exv10w3



 





Exhibit 10.3




IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS

SHERMAN DIVISION




	 	 	 	 	 
	SUNSET
MANAGEMENT, LLC,
	 	§	 	CIVIL ACTION NO. 4:06-CV-18
	 
	 	 	 	 
	 
	 	 	 	                Judge Schneider/Judge Bush
	Plaintiff/Counter-Defendant,
	 	 	 	 
	 
	 	 	 	 
	VS.
	 	§	 	 
	 
	 	 	 	 
	AMERICAN
REALTY INVESTORS, INC, et al.,
	 	§	 	 
	 
	 	 	 	 
	Defendants/Counter-Plaintiffs.
	 	§	 	 






FORBEARANCE AND SETTLEMENT AGREEMENT




     The Parties have agreed to the full and complete settlement of all disputes on
the basis of the Satisfaction outlined below or, at Borrowers’(as identified in the
signature block below) option, the Alternative Satisfaction, also outlined below.



  I.




GENERAL CONDITIONS




     1. The parties will cause a final judgment (the “Judgment”) to be entered in the
U.S. District Court for the Eastern District of Texas against all of the Borrowers in
the amount of $62,000,000, which will bear interest at the highest post-judgment rate
allowed by law. Pursuant to the agreement set forth below, Sunset Management, LLC
(“Sunset” or “Lender”) will forbear from enforcing said judgment on the terms set forth below (the “Forbearance
Agreement”). If: (a) all of the terms and conditions of the “Satisfaction” or “Alternative



FORBEARANCE AND SETTLEMENT AGREEMENT — Page 1




 









 




Satisfaction” are met; (b) no default in the payment of any sums due has occurred; and (c) no
other default has occurred that has not been cured within the applicable curative period
following notice of such default to Borrowers as provided for herein, then Sunset will file a
Satisfaction of Judgment within five (5) business days following the earlier of the following
dates: (i) the date that all of the terms of the Satisfaction or Alternative Satisfaction have
been fully performed by Borrowers; or (ii) the date that Lender is paid in full pursuant to
this Forbearance Agreement. In the event any of the terms of the Satisfaction or the
Alternative Satisfaction, as applicable, are not performed by Borrowers on or prior to the
date and time performance is required, then Sunset’s obligation to forbear will immediately
cease and Sunset shall be entitled to undertake execution for all sums due on the
aforementioned $62.0 million judgment plus post-judgment interest thereon and to pursue all
remedies allowed by law, including, without limitation, a private sale of the stock of
Transcontinental Realty Investors, Inc. pledged under the three Stock Pledge Agreements
(“Stock Pledge Agreements”) dated on or about September 17, 2001, described as the ART Stock
Pledge Agreement, BCM Stock Pledge Agreement and EQK Stock Pledge Agreement, as such terms are
defined in that certain Loan Agreement dated September 17, 2001 (“Loan Agreement”) among
certain of the Borrowers and Lender pursuant to the terms of such Stock Pledge Agreements.
Sunset will give written notice of the termination of its forbearance obligations under this
agreement by fax and Federal Express to Jay LaJone at 1750 Valley View Lane, Suite 120,
Dallas, Texas 75234, Fax # 204/853-5768. In determining default, time is of the essence, and
any default, not just a material default, will terminate Sunset’s duty to forbear.




     2. Until such time as all of the obligations of the Borrowers to Sunset have been fully
paid and performed, the aforementioned $62.0 million judgment and post-judgment interest



FORBEARANCE AND SETTLEMENT AGREEMENT — Page 2





 









 







thereon will be secured by; (a) a pledge (the “TCI Stock Pledge”) of not less than 44% of all of
the issued and outstanding capital stock of Transcontinental Realty Investors, Inc. (“TCI”) from
time to time; and (b) an assignment of all of the rights of Prime Income Asset Management, LLC,
Triad Realty Investors, L.P., Regis Realty I, LLC, and Syntek West, Inc. (“Replacement Managers”)
under the eight agreements referred to in Exhibit A attached hereto (“Replacement Agreements”) and
proceeds thereof. All of the provisions of the Loan Agreement, Stock Pledge Agreements, and the
Security Agreement dated September 17, 2001 as such terms are defined in the Loan Agreement
(“Security Agreement”) shall continue in full force and effect with respect to the obligations of
the Borrowers to pay the S62.0 million judgment and post-judgment interest thereon. In addition,
within twenty-one (21) days following the request of Sunset from time to time, the Borrowers will
execute and deliver all additional agreements and modifications of the existing agreements that
evidence and secure the obligations of each of the respective Borrowers to Sunset, including,
without limitation, the Loan Agreement, the Stock Pledge Agreements, and the Security Agreement,
reasonably requested and submitted to the Borrowers for execution by Sunset in order to evidence
and confirm the applicability of all of the provisions of the applicable Loan Agreement, Security
Agreement and Stock Pledge Agreements to the obligation of the Borrowers to pay the $62.0 million
judgment and post-judgment interest thereon and in order to cause such judgment and post-judgment
interest to be secured by, among other things, a collateral assignment of all of the rights of the
Replacement Managers. Without limiting the generality of the preceding, the Borrowers will cause a
minimum of 44% of the stock of TCI to be pledged as collateral for payment of the Judgment and
post-judgment interest thereon, and upon request of Sunset, the Borrowers will execute and deliver
irrevocable proxies that give Sunset the same right to vote all of the pledged shares of TCI that
Sunset currently has under the Irrevocable Proxies dated June 7




FORBEARANCE AND SETTLEMENT AGREEMENT — Page 3




 









 




2002. Sunset acknowledges that the Advisory, Management and Brokerage Agreements
described on Exhibit A to Security Agreement dated as of September 4, 2001 have been
replaced with the Replacement Agreements and agrees that the replacement of the
agreements that were collaterally assigned to Sunset under the General Security Agreement
by the Replacement Agreements will not be a default that entitles Sunset to terminate its
forbearance obligations under this Agreement so long as the Borrowers perform all of
their obligations under this Paragraph.




     3. The U.S. District Court for the Eastern District of Texas, Sherman Division
shall retain jurisdiction until the Judgment is satisfied and any dispute regarding
this Forbearance Agreement or the Judgment shall be determined by a bench trial in
that Court. Borrowers and Replacement Managers expressly waive any right to a jury
trial. The Replacement Managers expressly consent to the jurisdiction of the
United States District Court for the Eastern District of Texas.



     4. The sums to be paid to Lender shall be allocated as set forth by Lender in
Exhibit B, attached hereto.



 II.




SATISFACTION




     5. The Judgment may be satisfied by the payment of S40.0 million (the “Reduced Balance”),
plus simple interest at the rate of 10% per annum until September 17, 2008, and at the rate
of 12% simple interest per annum thereafter, until satisfied, under the terms set forth
below:



     6. Borrowers shall pay Sunset the sum of $ 1.8 million by a wire transfer of
immediately available federal funds to the account identified in Exhibit C attached
hereto by September 28, 2007. In addition, Borrowers shall pay or cause to be paid to
Sunset at least S8.2 million or the



FORBEARANCE AND SETTLEMENT AGREEMENT — Page 4





 












 




entire amount currently being held by Charles Brewer, Trustee for ART Williamsburg, Inc., whichever
is greater, on or before October 1, 2007.




     7. Borrowers shall pay $5.0 million to Sunset on or before October 18, 2007.



     8. Thereafter,
Borrowers shall make seven (7) quarterly payments to Sunset as follows: (a) S3.0 million on or
before January 18, 2008; (b) another $3.0 million on or before April 18, 2008; (c) another S3.0
million on or before July 18, 2008; (d) another S3.0 million on or before October 18, 2008; (e)
another S3.0 million on or before January 19, 2009; (f) another S3.0 million on or before April 18,
2009; (g) and another $3.0 million on or before July 19, 2009. Each such payment shall be applied
first to all accrued interest on the outstanding Reduced Balance.



     9. Borrowers shall make a final payment on or before October 19, 2009 in the amount necessary
to pay Sunset an amount equal to the excess of the Reduced Balance and all accrued and unpaid
interest thereon over the aggregate sum of the principal payments previously made to Sunset under
this Agreement.



III.




ALTERNATIVE
SATISFACTION




     10. In lieu of the Satisfaction provided in Paragraphs 5 through 9 above, Borrowers may satisfy the
aforementioned $62.0 million Judgment with a payment of $38.5 million (rather than $40.0
million) (the “Alternative Reduced Balance”) if:
(a) the Borrowers pay Sunset and Sunset has
received in immediately available federal funds all of the payments referred to in Paragraphs 6
and 7 above as and when due; plus (b) an amount equal to the excess of the sum of $17.5 million
over the amount of all of the payments referred to in Paragraphs 6 and 7 above; provided however,
as long as the payment referred to in subparagraph (b) received within five (5) days of October 18,
2007, the


FORBEARANCE AND SETTLEMENT AGREEMENT  —  Page 5



 









 






remaining provisions of this Section shall apply; (c) the Borrowers pay Sunset, and Sunset has
received, in immediately available federal funds on or before the due dates the aggregate sum of
$21.0 million together with all accrued, and unpaid interest on the outstanding Alternative Reduced
Balance, payable in the same quarterly installments and at the same times as the quarterly
installments set forth in Paragraph 8 above; and (d) Borrowers shall make a final payment on
or before October 19, 2009 in the amount necessary to pay Sunset an amount equal to the excess of the
Alternative Reduced Balance and all accrued and unpaid interest thereon over the aggregate sum of
the principal payments previously made to Sunset under this Agreement .




     11. The Borrowers shall not be entitled to any notice of default in the event of a failure to
pay
any sums due to Sunset as and when due. In the event any such failure has not been fully cured
by a
payment of immediately available federal funds to Sunset within five (5) calendar days of the
due
date, such failure shall terminate all of Sunset’s forbearance obligations under this
Agreement In the
event the Borrowers default in the performance of any of their obligations other than the
obligation to
pay sums due to Sunset as and when due, then Sunset will have the right to terminate its
forbearance
obligations under this Agreement as a result of such default, only if Sunset gives the
Borrowers a
written notice of such default and the Borrowers fail to cure such default following such
notice: (i)
within the applicable curative period provided for defaults of that kind under the Loan
Agreement; or (ii) five (5) days, whichever is greater.



     12. In the event that Borrowers fail to satisfy all of the requirements of the Satisfaction or
Alternative Satisfaction, all payments made by the Borrowers to Sunset under this Agreement
shall in
any event be credited against accrued and unpaid interest on the aforesaid $62.0 million
Judgment and
then to the unpaid principal balance of the Judgment. Any unpaid interest due and payable to
Sunset
shall be compounded monthly. Borrowers shall pay all reasonable attorneys fees, cost
and


FORBEARANCE AND SETTLEMENT AGREEMENT  —  Page 6



 









 






expenses arising out of any dispute arising and/or regarding this Forbearance Agreement or the
Judgment




     13. Borrowers release any claim against Lender related to the loan (“Loan”) that is the
subject of this litigation. Lender hereby releases any claim it may have against Bennett, Weston &
LaJone P.C. and Jay LaJone related to the Loan or any opinion given in connection therewith.



     14. Delay or failure to exercise any option or right shall not constitute a waiver of
the right to
exercise same at any time thereafter or in the event of any
continuing or subsequent default.



     15. The acceptance of any payment hereunder which is less than payment of all amounts then
due and payable shall not constitute a waiver of any of the rights or options of the holder
hereof or to
the exercise of those rights and options at the time of such acceptance or at any subsequent
time.
Principal, interest and other sums shall be payable by Borrower in lawful money of the United
States
of America in immediately available funds free and clear of, and without deduction for, any
present or
future taxes, withholdings or costs or reserves. No payment shall be deemed to have been
received by
Lender unless it consists of cash or other immediately available
funds, All payments shall be
wired. Any payment received after noon on a day shall not be deemed to have been received until the
next business day.



     16. In the event that suit is brought hereon, or any attorney is employed or expenses are
incurred by Lender in connection with the Loan whether or not any suit, proceeding or any
judicial or
non-judicial foreclosure proceeding is commenced, Borrower promises to pay all such expenses
and
reasonable attorneys’ fees, including, without limitation, any attorneys’ fees incurred in
any
bankruptcy proceeding.


FORBEARANCE AND SETTLEMENT AGREEMENT  —  Page 7



 









 







     17. No waiver by Lender of any right or remedy shall be effective unless in writing and
signed by Lender, and no such waiver, on any occasion, shall be construed as a waiver on any
other
occasion. Borrower waives any right of offset now or hereafter existing against the holder
hereof.



     18. THIS WRITTEN AGREEMENT AND THE LOAN DOCUMENTS (AS DEFINED IN
THE LOAN AGREEMENT) REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.



     [THIS PORTION OF DOCUMENT DELIBERATELY LEFT BLANK]


FORBEARANCE AND SETTLEMENT AGREEMENT  —  Page 8





 












 





Dated: Tyler, Texas

              September 18,
2007




	 	 	 	 	 
	PARTIES:
	 	 	 	 
	 
	 	 	 	 
	Lender:

	 	Sunset Management, LLC
	 	 
	 
	 	 	 	 
	By:

	 	/s/ John K. Baldwin	 	 
	 

	 	 	 	 
	 

	 	John K. Baldwin	 	 
	 
	 	 	 	 
	Borrowers:

	 	EQK Holdings, Inc.	 	 
	 

	 	American Realty Trust, Inc.	 	 
	 

	 	Basic Capital Management, Inc.	 	 
	 

	 	American Realty Investors, Inc.	 	 
	 

	 	ART Williamsburg, Inc.	 	 
	 

	 	Syntek West, Inc.	 	 
	 

	 	Triad Realty Services, Ltd.	 	 
	 

	 	Regis Realty, Inc.	 	 
	 
	 	 	 	 
	 

	 	EQK Holdings, Inc.	 	 
	 

	 	American Realty Trust, Inc.	 	 
	 

	 	Basic Capital Management, Inc.	 	 
	 

	 	American Realty Investors, Inc.	 	 
	 

	 	ART Williamsburg, Inc.	 	 
	 

	 	Regis Realty, Inc.	 	 
	 
	 	 	 	 
	By:

	 	/s/ A. Cal Rossi	 	 
	 

	 	 	 	 
	 

	 	A. Cal Rossi	 	 
	 

	 	Authorized Agent	 	 
	 

	 	Regis Realty I, LLC	 	 
	 

	 	Triad Realty Investors, L.P.	 	 
	 

	 	Syntek West, Inc.	 	 
	 

	 	Triad Realty Services, Ltd.	 	 
	 
	 	 	 	 
	By:

	 	/s/ Gene E. Phillips	 	 
	 

	 	 	 	 
	 

	 	Gene E. Phillips	 	 
	 

	 	Authorized Agent	 	 
	 

	 	Regis Realty I	 	 
	 

	 	Prime Asset Management, Inc	 	 
	 
	 	 	 	 
	By:

	 	/s/ A. Cal Rossi	 	 
	 

	 	 	 	 
	 

	 	A. Cal Rossi	 	 
	 

	 	Authorized Agent	 	 






FORBEARANCE
AND SETTLEMENT AGREEMENT — Page 9




 









 





EXHIBIT A




ADVISORY,
CONSULTING, MANAGEMENT

and BROKERAGE AGREEMENTS




TCI




     1. Advisory Agreement between Transcontinental Realty Investors, Inc. (“TCI”) and
Prime Income Asset management, LLC
          (“Prime”) dated
October 1, 2003.



     2. Consulting and Management Agreement (Residential) dated July 1, 2007 with TCI
and Triad Realty Investors, L.P. (“Triad”).



     3. Consulting
and Management Agreement (“Commercial”) dated July 1, 2007 between
TCI and Triad.



     4. Brokerage Agreement dated June 28, 2002 between TCI and Regis Realty I, LLC
(“Regis”).



IORI




     1. Advisory Agreement between Income Opportunity Realty Investors, Inc. (“IORI”) and
Syntek West, Inc. (“Syntek”) dated July 1, 2003.



     2. Consulting and Management Agreement between IORI and Triad
(Residential) dated July 1, 2002.





     3. Consultant
and Management Agreement between IORI and Triad (Commercial) dated
July 1, 2003.





     4. Brokerage
Agreement between IORI and Regis dated June 28, 2002.





 







 





EXHIBIT
B




ALLOCATION




	 	 	 
	$15,000,000.00	 	Principal

	    1,500,000.00	 	Late Charge

	  10,000,000.00	 	Exit Fee

	    3,000,000.00	 	Legal Fees and Expenses

	  11,500,000.00	 	Interest

	 	 	 

	$40,000,000.00	 	TOTAL







 









 





EXHIBIT
C




WIRING INSTRUCTIONS




	 	 	 
	Bank Name:
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	ABA #:
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	 
	 	 
	Account #: