EARNEST MONEY CONTRACT AND DESIGN/BUILD AGREEMENT

EARNEST MONEY CONTRACT AND DESIGN/BUILD AGREEMENT


by and between


MEPC QUORUM PROPERTIES II INC.
(SELLER)


and


CRAFTMADE INTERNATIONAL, INC.
(PURCHASER) 2
EARNEST MONEY CONTRACT AND DESIGN/BUILD AGREEMENT


THIS EARNEST MONEY CONTRACT AND DESIGN/BUILD AGREEMENT (this "Contract") is made and entered into by and between MEPC QUORUM PROPERTIES II INC., A DELAWARE CORPORATION (SELLER), and CRAFTMADE INTERNATIONAL, INC., a Delaware corporation (PURCHASER) as of the Effective Date (hereinafter defined).


R-E-C-I-T-A-L-S


A. Seller is under contract to acquire an approximate 31.9602 acre tract of land in Dallas County, Texas, as such property is more particularly described in Exhibit "A" attached hereto and incorporated herein by reference (the SELLER'S LAND);


B. Seller and Purchaser wish to enter into a formal binding agreement pursuant to which Seller, conditioned upon its acquisition of the Seller's Land and subject to the terms, conditions and covenants herein contained, will (i) build on an approximate 17.52 acre portion of Seller's Land (herein the LAND) certain improvements, as such improvements are generally and preliminarily shown on the Site Plan (herein so called) attached hereto as Exhibit "B" and incorporated herein by reference, and (ii) thereafter sell to Purchaser the Land and such improvements, all in accordance with the terms and conditions of this Contract.


W-I-T-N-E-S-S-E-T-H


NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which being hereby acknowledged, the parties agree as follows:


1. SALE AND PURCHASE. For the consideration and upon and subject to the terms, provisions and conditions hereinafter set forth, Seller agrees to sell and convey unto Purchaser, and Purchaser agrees to purchase from Seller:


(a) the Land and the Improvements (hereinafter defined), together with all rights and interests appurtenant thereto, specifically including all rights, titles, powers, privileges, licenses, easements, rights-of-way and interests, if any, of Seller, either at law or in equity, in possession or in expectancy, in and to any real estate lying in the streets, highways, roads, alleys, rights-of-way or sidewalks, open or proposed, in front of, above, over, under, through or adjoining the Land and in and to any strips or gores of real estate adjoining the Land; provided that if any of the interests listed above are common to other properties adjacent to the Land, then such conveyance will be on a "non-exclusive" basis with respect to such interests; and


(b) all tangible personal property and fixtures of any kind owned by Seller on the Closing Date (hereinafter defined) and attached to, located on or used exclusively in connection with the maintenance or operation of the Land or the Improvements, together with all plans and specifications and surveys in Seller's possession and pertaining to the Land or the Improvements and, to the extent they may exist and are assignable, all of Seller's rights, titles and interests in and to all intangible assets relating to the Land and Improvements, and all warranties received by Seller in connection with the construction of the Improvements (collectively, the PERSONALTY).


The Land and Improvements are collectively referred to in this Contract as the REAL PROPERTY. The Personalty and the Real Property are collectively referred to in this Contract as the PROPERTY. Notwithstanding subparagraph (a) and (b) above, this Contract does not pertain to and Seller is not agreeing herein to convey Purchaser pursuant to this Contract or otherwise any rights or interests that Seller receives in connection with the acquisition of the Seller's Land that pertain to the right, including right of first refusal rights, or


1 3 option to purchase, lease or develop other property in the development in which the Land is located. Neither the term "Land," Improvements or Personalty include any such rights or interests.


2. PURCHASE PRICE. The Purchase Price (herein so called) for the Property is NINE MILLION SEVENTY-TWO THOUSAND AND NO/100 DOLLARS ($9,072,000.00). The entire amount of the Purchase Price, as adjusted pursuant to the terms of this Contract, is due and payable at the Closing in cash or other Good Funds. GOOD FUNDS has the meaning set forth in Procedural Rule P-27 of the Basic Manual of Rules, Rates and Forms for the Writing of Title Insurance in the State of Texas promulgated by the Texas State Board of Insurance, and includes wire transfers, certified checks or cashier's checks to the extent such Procedural Rule would permit the Title Company (hereinafter defined) to immediately disburse such funds.


3. EARNEST MONEY. For the purpose of securing the performance of Purchaser under the terms and provisions of this Contract and as a condition precedent to Seller's obligations hereunder, within three (3) business days after the Effective Date Purchaser will deliver in cash or other Good Funds the amount of TWO HUNDRED THOUSAND AND NO/100 DOLLARS ($200,000.00) (the EARNEST MONEY) to Republic Title of Texas, Inc. (the TITLE COMPANY), 300 Crescent Court, Suite 100, Dallas, Texas 75201, Attn: Melvin Allred (fax: (214) 855-8848). The Title Company will, and is hereby instructed to, deposit the Earnest Money into an interest bearing account at a federally insured bank or savings institution acceptable to Seller and Purchaser. Interest accruing on the Earnest Money shall not constitute additional Earnest Money but rather shall be for the sole account of, and payable to Purchaser in all events, free and clear of any and all claims by Seller, and will in all events be reported under Purchaser's tax i.d. no. 75-2057054. If the Closing actually occurs, the Earnest Money will be applied to the balance of the Purchase Price then due. If the Contract is terminated, the Earnest Money will be delivered as provided elsewhere in this Contract. If Purchaser fails to timely deposit the Earnest Money as provided in this paragraph, Seller may terminate this Contract by written notice to Purchaser at any time prior to the date Purchaser actually delivers the Earnest Money to the Title Company.


4. TITLE.


(a) Title Commitment and Survey. Purchaser acknowledges receipt of the Commitment for Title Insurance covering the Seller's Land, such being issued on April 28, 1995 by American Title Company, as agent for Title Resources Guaranty Company, effective as of March 30, 1995 under GF No. 95BC354868-L (the TITLE COMMITMENT), and the Survey (herein so called) covering the Seller's Land prepared by G. Dennis Qualls of Rust Lichliter/Jameson and last certified on April 10, 1995. Upon determination by the parties of the exact portion of Seller's Land to be purchased by Purchaser, Seller will, at its sole cost and expense, cause to be issued to Purchaser by Title Company an updated Commitment for Title Insurance covering only the Land and an updated survey showing only the Land. The updated survey must be sufficient to permit the Title Company to modify, at Purchaser's expense, the standard printed exception in the Owner's Policy (hereinafter defined) pertaining to discrepancies in area or boundary lines, encroachments, overlapping of improvements or similar matters to "Shortages in Area" only (herein called the SURVEY EXCEPTION). The Survey will be certified to Purchaser, Purchaser's lender, Seller and the Title Company. After approval, or deemed approval, by Purchaser and Seller, the legal description of the Land contained in the field notes to the updated survey will be attached hereto automatically as Exhibit "A-1", and this Contract will be deemed amended by the substitution of such field notes contained in the updated survey without the necessity of the parties executing any additional written amendment to this Contract, and such legal description will be the description of the Land attached to the Deed (hereinafter defined) delivered at Closing.


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(b) Owner's Policy. Seller agrees to pay for and cause to be delivered to Purchaser at Closing or as soon after the Closing as is practical an Owner's Policy of Title Insurance (the OWNER'S POLICY) issued by the Title Company on the standard form thereof in use in the State of Texas, insuring (i) good and indefeasible title to the Property in Purchaser in the amount of the Purchase Price, and subject only to the Permitted Exceptions (hereinafter defined), except that Purchaser will be responsible for the cost of any endorsements, deletions or modifications Purchaser desires to the Owner's Policy (and that the Title Company is willing to issue) including, without limitation, the costs of the Survey Exception, and (ii) insuring Purchaser's easement interest under the Easement Agreement (hereinafter defined) as it pertains to the Extended Truck Court Area (hereinafter defend), subject only to the Permitted Exceptions.


(c) Permitted Exceptions. As used herein, the term Permitted Exceptions means the following:


(i) any liens and encumbrances caused by Purchaser, inclusive of
any liens and encumbrances placed on the Property in
connection with any financing obtained by Purchaser or any
work performed by Purchaser's Agents;


(ii) the Title Company's standard pre-printed exceptions;


(iii) all Applicable Laws (hereinafter defined);


(iv) all matters shown in Schedule B to the Title Commitment;


(v) all matters shown on or disclosed by the Survey;


(vi) the Easement Agreement (hereinafter defined);


(vii) deed restrictions (the RESTRICTIONS) to be imposed by the
current owner of the Seller's Land containing substantially
similar terms as those set forth on Exhibit "C" attached
hereto and incorporated herein by reference including, without
limitation, all easements, licenses, assessment and lien and
other enforcement rights granted, reserved or provided for
therein, and all restrictions, obligations and obligations set
forth therein;


(viii) a Memorandum of Right of First Refusal and Option Agreement,
the form of which is attached hereto as Exhibit "K" and
incorporated herein by reference, pertaining to certain rights
of Seller to acquire other property in Freeport North. Seller
represents and warrants that such Memorandum will not affect
the development or use of the Land;


(ix) any reservation of rights or rights of repurchase to be
included in the special warranty deed from the seller of the
Seller's Land to Seller, such to be in substantially the form
of that attached hereto as Exhibit "L" and incorporated herein
by reference;


(x) any matters shown on the plat of the property recorded at
Volume 84203, Page 1835, et seq., of the Official Public
Records of Real Property in Dallas County, Texas; and


(xi) such other matter as Seller and Purchaser may agree.


With respect to the Restrictions, Seller represents, warrants and covenants to Purchaser that Seller will comply with all requirements set forth in the Restrictions pertaining to the development of the Land and the construction of the Improvements and that at Closing there will be no violation of the


3 5 Restrictions that were caused by Seller or any Seller Parties (hereinafter defined).


(d) Reciprocal Easement Agreement. Purchaser is aware that at Closing Seller will own the property adjacent to and to the immediate west of the Land (the ADJACENT TRACT). Upon development of the Adjacent Tract, it is contemplated that a "truck court" area may be common to both the Adjacent Tract and the Land. Additionally, prior to development of the Adjacent Tract and as a part of the development of the Land, Seller will extend that part of the truck court to be located on the Land onto the Adjacent Tract for approximately 20 feet. Such Extended Truck Court Area is contemplated by the general construction features described on Exhibit "D" and thereby constitutes part of the Improvements to be built at Seller's cost. The Extended Truck Court Area is necessary to meet Purchaser's specifications and requirements. At Closing, Seller and Purchaser agree to enter into a Reciprocal Access Easement and Maintenance Agreement (herein the EASEMENT AGREEMENT) governing the rights of use and maintenance obligations of the owner of the Land and the Adjacent Tract from time to time with respect to the truck court and access thereto. Without limitation, the terms of the Easement Agreement will include the following:


(i) Upon completion of the 20 foot extension of the truck court
onto the Adjacent Tract (herein the EXTENDED TRUCK COURT
AREA), Purchaser will have a non-exclusive easement over the
Extended Truck Court Area;


(ii) Provided that the Adjacent Tract is developed in such a way
that any part of the truck court built thereon (exclusive of
the Extended Truck Court Area) is contiguous with the Extended
Truck Court Area or any part of the truck court on the Land,
the owner of the Adjacent Tract will have unrestricted ingress
and egress rights over that portion of the truck court on the
Land extending 20 feet eastward from the west boundary line of
the Land. This area is identified on the Site Plan as the
RECIPROCAL EASEMENT AREA; however, the Reciprocal Easement
Area will also include the Extended Truck Court Area. The
owner of the Adjacent Tract will also have an easement for
ingress and egress to the Adjacent Tract over that portion of
the Land identified on the Site Plan as the SHARED ACCESS
DRIVE; and


(iii) Prior to the later to occur of (A) the Adjacent Tract being
developed in such a way that any part of the truck court built
thereon (exclusive of the Extended Truck Court Area) is
contiguous with the Extended Truck Court Area or any part of
the truck court on the Land, and (B) the date that the
Adjacent Tract is first occupied by a "user" thereof (i.e., an
occupant who is physically occupying the Adjacent Tract and
conducting business operations there), Purchaser will be
solely responsible for maintaining the Reciprocal Easement
Area (inclusive of the Extended Truck Court Area) and the
Shared Access Drive. From and after such time, the owner of
the Adjacent Tract will maintain that portion of the
Reciprocal Easement Area located on the Adjacent Tract
(comprised solely of the Extended Truck Court Area) and
Purchaser will maintain (A)that portion of the Reciprocal
Easement Area located on the Land, and (B) the Shared Access
Area; provided that the owner of the Adjacent Tract will be
responsible for 50% of the actual reasonable costs of
maintaining the Shared Access Drive. Notwithstanding the
above, if Purchaser, its employees, agents, vendors,
customers, lessees or licensees cause damage to the Shared
Access Drive or any portion of the Reciprocal Easement Area,
whether or not such portion is on the Land or part of the
Extended Truck Court Area, beyond reasonable wear and tear,
Purchaser will be solely responsible for repairing such damage
and the cost thereof. Likewise, if the owner of the Adjacent
Tract,


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its employees, lessees, agents, vendors, customers or
licensees cause damage to the Shared Access Drive or to any
portion of the Reciprocal Easement Area, whether or not such
portion is on the Land or part of the Extended Truck Court
Area, beyond reasonable wear and tear, the owner of the
Adjacent Tract will be solely responsible for the cost of
repairing such damage.


As soon as possible after the Effective Date, Seller and Purchaser will finalize the form of the Easement Agreement and such will be attached to this Contract as Exhibit "M" without further amendment hereto. Seller and Purchaser will endeavor to finalize the Easement Agreement within thirty (30) days after the Effective Date. Additionally, as soon as possible after the Effective Date Seller will cause the Extended Truck Court Area to be surveyed and a field notes description obtained such that Purchaser can cause the easements in the Easement Agreement to be insured by the Title Company.


5. DUE DILIGENCE.


(a) Inspection. So long as this Contract is in effect, Purchaser and Purchaser's agents, independent contractors, employees and representatives (all such persons being referred to for purposes of this paragraph as PURCHASER'S AGENTS) shall be permitted access to the Land to conduct such tests and feasibility studies of the Property as Purchaser deems reasonably necessary or advisable provided that such inspections, tests or studies may not materially interfere with or delay the construction of the Improvements. The costs and expenses of such inspections and investigation will be borne solely by Purchaser. Purchaser must in all events restore the Property to the condition it was in prior to such inspections immediately upon completion thereof. Purchaser may not allow or permit any liens or encumbrances to arise or exist against the Land or any part thereof as a result of Purchaser's inspections. Purchaser hereby indemnifies, shall defend by counsel acceptable to Seller and holds Seller harmless from and against any claims, causes of action, damages and expenses (including attorney's fees) incident to, resulting from or in any way arising out of Purchaser's or Purchaser's Agent's presence in, on or about the Land, or out of any such test or inspection conducted by Purchaser on the Land, except to the extent such result was caused by the Seller's negligence and further provided that Purchaser will not be liable for the mere discovery of adverse conditions existing at the Land. Such indemnity shall survive the Closing or any termination of this Contract and not be merged therein. PURCHASER ACKNOWLEDGES AND AGREES THAT THE RIGHT OF INSPECTION GRANTED UNDER THIS PARAGRAPH IS GRANTED MERELY AS A CONVENIENCE TO PURCHASER AND THAT PURCHASER HAS NOT BARGAINED FOR AND IS NOT BEING GRANTED ANY TERMINATION RIGHT BASED UPON THE RESULTS OF ANY INSPECTIONS CONDUCTED BY PURCHASER.


(b) Delivery of Documents by Seller. Seller agrees to cooperate with Purchaser in connection with Purchaser's inspection efforts by delivering to Purchaser such investigative reports and studies as are obtained by Seller in connection with Seller's due diligence efforts relevant to its purchase of Seller's Land or in connection with the Improvements to be constructed by Seller, as hereinafter provided. Specifically, Purchaser acknowledges receipt of the reports and studies described on Exhibit "F" attached hereto and incorporated herein by reference. Seller represents and warrants to Purchaser that as of the Effective Date these are the only investigative reports and studies relevant to the matters discussed in the first sentence of this subparagraph that have been obtained by Seller. Seller further represents and warrants that it will provide Purchaser with a copy of any similar studies or reports obtained by Seller after the Effective Date. NOTWITHSTANDING THE ABOVE, AND EXCEPT AS EXPRESSLY AND SPECIFICALLY SET FORTH IN PARAGRAPH 10(A) BELOW, SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND MAKES NO, AND HEREBY EXPRESSLY DISCLAIMS ANY, REPRESENTATIONS OR WARRANTIES REGARDING THE TRUTH, ACCURACY OR COMPLETENESS OF ANY INFORMATION HERETOFORE OR HEREAFTER PROVIDED OR MADE AVAILABLE TO PURCHASER THAT WAS PREPARED BY THIRD PARTIES, AND


5 7 PURCHASER ACKNOWLEDGES AND AGREES THAT ALL SUCH MATERIALS AND ANY OTHER SIMILAR TYPE INFORMATION PROVIDED TO PURCHASER ARE PROVIDED AS A CONVENIENCE ONLY AND THAT ANY RELIANCE OR USE OF SUCH MATERIALS OR OTHER INFORMATION WILL BE AT THE SOLE RISK OF PURCHASER. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN PARAGRAPH 10(A), SELLER SHALL NOT BE LIABLE FOR ANY NEGLIGENT MISREPRESENTATION OR ANY FAILURE TO INVESTIGATE THE PROPERTY NOR SHALL SELLER BE BOUND IN ANY MANNER BY ANY VERBAL OR WRITTEN STATEMENTS, REPRESENTATIONS, APPRAISALS, ENVIRONMENTAL ASSESSMENT REPORTS, OR OTHER INFORMATION PERTAINING TO THE PROPERTY OR THE OPERATION THEREOF, FURNISHED BY SELLER, OR BY ANY REAL ESTATE BROKER, AGENT, REPRESENTATIVE, EMPLOYEE, SERVANT OR OTHER PERSON ACTING ON SELLER'S BEHALF. Seller represents and warrants to Purchaser that Seller has no current actual knowledge that any reports or studies heretofore delivered to Purchaser are inaccurate and such representation and warranty will apply also to any other reports or studies provided to Purchaser except to the extent that Seller notifies Purchaser of any actual or suspected inaccuracies. Seller will have no obligation to inquire as to the accuracy of any reports or studies obtained by Seller and delivered to Purchaser.


6. DESIGN/BUILD AGREEMENT.


(a) Improvements to be Constructed. Seller agrees to construct on the Land, at Seller's sole cost and expense (subject to subparagraph (k) below), a warehouse building containing the features generally set forth on Exhibit "D" attached hereto and incorporated herein by reference and as depicted on the Site Plan (the IMPROVEMENTS). Subject to Force Majeure (hereinafter defined) and delay(s) caused by Purchaser or Purchaser's Agents in connection with Purchaser's inspection of the Real Property, the installation of Purchaser's property and fixtures or otherwise, due to requests for changes to the manner of construction of the Improvements not encompassed by the construction features described on Exhibit "D" or the Plans (hereinafter defined), due to Purchaser's requests for changes to the Plans, due to Purchaser's requests for change orders after construction has commenced or due to interference with Seller's architects, engineers or contractors by Purchaser or Purchaser's Agents (individually a PURCHASER DELAY and collectively, PURCHASER DELAYS), Seller will use good faith efforts to cause the Improvements to be substantially completed (hereinafter defined) by that date that is 220 days after the Effective Date (the TARGET COMPLETION DATE).


(b) Plans and Specifications. Seller intends to prepare plans and specifications for the construction of the Improvements on a "staggered basis"; that is, the plans and specifications for earth moving and foundation work will necessarily be prepared prior to plans and specifications for subsequent work. the plans and specifications prepared by Seller will be in substantial accordance with the general construction features described on Exhibit "D". The parties agree that this method of plans and specifications preparation is necessary to allow Seller to promptly commence earth moving and foundation work and to substantially complete the Improvements by the Target Completion Date. Seller will deliver to Purchaser plans and specifications for the construction of each element of the Improvements as Seller's architect prepares them. Purchaser will have five (5) business days after receipt of plans and specifications submitted by Seller to approve or, in good faith, disapprove of same, such to include specific reasons for the disapproval. The parties agree to work in good faith to finalize all plans and specifications for the construction of the Improvements. If Purchaser fails to approve or disapprove of any submitted plans and specifications in writing within this five (5) business day period, Purchaser will be deemed to have approved of same in all respects. Plans and specifications as finally approved from time to time are collectively referred to herein as the PLANS. As each aspect of the plans and specifications are approved, or deemed approved, they will become a part of this Contract as Exhibit "E" without the necessity of further amendment hereto.


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(c) Commencement of Construction. Seller agrees to commence construction of the Improvements within forty (40) days after the Effective Date. Construction will be deemed to have commenced at that time that Seller begins earth moving and grading work.


(d) Substantial Completion. As used herein the term SUBSTANTIALLY COMPLETE or SUBSTANTIALLY COMPLETED means that, in the opinion of Seller's architect, each of the following shall have occurred: (i) the Improvements have been completed substantially in accordance with the Plans, subject only to the completion of punch- list items, none of which may materially affect Purchaser's intended use and enjoyment of the Improvements or the Land and all of which will be completed within thirty (30) days after the date of the walk-through inspection, as provided below, and (ii) the Improvements have been completed as necessary for the applicable governmental authority to issue a certificate of occupancy for the Improvements allowing Purchaser to occupy the Improvements, and (iii) all utilities required for Purchaser's operations of the Improvements are in place and operational to the Improvements, including gas, electricity, water, sanitary sewer, and telephone. Seller will notify Purchaser of the date that Seller's architect expects the Improvements to be substantially complete, such notice not to be dated more than forty-five (45) or less than thirty (30) days prior to the date that is set forth in such notice for the Improvements to be substantially complete. Upon receipt of notification from Seller's architect that the Improvements are substantially complete, Purchaser shall verbally notify Seller of the date Purchaser intends to make its walk-through inspection of the Improvements to determine punch-list items, such date to be within five (5) days after Purchaser's receipt of such notice. Seller's architect will accompany Purchaser on the walk-through inspection so as to mutually determine the punch-list of items to be completed or repaired by Seller. Satisfaction of punch-list items or Purchaser's failure to conduct a walk-through inspection will not delay the Closing. At Closing, 150% of the amount which, in the reasonable opinion of Seller's architect, is necessary to complete the punch-list of items remaining to be completed as determined pursuant to this subparagraph will be held back from the funds delivered to Seller and held in escrow by the Title Company. This amount will be delivered to Seller at such time as the punch-list items have been completed. Seller will inform Purchaser of the amount determined by Seller's architect necessary to complete the punch-list items, and Purchaser may reasonably object to same. Nonetheless, Seller will be responsible for paying the entire cost of completing the punch-list items, even if such costs exceed the 150% holdback.


(e) Certificate of Substantial Completion. Following Seller's architect's determination that the Improvements are substantially com ...