of the fractional share. Fair value of
the fractional shares will be calculated by valuing each
outstanding share of Stratus common stock held at the close of
business on the effective date, May 25, 2001, at the average
daily closing price per share of Stratus' common stock for the
ten trading days immediately preceding the effective date. We
estimate that the costs to complete this transaction will total
approximately $0.5 million. This transaction will reduce our
future annual reporting and related costs.
Our future operating cash flows and, ultimately, our ability
to develop our properties and expand our business will be largely
dependent on the level of our real estate sales. In turn, these
sales will be significantly affected by future real estate
values, regulatory issues, development costs, interest rate
levels and our ability to continue to protect our land use and
development entitlements. Significant development expenditures
remain to be incurred for our Austin-area properties prior to
their eventual sale. As a result of our settlement of certain
entitlement and reimbursement issues with the City during 2000,
we have initiated a plan to develop a significant portion of our
Austin-area properties with planned capital expenditures for 2001
significantly exceeding the development expenditures incurred
during each of the past three years. However, if our revenues
continue to be impacted by the recent downturn in the information
technology business sector, which has negatively affected
Austin's business climate, we may be required to defer some of
our near-term development plans until the real estate market
improves. We expect our properties will continue to be
attractive and to be a source of value for our shareholders.
We are continuing to actively pursue additional development
and management fee opportunities, both individually and through
our existing relationships with institutional capital sources.
We also believe we can obtain bank financing at a reasonable cost
for developing our properties. However, obtaining land
acquisition financing is generally expensive and uncertain.
CAUTIONARY STATEMENT
Management's discussion and analysis of financial condition
and results of operations contains forward-looking statements
regarding anticipated sales, debt repayments, future
reimbursement for infrastructure costs, future events related to
financing 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
13
and other factors, many of which are
beyond our control, and other factors that are described in more
detail under the heading "Cautionary Statements" in our Annual
Report on Form 10-K for the year ended December 31, 2000.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings.
Over the past several years we have been involved in
regulatory matters and litigation involving entitlements and/or
development of our Austin-area properties. These matters were
settled during 2000. For a detailed discussion on these matters
see Item 3, "Legal Proceedings" and Note 6, "Real Estate"
included in our 2000 Annual Report on Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Our Annual Meeting of Stockholders was held May 10,
2001 (the Annual Meeting). Proxies were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended.
(b) At the Annual Meeting William H. Armstrong III was
elected to serve until the 2004 Annual Meeting of Stockholders.
In addition to the director elected at the Annual Meeting, the
terms of the following directors continued after the Annual
Meeting: Robert L. Adair III, James C. Leslie and Michael D.
Madden.
(c) At the Annual Meeting, holders of Stratus' Common Stock
elected one director with the number of votes cast for or
withheld from the nominee as follows:
Name For Withheld
- ----- --- --------
William H. Armstrong III 12,466,759 1,050,121
With respect to the election of the director, there were no abstentions.
At the Annual Meeting, the stockholders also voted on and
approved a proposal to ratify the appointment of Arthur Andersen
LLP to act as the independent auditors to audit our and our
subsidiaries' financial statements for the year 2001. Holders of
13,393,135 shares voted for, holders of 41,101 shares voted
against and holders of 79,644 shares abstained from voting on
such proposal.
At the Annual Meeting, the stockholders voted on and failed
to approve a proposal to adopt Stratus' 2001 Stock Incentive Plan
in the form presented in Stratus' proxy statement dated March 29,
2001. Holders of 3,203,117 shares voted for, holders of
4,863,351 shares voted against and holders of 133,646 shares
abstained from voting on such proposal. There were broker non-
votes consisting of 5,316,766 shares with respect to the
proposal.
At the Annual Meeting, the stockholders voted on and
approved a proposal to amend Stratus' Certificate of
Incorporation to effect a 1 for 50 reverse stock split followed
immediately by a 25 for 1 forward stock split in the form
presented in Stratus' proxy statement dated March 29, 2001.
Holders of 12,256,092 shares voted for, holders of 1,199,024
shares voted against and holders of 61,764 shares abstained from
voting on such proposal.
Item 6. Exhibits and Reports on Form 8-K.
(a) The exhibits to this report are listed in the Exhibit
Index beginning on page E-1 hereof.
(b) During the period covered by this Quarterly Report
on Form 10-Q, the registrant filed two Current Reports
on Form 8-K reporting events under Item 5. The first
report was dated January 5, 2001 and the second was
dated February 9, 2001.
14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
STRATUS PROPERTIES INC.
By: /s/ C. Donald Whitmire, Jr.
------------------------------
C. Donald Whitmire, Jr.
Vice President - Controller
(authorized signatory and
Principal Accounting Officer)
Date: May 15, 2001
15
STRATUS PROPERTIES INC.
EXHIBIT INDEX
Exhibit
Number
3.1 Amended and Restated Certificate of Incorporation
of Stratus. Incorporated by reference to Exhibit 3.1
to Stratus' 1998 Form 10-K.
3.2 By-laws of Stratus, as amended as of February 11,
1999. Incorporated by Reference to Exhibit 3.2 to
Stratus' 1998 Form 10-K.
4.1 Stratus' Certificate of Designations of Series A
Participating Cumulative Preferred Stock. Incorporated
by reference to Exhibit 4.1 to Stratus' 1992 Form 10-K.
4.2 Rights Agreement dated as of May 28, 1992 between
Stratus and Mellon Securities Trust Company, as Rights
Agent. Incorporated by reference to Exhibit 4.2 to
Stratus' 1992 Form 10-K.
4.3 Amendment No. 1 to Rights Agreement dated as of
April 21, 1997 between Stratus and the Rights Agent.
Incorporated by reference to Exhibit 4 to Stratus'
Current Report on Form 8-K dated April 21, 1997.
4.4 The loan agreement by and between Comerica Bank-
Texas and Stratus Properties Inc., Stratus Properties
Operating Co., L.P., Circle C Land Corp. and Austin 290
Properties Inc. dated December 21, 1999. Incorporated
by reference to Exhibit 4.4 to Stratus 1999 Form 10-K.
4.5 Certificate of Designations of the Series B
Participating Preferred Stock of Stratus Properties
Inc. Incorporated by reference to Exhibit 4.1 to
Stratus' Current Report on Form 8-K dated June 3, 1998.
4.6 Investor Rights Agreement, dated as of May 22,
1998, by and between Stratus Properties Inc. and
Oly/Stratus Equities, L.P. Incorporated by reference to
Exhibit 4.2 to Stratus' Current Report on Form 8-K
dated June 3, 1998.
4.7 Loan Agreement, dated as of May 22, 1998, by and
among Stratus Ventures I Borrower L.L.C., Oly Lender
Stratus, L.P. and Stratus Properties Inc. Incorporated
by reference to Exhibit 4.3 to Stratus' Current Report
on Form 8-K dated June 3, 1998.
10.1 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 Oly Stratus Barton Creek I Amended and Restated
Joint Venture Agreement between Oly ABC West I, L.P.
and Stratus ABC West I, L.P. dated December 28, 1999.
Incorporated by reference to Exhibit 10.7 to the
Stratus 1999 Form 10-K.
10.7 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.
E-1
10.8 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.
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
10.14 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.
10.15 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.
10.16 Guaranty Agreement dated December 31, 1999 by and
between Stratus Properties Inc. and Comerica Bank-
Texas. Incorporated by reference to Stratus' Quarterly
Report on Form 10-Q for the Quarter ended March 31,
2000.
10.17 Guaranty Agreement dated February 24, 2000 by and
between Stratus Properties Inc. and Comerica Bank-
Texas. Incorporated by reference to Stratus' Quarterly
Report on Form 10-Q for the Quarter ended March 31,
2000.
10.18 Development Management Agreement by and between
Commercial Lakeway Limited Partnership, as owner, and
Stratus Properties Inc., as development manager, dated
January 26, 2001.
10.19 Amended Loan Agreement dated December 27, 2000 by and
between Stratus Properties Inc. and Comerica-Bank
Texas. Incorporated by reference to Exhibit 10.19 to
the Stratus 2000 Form 10-K.
10.20 Loan Agreement dated December 28, 2000 by and between
Stratus Properties Inc. and Holliday Fenoliglio Fowler,
L.P., subsequently assigned to an affiliate of First
American Asset Management. Incorporated by reference
to Exhibit 10.20 to the Stratus 2000 Form 10-K.
10.21 Stratus' Performance Incentive Awards Program, as
amended effective February 11, 1999. Incorporated by
reference to Exhibit 10.18 to Stratus' 1998 Form 10-K.
10.22 Stratus Stock Option Plan, as amended.
Incorporated by reference to Exhibit 10.9 to Stratus'
1997 Form 10-K.
10.23 Stratus 1996 Stock Option Plan for Non-Employee
Directors, as amended. Incorporated by reference to Exhibit
10.10 to Stratus' 1997 Form 10-K.
10.24 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.
15.1 Letter dated April 27, 2001 from Arthur Andersen
LLP regarding the unaudited financial statements.
E-2
Exhibit 10.18
Development Management Agreement
By and Between
COMMERCIAL LAKEWAY LIMITED PARTNERSHIP,
as Owner
And
STRATUS PROPERTIES INC.,
as Development Manager
__________________________________
Dated as of
January 26, 2001
__________________________________
Development Management Agreement
THIS DEVELOPMENT MANAGEMENT AGREEMENT (this "Agreement") is
made effective as of the 26th day of January, 2001 (the
"Effective Date"), by and between COMMERCIAL LAKEWAY LIMITED
PARTNERSHIP, a Delaware limited partnership, as Owner of the
hereinafter-defined Property (the "Owner") and STRATUS PROPERTIES
INC., a Delaware corporation, as development manager (the
"Development Manager").
RECITALS
A. Owner is the owner and holder of fee title in and to
that certain property located in Travis County, Texas, containing
approximately 552 acres of land and known as the Vista Royale -
Non-Commercial Tract, the Vista Royale - Commercial Tract and the
Spillman Tract, as legally and more particularly described on
Exhibit "A" attached hereto and incorporated herein by this
reference (the "Property"),
B. Owner desires to engage the services of Development
Manager for the purposes of developing, managing, maintaining,
operating and selling the Property.
C. Development Manager desires to accept such engagement
and to perform such services, and acknowledges that it is
familiar with Owner's current Business Plan (hereinafter defined)
for the Property and the Development Budget (hereinafter defined)
approved by Owner for the Property as of the date of this
Agreement.
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:
"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.
"Agreement"shall have the meaning set forth in the Preamble
to this Agreement.
"Business Day" shall mean any day other than a Saturday,
Sunday, or holiday on which national banking associations or
other financial institutions in the States of New York or Texas
are authorized or required to be closed.
"Business Plan" shall mean the business plan prepared by
Development Manager and submitted to Owner, within fifteen (15)
days after the Effective Date, for Owner's approval, in Owner's
sole discretion, and subsequently attached hereto as Exhibit "B"
and incorporated herein, and as may be amended from time to time
in accordance with the provisions hereof.
"Cash Flow" for any period shall mean any and all cash
revenues generated from the ownership, sale, lease and other
operation of the Property by Owner or Development Manager on
behalf of Owner and any and all capital transaction proceeds,
minus the sum of (i) any operating and capital expenses incurred
in connection with the development, operation, management,
maintenance and sale of all or any portion of the Property,
including without limitation any payments of interest and
principal required by the lender of any Project Loan, and
(ii) reasonable reserve(s) for necessary or desirable operating
and capital expenses of the Property that are anticipated to be
incurred or to become due and payable within six (6) months as
Development Manager, in the exercise of its reasonable discretion
and as is consistent with the Development Budget and the Business
Plan, shall determine and as shall be approved by Owner. General
overhead expenses of Owner which are allocable to the Property
and other properties owned or controlled by Owner shall be
allocated to the Property for purposes of determining Cash Flow
on a pro rata basis as reasonably determined by Owner.
"Completion" shall mean lien-free completion (or substantial
completion if adequate reserves in amounts acceptable to Owner
have been fully funded), of all pre-development, development and
construction activities described in the Business Plan in
accordance with the terms thereof, as evidenced by appropriate
and necessary governmental inspections, approvals, licenses and
permits, certificate(s) of completion certified by project
architect(s) and lien waivers obtained from all architects,
engineers, general contractors, subcontractors, tradesmen,
materialmen and other suppliers of services and materials in
connection with the development of the Property.
"Development Budget" shall mean the budget prepared by
Development Manager and submitted to Owner, within fifteen (15)
days after the Effective Date, for Owner's approval, in Owner's
sole discretion, and subsequently attached hereto as Exhibit "C"
and incorporated herein, as may be amended from time to time in
accordance with the provisions hereof.
"Development Manager" shall have the meaning set forth in
the Preamble to this Agreement.
"Development Manager Cash Consideration"shall mean the cash
consideration to be paid by Development Manager to Owner, in
immediately available funds, in the amount of Two Million Dollars
($2,000.000.00), on or before the Effective Date hereof, in
consideration for the contractual rights and privileges granted
to Development Manager herein.
"Development Manager Representative" shall have the meaning
set forth in Section 2.2.
"Distribution Period" shall mean (i) the period beginning on
the date of Completion and payment in full of all principal,
interest and other charges payable under the Project Loans, and
ending on the last day of the calendar month in which such
Completion and payment has occurred, and (ii) each calendar month
thereafter.
"Effective Date" shall have the meaning set forth in the
preamble to this Agreement.
"Major Decision" means any decision with respect to (1)
approval of the Business Plan, (2) approval of the Development
Budget, (3) approval of all architects, engineers, design
consultants, general contractors, subcontractors and other
professionals necessary or desirable in connection with the
planning, development and construction of any improvements on any
portion of the Property, (4) approval of the plans and
specifications for any improvements to be constructed on the
Property, and the subsequent approval of all change orders or
amendments thereto the cost of which is reasonably estimated to
exceed the lesser of (a) ten percent (10%) of the annual budgeted
amount for any such improvements or (b) $100,000, (5) approval of
any financing or refinancing, whether secured or unsecured,
including without limitation the Project Loans, unless previously
approved in the Business Plan or Development Budget, (6) approval
of acquisition of any additional property, (7) approval of any
sale, exchange or other disposition of all or any portion of the
Property, (8) undertaking or consenting to any environmental
testing or inspections in, on, under or in respect of the
Property, (9) entering into any consent decrees or acknowledging
any liability (particularly environmental liability) with respect
to the Property, (8) creating, establishing or changing any trade
name or other fictitious name with respect to the Property, (10)
approval of any contract for services or materials rendered in
connection with the planning, development, construction,
management, maintenance, repair and operation of any portion of
the Property, the value of which exceeds or is budgeted to exceed
$5,000.00, and modifying, amending, supplementing or terminating
any contract or agreement entered into with the consent of Owner,
unless the failure to do so would conflict with the Business Plan
or Development Budget, (11) approving any site plans, site plan
amendments, proffers, special exceptions, permits or other land
use matters which are inconsistent in any respect with the
Business Plan, (12) instituting any legal action with respect to
the Property, settling any legal action with respect to the
Property or confessing judgment against Owner or otherwise with
respect to the Property, (13) approving any settlement of
insurance claims or condemnation awards, and (14) approval of any
amendments to this Agreement. Any and all Major Decisions shall
require the approval of Owner, which may be granted, denied or
conditioned as determined by Owner in Owner's sole and absolute
discretion.
"Owner" shall mean COMMERCIAL LAKEWAY LIMITED PARTNERSHIP, a
Delaware limited partnership, together with its successors and
assigns.
"Owner Account"shall have the meaning set forth in Section
3.7(a).
"Owner Representative" shall have the meaning set forth in
Section 2.3.
"Owner's Residual Value"shall mean Five Million One Hundred
Thousand Dollars ($5,100,000.00), as of the Effective Date
hereof.
"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.
"Property Account" shall have the meaning set forth in
Section 3.7(b).
"Project Loans"shall mean the Project Mortgage Loan and the
Project Unsecured Loan.
"Project Mortgage Loan"shall mean that certain revolving
line of credit loan obtained by Development Manager from Comerica
Bank to Owner, as borrower, solely for the purpose of financing
the costs of development, operation, management, maintenance and
sale of all or any portion of the Property. The Project Mortgage
Loan shall be in the maximum principal amount of Four Million
Dollars ($4,000,000.00), with interest on the principal balance
from time to time outstanding at a rate not to exceed LIBOR plus
250 basis points, and an upfront loan commitment fee not to
exceed Twenty Thousand Dollars ($20,000.00). The terms of the
Project Mortgage Loan and all note(s), documents, agreements,
instruments and certificates executed in connection therewith
shall be a Major Decision requiring the approval of Owner, which
may be granted, denied or conditioned as determined by Owner in
Owner's sole and absolute discretion. The Project Mortgage Loan
shall be non-recourse in all respects to Owner, and any recourse
obligations or liabilities, including without limitation
environmental liabilities, shall be guaranteed by Development
Manager; provided, however, that the Project Mortgage Loan may be
secured, among other things, by a first lien mortgage on the
Property. The Project Mortgage Loan documents may provide (if
permitted by the lender) that Development Manager shall be
subrogated to the rights of the lender in the event and to the
extent that Development Manager pays the Project Mortgage Loan
pursuant to the terms of any such guaranty, and may enforce such
rights against Owner, subject to the rights of the lender, as
security for repayment of sums so advanced by Development
Manager.
"Project Team" shall have the meaning set forth in
Section 2.2.
"Project Unsecured Loan"shall mean an unsecured loan made
by Development Manager to Owner solely for the purpose of
financing the costs of development, operation, management,
maintenance and sale of all or any portion of the Property, as
more particularly provided in Section 3.8(a) hereof. The Project
Unsecured Loan shall be in a maximum principal amount approved by
Owner. Interest on the outstanding principal balance from time
to time outstanding shall accrue but not be compounded, at a rate
of interest equal to the "Prime Rate"(defined below), and shall
be payable with principal at the earlier of (i) maturity of the
Project Unsecured Loan on December 31, 2005, or (ii) the date of
termination of the Term of this Agreement. The terms of the
Project Unsecured Loan and all note(s), documents, agreements,
instruments and certificates executed in connection therewith
shall be mutually and reasonably acceptable to Development
Manager and Owner. The Project Unsecured Loan shall be recourse
only to Owner and the assets of Owner (and not to Owner's general
and limited partners and the partners, members, shareholders,
officers, directors and employees of Owner's partners), and shall
be subordinate in all respects to the Project Mortgage Loan. For
purposes hereof, the term "Prime Rate"shall mean the rate of
interest published from time to time in The Wall Street Journal
as the "Prime Rate"; if more than one "Prime Rate"is published
in The Wall Street Journal for a day, the "Prime Rate" for
purposes hereof shall be the average of such rates; if The Wall
Street Journal ceases to publish a "Prime Rate", then the "Prime
Rate" for purposes hereof shall be a comparable interest rate
index mutually and reasonably acceptable to Development Manager
and Owner.
"Property" shall have the meaning set forth in the Recitals
to this Agreement. Unless the context clearly indicates
otherwise, the term "Property"shall mean "all or any portion of
the Property".
"Single Purchaser Transaction"shall mean any transaction or
series of transactions pursuant to one or more contracts of sale
or other agreements in which all or substantially all of the
Property is sold, at one time or in two or more installments, to
a single purchaser (or to title-holding designees of a single
purchaser), provided that all or substantially all of the
Property is sold and transferred within a period not to exceed
fifteen (15) months from the Effective Date of this Agreement.
"Term" shall have the meaning set forth in Section 5.3.
ARTICLE 2
Engagement of Development Manager
2.1 Appointment of Development Manager. Owner hereby
appoints Development Manager as exclusive management agent for
the purposes of developing, managing, maintaining, operating and
selling the Property, and Development Manager hereby accepts such
appointment, with the responsibilities and obligations and upon
the terms and conditions set forth in this Agreement.
Development Manager shall perform each and all of its obligations
under this Agreement in an efficient and first class manner
consistent with the Business Plan and the Development Budget and
shall exercise best efforts and due diligence in all of its
endeavors.
2.2 Project Team. Development Manager shall provide a
project team (the "Project Team") to perform its obligations
hereunder, which Project Team shall be the responsibility of
Development Manager and shall be staffed with employees of
Development Manager. The members of the Project Team shall be
subject to the prior approval of Owner, which shall not be
unreasonably withheld. The members of the initial Project Team
are listed on Exhibit "D"attached hereto and incorporated herein
by this reference, and are hereby approved by Owner. Development
Manager shall designate a qualified and experienced member of the
Project Team as its representative (the "Development Manager
Representative") to act for and on behalf of Development Manager
when recommendations, consents, approvals or commitments from
Development Manager are required under this Agreement, and to
function as the principal source of liaison and communication
with Owner. The Development Manager Representative is subject to
the prior approval of Owner. William H. Armstrong III is hereby
designated as the initial Development Manager Representative, who
is hereby approved by Owner. Development Manager may not
reassign or replace any member of the Project Team, name any new
individual to fill such position or replace the Development
Manager Representative without the prior approval of Owner in
each instance; provided, however, that notwithstanding anything
to the contrary set forth in this Section 2.2, Development
Manager shall not, as a result of this Section 2.2, be compelled
to continue to employ any member of the Project Team, and in the
event any member ceases to be employed by Development Manager,
Development Manager shall not be considered in default hereunder,
unless three (3) or more members of the Project Team or the
Development Manager Representative cease to be employed by
Development Manager and have not been replaced by employee(s)
which have been approved by Owner. Development Manager shall
remove from the Project Team any member as reasonably requested
by Owner from time to time.
2.3 Owner Representative. Owner shall designate one or
more representative(s) (whether one or more, the "Owner
Representative") to act for and on behalf of Owner when consents,
approvals or commitments from Owner are required under this
Agreement and to function as the principal source of liaison and
communication with Development Manager. If more than one Owner
Representative is designated by Owner, each such Owner
Representative shall have authority to communicate on behalf of
Owner, and Development Manager shall be entitled to rely upon the
communication of any such Owner Representative. Larry Goland is
hereby designated as the initial Owner Representative. Owner may
in its sole discretion replace the Owner Representative from time
to time, and add or subtract Owner Representatives, subject to
prior written notice thereof to Development Manager.
ARTICLE 3
Duties and Obligations of Development Manager
3.1 Expenses. All obligations and expenses approved by
Owner in writing, including without limitation all expenses
provided for in the Development Budget, and incurred by
Development Manager in the performance of its duties hereunder in
accordance with the provisions hereof, shall be paid out of funds
on deposit from time to time in the Property Account, as provided
in Sections 3.7 and 3.8 hereof, except as otherwise specifically
provided in this Agreement. Without Owner's prior written
consent or as authorized in the Business Plan or Development
Budget, Development Manager shall not incur any cost not
specifically set forth in the most recently approved Development
Budget.
3.2 Contracts. Subject to the provisions of Section 3.4
hereof, to the extent necessary to fulfill its obligations under
this Agreement, Development Manager shall (i) identify and, with
the prior written approval of Owner or as set forth in the
Business Plan or Development Budget, enter into, in Owner's name,
contracts with architects, engineers, tradesmen and other
independent contractors to perform services necessary or
advisable for the development, operation, maintenance or sale of
all or any portion of the Property; and (ii) with the prior
written approval of Owner or as set forth in the Business Plan or
Development Budget, place orders, in Development Manager's name
on behalf of Owner, for such equipment, tools, appliances,
materials and supplies as are reasonable and necessary to
properly develop, manage, operate or maintain the Property.
Except with the prior written consent of Owner, every contract
entered into by Development Manager for or in connection with the
Property shall include as a condition thereof the right by Owner
to terminate, with or without cause, on thirty (30) days' prior
written notice, without the payment of a cancellation fee.
Development Manager shall deliver to Owner a copy of each and
every contract entered into in connection with the Property,
whether or not Owner's approval thereof is required, within
fifteen (15) days after full execution thereof.
3.3 Management Standard; Specific Development Services.
Subject to the provisions of Section 3.4 hereof, Development
Manager shall manage the development, operation, management,
maintenance and sale of the Property in accordance with the
"Management Standard" (as defined in Section 5.1 hereof).
Without limiting the generality of the foregoing or any other
provisions of this Agreement, Development Manager shall perform,
among other services and obligations, the following specific
services.
(a) Pre-Development Services. Development Manager
shall:
(i) Obtain all necessary land use approvals and
permits and other governmental authorizations
and entitlements;
(ii) Hire any architects, land planners, engineers
or other design consultants necessary for the
planning, development and construction of any
improvements on any portion of the Property;
(iii) Supervise and/or assist the architect(s), land
planners, and engineer(s) in the preparation of all
necessary plans and specification
(iv) Supervise and/or assist the engineer(s),
consultant(s) and/or other professional(s) in
performing all necessary tests and
investigations, including environmental and
soil tests; and
(v) Review and approve (or disapprove) bills,
invoices and applications for payment, all of
which shall be at reasonable, market rates
and terms of payment, received from the
architect(s), engineer(s), land planners,
consultant(s) and/or other professional(s)
engaged in connection with the Property.
(b) Construction Services. Development Manager shall:
(i) Finalize all plans and specifications and any required
approvals thereof;
(ii) Supervise and/or assist the general contractor(s) for
compliance with construction contracts, project schedules
and project budgets;
(iii) Supervise and/or assist the architect(s) in review and
approval (or disapproval) of applications for payment,
change orders, construction change directives, shop
drawings, product data, samples and other submittals;
(iv) Review and approve (or disapprove) bills, invoices and
applications for payment, all of which shall be at
reasonable, market rates and terms of payment, received
from the general contractor(s), subcontractor(s),
materialmen and/or other trades engaged in connection with
any construction of improvements on the Property; and
(v) Coordinate the transfer to Owner of all warranties,
guarantees, affidavits, releases, waivers of liens, bonds,
insurance certificates, manuals and other submittals.
(c) Sales and Marketing Services. Development Manager
shall:
(i) Review the Property to determine its physical condition,
relative market appeal, quality of location, market and
area trends, and potential for value enhancement prior to
entering the market;
(ii) Develop and prepare for Owner's review and approval a
detailed marketing plan (the "Marketing Plan"), consistent
with the Business Plan and the Development Budget, setting
forth a comprehensive strategy for sale of homesites and
other portions of the Property;
(iii) At Development Manager's sole discretion, supervise
and/or assist consultant(s) and/or other professional(s)
in the design, installation, production, implementation,
dissemination and maintenance of the following to be used
for marketing and selling homesites and other portions of
the Property:
(a) Site signs,
(b) Directional signs,
(c) Brochures, direct mail, flyers, sales packages and other
print collateral,
(d) Radio, print, internet and television advertising, and
(e) Promotional events;
(iv) Market for sale to the general public, homebuilders, and
other real estate companies, via direct mail, print advertising
and on the internet, as deemed appropriate by Development
Manager, and as otherwise reasonably requested by Owner,
homesites and other portions of the Property based upon a price
schedule set forth in the Marketing Plan, the Business Plan or
Development Budget, or as otherwise approved in writing by Owner;
(v) Solicit, identify and qualify prospective purchasers of
homesites and other portions of the Property, and provide
prospective purchasers with additional information and coordinate
site visits of the Property;
(vi) Promptly inform Owner of all offers and inquiries received
from brokers, prospective purchasers or anyone else with respect
to the all or any portion of the Property;
(vii) Negotiate letters of intent, contracts of sale and
similar agreements prospective purchasers and Owner, and provide
Owner with analyses and comparisons of each competing offer and
counteroffer and recommend to Owner which offer to accept;
(viii) Prepare deeds and other closing documentation for
execution by or on behalf of Owner, and coordinate with the
appropriate parties to secure all documents and information
required for closing on any sale of homesites and other portions
of the Property; and
(ix) Review and approve (or disapprove) bills, invoices and
applications for payment, all of which shall be at reasonable,
market rates and terms of payment, received from the
consultant(s), other professional(s), media sources, and/or other
trades engaged in connection with any marketing, advertising,
promotions, or public relations on the Property.
(d) Single Purchaser Transaction. Notwithstanding
anything to the contrary set forth above, in the event that the
Property is sold in a Single Purchaser Transaction, Development
Manager shall be required to perform only the specific Sales and
Marketing Services that are described in clauses (vii), (viii)
and (ix) of Subsection 3.3(c) above, to the extent applicable,
and shall be required to perform only the specific Pre-
Development Services and Construction Services as are required or
necessary to be performed by or on behalf of Owner as set forth
in the contract of sale or other agreement pursuant to which the
Single Purchaser Transaction is consummated.
3.4 Major Decisions. Notwithstanding anything to the
contrary set forth in this Agreement, all Major Decisions shall
be made by Owner, in consultation with Development Manager.
Further notwithstanding anything to the contrary set forth in
this Agreement, Owner shall have the right from time to time, in
Owner's sole reasonable discretion, to review and approve,
disapprove or advise Development Manager with respect to any
matter related to Development Manager's services and obligations,
whether or not such matter is the subject of a Major Decision.
3.5 Insurance.
(a) Owner's Insurance. Owner shall cause to be placed and
kept in force all forms of insurance as Owner deems prudent and
reasonable given the nature of the Property. All such insurance
coverage shall be placed with such companies, in such amounts,
and with such beneficial interests appearing therein as Owner
deems prudent and reasonable given the nature of the Property.
Owner shall procure appropriate clauses in, or endorsements on,
all of the policies whereby the insurer names Development Manager
as an additional insured, and the insurer waives subrogation and
agrees to not terminate any such policy or reduce coverage or
amount without giving Owner and Development Manager at least
thirty (30) days' prior written notice.
(b) Development Manager's Insurance. Development Manager
shall cause to be placed and kept in force at all times during
the term of this Agreement (i) comprehensive public liability
insurance with primary coverage of not less than Two Million
Dollars ($2,000,000.00) combined single limit for bodily injury
or property damage with a annual aggregate of not less than Five
Million Dollars ($5,000,000.00), (ii) errors and omissions
insurance, (iii) fidelity bond or insurance, (iv) workers'
compensation insurance in amounts not less than the minimum
amounts required by applicable state law and employer's liability
insurance, and (v) all other forms of insurance as Development
Manager deems prudent and reasonable given the nature of the
Property and Development Manager's obligations hereunder. All
such insurance coverage shall be placed with such companies, in
such amounts, and with such beneficial interests appearing
therein as Development Manager deems prudent and reasonable given
the nature of the Property and Development Manager's obligations
hereunder, as reasonably approved by Owner. Development Manager
shall procure appropriate clauses in, or endorsements on, all of
the policies whereby the insurer names Owner as an additional
insured and agrees to give Owner not less than thirty (30) days'
written notice prior to any modification or termination of any
policy or failure to renew or other lapse in coverage, and the
insurer waives subrogation and agrees to not terminate any such
policy or reduce coverage or amount without giving Development
Manager and Owner at least thirty (30) days prior written notice.
(c) Development Manager Obligations. Development Manager
shall promptly investigate and make a full and timely written
report to Owner and, if Owner requests, to Owner's insurance
company as to all accidents, claims for damages relating to the
ownership, operation and maintenance of the Property and any
damage or destruction to the Property and the estimated cost of
repair thereof, and shall prepare any and all reports required by
Owner and, if Owner requests, by its insurance company in
connection therewith. All such reports shall be timely filed with
the insurance company as required under the terms of the
insurance policy involved. Without obtaining the prior written
approval of Owner, which may be granted or withheld in Owner's
sole discretion, Development Manager shall not settle any claims
against insurance companies arising out of any policies or take
any other action in connection with such settlements, including
the execution of proofs of loss, the adjustment of losses,
signing of receipts and collection of money. The cost of the
insurance and all premiums therefor shall be paid out of funds on
deposit from time to time in the Property Account, as provided in
Sections 3.7 and 3.8 hereof, except for fidelity bond insurance
which shall be the sole responsibility of, and at the sole
expense of, Development Manager. Development Manager shall
assist Owner in completing any insurance applications,
questionnaires, etc. reasonably requested by Owner or Owner's
insurance agent or insurance company.
3.6 Development Budgets; Business Plans. Notwithstanding
the delivery and approval of the Development Budget and Business
Plan attached as exhibits to this Agreement, Development Manager
shall prepare the items described herein.
(a) Initial Development Budget and Business Plan.
Within fifteen (15) days after the Effective Date hereof,
Development Manager shall submit to Owner, for Owner's approval,
in Owner's sole discretion, a proposed initial development budget
and business plan for the Property, which proposed development
budget and business plan shall reflect thereon projections of all
receipts (if any) and operating costs and expenses, capital
expenditures and reserves that Development Manager, in the
exercise of good business judgment, believes will be received or
necessary to be incurred, as the case may be, to develop,
operate, manage, maintain and sell the Property during calendar
year 2001. Owner shall promptly notify Development Manager of
any objections to the proposed initial development budget or
business plan, and Development Manager and Owner shall negotiate
in good faith to resolve any such objections. In the event that
Owner shall not have approved the proposed initial development
budget and business plan delivered pursuant to this Subsection
3.6(a), in Owner's sole discretion, within thirty (30) days after
receipt thereof, this Agreement shall be deemed terminated and of
no further force and effect, the Development Manager Cash
Consideration paid to Owner shall be refunded promptly to
Development Manager without interest or other yield, this
Agreement shall terminate automatically and the parties hereto
shall have no further liabilities or obligations hereunder,
except as set forth in Section 5.6 hereof.
(b) Annual Development Budget and Business Plan. On
or prior to November 1 of each calendar year during the Term
hereof, commencing on November 1, 2001, Development Manager shall
submit to Owner, for Owner's approval, a proposed development
budget and business plan for the Property on an annual basis for
the upcoming calendar year, which proposed development budget and
business plan shall reflect thereon projections of all receipts
(if any) and operating costs and expenses, capital expenditures
and reserves that Development Manager, in the exercise of good
business judgment, believes will be received or necessary to be
incurred, as the case may be, to develop, operate, manage,
maintain and sell the Property during such calendar year. Such
proposed development budgets and business plans shall be
submitted by Development Manager solely as good faith estimates,
without warranty of their accuracy or attainability; provided,
however, that, except as otherwise expressly provided in this
Agreement, Development Manager shall not be reimbursed by Owner
for, and Development Manager hereby expressly indemnifies Owner
against, any and all loss, cost, damage, expense or claim in
connection with any unauthorized expenditure or liability
incurred by any action taken by Development Manager.
(c) Contents. Without limiting the foregoing, each
development budget and business plan proposed by Development
Manager pursuant to Subsections 3.6(a) and 3.6(b) above shall
include between them: (i) a projected income statement for the
Property, (ii) a projected balance sheet for the Property, (iii)
a schedule of projected operations and cash flow, (iv) a
reasonable estimate and projected budget of gross receipts and
operating expenses, itemized in a manner acceptable to Owner, (v)
a projected budget for capital expenditures and replacements,
(vi) an identification of staffing to be employed, (vii) separate
estimates of the Management Fee, Development Fee and Brokerage
Commissions, (viii) a narrative description of the program for
the development and marketing of the Property, and (ix) any and
all other matters reasonably requested by Owner.
(d) Owner Approval. Owner shall, within thirty (30)
days after receipt of a proposed development budget and business
plan delivered pursuant to Subsection 3.6(b) above, approve or
disapprove such development budget and business plan in its sole
discretion. Owner shall provide Development Manager written
notice of its approval or disapproval; provided, that in the
event Owner fails to do so, the Development Budget or Business
Plan, as the case may be, from the previous year shall control
until a new development budget or business plan is approved.
Within fifteen (15) days after Owner submits any objection to the
proposed development budget or business plan, Development Manager
shall submit a revised development budget or business plan to
Owner, as the case may be. As used herein, the defined terms
"Business Plan"and "Development Budget"shall refer to the then-
current Development Budget and Business Plan as approved by Owner
and as amended and/or modified from time to time with Owner's
approval.
(e) Owner's Amendments to Development Budget and
Business Plan. Owner may, from time to time, submit to
Development Manager, for Development Manager's approval, proposed
amendment(s) to the Development Budget and/or Business Plan.
Development Manager shall, within fifteen (15) days after receipt
of a proposed amendment to the Development Budget or Business
Plan, provide Owner with written notice of its approval or
disapproval of such amendment. Owner and Development Manager
shall use good faith efforts to agree upon any such amendment;
provided, however, that in the event the parties fail to agree,
such amendment shall nevertheless become effective within sixty
(60) days after first proposed by Owner. The Development
Manager's failure to agree to any such amendment proposed by
Owner shall not be grounds for termination of this Agreement by
Owner.
3.7 Owner Account and Property Account.
(a) Owner Account. Development Manager shall
establish and maintain in a banking or other financial
institution approved by Owner or set forth in the Business Plan
from time to time throughout the Term of this Agreement, a
separate bank or similar account in the name of, and under the
sole dominion and control of, Owner for the deposit of all moneys
received with respect to the Property (the "Owner Account").
Development Manager shall also establish such other special bank
or similar accounts as may be approved by Owner. All revenue
from the Property, including without limitation all sales
proceeds, rent receipts, royalties, user fees, commissions,
forfeited deposits, insurance proceeds, condemnation or
litigation awards and all interest earned on any of the
foregoing, shall be promptly deposited in the Owner Account.
Development Manager shall not have the right or authority,
express or implied, to withdraw any funds from the Owner Account
at any time. Owner shall not withdraw any funds from the Owner
Account, except as required pursuant to Section 3.7(a) hereof,
until the earlier of (a) the commencement of the first
Distribution Period, or (b) termination of the Term hereof in
accordance with the terms of Section 5.3 hereof; provided,
however, that Owner shall have the right from time to time, in
consultation with Development Manager, to withdraw funds from the
Owner Account to repay principal under the Project Mortgage Loan.
(b) Property Account. Development Manager also shall
establish and maintain in a banking or other financial
institution approved by Owner or set forth in the Business Plan
from time to time throughout the Term of this Agreement, a
separate bank or similar account in the name of Owner to process
funds as described in Section 3.8 (the "Property Account").
Development Manager shall be entitled to make withdrawals from,
or draw checks upon, the Property Account to pay operating
expenses of the Property in accordance with the terms and
conditions of this Agreement.
3.8 Disbursements by Owner to Development Manager.
(a) Monthly Payments. On or before the twentieth
(20th) day of each calendar month, Development Manager shall
deliver to Owner a written request for disbursement, setting
forth, in reasonable detail, the costs and expenses reasonably
estimated to be paid by Development Manager for the upcoming
calendar month, together with any other working capital needs of
the Property for the upcoming calendar month, in each case, in
accordance with the Development Budget (the "Required Monthly
Funds"). Development Manager shall also submit reasonable
substantiation as requested by Owner for all requested
disbursements. In the event that any requested disbursement is
not consistent with, or in compliance with, the Development
Budget, Development Manager shall set forth such requested
disbursements in a separate report and shall set forth a brief
explanation for the reason for such discrepancy. Each such
written request for Required Monthly Funds shall also include
Development Manager's calculation of the monthly Management Fee
payable for the preceding calendar month, and a reasonable
estimate of the amount of revenues expected to be received in the
upcoming calendar month from sales of homesites and other
portions of the Property and the amount of any Brokerage
Commissions payable in connection with such sales. On or before
the first (1st) day of the month for which the particular request
for the Required Monthly Funds is made, Owner shall transfer, via
wire transfer, from the Owner Account to the Property Account the
amount of any shortfall between the amount of the Required
Monthly Funds approved by Owner for such calendar month and the
balance of available funds, if any, on deposit in the Property
Account. Owner and Development Manager hereby acknowledge and
agree that if there are insufficient funds in the Property
Account and the Owner Account to fund the entire amount of
Required Monthly Funds for any month, then the amount of such
shortfall shall be funded with proceeds drawn under the Project
Mortgage Loan, provided that all such expenses are authorized in
the Development Budget. To the extent that funds are not
available under the Project Mortgage Loan or the expenses for
which funds are required are not authorized in the Development
Budget, then Development Manager shall fund the amount of such
shortfall to Owner under the Project Unsecured Loan, provided
that such unbudgeted expenses are due to change orders approved
by Owner or to circumstances which could not have been reasonably
foreseen by an experienced and prudent manager of development of
a project similar to the Property. To the extent that funds are
required for unbudgeted expenses that are not due to change
orders approved by Owner or unforeseeable circumstances as
provided in the preceding sentence, then, notwithstanding that
funds may be available under the Project Mortgage Loan,
Development Manager shall be solely responsible to fund the
amount of such shortfall without reimbursement or repayment.
Owner shall not be required under any circumstance to incur any
out-of-pocket expenses in connection with the development,
operation, management, maintenance and sale of the Property.
(b) In the event that any portion of the Required
Monthly Funds are required to be drawn under the Project Mortgage
Loan, Development Manager shall prepare a draw request in the
manner required by the lender of the Project Mortgage Loan and
shall submit such draw request to Owner for Owner's approval, at
the same time that the related written request for Required
Monthly Funds is submitted to Owner. If the draw request is
approved by Owner, Owner shall direct that the requested proceeds
be disbursed directly into the Property Account.
(c) Emergency Withdrawals. Development Manager shall
only be entitled to make withdrawals from the Property Account in
accordance with the Development Budget or the Business Plan or in
connection with a bona fide emergency due to casualty or act of
God under circumstances in which it would be unreasonable to seek
to obtain Owner's approval, in which case Development Manager
shall be entitled to exceed, by a reasonable amount, the amounts
set forth in the Development Budget in order to address such bona
fide emergency situation; provided that, within two (2) Business
Days after such emergency, Development Manager shall fully inform
Owner in writing of the circumstances surrounding such situation
and obtain, on a "going-forward"basis only, Owner's approval
with respect to Development Manager's handling of similar
emergency events at the Property in the future. It is understood
that any action taken by Development Manager under this Section
3.8(b) in connection with any particular emergency event shall be
considered as being within Development Manager's scope of
authority under this Agreement but shall not create any precedent
or duty on the part of Development Manager or Owner to take any
action in connection with any future event. Nothing contained in
this Section 3.8(b) or elsewhere in this Agreement is intended to
provide any benefit to any third parties who are not parties
hereto, or successors or permitted assigns of parties hereto, or
impose upon Development Manager or Owner any duty or obligation
to any third parties who are not parties hereto, or successors or
permitted assigns of parties hereto, nor shall it have the effect
of giving any enforceable rights to any third parties who are not
parties hereto or successors or permitted assigns of parties
hereto, whether such claims are asserted as third party
beneficiary rights or otherwise.
3.9 Costs Not Reimbursed to Development Manager. Unless
otherwise provided herein, Owner shall not be obligated to
reimburse Development Manager for the payment by Development
Manager of (a) any expense for office equipment or office
supplies of Development Manager other than those used on the
Property and approved in writing by Owner; (b) any overhead
expenses of Development Manager incurred in its general offices;
(c) unless otherwise consented to by Owner in writing, any
salaries, wages and expenses for any personnel, including,
without limitation, personnel spending all or a portion of their
working hours at or providing services to the Property
specifically performing Development Manager's duties hereunder;
(d) the cost of fidelity insurance; (e) any accounting costs or
overhead costs incurred in connection with the preparation and
delivery of the statements and reports required hereunder; or (f)
any travel costs incurred by Development Manager not specifically
provided for in the Development Budget.
3.10 Records; Reporting.
(a) Records. All statements, receipts, invoices,
checks, leases, contracts, worksheets, financial statements,
books and records, and all other instruments and documents
relating to or arising from the development, operation or
management of the Property shall be the property of Owner;
provided, that throughout the Term of this Agreement, all of such
items shall be maintained by Development Manager at Development
Manager's offices in Austin, Texas in a manner consistent with
the terms of this Agreement and with books and records
customarily maintained by managing agents of properties similar
to the Property. Owner shall have the right to inspect and to
copy all such items, at Owner's expense, at all reasonable times,
and from time to time, during the term of this Agreement. Upon
the termination of this Agreement, all of such books, records and
all other information relating to the Property promptly shall be
delivered to Owner; provided, however, that at Development
Manager's sole expense, Development Manager or its
representatives shall have the right, for a reasonable period of
time not to exceed three (3) years following such termination, to
inspect such books, records and other information for data that
directly relates to the period during which Development Manager
managed the Property and to make copies thereof, at Development
Manager's expense, at the offices of Owner upon reasonable
advance notice to Owner.
(b) Statements. Development Manager shall prepare
and deliver to Owner on a monthly basis, Development Manager's
written estimates of the amounts, if any, by which any categories
of the Development Budget must be adjusted to adequately fund the
development, operation, management, maintenance and/or sale of
the Property for the then current month, although Owner shall be
under no obligation to change the Development Budget. Such
reports shall include the following information: (i) a statement
of operations on the Property during such month and the cost
thereof, (ii) a statement of year-to-date operations on the
Property, and the cost thereof, (iii) a statement of the actual
cost of operations on the Property during such month, compared to
the Development Budget which identifies any variance between such
costs and the Development Budget, and (iv) a description and
explanation of such variances. Development Manager also shall
furnish Owner, within thirty (30) days after Owner's request,
such further information covering the operation and maintenance
of the Property as Owner may reasonably require, including
without limitation the following: (i) income statement (accrual
basis for taxes and insurance), month and year-to-date versus
Development Budget; (ii) variance report (narrative form, month
and year-to-date), (iii) balance sheet, (iv) general ledger,
(v) rent roll (including security deposit listing), if
applicable, (vi) accounts receivable aging report, (vii) bank
reconciliation for each account, (viii) calculation of Management
Fee, (ix) schedule of reserve and escrow accounts, (x) schedule
of capital expenditures, (xi) a re-forecast report, on a monthly
basis, of current full year operations compared to the
Development Budget with explanations for all material variances,
(xii) a marketing qualitative summary of property operations for
the preceding month including comments on revenues, expenses,
marketing, leases, competition, legal and other issues affecting
the Property, and (xiii) any and all other reports reasonably
requested by Owner.
(c) Annual Accounting Report. Development Manager
agrees (i) to deliver to Owner, within twenty (20) days after the
end of each fiscal year, an annual accounting report (including
balance sheet, income statement and other financial statements),
showing the results of gross receipts, gross operating expenses,
net operating income, net cash flow [and the Property Management
Fee which would be payable if the Agreement were terminated as of
the end of such fiscal year] and any other information necessary
to make the computations required hereby or which may be
requested by Owner, all for such fiscal year and (ii) to
cooperate fully with Owner, at no additional expense to
Development Manager, but without limiting Development Manager's
obligations under Section 3.10(e), in supplying all of the
information and documentation necessary for a nationally
recognized firm of certified public accountants selected by Owner
(the "Auditor") to prepare and deliver to Owner an audit of the
annual accounting report provided by Development Manager to Owner
pursuant to this Section 3.10(c) within forty-five (45) days
after the end of each fiscal year.
(d) Additional Fiscal Reports. Development Manager
shall, upon the request of Owner, prepare for Owner or assist
Owner in the preparation of such additional financial reports
with respect to the Owner or the Property as Owner may reasonably
request or may be required in the preparation of the audited
annual accounting to be prepared pursuant to this Section 3.10.
Development Manager acknowledges and agrees that the Property
Management Fee to be paid under this Agreement includes
compensation to Development Manager for the preparation of papers
and schedules reasonably necessary for the Auditor to conduct its
review of the Property's books and records. To the extent such
papers and schedules are not properly prepared, Development
Manager agrees to reimburse Owner for the reasonable additional
cost and expense incurred by Owner for the Auditor to prepare
such papers or schedules.
(e) No Liability for Returns Required by Law.
Development Manager shall be responsible for preparing and filing
any forms, reports or returns (except Owner's income tax returns)
that may be required by law relating to the Property. Development
Manager shall also be responsible for any forms, reports or
returns that may be required by law relating to any of
Development Manager's employees.
3.11 Compliance with Legal Requirements. Development
Manager shall take such action as may be necessary to comply with
any and all orders or requirements affecting the Property by any
federal, state, county or municipal authority having jurisdiction
thereover. Development Manager, however, shall not take any such
action as long as Owner is contesting, or has affirmed Owner's
intention to contest and institutes proceedings contesting, any
such order or requirement, except that if failure to comply
promptly with any such order or requirement would or might expose
Development Manager to criminal liability, Development Manager
shall comply with same. Development Manager shall promptly notify
Owner in writing of all such orders and notices or requirements.
Nothing contained herein shall require Development Manager to
employ counsel to represent Owner in any such proceeding or suit.
3.12 Taxes. Development Manager shall timely render the
Property for taxation, and obtain and verify bills for real
estate, personal property, and all other taxes and assessments,
if any, against the Property and promptly pay such tax bills and
any other Impositions (as defined below), and assist and
cooperate with Owner in connection with all such taxes and
assessments in all ways reasonably requested by Owner including
applications or petitions of Owner for reduction of taxes or
assessments. Owner shall have the option but not the obligation
to employ a third party consultant to accomplish the foregoing,
in which event, Development Manager shall assist and cooperate
with such consultant. As used herein, "Impositions"shall mean
all taxes, assessments, special assessments, rents and charges
for any easement or agreement maintained as part of or for the
benefit of the Property, use and occupancy taxes and charges,
water and sewer for public and private utilities, excises,
levies, license and permit fees and other governmental charges,
general and special, ordinary and extraordinary, unforeseen and
foreseen, of any kind and nature whatsoever which at any time
prior to or during the term of this Agreement may be assessed,
levied, confirmed, imposed upon or grow or become due and payable
out of or in respect of, or become a lien on (i) the Property or
any part thereof or any appurtenances thereto, or upon any
personal property located, or used in connection with, the
Property, (ii) the rent, income or other payments (if any)
received by or for the account of Owner or anyone claiming by,
through or under Owner, (iii) any use or occupation of the
Property, (iv) such franchises, licenses and permits as may be
appurtenant to the use of the Property, and (v) any document to
which Owner is a party transferring an interest or estate in the
Property.
ARTICLE IV
COMPENSATION TO DEVELOPMENT MANAGER
4.1 Management Fee. In consideration for the performance of
Development Manager's duties and responsibilities under this
Agreement, and in exchange for its services provided to Owner and
the Property and reimbursement of its reasonable overhead
expenses, Development Manager shall be entitled to receive a
property management fee (the "Management Fee") in an amount equal
to five and one-half percent (5.5%) of the aggregate amount of
direct development costs actually incurred in connection with the
Property as set forth in the Development Budget during the Term
of this Agreement, excluding the cost of land, any interest,
principal or other amounts payable in connection with the Project
Loans and any other indebtedness and any costs reimbursed to
Development Manager in accordance with the terms hereof or as
otherwise approved by Owner. The Management Fee shall be payable
monthly in arrears, calculated on the basis of the aggregate
amount of qualifying costs paid in the previous calendar month.
4.2 Development Fee. In addition to the Management Fee,
Development Manager shall be entitled to receive a development
fee (the "Development Fee"), in an amount equal to (a) twenty-
eight percent (28%) of available Cash Flow, until Development
Manager shall have received a Development Fee in an aggregate
amount equal to the amount of interest that would have accrued on
the Development Manager Cash Consideration if the same bore
interest at a rate of eighteen percent (18%) per annum, and Owner
shall have received from available Cash Flow an amount equal to
the amount of interest that would have accrued on the Owner's
Residual Value if the same bore interest at a rate of eighteen
percent (18%) per annum, and (b) thereafter, either (x) forty
percent (40%) of available Cash Flow in the event that the
Property is sold in a Single Purchaser Transaction, or (y) fifty
percent (50%) of available Cash Flow in all other cases, subject
in any case to the terms and conditions hereof. The Development
Fee shall not be payable until Completion and payment in full of
all principal, interest and other charges payable under the
Project Mortgage Loan and the Project Unsecured Loan. On or
before the twentieth (20th) calendar day after the end of the
first and each subsequent Distribution Period, Development
Manager shall deliver to Owner a written statement of the amount
of Cash Flow, if any, generated in such Distribution Period, and
the amount, if any, of the Development Fee accrued during such
Distribution Period. No later than thirty (30) calendar days
after the end of such Distribution Period during which the
Property has generated Cash Flow, Owner shall transfer, via wire
transfer, from the Owner Account to an account or accounts as may
be designated in writing by Development Manager, after payment of
all third party obligations, the Development Fee payable to
Development Manager for such Distribution Period. The
Development Fee, if any, shall be payable in arrears. In the
event that there is no Cash Flow for any Distribution Period, no
Development Fee shall be payable for such Distribution Period.
4.3 Brokerage Commissions. In addition to the Management
Fee and Development Fee, Development Manager shall be entitled to
receive sales commissions (a "Brokerage Commission") with respect
to consummated sales of homesites and other portions of the
Property, calculated at the rates set forth below:
(a) Six percent (6%) of "gross sales price"(hereinafter
defined) for sales, other than a Single Purchaser Transaction, in
which no cooperating broker or agent participates; or
(b) Four percent (4%) of gross sales price for a Single
Purchaser Transaction in which no cooperating broker or agent
participates; or
(c) Six percent (6%) of gross sales price for all sales,
including a Single Purchaser Transaction, in which the purchaser
is represented by one or more cooperating brokers, in which event
Development Manager shall be entitled to a portion thereof in an
amount not to exceed three percent (3%) of gross sales price,
with the balance thereof (not to exceed 6% in the aggregate)
being payable to the cooperating broker(s).
If one or more cooperating broker(s) is involved in a sales
transaction, Development Manager shall be solely responsible for
paying a market rate commission or fee to such cooperating
broker(s), and shall indemnify and hold Owner harmless from and
against any and all claims by such cooperating broker(s). As
used in this Section, the term "gross sales price"shall mean the
actual cash price paid by the purchaser at closing for the home
site or other portion of the Property, including the amount of
any financing assumed or obtained by such purchaser in connection
with such purchase. The Brokerage Commission with respect to any
sale shall be earned and payable at closing and upon the
conveyance of title to such homesite or other portion of the
Property.
4.4 Termination; Waiver of Lien Rights. Notwithstanding
anything in this Agreement to the contrary, in the event of a
termination of this Agreement as provided in Sections 5.3, 5.4 or
5.5 of this Agreement or elsewhere herein, any Management Fee and
Brokerage Commissions payable to Development Manager as of the
date of termination, and any Development Fee, whether payable
prior or subsequent to the date of termination, shall be paid to
Development Manager when due. Except as set forth in the
immediately preceding sentence, from and after the date of
termination of this Agreement, Development Manager shall not be
entitled to any further Management Fee or Brokerage Commissions.
Except as set forth in the following Section, Development
Manager, for itself and on behalf of its personnel providing
services under this Agreement, hereby waives any right now
existing or hereafter arising to file any lien against all or any
portion of the Property for any fees, costs, commissions or other
compensation payable under this Agreement.
4.5 Development Manager's Lien. In consideration of the
performance of the duties and obligations of Development Manager
as set forth herein and to evidence the payment of any Management
Fee, Development Fee and Brokerage Commissions payable to
Development Manager, Owner hereby agrees to execute and record a
Memorandum of this Agreement in the form attached hereto as
Exhibit "E" and incorporated herein by this reference, which
shall be subordinate in all respects to the mortgage and other
security documents securing the Project Mortgage Loan.
ARTICLE V
RELATIONSHIP OF DEVELOPMENT MANAGER TO OWNER
5.1 Use and Maintenance of Premises. Development Manager
shall employ its best efforts to develop, operate, manage,
maintain and sell the Property in a manner (referred to herein as
the "Management Standard") consistent with (i) first class
standards consistent with the Business Plan and the Development
Budget, (ii) prudent business and management practices applicable
to the development, operation, management, maintenance and sale
of all or any portion of the Property, and (iii) the requirements
of any deeds of trust and other loan documents, certificates of
occupancy, permits, licenses, consents or other recorded or
unrecorded agreements now or hereafter affecting the Property
(collectively referred to herein as the "Key Documents"), or as
otherwise reasonably required by Owner. Development Manager
shall use all contacts, discount programs and cost-savings
measures at its disposal to obtain services, products and tax and
insurance rates for the Property at the lowest cost, without
sacrificing the quality of such services or products. Development
Manager shall perform such other acts and deeds as are
reasonable, necessary and proper in the discharge of its duties
under this Agreement. Subject to the prior written approval of
Owner, Development Manager may obtain goods or services for the
Property from direct or indirect affiliates of Development
Manager, its officers, directors, shareholders or employees, but
only if such goods and services are of at least equal quality and
of no higher prices than comparable goods and services obtainable
from unaffiliated parties and such goods and services are
otherwise competitive with comparable goods and services.
5.2 Sale or Refinancing of the Property. Development
Manager shall assist and cooperate in any attempt(s) by Owner to
sell, finance or refinance all or any portion of the Property.
Such assistance and cooperation by Development Manager and
Development Manager's personnel shall not be deemed to create a
broker, principal or similar relationship. Such assistance and
cooperation shall include, without limitation, answering
prospective purchasers' or lenders' questions about the Property
or any portion thereof and, if applicable, preparing rent rolls,
notifying tenants about the sale of the Property and obtaining
estoppel certificates and other documents from all tenants of the
Property in the form required by the prospective purchaser or
lender. Development Manager shall also provide, promptly upon
request by Owner, (a) an estoppel certificate executed by
Development Manager certifying that no uncured default by the
Owner exists under this Agreement or, if such a default(s)
exists, stating the nature thereof, (b) a certificate in favor of
Owner and any lender executed by Development Manager confirming,
to the best of Development Manager's actual knowledge, that any
representations and warranties made (or to be made) by Owner with
respect to the Property, or the condition or operation thereof,
in any loan documents executed (or to be executed) by Owner in
connection with any sale, financing or refinancing of the
Property, are substantially true, correct and complete, or, if
not substantially true, correct or complete, stating with
particularity why such representations and warranties are not
substantially true, correct or complete, and (c) a subordination
and attornment agreement executed by Development Manager in
accordance with the provisions of Section 6.9 of this Agreement.
5.3 Term. This Agreement shall commence on the Effective
Date and shall continue until the earlier to occur of (a) the
last day of the calendar month in which the third (3rd)
anniversary of the Effective Date occurs, (b) such time as this
Agreement is terminated for Cause (as herein defined), or (c)
such time as this Agreement is terminated upon the mutual
agreement of the parties. The entire term of this Agreement is
sometimes herein referred to as the "Term."
5.4 Termination by Owner. Owner, at its option, may
terminate this Agreement for "Cause"at any time upon giving
written notice thereof. The term Cause shall include (a) any
fraud, misrepresentation or misappropriation of funds by
Development Manager, or the furnishing of any statement, report,
notice, writing or schedule to Owner that Development Manager
knows, or reasonably should have known, is untrue or misleading
in any material respect on the date as of which the facts set
forth therein are stated or certified or the date such statement,
report, notice, writing or schedule is furnished to Owner, (b)
the failure of Development Manager to comply with any term or
condition of this Agreement (except for breach of the Management
Standard) and such failure continues for a period of thirty (30)
days after written notice thereof by Owner to Development
Manager, provided that if such default is not reasonably
susceptible of cure within thirty (30) days, then such reasonable
time so long as Development Manager is diligently prosecuting the
cure of the default, but in no event longer than ninety (90)
days, (c) the bankruptcy or insolvency of, the assignment for the
benefit of creditors by, or the appointment of a receiver for any
of the property of, Development Manager, (d) the sale or other
disposition of all or part of the Property or Owner's interest
therein; provided that in the case of a partial sale, termination
will only apply to those portions of the Property sold, (e) the
failure of Development Manager to cure a grossly negligent or
illegal act committed by Development Manager against Owner and
such failure continues for a period of ten (10) days after
written notice thereof by Owner to Development Manager, (f) the
failure of Development Manager to cure Development Manager's
willful and/or reckless misconduct that causes damage to Owner
and such failure continues for a period of ten (10) days after
written notice thereof by Owner to Development Manager, or (g)
the failure of Development Manager to perform its duties
consistent with the Management Standard as reasonably determined
by Owner, and such failure continues for a period of thirty (30)
days following the date Owner sends written notice to Development
Manager specifying in reasonable detail the reasons Owner
believes Development Manager has not performed its duties
consistent with the Management Standard.
5.5 Termination by Development Manager. Development Manager,
at its option, may terminate this Agreement (a) for the failure
of Owner to comply with any term or condition of this Agreement
and such failure continues for a period of thirty (30) days after
written notice thereof by Owner to Development Manager, provided
that if such default is not reasonably susceptible of cure within
thirty (30) days, then such reasonable time so long as Owner is
diligently prosecuting the cure of the default, but in no event
longer than ninety (90) days; or (b) in the event that an
amendment to the Development Budget or the Business Plan proposed
by Owner and disapproved by Development Manager nevertheless
becomes effective pursuant to the terms of Subsection 3.6(e)
hereof, provided that such amendment does not result from a
breach or default by Development Manager of any of the terms
hereof or from circumstances which should have been reasonably
foreseeable by an experienced and prudent manager of development
of a project similar to the Property, and provided further that
such termination shall not become effective until thirty (30)
days after delivery of written notice thereof from Development
Manager to Owner, which shall not be delivered until after the
effective date of such amendment. Notwithstanding a termination
of this Agreement by Development Manager pursuant to this Section
5.5, Development Manager shall be entitled to receive the
Development Fee as and when the same would otherwise be payable
hereunder.
5.6 Obligations Upon Termination.
(a) Upon termination of this Agreement, each party
shall continue to be fully liable for their respective
obligations which have accrued up to and including the
termination date and shall promptly pay to the other all amounts
due to the other party under the terms of this Agreement. Such
payment shall be made as soon after the effective date of
termination as such amounts are determinable. Upon such payment,
neither party shall have any further claim or right against the
other, except as expressly provided herein.
(b) In the event of termination of this Agreement,
upon the effective date of such termination, Development Manager
shall (i) surrender and deliver to Owner all revenue from the
Property (as described in Section 3.7(a) hereof), if any, and
other monies of Owner then held by Development Manager and/or in
any bank account (including, without limitation, the Owner
Account and the Property Account), (ii) deliver to Owner as
received by Development Manager any monies or other property due
Owner under this Agreement but received after such termination,
and (iii) deliver to Owner everything then held by Development
Manager pertaining to the Property, including, without limitation
copies of all books, records, keys and all other materials,
property and supplies pertaining to the Property and/or this
Agreement.
5.7 Negation of Partnership, Joint Venture or Lease.
Nothing in this Agreement shall constitute, or be construed to be
or to create, a partnership, joint venture or lease between Owner
and Development Manager with respect to the Property. In the
performance of this Agreement, Development Manager shall act
solely as an independent contractor. Neither this Agreement nor
any agreements, instruments, documents or transactions
contemplated hereby shall in any respect be interpreted, deemed
or construed as making either party a partner, joint venturer,
principal or agent with, or with respect to, the other party or
as creating any similar relationship or entity, and each party
hereto agrees that it will not make any contrary assertion,
contention, claim or counterclaim in any action, suit or other
legal proceedings involving Development Manager and Owner.
Nothing in this Agreement shall be deemed or construed to create
in, or convey to, Development Manager any interest in the
Property, and Development Manager expressly hereby waives any
claim of right or interest in or to the Property, and further
hereby waives any right to file a lis pendens, lien or other
encumbrance against the Property at any time and for any reason.
5.8 Indemnification. Development Manager shall be liable
for and shall indemnify and hold harmless Owner (and each
partner, venturer, employee, agent, shareholder, director and
officer of Owner) from any and all loss, damage, liability, cost
or expense (including reasonable attorneys' fees) arising out of
(i) any breach by Development Manager of Development Manager's
obligations hereunder, including, without limitation any breach
of the Management Standard, or (ii) the negligence or willful
misconduct of Development Manager. Owner shall indemnify and hold
harmless Development Manager (and each employee, agent, director,
shareholder are officer of Development Manager) from any and all
loss, damage, liability, cost or expense (including reasonable
attorneys' fees) arising out of (x) a breach by Owner of Owner's
obligations hereunder, or (y) Owner's negligence or willful
misconduct.
5.9 Owner's Limited Liability. No general or limited
partner in or of Owner, whether direct or indirect, or any
disclosed or undisclosed officers, shareholders, principals,
directors, employees, partners, servants or agents of Owner or
any of the foregoing or any investment advisor of Owner
(including any assignee or successor of Owner) or other holder of
any equity interest in Owner, shall be personally liable for the
performance of Owner's obligations under this Agreement. Owner
shall not be liable for, and Development Manager expressly hereby
waives any right to make a claim for, any consequential or
punitive damages. The liability of Owner (including any assignee
or successor of Owner) for Owner's obligations hereunder shall be
limited solely to the equity interest of Owner in the Property.
5.10 Development Manager's Limited Liability. No general or
limited partner in or of Development Manager, whether direct or
indirect, or any disclosed or undisclosed officers, shareholders,
principals, directors, employees, partners, servants or agents of
Development Manager or any of the foregoing or any investment
advisor of Development Manager (including any assignee or
successor of Development Manager) or other holder of any equity
interest in Development Manager, shall be personally liable for
the performance of Development Manager's obligations under this
Agreement. Development Manager shall not be liable for, and
Owner expressly hereby waives any right to make a claim for, any
consequential or punitive damages.
ARTICLE VI
MISCELLANEOUS
6.1 No Assignment by Development Manager, Etc. Without the
prior written consent of Owner, which consent may be granted or
withheld in Owner's sole discretion, Development Manager shall
not have the right to assign, transfer or convey any of
Development Manager's right, title or interest hereunder, nor
shall Development Manager have the right to delegate any of the
obligations or duties required to be kept or performed by
Development Manager hereunder, nor shall Development Manager
assign, transfer or hypothecate any interest of Development
Manager in the Management Fee or the Development Fee to any
party, including without limitation as collateral security for
any indebtedness. For purposes hereof, any event (whether
voluntary or involuntary) resulting in a dissolution, merger,
consolidation or reorganization of Development Manager, or the
sale or transfer of any controlling interest therein, without the
prior written consent of Owner in each instance, shall be deemed
to be an assignment in violation of this Section.
6.2 Notices. All notices, demands, consents, approvals
and requests given by either party to the other hereunder shall
be in writing and sent via the U.S. Postal Service by registered
or certified mail, postage prepaid or via a nationally recognized
overnight delivery service (e.g. Federal Express) and addressed
to the appropriate party at the respective addresses shown below.
All such notices shall be deemed given on the earlier of actual
receipt or refusal of receipt by the addressee. The respective
addresses and additional notice parties are as follows:
If to Owner: Commercial Lakeway Limited Partnership
c/o Credit Suisse First Boston Mortgage Capital LLC
277 Park Avenue
New York, New York 10172
Attn: Lawrence Goland
With a copy to: Commercial Lakeway Limited Partnership
c/o Credit Suisse First Boston Mortgage Capital LLC
Eleven Madison Avenue
New York, New York 10172
Attn: Pamela McCormack, Esq.
And a copy to: Shaw Pittman
2300 N Street, N.W.
Washington, D.C. 20037
Attn: Thomas R. Petty, Esq.
If to Development Stratus Properties Inc.
Manager: 98 San Jacinto Boulevard, Suite 220
Austin, Texas 78701
Attn: William H. Armstrong, III
With a copy to: Arbrust Brown & Davis, L.L.P.
100 Congress Avenue, Suite 1300
Austin, Texas 78701
Attn: Kenneth N. Jones
Any party may at any time change its respective address by
sending written notice to the other parties of the change in the
manner hereinabove prescribed.
6.3 GOVERNING LAW. THIS AGREEMENT IS BEING EXECUTED AND
DELIVERED AND IS INTENDED TO BE PERFORMED IN THE STATE OF TEXAS,
AND THE TERMS AND PROVISIONS HEREOF SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
6.4 Not a Third Party Beneficiary Contract. Neither this
Agreement nor any part hereof nor any service, relationship or
other matter alluded to herein shall inure to the benefit of any
third party (specifically including any lender, tenants or
contractors), to any trustee in bankruptcy, to any assignee for
the benefit of creditors, to any receiver by reason of
insolvency, to any other fiduciary or officer representing a
bankruptcy or insolvent estate of either party or to the
creditors or claimants of such an estate. In addition, this
Agreement shall terminate and be of no further force or effect
upon the filing of any bankruptcy petition by or against
Development Manager.
6.5 Validity. If any term or provision of this Agreement
or the application thereof to any person or circumstance shall,
to any extent, be invalid or unenforceable, the remainder of this
Agreement, or the application of such term or provision to
persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each
term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
6.6 Entire Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the matters
herein contained and any agreement hereafter made shall be
ineffective to effect any change or modification, in whole or in
part, unless such agreement is in writing and signed by the party
against whom enforcement of the change or modification is sought.
This Agreement shall bind, and inure to the benefit of, the
parties hereto and their respective successors, legal
representatives and assigns.
6.7 Attorneys' Fees. If either Owner or Development
Manager employs an attorney to enforce or defend its rights
hereunder, the prevailing party shall be entitled to recover its
reasonable attorneys' fees, costs and expenses incurred in
connection with such enforcement or defense.
6.8 INDEMNIFICATION PROVISIONS. THIS AGREEMENT CONTAINS
INDEMNIFICATION PROVISIONS SPECIFICALLY DESCRIBED IN SECTION 5.8
HEREOF.
6.9 Subordination. This Agreement and any extension
hereof shall be subordinate to any mortgage or similar security
instrument now or hereafter affecting the Property, and all
renewals, modifications, consolidations, replacements and
extensions thereof (a "Mortgage"). Development Manager further
agrees to attorn to the holder of any Mortgage or similar
security instrument affecting the Property, and any successor or
assignee thereof, upon Owner's being dispossessed by such holder
of Owner's interest in all or any portion of the Property. The
provisions of this Section 6.9 shall be self-operative and no
further instrument of subordination or attornment shall be
required. Development Manager shall execute promptly any
certificate or other document that Owner or any mortgagee or
other security holder may request as to such subordination and/or
attornment, which certificate or document may include such
customary and normal provisions as Owner may determine in its
sole discretion. In the event that Development Manager fails to
execute and deliver such certificate or document on or before
five (5) business days after written notice to Development
Manager by Owner, then without any further notice and opportunity
to cure, such failure by Development Manager shall be deemed to
be an event for Cause hereunder.
6.10 Representations, Warranties and Covenants of
Development Manager. In order to induce Owner to enter into
this Agreement, Development Manager hereby represents and
warrants to, and covenants and agrees with, Owner as follows:
(a) Development Manager is a Delaware corporation, is
duly formed and legally existing under the laws of the state of
its formation and is duly qualified to do business in the State
of Texas.
(b) Development Manager has full power and authority
to enter into this Agreement and to carry out the transactions
herein contemplated, and that the undersigned officers of
Development Manager have all necessary authority to execute and
deliver this Agreement on behalf of Development Manager.
(c) This Agreement has been duly executed and
delivered by Development Manager and constitutes the legal, valid
and binding obligations of Development Manager enforceable in
accordance with their terms, subject to laws applicable generally
to creditor's rights.
(d) Development Manager shall deliver to Owner, upon
the effective date hereof (i) a good standing certificate from
the State of Texas, and (ii) an incumbency certificate and
resolutions of Development Manager authorizing the execution and
delivery by Development Manager of this Agreement, certified by
an authorized officer of Development Manager as being true,
correct and complete.
(e) There is no claim, litigation, proceedings or
governmental investigation pending, or as far as is known to
Development Manager, threatened, against Development Manager or
relating to the Property or the transactions contemplated by this
Agreement which does, or may reasonably be expected to, affect
the ability of Development Manager to enter into this Agreement
or to carry out its obligations hereunder, and, to Development
Manager's actual knowledge, there is no basis for any such claim,
litigation, proceedings or governmental investigation.
(f) Neither the consummation of the actions contemplated by this
Agreement on the part of Development Manager to be performed, nor
the fulfillment of the terms, conditions and provisions of this
Agreement, conflicts with or will result in the breach of any of
the terms, conditions or provisions of, or constitute a default
under, any agreement, indenture, instrument or undertaking to
which Development Manager is a party or by which it is bound.
(g) Development Manager is familiar with and abides by all
Federal, state, local and other applicable laws, rules and
regulations with respect to (1) land sales, (2) real estate
settlement procedures, (3) non-discrimination based on race,
gender and otherwise, (4) the licensure and regulation of
brokers, agents and other real estate professionals generally,
and (5) all other obligations and services of Development Manager
under this Agreement. Development Manager covenants to comply
with all such laws, rules and regulations now and hereafter in
effect at all times during the Term of this Agreement.
Development Manager specifically hereby represents that it and
its personnel providing sales services hereunder are, to the
extent required by law, duly licensed, and covenants, at its sole
cost and expense, to obtain and keep in full force and effect
throughout the Term of this Agreement all licenses and permits
required to be maintained by Development Manager and its
personnel in connection with the rendering of services hereunder.
(h) The Development Budget attached hereto is accurate and
complete and is sufficient for the purposes of developing,
managing, maintaining, operating and selling the Property in
accordance with the Business Plan and the terms of this
Agreement, and Development Manager has obtained a bona fide,
binding and legally enforceable commitment for financing
satisfying the terms of this Agreement and sufficient to fund all
costs and expenses set forth on the Development Budget.
(i) The Business Plan attached hereto is feasible and can be
completed within the Term of this Agreement at an aggregate cost
not to exceed the Development Budget, and Development Manager is
not aware of any pending or threatened moratoria or proposed or
enacted laws, statutes, ordinances, regulations, rules or orders
which would limit the development, construction and sale of the
Property as contemplated in the Business Plan.
(j) All necessary and required inspections, approval, permits
and licenses have been obtained to permit, as a matter of right,
without special permit, special exception or variance, the
development of the Vista Royale - non-commercial tract into [131]
single-family homesites.
6.11 Publicity and Public Relations. Owner shall have the
exclusive right to control, manage and monitor all publicity and
public relations with respect to the Property or Owner's
ownership thereof.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, intending to be legally bound hereby,
the parties hereto have executed this Development Management
Agreement under seal as of the day and year hereinabove first
written.
WITNESS: OWNER:
COMMERCIAL LAKEWAY LIMITED
PARTNERSHIP,
a Delaware limited partnership
/s/ witness By: /s/ Edward J. Santoro
(Seal) -----------------------
Name: witness Name: Edward J. Santoro
Title: Director Title: Vice President
WITNESS: DEVELOPMENT MANAGER:
STRATUS PROPERTIES INC.,
a Delaware corporation
/s/ Kenneth N. Jones By:/s/ William H. Armstrong III
(Seal) ----------------------------
Name: Kenneth N. Jones Name: William H. Armstrong III
Title: General Counsel Title: President
Exhibit 15.1
April 27, 2001
Stratus Properties Inc.
98 San Jacinto Blvd.
Austin, TX 78701
Gentlemen:
We are aware that Stratus Properties Inc. has incorporated by reference
in its Registration Statements (File Nos. 33-78798, 333-31059 and 333-
52995) its Form 10-Q for the quarter ended March 31, 2001, which
includes our report dated April 27, 2001 covering the unaudited
interim financial information contained therein. Pursuant to Regulation
C of the Securities Act of 1933 (the Act), this report is not
considered a part of the registration statements prepared or certified
by our firm or a report prepared or certified by our firm within the
meaning of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP