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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ___________ to _________
Commission File Number 1-4673
WILSHIRE OIL COMPANY OF TEXAS
------------------------------------------------------
(exact name of registrant as specified in its charter)
DELAWARE 84-0513668
- ------------------------------- -------------------------------
(State or other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
921 BERGEN AVENUE
JERSEY CITY, NEW JERSEY 07306
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (201) 420-2796
--------------
Securities registered pursuant to Section 12(b) of the act:
Name of each exchange
(TITLE OF EACH CLASS) ON WHICH REGISTERED
- -------------------------- -----------------------
COMMON STOCK, $1 PAR VALUE NEW YORK STOCK EXCHANGE
- --------------------------------------------------------------------------------
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the registrant was approximately $51,353,761 based upon the
closing sale price of the stock, which was $5.75 On March 16 1998.
The number of shares of the registrant's $1 par value common stock outstanding
as of March 16, 1998 was 9,394,096.
Documents Incorporated By Reference
The information called for by Part III is incorporated by reference to the
definitive Proxy Statement for the Annual Meeting of Stockholders.
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<PAGE>
WILSHIRE OIL COMPANY OF TEXAS
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1997
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. Business ......................................... 1
Item 1a. Executive Officers of the Registrant ............. 7
Item 2. Properties ....................................... 8
Item 3. Legal Proceedings ................................ 15
Item 4. Submission of Matters to a Vote of Security
Holders ........................................ 15
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters ............... 16
Item 6. Selected Financial Data ......................... 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 20
Item 8. Financial Statements ............................ F-1
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure ........... 29
PART III
Item 10. Directors of the Registrant ...................... 29
Item 11. Executive Compensation ........................... 29
Item 12. Security Ownership of Certain Beneficial
Owners and Management .......................... 29
Item 13. Certain Relationships and Related Transactions ... 29
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ............................ 30
<PAGE>
PART I
ITEM 1. BUSINESS
BACKGROUND
Wilshire Oil Company of Texas (the "Company", "Registrant" or "Wilshire")
was incorporated under the laws of the State of Delaware on December 7, 1951.
The Company's principal executive offices are located at 921 Bergen Avenue,
Jersey City, New Jersey 07306, (201) 420-2796.
The Company is engaged in the exploration and development of oil and gas,
both in its own name and through several wholly-owned subsidiaries in the United
States and Canada. The Company's real estate division owns investment real
estate properties in Arizona, Texas, Florida, Georgia and New Jersey. The
Company also holds investments in certain marketable securities.
This Report on Form 10-K for the year ended December 31, 1997 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such forward-looking statements. Certain factors which could
materially affect such results and the future performance of the Company are
described herein under Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
For financial segment information please see Note 8, "Segment Information"
of the "Notes to Consolidated Financial Statements", presented elsewhere herein.
The Company has no export sales or sales to affiliated customers.
DESCRIPTION OF BUSINESS
OIL AND GAS OPERATIONS
For a glossary of oil and gas terms, see "Properties - Oil and Gas
Properties - Glossary."
The Company conducts its oil and gas operations on the North American
continent. Oil and gas operations in the United States are located in Arkansas,
California, Kansas, Nebraska, New Mexico, Ohio, Oklahoma, Pennsylvania, Texas
and Wyoming. In Canada, the Company conducts oil and gas operations in the
Provinces of Alberta, British Columbia and Saskatchewan.
As of March 16, 1998, 13 people are employed by the Company. Nine employees
are directly engaged in the search for new oil and gas properties. In addition,
the Company also has consultants.
1
<PAGE>
Prospects for lease acquisitions are developed by staff geologists or
acquired from various co-venturers and/or consultants.
Once a property is acquired, the Company subcontracts for surveying and
drilling operations. Many of the Company's present producing oil and gas
properties are operated by independent contractors or under operating agreements
with other companies pursuant to which the Company pays a proportionate share of
operating expenses based upon its interests. The Company also acts as operator
of various properties, charging joint venture partners for their proportionate
share of expenses.
The Company does not engage in the refining of crude oil or the
distribution of petroleum products. Crude oil and natural gas productions are
sold to oil refineries and natural gas pipeline companies.
The Company participated in the drilling of 28 wells (5.40 net) in 1997
compared to 9 (.87 net) in 1996. The United States program in 1997 consisted of
the drilling of 8 development wells (.50 net). Two (.28 net) of these wells were
successfully completed as oil wells and 5(.13 net) were successfully completed
as gas wells. One well was drilled in the state of Texas and the remainder were
drilled in the state of Oklahoma. The Canadian drilling program in 1997
consisted of the drilling of 20 development wells (4.90 net), with 17 (4.45 net)
of these wells successfully completed as gas wells and 3 (.45 net) as oil wells.
Overall, the Company's drilling program had a success ratio of 96.5%.
The Company's crude oil and condensate production is sold at posted field
prices, primarily to major crude oil and condensate purchasers. For average
posted field prices, for both oil and gas, see "Properties - Oil and Gas
Properties - Production." The Company has no one purchaser that purchased in
excess of 10% of its 1997 consolidated oil and gas revenues.
The loss of any one customer in the domestic hydrocarbon market is not
considered material. The Company is not dependent on any patent, trademark or
license.
The Company's oil and gas business is subject to all of the operating risks
normally associated with the exploration for and production of oil and gas. In
accordance with customary industry practices, the Company maintains insurance
coverage limiting financial loss resulting from certain of these operating
hazards.
2
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COMPETITION
The oil and gas industry is intensely competitive and competes with other
industries in supplying the energy and fuel requirements of industrial,
commercial and individual customers.
The principal method of competition in the production of oil and gas is the
successful location and acquisition of properties which produce commercially
profitable quantities of oil and gas.
The Company competes with many other companies in the search for and
acquisition of oil and gas properties and leases for exploration and
development. Many of these companies have substantially greater financial,
technical and other resources than the Company. Competition among petroleum
companies for favorable oil and gas prospects can be expected to continue. The
Company is not a significant factor in the oil and gas industry.
The principal raw materials and resources necessary for the exploration
for, and the acquisition, development, production and sale of, crude oil and
natural gas are leasehold or freehold prospects under which oil and gas reserves
may be discovered, drilling rigs and related equipment to explore for and
develop such reserves, casing and other capital assets required for the
development and production of the reserves and knowledgeable personnel to
conduct all phases of oil and gas operations. The Company must compete for such
raw materials and resources with both major oil companies and independent
operators and also with other industries for certain personnel and materials.
Although the Company believes its current inventories of raw materials and
resources are adequate to preclude any significant disruption of operations in
the immediate future, the continued availability of such materials and resources
to the Company cannot be assured.
SEASONALITY
The oil business is generally not seasonal in nature. Gas demand and prices
paid for gas have become seasonal, showing a decrease during the summer and
fall.
3
<PAGE>
ENVIRONMENTAL MATTERS
The petroleum industry is subject to numerous federal, state and provincial
environmental statutes, regulations and other pollution controls in both the
United States and Canada. In general, the Company is and will continue to be
subject to present and future environmental statutes and regulations.
The Company's expenses relating to preserving the environment during 1997
were not significant in relation to operating costs and the Company expects no
material changes in 1998. Environmental regulations have had no materially
adverse effect on the Company's petroleum operations to date, but no assurance
can be given that environmental regulations will not, in the future, result in a
curtailment of production or otherwise have materially adverse effects on the
Company's operations or financial condition.
REGULATION - UNITED STATES OPERATIONS
The Company's operations are affected from time to time, in varying
degrees, by political developments, laws and regulations. In particular, oil and
gas production operations are affected by changes in taxes and other laws
relating to the petroleum industry and by constantly changing administrative
regulations. The long-term effects of all the federal enactments and programs,
whether beneficial or detrimental to the future operations and income of the
Company, cannot be predicted at this time.
Rates of production of oil and gas have for many years been subject to
conservation laws and regulations. State regulatory agencies set allowable rates
of production and limit the number of days a month a well can produce. The
petroleum industry has also been subject to tax laws dealing specifically with
it, such as the Crude Oil Windfall Profit Tax Act. In addition, oil and gas
operations are subject to extensive regulation or termination by government
authorities on account of ecological and other considerations. All of the
jurisdictions in which the Company operates have statutes and administrative
regulations governing the drilling and production of oil and gas.
REGULATION - CANADIAN OPERATIONS
The Company's Canadian subsidiary, Wilshire Oil of Canada, Ltd., operates
primarily in the Province of Alberta, with some activity in the Province of
British Columbia and Saskatchewan.
The petroleum and natural gas industry operates under federal and
provincial legislation and regulations which govern land tenure, royalties,
production rates, environmental protection, exports and other matters. Federal
legislation monitors the price of oil and gas in export trade and the quantities
of such products exportable from Canada. Provincial legislation has been enacted
for the purpose of regulating operations in the Provinces.
4
<PAGE>
OIL PRICES
Oil prices actually being paid by purchasers in the United States are
publicly announced throughout the country and vary depending on locality and
qualitative specifications of the crude oil. All prices are subject to future
modification by appropriate agency action.
INVESTMENT IN MARKETABLE SECURITIES
The Company holds investments in certain marketable securities. From time
to time, the Company buys and sells securities in the open market. The Company
over the years has decreased its holdings in marketable securities and focused
its resources in the oil & gas and real estate divisions.
Holdings of marketable securities, at market value, amounted to $17,947,000
at December 31, 1997 and $24,106,000 at December 31, 1996. The Company realized
gains from the sales of marketable securities of $9,595,000 in 1997, $8,462,000
in 1996, and $9,216,000 in 1995.
5
<PAGE>
REAL ESTATE OPERATIONS
The Company's real estate operations are conducted in the states of
Arizona, Texas, Florida, Georgia and New Jersey. They are not seasonal in
nature.
The Company's Arizona properties include the following:
| | 378 unit garden apartment complex
| | 340 unit garden apartment complex
| | 70 unit midrise apartment building
| | 53,000 sq. ft. multi-tenant two story office building
| | 65,000 sq. ft. retail/medical use complex
The Texas property is a 228 unit apartment complex.
The Company's operations in Florida consists of two office buildings having
a combined area of 28,000 square feet and apartment properties having 62 units.
The Georgia property is a 72 unit apartment complex.
The Company's properties in New Jersey consists of apartment properties
having 461 units, including the Company's fourth quarter 1997 acquistion of a
132 unit apartment complex. In addition, the Company holds various
commercial/retail properties.
The Company utilizes property management companies to assist in the
management of its properties. Expenses incurred in operating the properties
include, among other things, administrative costs, utilities, repairs and
maintenance and property taxes.
The Company will explore other real estate acquisitions as they arise. The
timing of any such acquisition will depend on, among other things, economic
conditions and the favorable evaluation of specific opportunities presented to
the Company. The Company is currently planning further acquisitions of
investment properties during the next several months. Accordingly, while the
Company anticipates that it will actively explore these and other real estate
acquisition opportunities, no assurance can be given that any such acquisition
will occur.
The real estate industry is intensely competitive in nature. The Company
competes with many other real estate operators and is not a significant factor
in the market it operates in.
The Company's real estate operations are subject to existing federal and
state laws regarding environmental quality and pollution control. Environmental
regulations had no materially adverse effect on the Company's real estate
operations during 1996, but no assurance can be given that environmental
regulations will not, in the future, have a materially adverse effect on the
Company's operations.
6
<PAGE>
ITEM 1a - EXECUTIVE OFFICERS OF THE REGISTRANT
The table below sets forth the names and ages of all executive officers
of the Registrant and the position(s) and offices with the Registrant presently
held by each and the periods during which each has served in such position(s)
and offices. There are no "family relationships" as defined in Item 401 (d) of
Regulation S-K between any of these persons and any other executive officer or
director of the Company.
All executive officers have been elected or appointed to hold office
until their respective successors have been elected or appointed and qualified
or until their earlier resignation or removal.
EXECUTIVE OFFICERS OF REGISTRANT
NAME AGE POSITION WITH REGISTRANT
- ---- --- ------------------------
S. Wilzig Izak (a) 39 Chairman of the Board and
Chief Executive Officer
Allen C. Knight (b) 73 Senior Vice President - Canada
Steven A. Gelman (c) 41 Senior Vice President and
Controller
a) Ms. Izak was appointed Chairman of the Board on September 20, 1990. She
served as Executive Vice President of the Company from August 10, 1987
through September 20, 1990.
b) Mr. Knight was appointed Senior Vice President on May 2, 1985.
c) Mr. Gelman was appointed Senior Vice President on November 24, 1997. He
served as a Vice President of the Company from April 26, 1993 through
November 24, 1997,
7
<PAGE>
ITEM 2. PROPERTIES
Offices
The executive and administrative office of the Company consists of
approximately 2,000 square feet, located at 921 Bergen Avenue, Jersey City, New
Jersey. This office is leased at a monthly rental of $2,257.
The Company maintains its principal office for the United States oil and
gas operations in Oklahoma City, Oklahoma, leasing 3,618 square feet, at a
monthly cost of $2,111. The Company also owns a storage yard of approximately
five acres, situated near Will Rogers Airport in Oklahoma City.
The Company's Canadian subsidiary maintains an exploration office in
Calgary, Alberta, Canada. The Company leases 1,583 square feet at a monthly
rental of $2,370 Canadian.
OIL AND GAS PROPERTIES
GLOSSARY
The terms defined in this section are used throughout this report.
BBL. One stock tank barrel, or 42 U.S. gallons liquid volume, usually used
herein in reference to crude oil or other liquid hydrocarbons.
BOE. Equivalent barrels of oil in reference to natural gas. Natural gas
equivalents are determined using the ratio of six Mcf of natural gas to one Bbl
of crude oil, condensate or natural gas liquids.
DEVELOPED ACREAGE. The number of acres which are allocated or assignable to
producing wells or wells capable of production.
DEVELOPMENT WELL. A well drilled as an additional well to the same
reservoir as other producing wells on a lease, or drilled on an offset Lease not
more than one location away from a well producing from the same reservoir.
EXPLORATORY WELL. A well drilled in search of a new undiscovered pool of
oil or gas, or to extend the known limits of a field under development.
Gross Acres or Wells. The total acres or wells, as the case may be, in
which an entity has an interest, either directly or through an affiliate.
LEASE. Full or partial interests in an oil and gas lease, oil and gas
mineral rights, fee rights or other rights, authorizing the owner thereof to
drill for, reduce to possession and produce oil and gas upon payment of rentals,
bonuses and/or royalties. Oil and gas leases are generally acquired from private
landowners and federal, provincial and state governments.
8
<PAGE>
MCF. One thousand cubic feet. Expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure bases and, where
contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square
inch absolute.
MMCF. One million cubic feet. Expressed, where gas sales contracts are in
effect, in terms of contractual temperature and pressure bases and, where
contracts are nonexistent, at 60 degrees Fahrenheit and 14.65 pounds per square
inch absolute.
NET ACRES OR WELLS. A party's interest in acres or a well calculated by
multiplying the number of gross acres or gross wells in which such party has an
interest by the fractional interest of such party in such acres or wells.
PRODUCTION COSTS. The expenses of producing oil or gas from a formation,
consisting of the costs incurred to operate and maintain wells and related
equipment and facilities, including labor costs, repair and maintenance,
supplies, insurance, production, severance and other production excise taxes.
PRODUCING PROPERTY. A property (or interest therein) producing oil and gas
in commercial quantities or that is shut-in but capable of producing oil and gas
in commercial quantities, to which Producing Reserves have been assigned by an
independent petroleum engineer. Interests in a property may include working
interests, production payments, royalty interests and other nonworking
interests.
PRODUCING RESERVES. Proved Developed reserves expected to be produced from
existing completion intervals open for production in existing wells.
PROSPECT. An area in which a party owns or intends to acquire one or more
oil and gas interests, which is geographically defined on the basis of
geological data and which is reasonably anticipated to contain at least one
reservoir of oil, gas or other hydrocarbons.
PROVED DEVELOPED RESERVES. Proved Reserves which can be expected to be
recovered through existing wells with existing equipment and operating methods.
PROVED RESERVES. The estimated quantities of crude oil, natural gas and
other hydrocarbons which, based upon geological and engineering data, are
expected to be produced from known oil and gas reservoirs under existing
economic and operating conditions, and the estimated present value thereof based
upon the prices and costs on the date that the estimate is made and any price
changes provided for by existing conditions.
PROVED UNDEVELOPED RESERVES. Proved Reserves which can be expected to be
recovered from new wells on undeveloped acreage or from existing wells where a
relatively major expenditure is required for recompletion.
9
<PAGE>
UNDEVELOPED ACRES. Oil and gas acreage (including, in applicable instances,
rights in one or more horizons which may be penetrated by existing well bores,
but which have not been tested) to which proved reserves have not been assigned
by independent petroleum engineers.
WORKING INTEREST. The operating interest under a lease which gives the
owner the rights to drill, produce and conduct operating activities on the
property ;and a share of production, subject to all royalty interests and other
burdens and to all costs of exploration, development and operations and all
risks in connection therewith.
* * *
Following are certain tables and other statistical data concerning the
Company's reserves, production, acreage and other information with regard to the
Company's oil and gas properties and operations.
For information regarding costs incurred in 1997, please refer to the
"Segment Information" in Note 8 of the Notes to Consolidated Financial
Statements, presented elsewhere herein. For information regarding capitalized
costs relating to oil and gas producing activities, please refer to Note 9 of
the Notes to Consolidated Financial Statements, presented elsewhere herein.
Future revenues, net of development and production expenditures (Net
Revenues), from estimated production of proved and proved developed reserves,
based on existing economic conditions for each of the next three succeeding
years, are estimated as follows:
United States Canada
(000's Omitted) (000's Omitted)
------------------------------- -------------------------------
Proved Proved Proved Proved
Reserves Developed Reserves Reserves Developed Reserves
-------- ------------------ -------- ------------------
1998 $ 2,338 $ 2,338 $ 1,872 $ 2,119
1999 1,865 1,865 2,973 2,869
2000 1,505 1,505 3,458 2,956
Remainder $20,797 $ 7,264 $49,064 $40,785
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<PAGE>
RESERVES
The quantities of natural gas and crude oil Proved and Proved Developed
Reserves presented herein include only those amounts which the Company
reasonably expects to recover in the future from known oil and gas reservoirs
under existing economic and operating conditions. Therefore, Proved and Proved
Developed Reserves are limited to those quantities which are recoverable
commercially at current prices and costs, under existing technology.
Accordingly, any changes in the future oil and gas prices, operating and
development costs, regulations, technology and other factors could significantly
increase or decrease estimates of Proved and Proved Developed Reserves.
The Company's net Proved and Proved Developed Reserves of oil and gas and
the present values thereof at December 31, 1995 and 1996 and 1997 were estimated
by the independent professional engineering consultants referred to on page 28.
Such estimates were utilized in the preparation of the Company's consolidated
financial statements for the applicable fiscal years and for reporting purposes.
Set forth below are estimates of the Company's Proved and Proved Developed
Reserves and the present value of estimated future net revenues from such
reserves based upon the standardized measure of discounted future net cash flows
relating to proved oil and gas reserves in accordance with the provisions of
Statement of Financial Accounting Standards No. 69, "Disclosures about Oil and
Gas Producing Activities" (SFAS No. 69). The standardized measure of discounted
future net cash flows is determined by using estimated quantities of Proved
Reserves and the periods in which they are expected to be developed and produced
based on period-end economic conditions. The estimated future production is
priced at period-end prices, except where fixed and determinable price
escalations are provided by contract. The resulting estimated future cash
inflows are reduced further by estimated future costs to develop and produce
reserves based on period-end cost levels. No deduction has been made for
depletion, depreciation or income taxes or for indirect costs, such as general
corporate overhead. Present values were computed by discounting future net
revenues by 10 percent per annum.
11
<PAGE>
The following table sets forth summary information with respect to the
estimates of the Company's Proved and Proved Developed Reserves at December 31
of the years indicated:
United States Canada
---------------------- --------------------
Proved Proved
Proved Developed Proved Developed
------ --------- ------ ---------
(000's Omitted) (000's Omitted)
1997 Oil (Bbls) 1,405 423 1,194 834
Gas (Mcf) 6,731 6,731 33,629 31,387
Net present value @ 10% $17,921 $ 8,515 $24,119 $20,341
1996 Oil (Bbls) 1,545 607 1,201 867
Gas (Mcf) 6,798 6,798 26,000 25,364
Net present value @ 10% $24,001 $14,660 $22,194 $18,451
1995 Oil (Bbls) 1,803 855 1,296 915
Gas (Mcf) 6,778 6,778 26,212 24,819
Net present value @ 10% $20,592 $12,269 $21,074 $17,061
The determination of oil and gas reserves is a complex and interpretive
process which is subject to continued revisions as additional information
becomes available. Reserve estimates prepared by different engineers from the
same data can vary widely. Therefore, the reserve data presented herein should
not be construed as being exact. Any reserve estimate, especially when based
upon volummetric calculations, depends in part on the quality of available data,
engineering and geologic interpretation and judgement, and thus, represents only
an informed professional judgement. Subsequent reservoir performance may justify
upward or downward revision of the estimate.
No Proved or Proved Developed Reserve estimates for oil and gas were filed
with or included in reports to any other federal or foreign governmental
authority or agency since the beginning of fiscal 1997, other than with the
Securities and Exchange Commission.
PRODUCTION WELLS
The following tabulations indicate the number of productive wells (gross
and net) as of December 31, 1997:
Gas Oil Developed Acreage
--------------- --------------- -----------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
United States 597 72.2 233 71.3 50,368 20,841
Canada 220 54.7 89 10.1 164,460 26,415
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PRODUCTION
The following table shows the Company's net production in barrels ("Bbls")
of crude oil and in thousands of cubic feet ("Mcf") of natural gas (computed
after deducting all outstanding interests, including basic royalties and
overriding royalties) for the past three years (note - all $ dollar amounts
presented are in U.S. dollars).
Oil and Condensate (Bbls) Gas (Mcf)
------------------------- ---------
United States Canada United States Canada
------------- ------ ------------- ------
1997 101,000 60,000 1,047,000 813,000
1996 121,000 44,000 857,000 726,000
1995 169,000 45,000 1,011,000 933,000
Average sales price per unit of oil or gas produced:
Oil Gas
-------------------- ------------------------
U.S. Canada U.S. Canada
------ ------ ----- ------
1997 $19.10 $14.65 $2.01 $1.39
1996 $20.01 $17.98 $1.92 $1.22
1995 $16.06 $14.30 $1.48 $ .95
Production as shown in the table, which is net after royalty interests due
others, is determined by multiplying the gross production volume of properties
in which the Company has an interest by the percentage of the leasehold or other
property interest owned by the Company.
The relative energy content of oil and gas (six Mcf of gas equals one
barrel of oil) was used to obtain a conversion factor to convert natural gas
production into equivalent barrels of oils.
There are no agreements with foreign governments.
Average Production Cost Per Equivalent Barrel of Oil in the United States
and Canada:
1997 1996 1995
---- ---- -----
United States $6.32 $6.78 $6.19
Canada $2.78 $2.54 $2.16
Unit cost is computed on equivalent barrels of oil equating gas to oil
based on BTU content. This method is appropriate for the Registrant since
several properties produce both oil and gas and production costs are not
segregated.
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The components of production costs may vary substantially among wells
depending on the methods of recovery employed and other factors, but generally
include severance taxes, administrative overhead, maintenance and repair, labor
and utilities.
OIL AND GAS LEASES
The following tabulation indicates the undeveloped acreage leased by the
Registrant as of December 31 of the years indicated:
1997 1996
Undeveloped Acres Undeveloped Acres
---------------------- --------------------
Gross Net Gross Net
------ ----- ------ -----
United States 10,530 4,598 6,367 3,320
Canada 21,128 3,592 21,128 3,592
A "gross" acre is an acre in which the Company owns a working interest. A
"net" acre is deemed to exist when the sum of the fractional working interests
owned by the Company in gross acres equals one.
DRILLING
The following table sets forth the results of the Registrant's drilling
programs for the years covered:
<TABLE>
<CAPTION>
Exploratory Wells Development Wells
------------------------------------------------ ------------------------------------------------
Net Productive Net Dry Net Productive Net Dry
--------------------- -------------------- ------------------- ------------------
U.S. Canada U.S. Canada U.S. Canada U.S. Canada
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 - - - .1 - .4 4.9 - -
1996 - - - - - .9 - .1 -
1995 - - - - .3 1.0 - - -
1994 - - .7 - .2 1.4 .4 - -
1993 - - .2 - .1 1.9 .3 - -
</TABLE>
A dry hole is an exploratory or development well which is found to be
incapable of producing oil or gas in sufficient quantities to justify
completion. A productive well is an exploratory or development well that is
capable of commercial production. The number of wells drilled refers to the
number of wells completed during the fiscal year, regardless of when drilling
was initiated.
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REAL ESTATE PROPERTIES
The following table sets forth the location and general character of the
principal physical properties owned by the Company as part of its real estate
operations. Most of the properties are subject to mortgages. For further
information with respect to these properties, see "Business - Real Estate
Operations."
Location General Character
-------- -----------------
Arizona 378 Unit Apartment Complex
Arizona 340 Unit Apartment Complex
Arizona 70 Unit Apartment Building
Arizona Office Building
Arizona Retail/Medical use Complex
Texas 228 Unit Apartment Complex
Florida Office Building
Florida Apartment Properties (62 units)
Georgia 72 Unit Apartment Complex
New Jersey Apartment Properties (461 units),
including a 4th quarter 1997
acquisition of a 132 unit
apartment complex
New Jersey Commercial/Retail Properties
The Company considers all of its properties both owned and leased, together
with the related furniture, fixtures and equipment contained therein, to be well
maintained, in good operating condition, and adequate for its present and
foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1997, the Company was not a party to any actions or
proceedings which management believes are reasonably likely to have a material
adverse effect upon the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted by the Company to a vote of its security holders
during the fourth quarter of the year ended December 31, 1997.
15
<PAGE>
PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange. The
following table indicates the high and low sales prices of the Company's common
stock for the quarters indicated during the past two years:
(All in ($) Dollars)
Quarter 1 Quarter 2 Quarter 3 Quarter 4
High - Low High - Low High - Low High - Low
---------- ---------- ---------- ----------
1997 6-1/8 - 5-1/4 5-5/8 - 5-1/8 7-1/16 - 5-1/4 7-1/16 - 5-1/4
1996 6 - 5-1/2 6-1/2 - 5-1/2 6-1/4 - 5-1/2 5-7/8 - 5-1/8
As of March 15, 1998 there were 9,202 common shareholders of record.
The Company declared a 3% stock dividend on December 22, 1997. This stock
dividend had a record date of January 16, 1998 and was paid on February 20,
1998. The Company declared a $.10 per common share cash dividend on June 21,
1996, payable semi-annually. The first payment of $.05 to shareholders of record
on August 21, 1996 was paid on September 20, 1996. The second payment of $.05
had a record date of April 2, 1997 and was paid April 23, 1997.
16
<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
(Not covered by Report of Independent Public Accountants)
(In thousands of dollars except per share amounts)
For the Year Ended December 31
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Oil/Gas Revenues $ 5,917 $ 5,720 $ 5,672 $ 7,926 $ 8,505
-------- ------- ------- -------- --------
Real Estate Revenues $ 9,730 $ 9,296 $ 8,600 $ 7,885 $ 6,526
-------- ------- ------- -------- --------
Total Revenues $15,647 $15,016 $14,272 $ 15,811 $ 15,031
------- ------- ------- -------- --------
Gross Profit
Oil/Gas (a) $ 1,316 $ 1,575 $ 747 $ 1,930 $ 1,740
-------- ------- ------- -------- --------
Gross Profit
Real Estate (b) $ 2,420 $ 2,600 $ 2,712 $ 2,415 $ 2,200
-------- ------- ------- -------- --------
Total Gross
Profit $ 3,736 $ 4,175 $ 3,459 $ 4,345 $ 3,940
-------- ------- ------- -------- --------
Net Income $ 5,536 $ 4,709 $ 4,300 $ 3,577 $ 4,573
-------- ------- ------- -------- --------
Net income
per share of
common stock(c) $ .58 $ .49 $ .44 $ .35 $ .44
-------- ------- ------- -------- --------
Total assets at
year-end $102,029 $98,378 $104,186 $103,198 $104,652
-------- ------- -------- -------- --------
Long-term
obligations $ 51,587 $46,299 $ 47,298 $ 50,160 $ 40,721
-------- ------- -------- -------- --------
Cash dividends
per share $ .00 $ .10 $ .07 $ .06 $ .05
-------- ------- -------- -------- --------
</TABLE>
a - Gross profit relating to oil and gas represents oil and gas revenues less
production costs and related depreciation, depletion and amortization.
b - Gross profit relating to real estate represents total real estate revenues
less real estate operating costs and related depreciation.
c - Restated to give effect to stock dividends.
17
<PAGE>
<TABLE>
<CAPTION>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1997
---------------------------------------------------------------
1st 2nd 3rd 4th Year
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Oil/Gas Revenues $1,420 $1,422 $1,552 $1,523 $ 5,917
------ ------ ------ ------ -------
Real Estate
Revenues $2,341 $2,450 $2,460 $2,479 $ 9,730
------ ------ ------ ------ -------
Total Revenues $3,761 $3,872 $4,012 $4,002 $15,647
------ ------ ------ ------ -------
Gross Profit
Oil/Gas (a) $ 347 $ (98) $ 389 $ 678 $ 1,316
Gross Profit
Real Estate (b) $ 664 $ 696 $ 652 $ 408 $ 2,420
------ ------ ------ ------ -------
Total Gross
Profit $1,011 $ 598 $1,041 $1,086 $ 3,736
------ ------ ------ ------ -------
Net Income $1,716 $1,766 $1,261 $ 793 $ 5,536
------ ------ ------ ------ -------
Net Income
Per Share(c) $ .18 $ .19 $ .13 $ .08 $ .58
------ ------ ------ ------ -------
Cash Dividends
Per Share $ -0- $ -0- $ -0- $ -0- $ -0-
------ ------ ------ ------ -------
</TABLE>
a - Gross profit relating to oil and gas represents oil and gas revenues less
production costs and related depreciation, depletion and amortization.
b - Gross profit relating to real estate represents total real estate
revenues less real estate operating costs and related depreciation.
c - Restated to give effect to Stock dividends.
18
<PAGE>
<TABLE>
<CAPTION>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(Unaudited)
(In thousands $ except per share amounts)
1996
-----------------------------------------------------------------
1st 2nd 3rd 4th Year
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Oil/Gas Revenues $1,349 $1,381 $1,507 $1,483 $ 5,720
------ ------ ------ ------ -------
Real Estate
Revenues $2,191 $2,395 $2,337 $2,373 $ 9,296
------ ------ ------ ------ -------
Total Revenues $3,540 $3,776 $3,844 $3,856 $15,016
------ ------ ------ ------ -------
Gross Profit
Oil/Gas (a) $ 140 $ 13 $ 44 $1,378 $ 1,575
Gross Profit
Real Estate (b) $ 653 $ 750 $ 742 $ 455 $ 2,600
------ ------ ------ ------ -------
Total Gross
Profit $ 793 $ 763 $ 786 $1,833 $ 4,175
------ ------ ------ ------ -------
Net Income $1,652 $1,403 $1,026 $ 628 $ 4,709
------ ------ ------ ------ -------
Net Income
Per Share $ .17 $ .15 $ .11 $ .06 $ .49
------ ------ ------ ------ -------
Cash Dividends
Per Share $ -0- $ .10 $ -0- $ -0- $ .10
------ ------ ------ ------ -------
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company's oil and gas operating performance is influenced by several
factors. The most significant are the prices received for the sale of oil and
gas and the sales volume. For 1997, the average price of oil that the Company
received was $17.42 compared to $19.47 for 1996, a price decrease of 10.5%.
Average gas prices received by the Company in 1997 were 8.8% higher than 1996
average gas prices. The average price of gas for 1997 was $1.74 compared to
$1.60 for 1996.
The following table reflects the average prices received by the Company for
oil and gas, the average production cost per BOE, and the amount of the
Company's oil and gas production for the fiscal years presented:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31
-----------------------------------------
1997 1996 1995
Crude Oil and Natural Gas Production: --------- --------- ---------
<S> <C> <C> <C>
Oil (Bbls) 161,000 165,000 214,000
Gas (Mcf) 1,860,000 1,583,000 1,944,000
Average sales prices:
Oil (per Bbl) $17.42 $19.47 $15.69
Gas(per MCF) $ 1.74 $ 1.60 $ 1.23
Average production costs per BOE $ 4.85 $ 5.15 $ 4.69
</TABLE>
Sales prices received by the Company for oil and gas have fluctuated
significantly from period to period. The fluctuations in oil prices during these
periods primarily reflected market uncertainty regarding the inability of the
Organization of Petroleum Exporting Countries ("OPEC") to control the production
of its member countries, as well as concerns related to global supply and demand
for crude oil. Gas prices received by the Company fluctuate generally with
changes in the spot market price for gas. It is impossible to predict future
price movements with certainty.
20
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 ("1997") COMPARED WITH YEAR ENDED DECEMBER 31, 1996
("1996")
Net income for the year ended December 31 increased from $4,709,000 in 1996
to $5,536,000 in 1997, an increase of 18%.
Oil and gas revenues increased from $5,720,000 in 1996 to $5,917,000 in
1997. This increase is attributable to production from the Company's active
drilling program for natural gas.
Real estate revenues increased from $9,296,000 in 1996 to $9,730,000 in
1997. This increase was principally due to higher rents and the operations of
the properties acquired in 1997.
Oil and gas production expense was comparable in 1997 and 1996. Oil and gas
production expense amounted to $2,274,000 in 1997 and $2,209,000 in 1996.
Depreciation, depletion and amortization of oil and gas assets amounted to
$2,327,000 in 1997 compared to $1,936,000 in 1996. This increase is principally
attributable to a decrease in the estimated value of the Company's domestic oil
& gas pool in 1997 compared to 1996. Real estate depreciation was $1,404,000 in
1997 compared to $1,157,000 in 1996.
General and administrative expense amounted to $1,646,000 in 1997 compared
to $1,447,000 in 1996. This increase is principally attributable to amounts
related to the Company's non-qualified stock option plan.
The Company realized gains on sales of marketable securities of $9,595,000
in 1997 compared to $8,449,000 in 1996.
Interest expense decreased from $3,939,000 in 1996 to $3,331,000 in 1997.
This decrease is attributable to a reduction in long-term debt during 1997 and
lower interest rates during 1997.
The provision for income taxes includes Federal, state, and Canadian taxes.
Differences between the effective tax rate and the statutory income tax rates
are due to foreign resource tax credits in Canada and the dividend exclusion in
the United States.
21
<PAGE>
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 ("1996") COMPARED WITH YEAR ENDED DECEMBER 31, 1995
("1995")
Net income for the year ended December 31 increased from $4,300,000 in 1995
to $4,709,000 in 1996.
Oil and gas revenues increased from $5,672,000 in 1995 to $5,720,000 in
1996. This increase was attributable to higher oil & gas prices in 1996.
Real estate revenues increased from $8,600,000 in 1995 to $9,296,000 in
1996. This increase was principally due to higher rents and the operations of
the five real estate properties acquired during the first quarter of 1996.
Oil and gas production expense decreased in 1996. Oil and gas production
expense decreased from $2,524,000 in 1995 to $2,209,000 in 1996. Production
expense decreased due to, among other things, less oil and gas activities in
1996.
Depreciation, depletion and amortization of oil and gas assets amounted to
$1,936,000 in 1996 compared to $2,401,000 in 1995. This decrease is principally
attributable to an increase in the estimated value of the Company's oil & gas
reserves. Real estate depreciation was $1,157,000 in 1996 compared to $1,037,000
in 1995.
General and administrative expense was relatively stable, amounting to
$1,447,000 in 1996 compared to $1,415,000 in 1995.
The Company realized gains on sales of common shares of Jacobs Engineering
Group, Inc.("Jacobs") of $8,449,000 in 1996 compared to $9,182,000 in 1995. As
of December 31, 1996, the Company held 679,760 shares of Jacobs.
Interest expense decreased from $4,144,000 in 1995 to $3,939,000 in 1996.
This decrease is attributable to a reduction in long-term debt and lower
interest rates during 1996.
The provision for income taxes includes Federal, state and Canadian taxes.
Differences between the effective tax rate and the statutory income tax rates
are due to foreign resource tax credits in Canada, additional provision to cover
the settlement of a tax examination, and the dividend exclusion in the United
States.
22
<PAGE>
EFFECTS OF INFLATION
The effects of inflation on the Company's financial condition are not
considered to be material by management.
"YEAR 2000 ISSUE"
The Company continues to evaluate what effects, if any, Year 2000 issues
may have on its operations. At present, the Company does not believe such issues
will have any material adverse effect in its operations, liquidity or on its
consolidated financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements and requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 is required to be adopted for the Company's
fiscal year ending December 31, 1998. The adoption of this pronouncement is
expected to have no impact on the Company's financial position or results of
operations. SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS no. 131 is required to be adopted for the Company's 1998 year-end financial
statements. The Company is currently evaluating the impact, if any, of the
adoption of this pronouncement on the Company's existing disclosures.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997 the Company had approximately $15 million in
marketable securities at cost, with a market value of approximately $18 million.
The current ratio at December 31, 1997 was 3 to 1 on a market basis, which
management considers adequate for the Company's current business. The Company's
working capital was approximately $17 million at December 31, 1997.
The Company anticipates that cash provided by operating activities and
investing activities will be sufficient to meet its capital requirements to
acquire oil and gas properties and to drill and evaluate these and other oil and
gas properties presently held by the Company. The level of oil and gas capital
expenditures will vary in future periods depending on market conditions,
including the price of oil and the demand for natural gas, and other related
factors. As the Company has no material long-term commitments with respect to
its oil and gas capital expenditure plans, the Company has a significant degree
of flexibility to adjust the level of its expenditures as circumstances warrant.
23
<PAGE>
The Company plans to actively continue its exploration and production
activities as well as search for the acquisition of oil and gas producing
properties and of companies with desirable oil and gas producing properties.
There can be no assurance that the Company will in fact locate any such
acquisitions.
During the year-ended 1997, the Company acquired six real estate properties
from The Trust Company of New Jersey ("The Trust Company") at an aggregate
purchase price of approximately $9.3 million. These transactions were financed
with first-mortgage loans from The Trust Company. The Company will explore
other real estate acquisitions as they arise. The timing of any such acquisition
will depend on, among other things, economic conditions and the favorable
evaluation of specific opportunities presented to the Company. The Company is
currently planning further acquisitions of investment properties during the next
year. Accordingly, while the Company anticipates that it will actively explore
these and other real estate acquisition opportunities, no assurance can be given
that any such acquisition will occur.
During the fourth quarter of 1997, the Company refinanced with Criimi Mae
and Citicorp the original 1992 mortgage loans on the Company's first two real
estate property acquisitions. These properties were acquired in 1992 at an
aggregate cost of approximately $11 million. Due to the significant appreciation
in the value of these properties, the Lender granted first-mortgage loans in the
aggregate amount of $17.5 million, which is $6.5 million in excess of the
Company's original cost of these properties. These funds were borrowed on a
long-term basis at favorable rates. The proceeds of these loans were used to pay
off the higher-rate original first-mortgage loans of $9 million, pay off $3.2
million of other higher-rate debt, and for investment and working capital
purposes.
Net cash provided by (used in) operating activities was $(268,000),
$(486,000), and $745,000 in 1997, 1996 and 1995, respectively. The variations in
the three years principally relate to changes in accounts receivable and
accounts payable and accrued liabilities.
Net cash provided by (used in) investing activities was $133,000,
$3,456,000 and $4,159,000 in 1997, 1996 and 1995, respectively. The variations
principally relate to purchases of real estate properties and transactions in
securities. Purchases of real estate properties amounted to $9,300,000 in 1997
and $3,000,000 1996. Proceeds from sales and redemptions of securities amounted
to $15,078,000 in 1997, $10,044,000 in 1996 and $10,501,000 in 1995. Included in
this amount for 1997 are redemptions of 22,500 shares, at par, aggregating
$2,250,000, of preferred stock of The Trust Company. Additionally, purchases of
marketable securities amounted to $2,428,000 in 1997, $294,000 in 1996, and
$3,130,000 in 1995.
Net cash provided by (used in) financing activities was $4,483,000,
($3,374,000) and ($4,215,000) in 1997, 1996 and 1995, respectively. The
variations principally relate to the issuance, renegotiation, and repayments of
long-term debt. Additionally, in 1996, the Company borrowed new monies and also
restructured its existing loans which were collateralized by securities. See
Footnote No. (4) to the consolidated financial statements for a schedule of
long-term debt.
24
<PAGE>
The Company believes it has adequate capital resources to fund operations
for the foreseeable future.
FORWARD-LOOKING STATEMENTS
This Report on Form 10-K for the year ended December 31, 1997 contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements included herein other than
statements of historical fact are forward-looking statements. Although the
Company believes that the underlying assumptions and expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. The Company's business and prospects
are subject to a number of risks which could cause actual results to differ
materially from those reflected in such forward-looking statements, including
volatility of oil & gas prices, the need to develop and replace reserves, risks
involved in exploration and drilling, uncertainties about estimates of reserves,
environmental risks relating to the Company's oil & gas and real estate
properties, competition, the substantial capital expenditures required to fund
the Company's oil & gas and real estate operations, market and economic changes
in areas where the Company holds real estate properties, interest rate
fluctuations, government regulation, and the ability of the Company to implement
its business strategy.
25
<PAGE>
Financial Accounting Standards Board Statement No. 69 Disclosures
The following disclosures are those required to be made by publicly traded
enterprises under Financial Accounting Standards Board Statement No. 69,
Disclosures About Oil and Gas Producing Activities.
The SEC defines proved oil and gas reserves as those estimated quantities
of crude oil, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed oil and gas reserves are those that can be
recovered through existing wells with existing equipment and operating methods.
26
<PAGE>
<TABLE>
<CAPTION>
Estimated quantities of proved oil and gas reserves are as follows:
Disclosures of Oil and Gas Producing Activities as
Required by Financial Accounting Standards
Board Statement No. 69
(000's Omitted)
Crude Oil, Condensate and Natural Gas Liquids
-----------------------------------------------------------------
United States Canada
----------------------------- -----------------------------
(Barrels)
1997 1996 1995 1997 1996 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves-Beginning of Year 1,545 1,803 2,113 1,201 1,296 1,267
Revisions of previous estimates (52) (176) (381) (24) (51) 57
Sale of minerals in place -0- -0- -0- -0- -0- -0-
Extensions and discoveries 13 39 240 77 -0- 17
Production (101) (121) (169) (60) (44) (45)
----- ----- ----- ----- ----- -----
Proved Reserves-End of Year 1,405 1,545 1,803 1,194 1,201 1,296
----- ----- ----- ----- ----- -----
Proved Developed Reserves-
Beginning of Year 607 855 1,165 867 915 893
----- ----- ----- ----- ----- -----
End of Year 423 607 855 834 867 915
===== ===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Natural Gas
--------------------------------------------------------------------
United States Canada
------------------------------ --------------------------------
(MCF)
1997 1996 1995 1997 1996 1995
----- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Proved Reserves-Beginning of Year 6,798 6,778 7,050 26,000 26,212 25,002
Revisions of previous estimates 856 750 630 (1,968) 514 2,134
Sale of minerals in place -0- -0- -0- -0- -0- -0-
Extensions and discoveries 124 127 109 10,410 0 9
Production (1,047) (857) (1,011) (813) (726) (933)
------ ----- ------ ------ ------ ------
Proved Reserves-End of Year 6,731 6,798 6,778 33,629 26,000 26,212
------ ----- ------ ------ ------ ------
Proved Developed Reserves-
Beginning of Year 6,798 6,778 7,050 25,364 24,819 23,622
------ ----- ------ ------ ------ ------
End of Year 6,731 6,798 6,778 31,387 25,364 24,819
====== ===== ====== ====== ====== ======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Standardized Measure of Discounted Future Net Cash Flows
Related to Proved Oil and Gas Reserves
For The Years Ended December 31
(000's Omitted)
United States Canada
-------------------------- --------------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Future cash flows $41,648 $54,839 $77,242 $73,141
------- ------- ------- -------
Future costs:
Production 13,540 15,699 18,053 16,533
Development, dismantlement
& abandonment 1,603 1,603 1,822 2,461
------- ------- ------- -------
Total Future Costs $15,143 $17,302 $19,875 $18,994
------- ------- ------- -------
Future net inflows-Before
income tax $26,505 $37,537 $57,367 $54,147
------- ------- ------- -------
Future income taxes $ 6,888 $ 9,966 $19,407 $18,400
------- ------- ------- -------
Future net cash flows $19,617 $27,571 $37,960 $35,747
------- ------- ------- -------
10% Discount factor 6,353 10,818 22,000 21,095
------- ------- ------- -------
Standardized measure of
discounted future net
cash flows $13,264 $16,753 $15,960 $14,652
------- ------- ------- -------
</TABLE>
Estimated future cash inflows are computed by applying year-end prices of
oil and gas to year-end quantities of proved reserves. Future price changes are
considered only to the extent provided by contractual arrangements. Estimated
future development and production costs are determined by estimating the
expenditures to be incurred in developing and producing the proved oil and gas
reserves at the end of the year, based on year-end costs and assuming
continuation of existing economic conditions. Estimated future income tax
expenses are calculated by applying year-end statutory tax rates (adjusted for
permanent differences and tax credits) to estimated future pretax net cash flows
related to proved oil and gas reserves, less the tax basis of the properties
involved.
These estimates are furnished and calculated in accordance with
requirements of the Financial Accounting Standards Board and the SEC. Due to
unpredictable variances in expenses and capital forecasts, crude oil and natural
gas price changes and the fact that the basis for such estimates vary
significantly, management believes the usefulness of these projections is
limited. Estimates of future net cash flows do not represent management's
assessment of future profitability or future cash flow to the Company.
Management's investment and operating decisions are based upon reserve estimates
that include proved reserves prescribed by the SEC as well as probable reserves,
and upon
28
<PAGE>
different price and cost assumptions from those used here. It should be
recognized that applying current costs and prices at a 10 percent standard
discount rate allows for comparability but does not convey absolute value. The
discounted amounts arrived at are only one measure of financial quantification
of proved reserves.
There were no oil and gas estimates filed with or included in reports to
any other federal or foreign governmental authority or agency within the last
twelve months.
Reserves in the United States were estimated by Ramsey Engineering Inc. and
the Company. Reserves in Canada were estimated by Citidal Engineering, Ltd.
"Total Costs Both Capitalized and Expensed, Incurred in Oil and Gas
Producing Activities" (including capitalized interest), "Cost Incurred in
Property Acquisition, Exploration and Development Activities" and "Results of
Operations from Oil and Gas Producing Activities" during the three years ended
December 31, 1997, 1996 and 1995 are included in Note 9 of the Notes to
Consolidated Financial Statements, presented elsewhere herein.
The standardized measure of discounted estimated future net cash flows and
changes therein related to proved oil and gas reserves is as follows:
Changes in Standardized Measure of
Discounted Future Net Cash Flow from Proved Reserve Quantities
(000's Omitted)
1997 1996 1995
------- ------- -------
Standardized Measure - $31,405 $29,095 $29,404
Beginning of Year
Sales and transfers - Net
of Production Costs (3,643) (3,490) (2,948)
Extensions and discoveries 4,421 690 3,304
Net change in sales price (4,554) 10,899 425
Revision of quantity estimates (1,184) (1,424) (2,126)
Proceeds from Sales of
Minerals in Place -0- -0- -0-
Accretion of discount 2,984 2,463 3,011
Net change in income taxes 1,639 (2,010) 818
Change in production rates-
Other (1,844) (4,818) (2,793)
------- ------- -------
Standardized measure -
End of year $29,224 $31,405 $29,095
------- ------- -------
29
<PAGE>
ITEM 8 -- FINANCIAL STATEMENTS
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and
Board of Directors of
Wilshire Oil Company of Texas:
We have audited the accompanying consolidated balance sheets of Wilshire Oil
Company of Texas (a Delaware corporation) and subsidiaries as of December 31,
1997 and 1996, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wilshire Oil Company of Texas
and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 23, 1998
F-2
<PAGE>
<TABLE>
<CAPTION>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
------ ------------ ------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,534,000 $ 1,192,000
Accounts receivable 1,061,000 1,855,000
Marketable securities, available for sale, at fair value (Notes 3 and 4) 17,947,000 24,106,000
Prepaid expenses and other current assets 949,000 442,000
------------ -----------
Total current assets 25,491,000 27,595,000
------------ -----------
INVESTMENT IN PREFERRED STOCK OF
THE TRUST COMPANY OF NEW JERSEY (Notes 3, 4 and 8) 0 3,000,000
------------ -----------
PROPERTY AND EQUIPMENT (Notes 2, 4, 8 and 9):
Oil and gas properties, using the full cost method of accounting 133,509,000 131,655,000
Real estate properties 50,901,000 40,534,000
Other property and equipment 421,000 430,000
------------ -----------
184,831,000 172,619,000
Less- Accumulated depreciation, depletion and amortization 108,293,000 104,836,000
------------ -----------
76,538,000 67,783,000
------------ -----------
$102,029,000 $98,378,000
============ ===========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
------------------------------------ ------------- -------------
CURRENT LIABILITIES
Current portion of long-term debt (Note 4) $ 3,324,000 $ 2,911,000
Accounts payable 1,856,000 2,197,000
Income taxes payable (Note 6) 1,517,000 1,245,000
Dividends payable (Note 5) 18,000 463,000
Accrued liabilities (Note 7) 1,575,000 1,224,000
------------ ------------
Total current liabilities 8,290,000 8,040,000
------------ ------------
LONG-TERM DEBT, less current portion (Note 4) 51,587,000 46,299,000
------------ ------------
DEFERRED INCOME TAXES AND OTHER LIABILITIES
(Notes 2, 5 and 6) 13,415,000 16,411,000
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY (Notes 2 and 7):
Preferred stock, $1 par value, 1,000,000 shares authorized; none
issued and outstanding in 1997 and 1996 0 0
Common stock, $1 par value, 15,000,000 shares authorized;
issued 10,013,544 shares in 1997 and 1996 10,014,000 10,014,000
Capital in excess of par value 9,522,000 9,700,000
Unrealized gain on marketable securities, available for sale, of
$2,943,000 and $9,047,000 in 1997 and 1996, respectively, net of
income taxes 1,619,000 4,976,000
Retained earnings 14,267,000 10,237,000
------------ ------------
35,422,000 34,927,000
Less-
Treasury stock, 888,724 and 765,169 shares in 1997 and
1996, respectively, at cost 3,857,000 4,851,000
Cumulative foreign currency translation adjustment 2,828,000 2,448,000
------------ ------------
28,737,000 27,628,000
------------ ------------
$102,029,000 $98,378,000
============ ===========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES (Notes 2, 8 and 9):
Oil and gas $5,917,000 $5,720,000 $5,672,000
Real estate 9,730,000 9,296,000 8,600,000
---------- ---------- ----------
Total revenues 15,647,000 15,016,000 14,272,000
---------- ---------- ----------
COSTS AND EXPENSES (Notes 5, 8 and 9):
Oil and gas production expenses 2,274,000 2,209,000 2,524,000
Real estate operating expenses 5,906,000 5,539,000 4,851,000
Depreciation, depletion and amortization 3,762,000 3,115,000 3,451,000
General and administrative 1,646,000 1,447,000 1,415,000
---------- ---------- ----------
Total costs and expenses 13,588,000 12,310,000 12,241,000
---------- ---------- ----------
Income from operations 2,059,000 2,706,000 2,031,000
GAIN ON SALES OF MARKETABLE
SECURITIES, AVAILABLE FOR SALE 9,595,000 8,462,000 9,216,000
OTHER INCOME, net (Note 3) 463,000 362,000 766,000
INTEREST EXPENSE (Note 4) (3,331,000) (3,939,000) (4,144,000)
---------- ---------- ----------
Income before provision for income taxes 8,786,000 7,591,000 7,869,000
PROVISION FOR INCOME TAXES (Note 6) 3,250,000 2,882,000 3,569,000
---------- ---------- ----------
Net income $5,536,000 $4,709,000 $4,300,000
========== ========== ==========
BASIC EARNINGS PER COMMON SHARE $0.58 $0.49 $0.44
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE $0.58 $0.49 $0.43
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Preferred Stock
---------------------------
Shares
Issued Amount
---------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 0 $0
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.07 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
---- ------
BALANCE, December 31, 1995 0 0
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.10 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
---- ------
BALANCE, December 31, 1996 0 0
Add (deduct):
Net income 0 0
Stock dividend (Notes 2 and 5) 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options (Note 5) 0 0
Purchase of treasury stock 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
---- ------
BALANCE, December 31, 1997 0 $0
==== ======
<CAPTION>
Common Stock
-------------------------------------
Shares
Issued Amount
----------------- ----------------
<S> <C> <C>
BALANCE, December 31, 1994 10,013,544 $10,014,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.07 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
----------- -----------
BALANCE, December 31, 1995 10,013,544 10,014,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options 0 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.10 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
------------ -----------
BALANCE, December 31, 1996 10,013,544 10,014,000
Add (deduct):
Net income 0 0
Stock dividend (Notes 2 and 5) 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0
Exercise of stock options (Note 5) 0 0
Purchase of treasury stock 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0
----------- ------------
BALANCE, December 31, 1997 10,013,544 $10,014,000
=========== ============
<CAPTION>
Unrealized Gain
Capital in on Marketable
Excess of Securities, Net of
Par Value Income Taxes
----------------- -----------------------
<S> <C> <C>
BALANCE, December 31, 1994 $10,399,000 $10,168,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) (474,000) 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.07 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 (722,000)
----------- ----------
BALANCE, December 31, 1995 9,925,000 9,446,000
Add (deduct):
Net income 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) (237,000) 0
Exercise of stock options 12,000 0
Purchase of treasury stock 0 0
Payment of cash dividends, $.10 per common share 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 (4,470,000)
----------- -----------
BALANCE, December 31, 1996 9,700,000 4,976,000
Add (deduct):
Net income 0 0
Stock dividend (Notes 2 and 5) (206,000) 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 82,000 0
Exercise of stock options (Note 5) (54,000) 0
Purchase of treasury stock 0 0
Net translation adjustment, current year 0 0
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 (3,357,000)
----------- -----------
BALANCE, December 31, 1997 $ 9,522,000 $ 1,619,000
============ ===========
<CAPTION>
Cumulative
Foreign
Currency
Retained Treasury Translation
Earnings Stock Adjustment
----------- ----------------- -----------------
<S> <C> <C> <C>
BALANCE, December 31, 1994 $2,822,000 ($2,290,000) ($2,674,000)
Add (deduct):
Net income 4,300,000 0 0
Amortization of deferred compensation in connection with nonqualified
stock option plans (Note 5) 0 0 0
Purchase of treasury stock 0 (1,720,000) 0
Payment of cash dividends, $.07 per common share (663,000) 0 0
Net translation adjustment, current year 0 0 314,000
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0 0
---------- ----------- -----------
BALANCE, December 31, 1995 6,459,000 (4,010,000) (2,360,000)
Add (deduct):
Net income 4,709,000 0 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0 0
Exercise of stock options 0 5,000 0
Purchase of treasury stock 0 (846,000) 0
Payment of cash dividends, $.10 per common share (931,000) 0 0
Net translation adjustment, current year 0 0 (88,000)
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0 0
---------- ----------- ----------
BALANCE, December 31, 1996 10,237,000 (4,851,000) (2,448,000)
Add (deduct):
Net income 5,536,000 0 0
Stock dividend (Notes 2 and 5) (1,506,000) 1,694,000 0
Amortization of deferred compensation in connection with
nonqualified stock option plans (Note 5) 0 0 0
Exercise of stock options (Note 5) 0 163,000 0
Purchase of treasury stock 0 (863,000) 0
Net translation adjustment, current year 0 0 (380,000)
Change in unrealized gain on marketable securities, available for sale,
net of income taxes 0 0 0
----------- ------------ -----------
BALANCE, December 31, 1997 $14,267,000 ($3,857,000) ($2,828,000)
=========== ============ ===========
The accompanying notes to consolidated financial statements are an integral part to these statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,536,000 $4,709,000 $4,300,000
Adjustments to reconcile net income to net cash
(used in) provided by operating activities-
Depreciation, depletion and amortization 3,762,000 3,115,000 3,451,000
Deferred income tax provision (benefit) 740,000 1,168,000 (385,000)
Adjustment of deferred and unearned
compensation in connection with
nonqualified stock option plan, net (22,000) (119,000) (143,000)
Gain on sales of marketable securities,
available for sale (9,595,000) (8,462,000) (9,216,000)
Foreign currency transactions 0 (83,000) (13,000)
Changes in operating assets and liabilities-
Decrease (increase) in accounts receivable 794,000 (842,000) (73,000)
(Increase) decrease in prepaid expenses
and other current assets (507,000) (101,000) 59,000
(Decrease) increase in dividends payable (445,000) 463,000 0
(Decrease) increase in other liabilities (814,000) 814,000 0
Increase (decrease) in accounts payable,
accrued liabilities and taxes payable 283,000 (1,148,000) 2,765,000
---------- ---------- ----------
Net cash (used in) provided by
operating activities (268,000) (486,000) 745,000
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (12,517,000) (6,294,000) (3,212,000)
Purchases of marketable securities (2,428,000) (294,000) (3,130,000)
Proceeds from sales and redemptions of
marketable securities, available for sale 15,078,000 10,044,000 10,501,000
---------- ---------- ----------
Net cash provided by
investing activities 133,000 3,456,000 4,159,000
---------- ---------- ----------
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt $ 36,790,000 $ 18,670,000 $ 650,000
Principal payments of long-term debt (31,090,000) (20,272,000) (2,482,000)
Purchase of treasury stock (863,000) (846,000) (1,720,000)
Cash dividends (463,000) (931,000) (663,000)
Exercise of stock options 109,000 5,000 0
------------ ------------ -----------
Net cash provided by (used in)
financing activities 4,483,000 (3,374,000) (4,215,000)
------------ ------------ -----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (6,000) (5,000) 5,000
------------ ------------ -----------
Net increase (decrease) in cash
and cash equivalents 4,342,000 (409,000) 694,000
CASH AND CASH EQUIVALENTS,
beginning of year 1,192,000 1,601,000 907,000
------------ ------------ -----------
CASH AND CASH EQUIVALENTS, end of year $ 5,534,000 $ 1,192,000 $ 1,601,000
SUPPLEMENTAL DISCLOSURES TO THE
STATEMENTS OF CASH FLOWS:
Cash paid during the year for-
Interest $ 3,623,000 $ 4,019,000 $ 4,040,000
Income taxes, net 2,449,000 3,318,000 369,000
============ ============ ===========
</TABLE>
F-7
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
WILSHIRE OIL COMPANY OF TEXAS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS:
Wilshire Oil Company of Texas (the Company) is a diversified corporation
engaged in oil and gas exploration and production and real estate
operations. The Company's oil and gas operations are conducted both in
its own name and through several wholly-owned subsidiaries in the United
States and Canada. Oil and gas operations in the United States are
located in Arkansas, California, Kansas, Nebraska, New Mexico, Ohio,
Oklahoma, Pennsylvania, Texas and Wyoming. In Canada, the Company
conducts oil and gas operations in the Provinces of Alberta, British
Columbia and Saskatchewan. Crude oil and natural gas production is sold
to oil refineries and natural gas pipeline companies. The Company's real
estate holdings are located in the states of Arizona, Florida, New
Jersey, Georgia and Texas. The Company also maintains investments in
marketable securities, which are available for sale.
(2) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Significant accounting policies followed by the Company and its
subsidiaries are as follows-
Basis of Presentation-
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Significant intercompany
account balances and transactions among subsidiaries have been
eliminated.
Use of Estimates-
The preparation of these financial statements in conformity with
generally accepted accounting principals requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Cash And Cash Equivalents-
The Company considers cash and cash equivalents to include deposits
with banks having a maturity of three months or less from date of
purchase.
Marketable Securities, Available for Sale-
As of December 31, 1997 and 1996, the marketable securities of the
Company consist primarily of equity securities, all of which are
classified as available for sale. These securities are carried at
fair value based upon quoted market prices. Differences between an
investment's cost and its fair value are charged (credited) directly
to shareholders' equity, net of related income taxes. The cost of
securities sold is determined on a specific identification basis.
F-8
<PAGE>
As of December 31, 1997 and 1996, the net unrealized holding gains of
these securities were $2,943,000 and $9,047,000, respectively. The net
unrealized holding gains are included as a credit to shareholders'
equity, net of income taxes of $1,324,000 and $4,071,000 for 1997 and
1996, respectively.
Property And Equipment-
Oil And Gas Properties-
The Company follows the accounting policy, generally known in the oil
industry as "full cost accounting," of capitalizing all costs,
including interest costs, relating to the exploration for and
development of its mineral resources. Under this method, all costs
incurred in the United States and Canada are accumulated in separate
cost centers and are amortized using the gross revenue method based on
total future estimated recoverable oil and gas reserves.
Capitalized costs are subject to a "ceiling" test that limits such
costs to the aggregate of the estimated present value of the future
net revenues of proved reserves and the lower of cost or fair value of
unproved properties. Management is of the opinion that, based on
reserve reports of petroleum engineers and geologists, the fair value
of the estimated recoverable oil and gas reserves exceeds the
unamortized cost of oil and gas properties at December 31, 1997 and
1996.
Real Estate And Other Properties-
Real estate properties and other property and equipment are stated at
cost. Depreciation is provided on the straight-line method using an
estimated useful life of 30 to 35 years for real estate buildings and
at various rates based upon the estimated useful lives of the other
property and equipment.
As of December 31, 1997 and 1996, real estate properties consist of
land with an aggregate cost of $11,627,000 and $8,323,000, buildings
with an aggregate cost of $35,724,000 and $29,672,000 and furniture
and fixtures with an aggregate cost of $3,550,000 and $2,539,000,
respectively.
Impairment of Property and Equipment-
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets" (SFAS 121). The adoption of this standard did not
have an impact on the Company's financial condition or results of
operations. In addition, as of December 31, 1997, the Company has
determined that no impairment has occurred in accordance with the
measurement criteria prescribed by SFAS 121.
Revenue Recognition-
Revenue from oil and gas properties is recognized at the time these
products are delivered to third party purchasers. Revenue from real
estate properties is recognized during the period in which the
premises are occupied and rent is due from the tenant. Because
revenues from both oil and gas and real estate operations are
collected in a relatively short period, no allowance is provided for
uncollectible accounts.
F-9
<PAGE>
Deferred Income Taxes-
Certain transactions are recorded on the books of the Company in a
period different from that in which these transactions are reported
for income tax purposes. These transactions, as well as other
temporary differences between the basis in assets and liabilities for
financial reporting and income tax purposes, result in deferred income
taxes. The principal transactions are those related to intangible
drilling costs, exploration costs, expired leases, depreciation and
nonproducing well costs (see Note 6).
Foreign Operations-
The assets and liabilities of the Canadian subsidiary have been
translated at current exchange rates, and related revenues and
expenses have been translated at average annual exchange rates. The
aggregate effect of translation losses has been deferred as a separate
component of shareholders' equity until the sale or liquidation of the
underlying foreign investment.
Unremitted earnings of the Canadian subsidiary are intended to be
permanently invested in Canada and are subject to foreign taxes
substantially equivalent to United States Federal income taxes. The
unremitted earnings on which the Company has not been required to
provide Federal income taxes amounted to approximately $15,527,000 at
December 31, 1997.
Accounting for Stock-Based Compensation-
The Company has adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As of
December 31, 1997 and 1996, there are several stock option plans
subject to the provisions of SFAS 123. The adoption of this
pronouncement had no impact on the Company's financial condition or
results of operations, however, additional disclosures have been
included in the financial statements (see Note 5).
Net Income Per Common Share-
On December 22, 1997, the Company declared a 3% stock dividend to
shareholders of record on January 16, 1998. The dividend was paid on
February 20, 1998.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). SFAS 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per
share. Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities. Diluted earnings per
share gives effect to all potentially dilutive common shares that were
outstanding during the period. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements and the 3% stock dividend
declared in 1997.
F-10
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the computation of basic and diluted
earnings per share-
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Numerator-
Net income-
Basic and Diluted $5,536,000 $4,709,000 $4,300,000
========== ========== ==========
Denominator-
Weighted average common shares
outstanding-Basic 9,522,167 9,568,502 9,864,617
Incremental shares from assumed
conversions of stock options 89,182 89,695 147,462
---------- ---------- ----------
Weighted average common shares
outstanding-Diluted 9,611,349 9,658,197 10,012,079
========== ========== ==========
Basic earnings per share $0.58 $0.49 $0.44
Diluted earnings per share $0.58 $0.49 $0.43
</TABLE>
Recent Accounting Pronouncements-
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130) and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements and requires
that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as
other financial statements. SFAS 130 is required to be adopted for the
Company's fiscal year ending December 31, 1998. The adoption of this
pronouncement is expected to have no impact on the Company's financial
position or results of operations. SFAS 131 establishes standards for
the way that public business enterprises report information about
operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
SFAS 131 is required to be adopted for the Company's 1998 year-end
financial statements. The Company is currently evaluating the impact,
if any, of the adoption of this pronouncement on the Company's
existing disclosures.
(3) INVESTMENT IN PREFERRED STOCK
OF THE TRUST COMPANY OF NEW JERSEY:
At December 31, 1997 and 1996, the Company owned 37,500 and 60,000
shares, respectively, of The Trust Company of New Jersey's (The Trust
Company) 9-3/4% preferred stock, which is stated at its original cost.
Annual dividends of $475,000, $585,000 and $585,000 were received on
the preferred shares in 1997, 1996 and 1995, respectively, and are
included in other income. In accordance with the agreements, the
preferred shares are callable in whole or in part at the option of The
Trust Company and there are certain restrictions on the payment and
accumulation of dividends. In addition, the Company has agreed to
waive its voting rights with respect to these shares.
F-11
<PAGE>
During 1997, The Trust Company redeemed 22,500 shares of preferred
stock at its stated value of $2,250,000. During the first quarter of
1998, The Trust Company announced its intent to call the remaining
37,500 shares at its stated value of $3,750,000. As of December 31,
1997, 37,500 shares, or $3,750,000 of preferred stock is included in
marketable securities, available for sale in the accompanying
consolidated balance sheet. As of December 31, 1996, 30,000 shares, or
$3,000,000 is included in investment in preferred stock of The Trust
Company and 30,000 shares, or $3,000,000 is included in marketable
securities, available for sale.
(4) LONG-TERM DEBT:
Long-term debt as of December 31 consisted of the following-
1997 1996
----------- -----------
Mortgage notes payable (a) $25,824,000 $28,240,000
Mortgage notes payable (b) 17,527,000 0
Note payable (c) 8,560,000 12,420,000
Revolving loan (d) 0 3,950,000
Term loan payable (e) 0 3,100,000
Promissory note (f) 2,000,000 1,500,000
Loan payable (g) 1,000,000 0
----------- -----------
54,911,000 49,210,000
Less- Current portion 3,324,000 2,911,000
----------- -----------
$51,587,000 $46,299,000
=========== ===========
----------
(a) At December 31, 1997, the Company had mortgage notes payable to
The Trust Company totaling $25,824,000 payable in installments,
bearing interest at a weighted average effective interest rate of
7.5%. These mortgage notes are secured by a first mortgage
interest in the Company's real estate properties and mature at
various dates through January, 2009.
(b) During 1997, the Company paid in full, prior to maturity, two
mortgage loans with The Trust Company, discussed in (a), and
refinanced these loans with Criimi Mae/Citicorp Real Estate
(Criimi Mae). The Criimi Mae loans are payable in monthly
installments, bear interest at a rate of 7.48% and mature in
2007.
(c) The note payable to The Trust Company bears interest at the prime
lending rate (8.5% at December 31, 1997) and matures in 1999. The
note is secured by marketable securities with a market value of
approximately $11,189,000 at December 31, 1997.
(d) During 1996, the Company issued a promissory note for a revolving
loan with a lending institution. This loan, collateralized by
securities, was due to mature in 2001. The Company paid the loan
in full in 1997.
(e) The term loan payable was secured by substantially all of the
domestic oil and gas producing properties as well as marketable
securities and bore interest at the prime lending rate. The loan
was due to mature in 1999. The Company paid the loan in full in
1997.
(f) The promissory note bears interest at the bank's certificate of
deposit rate plus one percent (5.15% at December 31, 1997). The
note is payable in full on June 30, 1998.
F-12
<PAGE>
(g) During 1997, the Company obtained an unsecured $1,000,000
revolving line of credit from The Trust Company. This loan bears
interest at the prime lending rate and matures in 1998.
The aggregate maturities of the long-term debt in each of the
five years subsequent to 1997 and thereafter are-
1998 $ 3,324,000
1999 9,007,000
2000 472,000
2001 482,000
2002 501,000
Thereafter 41,125,000
-----------
$54,911,000
===========
(5) STOCK OPTIONS:
Under various stock option plans adopted prior to 1995, stock options
to purchase an aggregate of 335,600 shares of common stock were
outstanding to officers, key consultants and employees at December 31,
1997. No additional options may be granted under these plans.
In June 1995, the Company adopted two new stock-based compensation
plans (1995 Stock Option and Incentive Plan "Incentive Plan"; and 1995
Non-employee Director Stock Option Plan "Director Plan") under which,
up to 450,000 and 150,000 shares, respectively, are available for
grant. During 1995, the Company granted 3,000 and 35,000 options to
purchase shares of common stock under the Incentive Plan and Director
Plan, respectively and during 1996, the Company granted 35,000 options
to purchase common stock under the Director Plan. No options were
granted under either plan during 1997.
The number and terms of the options granted under these plans are
determined by the Company's Stock Option Committee (the Committee)
based on the fair market value of the Company's common stock on the
date of grant. The period during which an option may be exercised
varies, but no option may be exercised after ten years from the date
of grant.
Effective January 1, 1996, the Company adopted the provisions of SFAS
123, "Accounting For Stock-Based Compensation." As permitted by the
statement, the Company has chosen to continue to account for
stock-based compensation using the intrinsic value method.
Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had the fair value method of
accounting been applied to the Company's stock option plans, which
requires recognition of compensation cost ratably over the vesting
period of the underlying equity instruments, net income would have
been reduced by $41,000 with no per share effect in 1997, $96,000 with
$.01 per share effect in 1996, and $32,000 with no per share effect in
1995. This pro forma impact only takes into account options granted
since January 1, 1995 and is likely to increase in future years as
additional options are granted and amortized ratably over the vesting
period. The average fair value of options granted during 1996 and 1995
was $2.66 and $2.61, respectively.
F-13
<PAGE>
<TABLE>
<CAPTION>
The fair value was estimated using the Black-Scholes option-pricing
model based on the weighted average market price at grant date of
$6.31 in 1996 and $6.18 in 1995 and the following weighted average
assumptions; risk-free interest rate of and 6.87% in 1996 and 6.44%
for 1995, volatility of 24.26% for 1996 and 26.86% for 1995, and
dividend yield of 1.6% for 1996 and 1995.
The following table summarizes stock option activity for 1997 and
1996-
1997 1996
----------------------------- ---------------------------------
Price Price
Shares Low-High Shares Low-High
---------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 440,188 $1.00-6.71 412,491 $1.00-$6.71
Options granted 0 - 35,000 6.31
Options exercised (25,725) 2.98-3.99 (1,215) 4.30
Options terminated and
expired (5,863) 3.49 (6,088) 3.49
------- ----------- ------- -----------
Options outstanding at
end of year (a) 408,600 $1.00-6.71 440,188 $1.00-$6.71
======= =========== ======= ===========
Options exercisable at
end of year (b) 357,800 $1.00-6.71 374,788 $1.00-$6.71
======= =========== ======= ===========
</TABLE>
----------
(a) At December 31, 1997, options outstanding include 228,268 options
($1.00 to $4.44 per share) granted to certain employees and key
consultants whereby the initial option price as determined by the
Committee is subject to reduction (to a minimum of $1.00) by an
amount equal to the increase in market value from the date of
grant. Included in these options are 212,841 options with
attached stock appreciation rights, pursuant to which the Company
may elect to grant cash, stock or a combination of cash and stock
in lieu of the stock appreciation value. Additional compensation
attributable to these options is charged to income or capitalized
as exploration and development costs over calculated periods of
employment based on the duties performed by the individuals
awarded the options. During 1997, 1996 and 1995, $22,000,
$119,000 and $143,000, respectively, was credited to operations,
and $60,000, $118,000 and $331,000, respectively, was credited to
oil and gas properties relating to such options.
As of December 31, 1997 and 1996, included in accrued liabilities
and other long-term liabilities, respectively, is $814,000
payable to certain individuals for stock appreciation rights.
These amounts are payable under certain conditions after January
15, 1998.
(b) Option prices in 1997 have been adjusted to reflect the 3% stock
dividend declared in 1997.
(6) INCOME TAXES:
Income taxes consist of the following-
1997 1996 1995
---------- ---------- ----------
Federal
Current $2,234,000 $1,304,000 $3,479,000
Deferred 350,000 1,105,000 (463,000)
---------- ---------- ----------
2,584,000 2,409,000 3,016,000
---------- ---------- ----------
F-14
<PAGE>
1997 1996 1995
--------- ---------- -----------
Foreign
Current $ 104,000 $ 110,000 $ 0
Deferred 166,000 63,000 78,000
---------- ---------- ----------
270,000 173,000 78,000
---------- ---------- ----------
State 396,000 300,000 475,000
---------- ---------- ----------
Total $3,250,000 $2,882,000 $3,569,000
========== ========== ==========
A reconciliation of the differences between the effective tax rate and
the statutory U. S. income tax rate is as follows-
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax provision
at statutory rate $3,075,000 $2,657,000 $2,754,000
State income tax provision, net of
Federal benefit 257,000 195,000 309,000
Foreign resource tax credits, net (127,000) (124,000) (129,000)
Dividend exclusion (162,000) (191,000) (185,000)
Provision for Internal Revenue
Service review (Note 7) 0 204,000 785,000
Other 207,000 141,000 35,000
---------- ---------- ----------
$3,250,000 $2,882,000 $3,569,000
========== ========== ==========
Effective tax rate 37.0% 38.0% 45.4%
========== ========== ==========
</TABLE>
Significant components of deferred tax assets and liabilities as of
December 31, 1997 and 1996 were as follows-
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax assets-
Tax credit carryforwards $ 0 $ 89,000
=========== ===========
Deferred tax liabilities-
Tax over book depreciation, depletion and
amortization-
Oil and gas and real estate properties -- U. S. $8,046,000 $7,561,000
Oil and gas properties -- Canada 4,045,000 4,055,000
Unrealized gain on marketable securities 1,324,000 4,071,000
----------- -----------
13,415,000 15,687,000
----------- -----------
Total deferred tax liabilities, net $13,415,000 $15,598,000
=========== ===========
</TABLE>
F-15
<PAGE>
(7) COMMITMENTS AND CONTINGENCIES:
Through 1995, Federal income tax returns of the Company and its
subsidiaries for the years 1975 through 1983 were under review by the
Internal Revenue Service. During 1995, the Company received a notice
of assessment from the Internal Revenue Service. During 1996 and the
first quarter of 1997 the Company completed final settlement of this
Federal tax liability, including accrued interest. Included in accrued
liabilities at December 31, 1996 is $433,000, which was paid in 1997,
to cover the final settlement of this matter.
In June 1996 the Company's Board of Directors adopted the Stockholder
Protection Rights Plan (the Rights Plan). The Rights Plan provides for
issuance of one Right for each share of common stock outstanding as of
July 6, 1996. The Rights are separable from and exercisable upon the
occurrence of certain triggering events involving the acquisition of
at least 15% (or, in the case of certain existing stockholders, 25%)
of the Company's common stock by an individual or group, as defined in
the Rights Plan (an Acquiring Person) and may be redeemed by the Board
of Directors at a redemption price of $0.01 per Right at any time
prior to the announcement by the Company that a person or group has
become an Acquiring Person.
As of December 31, 1997 and 1996, 9,248,375 Rights were outstanding.
Each Right entitles the holder to purchase, for an exercise price of
$25, one one-hundredth of a share of Series A Participating Preferred
Stock. Each one one-hundredth share of Series A Participating
Preferred Stock is designed to have economic terms similar to those of
one share of common stock but will have one one-hundredth of a vote.
Because the Rights are only exercisable under certain conditions, none
of which are in effect as of December 31, 1997, the outstanding Rights
are not considered in the computation of net income per share.
The Company does not have significant lease commitments or post
retirement benefits.
(8) SEGMENT INFORMATION:
<TABLE>
<CAPTION>
Segment information by industry and geographic area is as follows-
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Identifiable assets-
Oil and gas-United States $ 18,690,000 $18,761,000 $ 18,238,000
Oil and gas-Canada 13,286,000 13,116,000 13,333,000
Real estate 48,580,000 37,403,000 34,185,000
Corporate (a) 21,473,000 29,098,000 38,430,000
----------- ----------- ------------
$102,029,000 $98,378,000 $104,186,000
============ =========== ============
Gross revenues-
Oil and gas-United States $4,004,000 $4,086,000 $4,216,000
Oil and gas-Canada 1,913,000 1,634,000 1,456,000
Real estate 9,730,000 9,296,000 8,600,000
----------- ----------- ------------
$15,647,000 $15,016,000 $ 14,272,000
=========== =========== ============
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation, depletion
and amortization-
Oil and gas-United States $1,945,000 $1,481,000 $1,930,000
Oil and gas-Canada 382,000 455,000 471,000
Real estate 1,404,000 1,157,000 1,037,000
Corporate 31,000 22,000 13,000
---------- ---------- ----------
$3,762,000 $3,115,000 $3,451,000
========== ========== ==========
Capital expenditures-
Oil and gas-United States $1,381,000 $2,108,000 $1,787,000
Oil and gas-Canada 1,165,000 625,000 396,000
Real estate 10,367,000 3,998,000 1,012,000
Corporate 18,000 19,000 17,000
----------- ---------- ----------
$12,931,000 $6,750,000 $3,212,000
=========== ========== ==========
Income (loss) from operations-
Oil and gas-United States (b) ($609,000) $75,000 ($578,000)
Oil and gas-Canada (b) 853,000 546,000 221,000
Real estate (b) 2,420,000 2,600,000 2,712,000
Corporate (b) (605,000) (515,000) (324,000)
---------- ---------- ----------
$2,059,000 $2,706,000 $2,031,000
========== ========== ==========
</TABLE>
----------
(a) All of the Company's investments in marketable securities and
preferred stock are held by the United States segment and are
included as corporate assets.
(b) Represents revenues less all operating costs, including
depreciation, depletion and amortization.
(9) OIL AND GAS PRODUCING ACTIVITIES:
The following data represents the Company's oil and gas producing
activities for 1997 and 1996-
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Capitalized costs (all being amortized)-
Productive and nonproductive properties $128,434,000 $126,255,000
Unevaluated properties 5,075,000 5,400,000
------------ ------------
Total capitalized costs being amortized 133,509,000 131,655,000
------------ ------------
Less- Accumulated depreciation,
depletion and amortization 102,984,000 100,611,000
------------ ------------
Net capitalized costs $ 30,525,000 $ 31,044,000
============ ============
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
The following data summarizes the costs incurred in property
acquisition, exploration and development activities and the results of
operations from oil and gas producing activities-
United States Canada
-------------------------------------------- -------------------------------------------
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Acquisition of unproved
properties $ 72,000 $ 89,000 $ 153,000 $ 73,000 $ 75,000 $ 78,000
Exploration 500,000 1,139,000 614,000 116,000 119,000 111,000
Development 809,000 880,000 1,020,000 976,000 431,000 207,000
---------- ---------- ---------- ---------- ---------- ----------
Total costs incurred $1,381,000 $2,108,000 $1,787,000 $1,165,000 $ 625,000 $ 396,000
========== ========== ========== ========== ========== ==========
Revenues from oil and
gas producing activities $4,004,000 $4,086,000 $4,216,000 $1,913,000 $1,634,000 $1,456,000
---------- ---------- ---------- ---------- ---------- ----------
Production costs 1,822,000 1,790,000 2,090,000 452,000 419,000 434,000
Technical support
and other 846,000 740,000 774,000 226,000 214,000 330,000
Depreciation, depletion
and amortization 1,945,000 1,481,000 1,930,000 382,000 455,000 471,000
---------- ---------- ---------- ---------- ---------- ----------
Total expenses 4,613,000 4,011,000 4,794,000 1,060,000 1,088,000 1,235,000
---------- ---------- ---------- ---------- ---------- ----------
Pretax income (loss)
from oil and gas
producing activities (609,000) 75,000 (578,000) 853,000 546,000 221,000
Income tax provision
(benefit) (213,000) 26,000 (202,000) 111,000 72,000 27,000
---------- ---------- ---------- ---------- ---------- ----------
Results of oil and gas
producing activities ($ 396,000) $ 49,000 ($ 376,000) $ 742,000 $ 474,000 $ 194,000
========== ========== ========== ========== ========== ==========
</TABLE>
F-18
<PAGE>
EXHIBIT (23)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wilshire Oil Company of Texas:
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-40324.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 23, 1998
F-19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
Information required under this Item with respect to Directors is
incorporated by reference from the Company's Definitive Proxy Statement for the
1998 Annual Meeting of Shareholders.
Information regarding executive officers is found in Part I, Item 1(a)
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required under this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the 1998 Annual Meeting of
Shareholders.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT, SCHEDULES AND
REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS
The Financial statements filed as part of this report are
listed on the Index to Consolidated Financial Statements on
page F-1.
(A) 2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not required,
inapplicable or the information is otherwise shown in the
financial statements or notes thereto.
(A) 3. EXHIBITS
Exhibit
Number Description
------ -----------
3.1 Restated Certificate of Incorporation of Wilshire Oil Company of
Texas, as amended. (Incorporated by reference to Exhibit 3.1 of
Item 14 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
3.2 Amended By-Laws of Wilshire Oil Company of Texas (Incorporated by
reference to Exhibit (3)(ii) of Item 7 of the Registrant's
Current Report on Form 8-K dated February 13, 1996).
4.1 Stockholder Protection Rights Agreement, dated as of June 21,
1996, between Wilshire Oil Company of Texas and Continental Stock
Transfer & Trust Company, as Rights Agent (incorporated by
reference to Exhibit 1 to the Company's current report on Form
8-K dated June 21, 1996).
4.2 Multifamily Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing between a subsidiary of Wilshire Oil
Company of Texas and Criimi Mae, Inc. dated October 28, 1997.
4.3 Multifamily Promissory Note given by a subsidiary of Wilshire Oil
Company of Texas to Criimi Mae, Inc. dated October 28, 1997.
4.4 Multifamily Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing between a subsidiary of Wilshire Oil
Company of Texas and Criimi Mae, Inc. dated October 28, 1997.
31
<PAGE>
4.5 Multifamily Promissory Note given by a subsidiary of Wilshire Oil
Company of Texas to Criimi Mae, Inc. dated October 28, 1997.
10.1 General Assignments and Assignments of Leases dated March 31,
1992 with respect to the purchase of income producing real estate
properties (incorporated by reference to Exhibit 1 and 2 of Form
8 dated December 9, 1992, filed with the Commission).
10.2 General Assignments, Assignments of Leases, and Escrow Agreements
and Early Possession Agreements with respect to the purchase of
four income producing real estate properties, (incorporated by
reference to Exhibits 1 (a) through 4(c) on the Company's Form
8-K dated December 31, 1992 filed with the Commission).
10.3 Wilshire Oil Company of Texas 1980 Stock Option Plan.
(Incorporated by reference to Exhibit 10.4 of Item 14 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.4 Wilshire Oil Company of Texas 1984 Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 of Item 14 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.5 Wilshire Oil Company of Texas 1995 Stock Option and Incentive
Plan. (incorporated by reference to Exhibit A of the Registrant's
Definitive Proxy Statement for its 1995 Annual Meeting of
Stockholders).
10.6 Wilshire Oil Company of Texas 1995 Non-Employee Director Stock
Option Plan. ( incorporated by reference to Exhibit B of the
Registrant's Definitive Proxy Statement for its 1995 Annual
Meeting of Stockholders).
11. Computation of Earnings Per Share
21. List of significant subsidiaries of the Registrant
23. Consent of Arthur Andersen LLP
27. Financial Data Schedule
14(B) REPORTS ON FORM 8
There were no Form 8-K filings by the Company during the fourth
quarter of 1997.
32
<PAGE>
Exhibit 11 - Statement re: Computation of Per Share Earnings:
Net Income Per Common Share:
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" which makes certain
changes to the manner in which earnings per share is reported. The Company has
adopted this standard for the year ended December 31, 1997.
1997 1996 1995
---------- ---------- ----------
Numerator -
Net income -
Basic & Diluted $5,536,000 $4,709,000 $4,300,000
Denominator -
Weighted average common shares
outstanding - Basic 9,522,167 9,568,502 9,864,617
Incremental shares from assumed
conversions of stock options 89,182 89,695 147,462
---------- ---------- ----------
Weighted average common shares
outstanding - Diluted 9,611,349 9,658,197 10,012,079
Basic earnings per share $0.58 $0.49 $0.44
Diluted earnings per share $0.58 $0.49 $0.43
33
<PAGE>
Exhibit 22 - List of Subsidiaries
Jurisdiction of
Incorporation
---------------
Wilshire Oil of Canada, Ltd. Alberta, Canada
Calgary, Alberta, Canada
Britalta Venezolano, Ltd. Alberta, Canada
Calgary, Alberta, Canada
Sunrise Ridge Holding, Inc. State of Delaware
Jersey City, NJ
Sunrise Ridge, L. L. C. State of Delaware
Jersey City, NJ
Biltmore Club Holding, Inc. State of Delaware
Jersey City, NJ
Biltmore Club Apartments, L. L. C. State of Delaware
Jersey City, NJ
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused the report to be signed on
its behalf by the undersigned thereunto duly authorized.
WILSHIRE OIL COMPANY OF TEXAS
-----------------------------
(Registrant)
DIRECTORS:
By: /s/ S. WILZIG IZAK
---------------------------------
S. Wilzig Izak, Director
By: /s/ WILLIAM SCHWARTZ, M.D.
---------------------------------
William Schwartz, M.D., Director
By: /s/ JOSEPH K. SCHWARTZ
---------------------------------
Joseph K. Schwartz, Director
By: /s/ MILTON DONNENBERG
---------------------------------
Milton Donnenberg, Director
By: /s/ ERNEST WACHTEL
---------------------------------
Ernest Wachtel, Director
OFFICERS:
By: /s/ S. WILZIG IZAK
---------------------------------
S. Wilzig Izak
Chairman of the Board and Chief
Executive Officer
(Duly Authorized Officer and
Chief Financial Officer)
Date: March 27, 1998
F. ANN RODRIGUEZ, RECORDER DOCKET: 10660
RECORDED BY: GMS PAGE: 2960
DEPUTY RECORDER NO. OF PAGES: 32
1970 RD05 SEQUENCE: 97176802
10/28/97
TLATI DOTRFS 16:50:00
ROGERS & WELLS
ATTN: DJAHA
200 PARK AVE MAIL
NEW YORK NY 10166 AMOUNT PAID $ 40.00
WHEN RECORDED MAIL TO
Joanne Feil, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10166-0153
Attn: David Djaha, Esq. SPACE ABOVE THIS LINE FOR RECORDER'S USE
(5052/9)
- --------------------------------------------------------------------------------
MULTIFAMILY DEED OF TRUST,
ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST (herein "Instrument") is made this 28th day of
October, 1997, among the Trustor/Grantor, Sunrise Ridge L.L.C., a Delaware
limited liability company, whose address is 921 Bergen Avenue, Jersey City, New
Jersey 07306 (herein "Borrower"), Lawyers Title of Arizona, whose address is 1
South Church Street, Suite 2130 Tucson, Arizona 85701 (herein "Trustee"), and
the Beneficiary, Citicorp Real Estate, Inc., a corporation organized and
existing under the laws of Delaware, whose address is c/o Criimi Mae Inc., Loan
Administration, 11200 Rockville Pike, Rockville, MD 20852, together with its
successors, assigns and transferees, (herein "Lender").
BORROWER, in consideration of the indebtedness herein recited and the trust
herein created, irrevocably grants, conveys and assigns to Trustee in trust,
with power of sale, the following described property located in County of Pima,
City of Tucson, State of Arizona, and more particularly described on Exhibit "A"
attached hereto and incorporated herein by reference for all purposes.
TOGETHER with all and singular the tenements, hereditaments, and
appurtenances thereunto belonging or in anywise appertaining, including without
limitation all easements, rights-of-way, parking rights, and all rights and
privileges of ingress and egress for the benefit thereof, and the reversion or
reversions, remainder and remainders thereof; and also all of the estate, right,
title, interest, property, claim and demand whatsoever of the Borrower of, in
and to the same and of, in and to every part and parcel thereof;
TOGETHER with all buildings and improvements, now or hereafter erected on
the property, any and all royalties, mineral, oil and gas rights and profits,
crops, timber, trees, shrubs, flowers, and landscaping features, water, water
rights, and water stock (whether decreed or undecreed, surface or underground,
appropriated or unappropriated, or otherwise), and all fixtures, appliances,
building materials, including, without limitation, any mobile home units or
manufactured housing units (collectively, "Mobile Homes") and recreational
vehicles and other tangible property now or hereafter attached to the property
encumbered by this Instrument; and all of the foregoing and following described
property, together with said property, are herein referred to as the "Property";
TOGETHER with any and all air rights, development rights, zoning rights or
other similar rights or interests which benefit or are appurtenant to the
Property or the improvements or both and any proceeds arising therefrom;
TOGETHER with, all rents, issues, profits, royalties, income and other
benefits derived from the Property (collectively, the "Rents"), subject to the
right, power and authority hereinafter given to Borrower to collect and apply
such Rents;
<PAGE>
TOGETHER with, all ground leases, leasehold estate, right, title and
interest of Borrower in and to all leases or subleases covering the Property or
any portion thereof now or hereafter existing or entered into, and all right,
title and interest of Borrower thereunder, including, without limitation, all
cash or security deposits, advance rentals, and deposits or payments of similar
nature;
TOGETHER with, all right, title and interest of Borrower in and to all
options to purchase or lease the Property or any portion thereof or interest
therein, and any greater estate in the Property owned or hereafter acquired;
TOGETHER with all right, title and interest of the Borrower, now owned or
hereafter acquired, in and to the land lying in the bed or within the right of
way of any street, road, avenue, way, sidewalk or alley, opened or proposed, in
front of or adjoining the above-described Property to the center line thereof;
TOGETHER with a lien and/or security interest hereby granted to Lender in
all machinery, apparatus, equipment, fittings, fixtures (except trade fixtures
belonging to any tenant), whether actually or constructively attached to said
Property and including all trade, domestic and ornamental fixtures, and articles
of personal property of every kind and nature whatsoever (hereinafter
collectively called "Personal Property"), now or hereafter located in, upon or
under said Property or any part thereof and used or usable in connection with
any present or future operation of said Property, including but not limiting the
generality of the foregoing, all heating, air conditioning, sprinklers,
freezing, lighting, laundry, incinerating and dynamo and generating equipment;
engines, pipes, pumps, tanks, motors, conduits, switchboards, plumbing and
plumbing fixtures; lifting, cleaning, fire prevention, fire extinguishing,
refrigerating, ventilating and communications apparatus; boilers, ranges,
furnaces, oil burners or units thereof; appliances, air cooling and
air-conditioning apparatus; vacuum cleaning systems; elevators, escalators;
shades, awnings, screens; storm doors and windows; stoves; refrigerators;
cooking apparatus and mechanical equipment, gas and electric fixtures;
partitions, furniture of any public spaces, halls and lobbies; attached
cabinets; partitions; ducts and compressors; rugs and carpets; draperies,
furniture and furnishings used in the operation of said Property; together with
all additions thereto and replacements thereof (Borrower hereby agreeing with
respect to all additions and replacements, to execute and deliver from time to
time such further instruments as may be requested by Lender to confirm the
conveyance, transfer and assignment of and granting of a security interest in
any of the foregoing);
TOGETHER with any and all right, title and interest of Borrower to the
proceeds of all insurance in effect with respect to the Property or Personal
Property and to any and all awards or payments, including interest thereon, and
the right to receive the same, which may be made with respect to the Property or
Personal Property as a result of or in lieu of (a) the exercise of the right of
eminent domain, (b) alteration of the grade of any street, or (c) any other
damage or injury to, taking of, or decrease in the value of the Property or
Personal Property, to the extent of all amounts which may be secured by this
Instrument at the date of receipt of any such award or payment, and of the
reasonable counsel fees, costs and disbursements incurred by the Lender in
connection with the collection of such proceeds, award or payment, and the
rights of Borrower under present or future contracts involving said Property or
Personal Property;
TOGETHER with, all monetary deposits which Borrower has been required to
give to any public or private utility with respect to utilities services
furnished to the Property;
TOGETHER with, all licenses, permits, including, without limitation,
permits and approvals now or hereafter issued by any governmental agencies with
respect to the Property and plans, specifications and contract drawings relating
to the Property;
2
<PAGE>
TOGETHER with, all contracts relating to the design or construction of the
improvements and the acquisition and installation of the Personal Property and
all warranties and guarantees related thereto (collectively, the "Contracts");
TOGETHER with, all funds, accounts, instruments, documents, general
intangibles (including trademarks, trade names and symbols used in connection
therewith) used in connection with and arising from or by virtue of any
transactions related to the Property, and all permits, licenses, franchises,
certificates and other rights and privileges obtained in connection with the
Property, and payments for goods or property sold or leased or for services
rendered, whether or not yet earned by performance, and not evidenced by an
instrument or chattel paper, including, without limitation, (i) all accounts
arising from the operation of a recreational vehicle park or resort on the real
property described above and (ii) all rights to payment from any consumer
credit/charge card organization or entity;
TOGETHER with, all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing into cash or liquidated claims.
TO SECURE TO LENDER (a) the repayment of the indebtedness evidenced by
Borrower's note dated of even date herewith (herein "Note") in the principal sum
of Eight Million Six Hundred Forty Thousand Dollars and No/100 (U.S.
$8,640,000.00), with interest thereon, with the balance of the indebtedness, if
not sooner paid, due and payable on November 1, 2007 (the "Maturity Date"), and
all renewals, extensions and modifications thereof; (b) the repayment of any
future advances, with interest thereof, made by Lender to Borrower pursuant to
paragraph 33 hereof (herein "Future Advances"); (c) the payment of all other
sums, with interest thereon, advanced in accordance herewith to protect the
security of this Instrument; and (d) the performance of the covenants and
agreements of Borrower herein contained, or contained in any other Loan Document
(as hereinafter defined).
Borrower covenants that Borrower is lawfully seised of the estate hereby
conveyed and has the right to grant, convey and assign the Property (and, if
this Instrument is on a leasehold, that the ground lease is in full force and
effect without modification except as noted above and without default on the
part of either lessor or lessee thereunder), that the Property is unencumbered,
and that Borrower will warrant and defend generally the title to the Property
against all claims and demands, subject to any easements and restrictions listed
in a schedule of exceptions to coverage in any title insurance policy insuring
Lender's interest in the Property.
UNIFORM COVENANTS. Borrower and Lender covenant and agree as follows:
1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay when due the
principal of and interest on the indebtedness evidenced by the Note, any
prepayment and late charges provided in the Note and all other sums secured by
this Instrument.
2. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Subject to applicable law or to
a written waiver by Lender, Borrower shall pay to Lender on the day monthly
installments of principal or interest are payable under the Note (or on another
day designated in writing by Lender), until the Note is paid in full, a sum
(herein "Funds") equal to one-twelfth of (a) the yearly taxes and assessments
which may be levied on the Property, (b) the yearly ground rents, if any, (c)
the yearly premium installments for fire and other hazard insurance, rent loss
insurance and such other insurance covering the Property as Lender may require
pursuant to PARAGRAPH 5 hereof, (d) the yearly premium installments for mortgage
insurance, if any, and (e) if this Instrument is on a leasehold, the yearly
fixed rents, if any, under the ground lease, all as reasonably estimated
initially and from time to time by Lender on the basis of assessments and bills
and reasonable estimates thereof. Any waiver by Lender of a requirement that
Borrower pay such Funds may be revoked by Lender, in Lender's sole discretion,
at any time upon notice in writing to Borrower. Lender may require Borrower to
pay to Lender, in advance, such other Funds for other taxes, charges, premiums,
assessments and impositions in connection with Borrower or the
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Property which Lender shall reasonably deem necessary to protect Lender's
interests (herein "Other Impositions"). Unless otherwise provided by applicable
law, Lender may require Funds for Other Impositions to be paid by Borrower in a
lump sum or in periodic installments, at Lender's option.
The Funds shall be held in an institution(s) the deposits or accounts of
which are insured or guaranteed by a Federal or state agency (including Lender
if Lender is such an institution). Lender shall apply the Funds to pay said
rents, taxes, assessments, insurance premiums and Other Impositions so long as
Borrower is not in breach of any covenant or agreement of Borrower in this
Instrument. Lender shall make no charge for so holding and applying the Funds,
analyzing said account or for verifying and compiling said assessments and
bills, unless Lender pays Borrower interest, earnings or profits on the Funds
and applicable law permits Lender to make such a charge. Borrower and Lender may
agree in writing at the time of execution of this Instrument that interest on
the Funds shall be paid to Borrower, and unless such agreement is made or
applicable law requires interest, earnings or profits to be paid, Lender shall
not be required to pay Borrower any interest, earnings or profits on the Funds.
Lender shall give to Borrower, without charge, an annual accounting of the Funds
in Lender's normal format showing credits and debits to the Funds and the
purpose for which each debit to the Funds was made. The Funds are pledged as
additional security for the sums secured by this Instrument.
If the amount of the Funds held by Lender at the time of the annual
accounting thereof shall exceed the amount deemed necessary by Lender to provide
for the payment of taxes, assessments, insurance premiums, rents and Other
Impositions, as they fall due, such excess shall be credited to Borrower on the
next monthly installment or installments of Funds due. If at any time the amount
of the Funds held by Lender shall be less than the amount deemed necessary by
Lender to pay taxes, assessments, insurance premiums, rents and Other
Impositions, as they fall due, Borrower shall pay to Lender any amount necessary
to make up the deficiency within thirty days after notice from Lender to
Borrower requesting payment thereof.
Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument beyond any applicable grace or cure period, Lender may apply, in any
amount and in any order as Lender shall determine in Lender's sole discretion,
any Funds held by Lender at the time of application (i) to pay rents, taxes,
assessments, insurance premiums and Other Impositions which are now or will
hereafter become due, or (ii) as a credit against sums secured by this
Instrument. Upon payment in full of all sums secured by this Instrument, Lender
shall promptly refund to Borrower any Funds held by Lender. Except as otherwise
specified above, all amounts deposited shall be held by the Lender without
interest and the amount deposited shall not constitute trust funds and may be
commingled with the general funds of the Lender.
3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise, all
payments received by Lender from Borrower under the Note or this Instrument
shall be applied by Lender in the following order of priority: (i) amounts
payable to Lender by Borrower under PARAGRAPH 2 hereof; (ii) interest payable on
the Note; (iii) principal of the Note; (iv) interest payable on advances made
pursuant to PARAGRAPH 8 hereof; (v) principal of advances made pursuant to
PARAGRAPH 8 hereof; (vi) interest payable on any Future Advance, provided that
if more than one Future Advance is outstanding, Lender may apply payments
received among the amounts of interest payable on the Future Advances in such
order as Lender, in Lender's sole discretion, may determine; (vii) principal of
any Future Advance, provided that if more than one Future Advance is
outstanding, Lender may apply payments received among the principal balances of
the Future Advances in such order as Lender, in Lender's sole discretion, may
determine; and (viii) any other sums secured by this Instrument in such order as
Lender, at Lender's option, may determine: provided, however, that Lender may,
at Lender's option, apply any sums payable pursuant to PARAGRAPH 8 hereof prior
to interest on and principal of the Note, but such application shall not
otherwise affect the order of priority of application specified in this
PARAGRAPH 3.
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4. CHARGES; LIENS. Borrower shall pay all rents, taxes, assessments, premiums,
and Other Impositions attributable to the Property in the manner provided under
PARAGRAPH 2 hereof or, if not paid in such manner, by Borrower making payment,
when due, directly to the payee thereof, or in such other manner as Lender may
designate in writing. Borrower shall promptly furnish to Lender all notices of
amounts due under this PARAGRAPH 4, and in the event Borrower shall make payment
directly, Borrower shall promptly furnish to Lender receipts evidencing such
payments. Borrower shall promptly discharge any lien which has, or may have,
priority over or equality with, the lien of this Instrument, and Borrower shall
pay, when due, the claims of all persons supplying labor or materials to or in
connection with the Property. Without Lender's prior written permission, which
permission may be withheld at the sole discretion of Lender, Borrower shall not
allow any lien inferior to this Instrument to be perfected against the Property.
5. HAZARD INSURANCE. Borrower shall keep the improvements now existing or
hereafter erected on the Property insured by carriers at all times satisfactory
to Lender against loss by fire, hazards included within the term "extended
coverage", rent loss and such other hazards, casualties, liabilities and
contingencies as Lender (and, if this Instrument is on a leasehold, the ground
lease) shall require and in such amounts and for such periods as Lender shall
require. Borrower shall purchase policies of insurance with respect to the
Property with such insurers, in such amounts and covering such risks as shall be
satisfactory to Lender, including, but not limited to, (i) personal injury and
death; (ii) loss or damage by fire, lightning, hail, windstorm, explosion,
hurricane (to the extent available), and such other hazards, casualties and
contingencies (including at least twelve (12) months rental insurance in an
amount equal to the gross rentals for such period and broad form boiler and
machinery insurance) as are normally and usually covered by extended coverage
policies in effect where the Property is located and comprehensive general
public liability insurance in an amount not less than $1,000,000.00 per
occurrence, $2,000,000 in the aggregate together with $3,000,000.00 excess
liability coverage and containing an "Ordinance or Law Coverage" or
"Enforcement" endorsement if any of the improvements or the use of the Property
shall at any time constitute legal nonconforming structures or uses; provided,
that each policy shall provide by way of endorsement, rider or otherwise that no
such insurance policy shall be cancelled, endorsed, altered, or reissued to
effect a change in coverage unless such insurer shall have first given Lender
thirty (30) days prior written notice thereof, such policy shall be on a
replacement cost basis, with a waiver of depreciation, in an amount not less
than that necessary to comply with any coinsurance percentage stipulated in the
policy, but not less than one hundred percent (100%) of the insurable value
(based upon replacement cost) of the Property and the deductible clause, if any,
of the fire and extended coverage policy may not exceed the lesser of one
percent (1%) of the face amount of the policy or $1,000.00; (iii) loss or damage
by flood, if the Property is in an area designated by the Secretary of Housing
and Urban Development as an area having special flood hazards, in an amount
equal to the principal amount of the Note or the maximum amount available under
the Flood Disaster Protection Act of 1973, and regulations issued pursuant
thereto, as amended from time to time, whichever is less, in form complying with
the "insurance purchase requirement" of that Act; and (iv) such other insurance
and endorsements, if any, as Lender may require from time to time, or which is
required by the Loan Documents. Borrower shall cause all insurance (except
general public liability insurance) carried in accordance with this PARAGRAPH 5
to be payable to Lender as a mortgagee and not as a coinsured, and, in the case
of all policies of insurance carried by each lessee for the benefit of Borrower,
if any, to cause all such policies to be payable to Lender as Lender's interest
may appear. All premiums on insurance policies shall be paid in the manner
provided under PARAGRAPH 2 hereof, or in such other manner as Lender may
designate in writing.
All insurance policies and renewals thereof shall be in a form acceptable
to Lender and shall include a standard mortgagee clause in favor of and in form
acceptable to Lender. Lender shall have the right to hold the policies, and
Borrower shall promptly furnish to Lender all renewal notices and all receipts
of paid premiums. At least thirty (30)
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days prior to the expiration date of a policy, Borrower shall deliver to Lender
a renewal policy in form satisfactory to Lender. If this Instrument is on a
leasehold, Borrower shall furnish Lender a duplicate of all policies, renewal
notices, renewal policies and receipts of paid premiums if, by virtue of the
ground lease, the originals thereof may not be supplied by Borrower to Lender.
In the event of loss, Borrower shall give immediate written notice to the
insurance carrier and to Lender. Borrower hereby authorizes and empowers Lender
as attorney-in-fact for Borrower to make proof of loss, to adjust and compromise
any claim under insurance policies, to appear in and prosecute any action
arising from such insurance policies, to collect and receive insurance proceeds,
and to deduct therefrom Lender's expenses incurred in the collection of such
proceeds; provided however, that nothing contained in this PARAGRAPH 5 shall
require Lender to incur any expense or take any action hereunder. Borrower
further authorizes Lender, at Lender's option, (a) to hold the balance of such
proceeds to be used to reimburse Borrower for the cost of reconstruction or
repair of the Property or (b) subject to the immediately following paragraph, to
apply such proceeds to the payment of the sums secured by this Instrument
whether or not then due, in the order of application set forth in PARAGRAPH 3
hereof (subject, however, to the rights of the lessor under the ground lease if
this Instrument is on a leasehold).
Lender shall not exercise Lender's option to apply insurance proceeds to
the payment of the sums secured by this Instrument if all of the following
conditions are met: (i) Borrower is not in breach or default of any covenant or
agreement of this Instrument, the Note or any other Loan Document; (ii) Lender
determines that there will be sufficient funds to restore and repair the
Property to the Pre-existing Condition (as hereinafter defined); (iii) Lender
agrees in writing that the rental income of the Property, after restoration and
repair of the Property to the Pre-existing Condition, will be sufficient to meet
all operating costs and other expenses, payments for reserves and loan repayment
obligations (including any obligations under any permitted subordinate
financing) relating to the Property; (iv) Lender determines that restoration and
repair of the Property to the Pre-existing Condition will be completed within
one year of the date of the loss or casualty to the Property, but in no event
later than six months prior to the Maturity Date; and (v) Lender is reasonably
satisfied that the Property can be restored and repaired as nearly as possible
to the condition it was in immediately prior to such casualty and in compliance
with all applicable zoning, building and other laws and codes (the "Pre-existing
Condition"). If Lender elects to make the insurance proceeds available for the
restoration and repair of the Property, Borrower agrees that, if at any time
during the restoration and repair, the cost of completing such restoration and
repair, as determined by Lender, exceeds the undisbursed insurance proceeds,
Borrower shall, immediately upon demand by Lender, deposit the amount of such
excess with Lender, and Lender shall first disburse such deposit to pay for the
costs of such restoration and repair on the same terms and conditions as the
insurance proceeds are disbursed. In the event the Property cannot be restored
to the equivalent of its original condition, as concerns height, floor area, use
and number of apartment units, Lender may, in its sole discretion, (I) require
that the insurance proceeds be applied to the payment of the sums secured by
this Instrument, whether or not then due (the "Loan Balance"), in the order of
application set forth in PARAGRAPH 3 hereof, or (II) require that (a) only a
portion of the Property be restored and repaired, (b) that the insurance
proceeds be applied to reduce the Loan Balance such that the ratio of the Loan
Balance to the number of apartment units that existed immediately prior to the
event of loss shall equal the ratio of the reduced Loan Balance to the reduced
number of apartment units to exist after the partial restoration and repair of
the Property, and (c) any insurance proceeds not used to reduce the Loan Balance
shall be held by Lender in accordance with PARAGRAPH 5 hereof to reimburse
Borrower for the cost of such partial restoration and repair. Any insurance
proceeds not applied to the repair or restoration of the Property shall be
applied to reduce the Loan Balance in the order of application set forth in
PARAGRAPH 3 above.
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If the insurance proceeds are held by Lender to reimburse Borrower for the
cost of restoration and repair of the Property, the Property shall be restored
to the equivalent of its original condition or such other condition as Lender
may approve in writing. Lender may, at Lender's option, condition disbursement
of said proceeds on Lender's approval of such plans and specifications of an
architect satisfactory to Lender, contractor's cost estimates, architect's
certificates, waivers of liens, sworn statements of mechanics and materialmen
and such other evidence of costs, percentage completion of construction,
application of payments, and satisfaction of liens as Lender may reasonably
require. If the insurance proceeds are applied to the payment of the sums
secured by this Instrument, any such application of proceeds to principal shall
not extend or postpone the due dates of the monthly installments referred to in
PARAGRAPHS 1 AND 2 hereof or change the amounts of such installments. If the
Property is sold pursuant to PARAGRAPH 27 hereof or if Lender acquires title to
the Property, Lender shall have all of the right, title and interest of Borrower
in and to any insurance policies and unearned premiums thereon and in and to the
proceeds resulting from any damage to the Property prior to such sale or
acquisition.
6. PRESERVATION AND MAINTENANCE OF PROPERTY; LEASEHOLDS. Borrower (a) shall not
commit waste or permit impairment or deterioration of the Property, (b) shall
not abandon the Property, (c) shall restore or repair promptly and in a good and
workmanlike manner all or any part of the Property to the equivalent of its
original condition, or such other condition as Lender may approve in writing, in
the event of any damage, injury or loss thereto, whether or not insurance
proceeds are available to cover in whole or in part the costs of such
restoration or repair, (d) shall keep the Property, including improvements,
fixtures, equipment, machinery and appliances thereon in good repair and shall
replace fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, (e) shall comply with all laws,
ordinances, regulations and requirements of any governmental body applicable to
the Property, (f) shall provide for professional management of the Property by a
residential rental property manager satisfactory to Lender pursuant to a
contract approved by Lender in writing, unless such requirement shall be waived
by Lender in writing, (g) shall generally operate and maintain the Property in a
manner to ensure maximum rentals, and (h) shall give notice in writing to Lender
of and, unless otherwise directed in writing by Lender, appear in and defend any
action or proceeding purporting to affect the Property, the security of this
Instrument or the rights of powers of Lender. Neither Borrower nor any tenant or
other person shall remove, demolish or alter any improvement now existing or
hereafter erected on the Property or any fixture, equipment, machinery or
appliance in or on the Property except when incident to the replacement of
fixtures, equipment, machinery and appliances with items of like kind.
If this Instrument is on a leasehold, Borrower (i) shall comply with the
provisions of the ground lease, (ii) shall give immediate written notice to
Lender of any default by lessor under the ground lease or of any notice received
by Borrower from such lessor of any default under the ground lease by Borrower,
(iii) shall exercise any option to renew or extend the ground lease and give
written confirmation thereof to Lender within thirty days after such option
becomes exercisable, (iv) shall give immediate written notice to Lender of the
commencement of any remedial proceedings under the ground lease by any party
thereto and, if required by Lender, shall permit Lender as Borrower's
attorney-in-fact to control and act for Borrower in any such remedial
proceedings and (v) shall within thirty days after request by Lender obtain from
the lessor under the ground lease and deliver to Lender the lessor's estoppel
certificate required thereunder, if any. Borrower hereby expressly transfers and
assigns to Lender the benefit of all covenants contained in the ground lease,
whether or not such covenants run with the land, but Lender shall have no
liability with respect to such covenants nor any other covenants contained in
the ground lease.
Borrower shall not surrender the leasehold estate and interests herein
conveyed nor terminate or cancel the ground lease creating said estate and
interests, and Borrower shall not, without the express written consent of
Lender, alter or amend said ground lease. Borrower
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covenants and agrees that there shall not be a merger of the ground lease, or of
the leasehold estate created thereby, with the fee estate covered by the ground
lease by reason of said leasehold estate or said fee estate, or any part of
either, coming into common ownership, unless Lender shall consent in writing to
such merger; if Borrower shall acquire such fee estate, then this Instrument
shall simultaneously and without further action be spread so as to become a lien
on such fee estate.
7. USE OF PROPERTY. Unless required by applicable law or unless Lender has
otherwise agreed in writing, Borrower shall not allow changes in the use for
which all or any part of the Property was intended at the time this Instrument
was executed. Borrower shall not subdivide the Property or initiate or acquiesce
in a change in the zoning classification of the Property without Lender's prior
written consent. Except as may be shown on the Title Policy (i) Borrower shall
not, by act or omission, permit any property which is not subject to this
Instrument to rely on the Property or any part thereof or any interest therein
to fulfill any governmental requirement for the existence or use of such
property, and (ii) the Property shall not rely on any property which is not
subject to this Instrument to fulfill any governmental requirement for the
existence or use of the Property. Borrower shall not by act or omission impair
the integrity of the Property as a single separate subdivided zoning lot
separate and apart from all other lots.
8. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform the covenants
and agreements contained in this Instrument, or if any action or proceeding is
commenced which affects the Property or title thereto or the interest of Lender
therein, including, but not limited to, eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or decedent,
then Lender at Lender's option may make such appearances, disburse such sums and
take such action as Lender deems necessary, in its sole discretion, to protect
Lender's interest, including, but not limited to, (i) disbursement of attorney's
fees, (ii) entry upon the Property to make repairs, (iii) procurement of
satisfactory insurance as provided in PARAGRAPH 5 hereof, (iv) if this
Instrument is on a leasehold, exercise of any option to renew or extend the
ground lease on behalf of Borrower and the curing of any default of Borrower in
the terms and conditions of the ground lease, and (v) the payment of any taxes
and/or assessments levied against the Property and then due and payable.
Any amounts disbursed by Lender pursuant to this PARAGRAPH 8, with interest
thereon, shall become additional indebtedness of Borrower secured by this
Instrument. Unless Borrower and Lender agree to other terms of payment, such
amounts shall be immediately due and payable and shall bear interest from the
date of disbursement at the rate stated in the Note unless collection from
Borrower of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Borrower under applicable law. Borrower hereby covenants and
agrees that Lender shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the indebtedness secured hereby. Nothing
contained in this PARAGRAPH 8 shall require Lender to incur any expense or take
any action hereunder.
9. INSPECTION. Lender may make or cause to be made reasonable entries upon and
inspections of the Property including, but not limited to, phase I and/or phase
II environmental audits and inspections which phase II inspections will not
unreasonably disturb Borrower's use of the Property.
10. BOOKS AND RECORDS. Borrower shall keep and maintain at all times at
Borrower's address stated below, or such other place as Lender may approve in
writing, complete and accurate books of accounts and records adequate to reflect
correctly the results of the operation of the Property and copies of all written
contracts, leases and other instruments which affect the Property. Such books,
records, contracts, leases and other instruments shall be subject to examination
and inspection at any reasonable time by Lender. Upon Lender's request, Borrower
shall furnish to Lender, within sixty (60) days after the end of each three
month quarter of each fiscal year of Borrower, a balance
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sheet and a statement of income and expenses of the Property, each in reasonable
detail and certified by Borrower and, if Lender shall require, annual financial
statements shall be certified but only after a monetary default, by an
independent certified public accountant. Borrower shall furnish, together with
the foregoing financial statements and at any other time upon Lender's request,
a rent schedule for the Property, certified by Borrower, showing the name of
each tenant, and for each tenant, the space occupied, identify those Mobile
Homes which are owned and leased by Borrower or owner occupied the lease
expiration date, the rent payable and the rent paid. In addition to the above
delivery of financial statements and rent schedule, Borrower shall deliver to
Lender updated versions of such financial statements at any other time upon
Lender's request, including monthly balance sheets and monthly statements of
income and expenses of the Property.
11. CONDEMNATION. Borrower shall promptly notify Lender of any action or
proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part thereof, and Borrower shall appear in and
prosecute any such action or proceeding unless otherwise directed by Lender in
writing. Borrower authorizes Lender, at Lender's option, as attorney-in-fact for
Borrower, to commence, appear in and prosecute, in Lender's or Borrower's name,
any action or proceeding relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim in
connection with such condemnation or other taking. The proceeds of any award,
payment or claim for damages, direct or consequential, in connection with any
condemnation or other taking, whether direct or indirect, of the Property, or
part thereof, or for conveyances in lieu of condemnation, are hereby assigned to
and shall be paid to Lender subject, if this Instrument is on a leasehold, to
the rights of lessor under the ground lease.
Borrower authorizes Lender to apply such awards, payments, proceeds or
damages, after the deduction of Lender's expenses incurred in the collection of
such amounts, at Lender's option in the same manner as casualty proceeds are
applied pursuant to PARAGRAPH 5 hereof, to restoration or repair of the Property
or to payment of the sums secured by this Instrument, whether or not then due,
in the order of application set forth in PARAGRAPH 3 hereof, with the balance,
if any, to Borrower. Unless Borrower and Lender otherwise agree in writing, any
application of proceeds to principal shall not extend or postpone the due date
of the monthly installments referred to in PARAGRAPHS 1 AND 2 hereof or change
the amount of such installments. Borrower agrees to execute such further
evidence of assignment of any awards, proceeds, damages or claims arising in
connection with such condemnation or taking as Lender may require.
12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at Lender's
option, without giving notice to or obtaining the consent of Borrower,
Borrower's successors or assigns or of any junior lienholder or guarantors,
without liability on Lender's part and notwithstanding Borrower's breach of any
covenant or agreement of Borrower in this Instrument, extend the time for
payment of said indebtedness or any part thereof, reduce the payments thereon,
release anyone liable on any of said indebtedness, accept a renewal note or
notes therefor, modify the terms and time of payment of said indebtedness,
release from the lien of this Instrument any part of the Property, take or
release other or additional security, reconvey any part of the Property, consent
to any map or plan of the Property, consent to the granting of any easement,
join in any extension or subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period of amortization of the Note or
change the amount of the monthly installments payable thereunder. Any actions
taken by Lender pursuant to the terms of this PARAGRAPH 12 shall not affect the
obligation of Borrower or Borrower's successors or assigns to pay the sums
secured by this Instrument and to observe the covenants of Borrower contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other entity for payment of the indebtedness secured hereby, and shall not
affect the lien or priority of lien hereof on the Property. Borrower shall pay
Lender a reasonable service charge, together with such title insurance premiums
and attorney's fees as may be incurred at Lender's option, for any such action
if taken at Borrower's request. Borrower waives to the
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extent permitted by law, (a) the benefit of all laws now existing or that may
hereafter be enacted providing for any appraisement before sale of any portion
of the Property, (b) all rights of redemption, valuation, appraisement, stay of
execution, notice of election to mature or declare due the whole of the
indebtedness secured hereby and marshaling in the event of foreclosure of the
liens hereby created, and (c) all rights and remedies which Borrower may have or
be able to assert by reason of applicable laws pertaining to the rights and
remedies of sureties. Borrower expressly waives and relinquishes any and all
rights and remedies under or pursuant to Arizona Revised Statutes "A.R.S.")
ss.ss. 12-1566, 12-1641, et seq., 33-727, 33-814, 44-142 and 16 A.R.S., Rules of
Civil Procedure, Rule 17(f).
13. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in exercising
any right or remedy hereunder, or otherwise afforded by applicable law, shall
not be a waiver of or preclude the exercise of any right or remedy. The
acceptance by Lender of payment of any sum secured by this Instrument after the
due date of such payment shall not be a waiver of Lender's right to either
require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of insurance or the
payment of taxes or other liens or charges by Lender shall not be a waiver of
Lender's right to accelerate the maturity of the indebtedness secured by this
Instrument, nor shall Lender's receipt of any awards, proceeds or damages under
PARAGRAPHS 5 AND 11 hereof operate to cure or waive Borrower's default in
payment of sums secured by this Instrument.
14. ESTOPPEL CERTIFICATE. Borrower shall within ten (10) days of a written
request from Lender furnish Lender with a written statement, duly acknowledged,
setting forth the sums secured by this Instrument and any right of set-off,
counterclaim or other defense which exists against such sums and the obligations
of this Instrument and attaching true, correct and complete copies of the Note,
this Instrument and any other Loan Documents and any and all modifications,
amendments and substitutions thereof. In addition, upon any transfer or proposed
transfer contemplated by PARAGRAPH 41 of this Instrument, upon Lender's request,
Borrower and any guarantors or indemnitors of the obligations or liabilities
hereunder shall provide an estoppel certificate to the Investor (hereinafter
defined) or any prospective Investor in such form, substance and detail as
Lender, such Investor or prospective Investor may reasonably require.
15. FIXTURE FILING. This Instrument shall constitute a security agreement and
"fixture filing" as those terms are used in the Uniform Commercial Code, and
information concerning the security interest created hereby may be obtained by
application to the Lender (secured party) at the address specified in the
introduction hereto. The mailing address of the Borrower is also set forth in
the introduction hereto. The Borrower irrevocably authorizes the Lender, without
the signature of the Borrower, to execute and file any financing or continuation
statement which the Lender deems necessary or advisable to perfect or continue
the perfection of the security interest granted hereby, or to preserve and
maintain the priority of the lien hereof. Upon ten (10) days prior written
notice from Lender to Borrower, Borrower shall execute and file any financing or
continuation statement which the Lender deems necessary or advisable to perfect
or continue the perfection of the security interest granted hereby, or to
preserve and maintain the priority of the lien hereof. The Borrower, upon
demand, shall pay, or shall reimburse the Lender for paying, any and all costs
and expenses from time to time incurred in connection with the preparation,
execution and filing of any such statements, and all payments made by the Lender
shall be a lien on the Premises and shall be deemed secured by this Instrument.
The filing of such statements shall under no circumstance be construed as
impairing either the Lender's remedies or the priority of the mortgage lien
granted hereby, and the Borrower agrees that all of the collateral is, and at
all times, for all purposes and in all proceedings (both legal and equitable)
shall be, at the election of the Lender, regarded as part of the real estate
covered by this Instrument.
16. LEASES OF THE PROPERTY. As used in this PARAGRAPH 16, the word "lease" shall
mean "sublease" if this Instrument is on a leasehold.
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Borrower shall comply with and observe Borrower's obligations as landlord under
all leases of the Property or any part thereof. Borrower will not lease any
portion of the Property for non-residential use except with the prior written
approval of Lender, which approval may be made in Lender's sole but reasonable
discretion. All renewals of leases and proposed leases shall be in writing and
shall provide for rental rates or registration fees comparable to existing local
market rates and shall be arms-length transactions. Borrower shall be required
to obtain Lender's consent, which shall not be unreasonably withheld, for any
non-residential lease and subleases (except for laundry leases or similar type
leases) at the Property. The request for approval of each such proposed lease
shall be made to Lender in writing and Borrower shall furnish to Lender (and any
loan servicer specified from time to time by Lender): (i) such biographical and
financial information about the proposed tenant as Lender may require in
conjunction with its review, (ii) a copy of the proposed form of lease, and
(iii) a summary of the material terms of such proposed lease (including, without
limitation, rental terms and the term of the proposed lease and any options).
Borrower, at Lender's request, shall furnish Lender with executed copies of all
leases hereafter made of all or any part of the Property, and all leases now or
hereafter entered into will be in form and substance subject to the approval of
Lender. All leases of the Property or a separate agreement in recordable form
and substance satisfactory to Lender shall specifically provide that such leases
are subordinate to this Instrument; that the tenant attorns to Lender, such
attornment to be effective upon Lender's acquisition of title to the Property;
that the tenant agrees to execute such further evidences of attornment as Lender
may from time to time request; that the attornment of the tenant shall not be
terminated by foreclosure; that in no event shall Lender, as holder of this
Instrument or as successor landlord, be liable to the tenant for any act or
omission of any prior landlord or for any liability or obligation of any prior
landlord occurring prior to the date that Lender or any subsequent owner
acquires title to the Property; and that Lender may, at Lender's option, accept
or reject such attornments. Except as otherwise provided in this PARAGRAPH 16,
Borrower shall not, without Lender's written consent, execute, modify, surrender
or terminate, either orally or in writing, any lease now existing or hereafter
made of all or any part of the Property providing for a term of three (3) years
or more, permit an assignment or sublease of a lease without Lender's written
consent, or request or consent to the subordination of any lease of all or any
part of the Property to any lien subordinate to this Instrument. If Borrower
becomes aware that any tenant proposes to do, or is doing, any act or thing
which may give rise to any right of set-off against rent, Borrower shall (i)
take such steps as shall be reasonably calculated to prevent the accrual of any
right to a set-off against rent, (ii) notify Lender thereof and of the amount of
said set-offs, and (iii) within ten (10) days after such accrual, reimburse the
tenant who shall have acquired such right to set-off or take such other steps as
shall effectively discharge such set-off and as shall assure that rents
thereafter due shall continue to be payable without set-off or deduction.
Borrower shall absolutely assign to Lender, by written instrument
satisfactory to Lender, all leases including, without limitation, rental
agreements, registration cards and agreements and all other agreements affecting
the Property now existing or hereafter made of all or any part of the Property
and all security deposits made by tenants in connection with such leases of the
Property. Upon assignment by Borrower to Lender of any leases of the Property,
Lender shall have all of the rights and powers possessed by Borrower prior to
such assignment and Lender shall have the right to modify, extend or terminate
such existing leases and to execute new leases, in Lender's sole discretion.
17. REMEDIES CUMULATIVE. Except as required by Arizona law, each remedy provided
in this Instrument is distinct and cumulative to all other rights or remedies
under this Instrument or afforded by law or equity, and may be exercised
concurrently, independently, or successively, in any order whatsoever.
18. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower shall voluntarily
file a petition under Title 11 of the U.S. Code (the "Act"), as such Act may
from time to time be amended, or under any similar or
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successor Federal statute relating to bankruptcy, insolvency, arrangements or
reorganizations, or under any state bankruptcy or insolvency act, or file an
answer in any involuntary proceeding admitting insolvency or inability to pay
debts, or if Borrower shall fail to obtain a vacation or stay of involuntary
proceedings brought for the reorganization, dissolution or liquidation of
Borrower within one hundred and twenty (120) days of the filing of such
involuntary proceeding, or if Borrower shall be adjudged a bankrupt, or if a
trustee or receiver shall be appointed for Borrower or Borrower's property, or
if the Property shall become subject to the jurisdiction of a Federal bankruptcy
court or similar state court, or if Borrower shall make an assignment for the
benefit of Borrower's creditors, or if there is an attachment, execution or
other judicial seizure of any portion of Borrower's assets and such seizure is
not discharged within ten (10) days, then Lender may, at Lender's option,
declare all of the sums secured by this Instrument to be immediately due and
payable without prior notice to Borrower, and Lender may invoke any remedies
permitted by PARAGRAPH 27 of this Instrument. Any attorney's fees and other
expenses incurred by Lender in connection with Borrower's bankruptcy or any of
the other aforesaid events shall be additional indebtedness of Borrower secured
by this Instrument pursuant to PARAGRAPH 8 hereof.
19. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER.
(a) Except as provided in SUBPARAGRAPH (C) of this PARAGRAPH 19 OR
PARAGRAPH 38, upon the sale or transfer of (i) all or any part of the Property,
or any interest therein, or (ii) beneficial interests in Borrower (if Borrower
is not a natural person or persons but is a corporation, partnership, trust or
other legal entity), Lender may, at Lender's option, declare all of the sums
secured by this Instrument to be immediately due and payable, and Lender may
invoke any remedies permitted by PARAGRAPH 27 of this Instrument.
(b) For purposes of this PARAGRAPH 19, a sale or transfer of a beneficial
interest in Borrower shall be deemed to include, but is not limited to:
(i) if Borrower or any general partner of Borrower is a
corporation or limited liability company, the voluntary or
involuntary sale, conveyance, transfer or pledge of a
majority of such corporation's or limited liability
company's stock (or the stock of any corporation directly
or indirectly controlling such corporation or limited
liability company by operation of law or otherwise) or the
creation or issuance of new stock by which an aggregate of
more than 49% of such corporation's or limited liability
company's stock shall be vested in a party or parties who
are not now stockholders;
(ii) if Borrower is a limited liability company, the change,
removal or resignation of a managing member;
(iii) if Borrower, or any general partner of Borrower, is a limited
or general partnership, the change, removal or resignation of
a general partner or managing partner or the transfer or
pledge of the partnership interest of any general partner or
managing partner or any profits or proceeds relating to such
partnership interest;
(iv) if Borrower is a limited partnership, the transfer or pledge
of a majority of the limited partnership interests which in
the aggregate constitute more than a 49% interest in Borrower,
or any profits or proceeds relating to such limited
partnership interests.
(c) Notwithstanding the foregoing, the following shall not be deemed a
sale or transfer of a beneficial interest in Borrower for purposes of this
PARAGRAPH 19:
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(i) a transfer of less than a 49% interest in Borrower, or any
partner, shareholder or member of Borrower, by devise, descent
or by operation of law upon the death of a partner, member or
stockholder of Borrower;
(ii) a transfer of a limited partner, shareholder or non-managing
member interest in Borrower for estate planning purposes to an
immediate family member of such limited partner, shareholder
or member, or a trust for the benefit of an immediate family
member; or
(iii) a transfer of a general partner or managing member interest in
Borrower for estate planning purposes to an immediate family
member of such partner or member, or a trust for the benefit
of an immediate family member, subject to obtaining Lender's
prior written consent, which consent shall not be unreasonably
withheld subject to the criteria set forth in SUBPARAGRAPH (b)
of PARAGRAPH 39 of this Instrument.
See PARAGRAPH 38 of this Instrument.
20. NOTICE. Except for any notice required under applicable law to be given in
another manner, (a) any notice to Borrower provided for in this Instrument or in
the Note shall be given by mailing such notice by certified mail addressed to
Borrower at Borrower's address stated above or at such other address as Borrower
may designate by notice to Lender as provided herein, and (b) any notice to
Lender shall be given by certified mail, return receipt requested, to Lender's
address stated herein or to such other address as Lender may designate by notice
to Borrower as provided herein. Any notice provided for in this Instrument or in
the Note shall be deemed to have been given to Borrower or Lender when given in
the manner designated herein.
21. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS; CAPTIONS.
The covenants and agreements herein contained shall bind, and the rights
hereunder shall inure to, the respective successors and assigns of Lender and
Borrower, subject to the provisions of PARAGRAPH 19 hereof. All covenants and
agreements of Borrower shall be joint and several. In exercising any rights
hereunder or taking any actions provided for herein, Lender may act through its
employees, agents or independent contractors as authorized by Lender. The
captions and headings of the paragraphs of this Instrument are for convenience
only and are not to be used to interpret or define the provisions hereof.
22. UNIFORM MULTIFAMILY INSTRUMENT; GOVERNING LAW; SEVERABILITY. This form of
multifamily instrument combines uniform covenants for national use and
non-uniform covenants with limited variations by jurisdiction to constitute a
uniform security instrument covering real property and related fixtures and
personal property. This Instrument shall be governed by the law of the
jurisdiction in which the Property is located. In the event that any provision
of this Instrument or the Note conflicts with applicable law, such conflict
shall not affect other provisions of this Instrument or the Note which can be
given effect without the conflicting provisions, and to this end the provisions
of this Instrument and the Note are declared to be severable. In the event that
any applicable law limiting the amount of interest or other charges permitted to
be collected from Borrower is interpreted so that any charge provided for in
this Instrument or in the Note, whether considered separately or together with
other charges levied in connection with this Instrument and the Note, violates
such law, and Borrower is entitled to the benefit of such law, such charge is
hereby reduced to the extent necessary to eliminate such violation. The amounts,
if any, previously paid to Lender in excess of the amounts payable to Lender
pursuant to such charges as reduced shall be applied by Lender to reduce the
principal of the indebtedness evidenced by the Note. For the purposes of
determining whether any applicable law limiting the amount of interest or other
charges permitted to be collected from Borrower has been violated, all
indebtedness which is
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secured by this Instrument or evidenced by the Note and which constitutes
interest, as well as all other charges levied in connection with such
indebtedness which constitute interest, shall be deemed to be allocated and
spread over the stated term of the Note. Unless otherwise required by applicable
law, such allocation and spreading shall be effected in such a manner that the
rate of interest computed thereby is uniform throughout the stated term of the
Note. Borrower agrees to pay an effective rate of interest which is the stated
rate provided for in the Note plus any additional rate of interest resulting
from any charges of interest or in the nature of interest paid or to be paid in
connection with the loan evidenced by the Note, including without limitation,
any charges paid pursuant to the provisions of that certain commitment letter
dated September 23, 1997, from Lender to Borrower. Notwithstanding any provision
herein, or in the Note, or in any related agreement between Borrower and Lender,
the total liability of Borrower for payments of interest and in the nature of
interest shall not exceed the limits imposed by the usury laws of the State of
Arizona. If Lender receives as interest an amount which would exceed such
limits, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance and not to the payment of interest,
and if a surplus remains after full payment of principal and lawful interest,
the surplus shall be remitted to Borrower by Lender, and Borrower hereby agrees
to accept such remittance.
23. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the right to assert
any statute of limitations as a bar to the enforcement of the lien of this
Instrument or to any action brought to enforce the Note or any other obligation
secured by this Instrument.
24. WAIVER OF MARSHALLING. Notwithstanding the existence of any other security
interest in the Property held by Lender or by any other party, Lender shall have
the right to determine the order in which any or all of the Property shall be
subjected to the remedies provided herein. Lender shall have the right to
determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof hereby waives any and all right
to require the marshalling of assets in connection with the exercise of any of
the remedies permitted by applicable law or provided herein.
25. INTENTIONALLY OMITTED.
26. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN POSSESSION. As part
of the consideration for the indebtedness evidenced by the Note, Borrower hereby
absolutely and unconditionally assigns and transfers to Lender all the rents and
revenues of the Property, including those now due, past due, or to become due by
virtue of any lease or other agreement for the occupancy or use of all or any
part of the Property, regardless of to whom the rents and revenues of the
Property are payable. Borrower hereby authorizes Lender or Lender's agents to
collect the aforesaid rents and revenues and hereby directs each tenant of the
Property to pay such rents to Lender or Lender's agents; provided, however, that
prior to written notice given by Lender to Borrower of the breach by Borrower of
any covenant or agreement of Borrower in this Instrument or any other Loan
Document, Borrower shall collect and receive all rents and revenues of the
Property as trustee for the benefit of Lender and Borrower, to apply the rents
and revenues so collected to the sums secured by this Instrument in the order
provided in PARAGRAPH 3 hereof with the balance, so long as no such breach has
occurred, to the account of Borrower, it being intended by Borrower and Lender
that this assignment of rents constitutes an absolute assignment and not an
assignment for additional security only. Upon delivery of written notice by
Lender to Borrower of the breach by Borrower of any covenant or agreement of
Borrower in this Instrument and the expiration of any grace and cure period, and
without the necessity of Lender entering upon and taking and maintaining full
control of the Property in person, by agent or by a court-appointed receiver,
Lender shall immediately be entitled to possession of all rents and revenues of
the Property as specified in this PARAGRAPH 26 as the same become due and
payable, including, but not limited to, rents then due and unpaid,
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and all such rents shall immediately upon delivery of such notice and the
expiration of any grace and cure period be held by Borrower as trustee for the
benefit of Lender only; provided, however, that the written notice by Lender to
Borrower of the breach by Borrower shall contain a statement that Lender
exercises its rights to such rents. Borrower agrees that commencing upon
delivery of such written notice of Borrower's breach by Lender to Borrower and
the expiration of any grace and cure period, each tenant of the Property shall
make such rents payable to and pay such rents to Lender or Lender's agents on
Lender's written demand to each tenant therefor, delivered to each tenant
personally, by mail or by delivering such demand to each rental unit, without
any liability on the part of said tenant to inquire further as to the existence
of a default by Borrower.
Borrower hereby covenants that Borrower has not executed any prior
assignment of said rents, that Borrower has not performed, and will not perform,
any acts or has not executed, and will not execute, any instrument which would
prevent Lender from exercising its rights under this PARAGRAPH 26, and that at
the time of execution of this Instrument there has been no anticipation or
prepayment of any of the rents of the Property for more than one month prior to
the due dates of such rents. Borrower covenants that Borrower will not hereafter
collect or accept payment of any rents of the Property more than one month prior
to the due dates of such rents. Borrower further covenants that Borrower will
execute and deliver to Lender such further assignments of rents and revenues of
the Property as Lender may from time to time request.
Upon Borrower's breach of any covenant or agreement of Borrower in this
Instrument and after the expiration of any grace or cure period, Lender shall be
entitled to the appointment of a receiver for the Property, without notice to
Borrower or any other person or entity and Lender may in person, by agent or by
a court appointed receiver, regardless of the adequacy of Lender's security,
enter upon and take and maintain full control of the Property in order to
perform all acts necessary and appropriate for the operation and maintenance
thereof including, but not limited to, the execution, cancellation or
modification of leases, the collection of all rents and revenues of the
Property, the making of repairs to the Property and the execution or termination
of contracts providing for the management or maintenance of the Property, all on
such terms as are deemed best to protect the security of this Instrument. In the
event Lender elects to seek the appointment of a receiver for the Property upon
Borrower's breach of any covenant or agreement of Borrower in this Instrument,
Borrower hereby expressly consents to the appointment of such receiver. Lender
or the receiver shall be entitled to receive a reasonable fee for so managing
the Property.
All rents and revenues collected subsequent to delivery of written notice
by Lender to Borrower of the breach by Borrower of any covenant or agreement of
Borrower in this Instrument shall be applied first to the costs, if any, of
taking control of and managing the Property and collecting the rents, including,
but not limited to, attorney's fees, receiver's fees, premiums on receiver's
bonds, costs of repairs to the Property, premiums on insurance policies, taxes,
assessments and other charges on the Property, and the costs of discharging any
obligation or liability of Borrower as lessor or landlord of the Property and
then to the sums secured by this Instrument. Lender or the receiver shall have
access to the books and records-used in the operation and maintenance of the
Property and shall be liable to account only for those rents actually received.
Lender shall not be liable to Borrower, anyone claiming under or through
Borrower or anyone having an interest in the Property by reason of anything done
or left undone by Lender under this PARAGRAPH 26.
If the rents of the Property are not sufficient to meet the costs, if any,
of taking control of and managing the Property and collecting the rents, any
funds expended by Lender for such purposes shall become indebtedness of Borrower
to Lender secured by this Instrument pursuant to PARAGRAPH 8 hereof. Unless
Lender and Borrower agree in writing to other terms of payment, such amounts
shall be payable upon notice from Lender to Borrower requesting payment thereof
and shall bear interest from the date of disbursement at the rate stated in the
Note unless
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payment of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Borrower under applicable law.
Any entering upon and taking and maintaining of control of the Property by
Lender or the receiver and any application of rents as provided herein shall not
cure or waive any default hereunder or invalidate any other right or remedy of
Lender under applicable law or provided herein. This assignment of rents of the
Property shall terminate at such time as this Instrument ceases to secure
indebtedness held by Lender.
NON-UNIFORM COVENANTS. Borrower and Lender further covenant and agree as
follows:
27. ACCELERATION; REMEDIES. Upon Borrower's breach of any representation,
covenant or agreement of Borrower in this Instrument, the Note, the Unsecured
Environmental Indemnity Agreement or any other Loan Document, including, but not
limited to, the covenants to pay when due any sums secured by this Instrument
and after the expiration of any grace or cure period, Lender at Lender's option
may declare all of the sums secured by this Instrument to be immediately due and
payable without further demand, and may invoke the power of sale and any other
remedies permitted by applicable law or provided herein. Borrower acknowledges
that the power of sale herein granted may be exercised by Lender without prior
judicial hearing. Borrower has the right to bring an action to assert the
non-existence of a breach or any other defense of Borrower to acceleration and
sale. Lender shall be entitled to collect all costs and expenses incurred in
pursuing such remedies, including, but not limited to, attorney's fees and costs
of documentary evidence, abstracts and title reports.
Notwithstanding the foregoing, Lender shall not invoke any remedy provided
hereunder, under the Loan Documents, at law or in equity upon Borrower's breach
of a non-monetary representation, covenant, or agreement of Borrower in this
Instrument, the Note, the Unsecured Environmental Indemnity Agreement or any
other Loan Document, other than a breach of PARAGRAPHS 5, 19, 34(d), 34(e) OR
34(g) of this Instrument, or PARAGRAPH 2 of the Environmental Indemnity
Agreement, provided Borrower shall have, on or before the date that is ten (10)
days after Borrower's receipt of notice thereof, cured such default or, if such
default cannot be cured within such ten (10) day period, Borrower shall have
commenced to cure within such ten (10) day period and is taking all actions
required to diligently cure such default and such default is cured on or before
the date that is thirty (30) days after Borrower's receipt of a notice to cure
such default.
See PARAGRAPH 37 of this Instrument.
Trustee shall deliver to the purchaser a Trustee's deed conveying the
Property so sold without any covenant or warranty, expressed or implied. The
recitals in the Trustee's deed shall be prima facie evidence of the truth of the
statements made therein. Trustee shall apply the proceeds of the sale in the
following order: (a) to all costs and expenses of the sale, including, but not
limited to, Trustee's and attorney's fees and costs of title evidence; (b) to
all sums secured by this Instrument in such order as Lender, in Lender's sole
discretion, directs; and (c) the excess, if any, to the person or persons
legally entitled thereto, or to the clerk of the superior court of the county in
which the sale took place. In the event of reinstatement of this Instrument
prior to a foreclosure hereunder, fees of Trustee are limited as set forth in
A.R.S. ss. 33-813.B.
28. RELEASE. Upon written request of Lender stating that all sums secured by
this Instrument have been fully paid and the covenants and agreements of
Borrower have been fully performed (the "Secured Obligations"), and upon payment
by Borrower of Trustee's fees, Trustee shall reconvey to Borrower, or to the
person or persons legally entitled thereto, without warranty, any portion of the
Property then held hereunder. The recitals in such reconveyance of any matters
or facts shall be conclusive proof of the truthfulness thereof. The grantee in
any reconveyance may be described as "the person or persons legally
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entitled thereto". Trustee is authorized and instructed hereby to reconvey the
lien and charge of this Instrument when so directed in writing by Lender,
without delivery by Lender to Trustee of this Instrument or any instrument
evidencing any or all of the Secured Obligations. Trustee shall be entitled to
rely solely upon the written instruction of Lender and shall incur no liability
under this Instrument to Lender or Borrower by acting in accordance with
Lender's written instruction believed by Trustee to be genuine and signed by the
proper party. Trustee shall have no obligation to require and shall not require
Lender to present this Instrument or any instrument evidencing any or all of the
Secured Obligations as a condition precedent to Trustee's taking the action
requested by Lender in writing with respect to the release and reconveyance of
the lien and discharge of this Instrument.
29. SUBSTITUTE TRUSTEE; ACTION BY SINGLE TRUSTEE. Lender at Lender's option may
from time to time remove Trustee and appoint a successor trustee to any Trustee
appointed hereunder. Without conveyance of the Property, the successor trustee
shall succeed to all the title, power and duties conferred upon the Trustee
herein and by applicable law.
30. TIME OF ESSENCE. Time is of the essence of each covenant of this Instrument.
31. MAILING ADDRESS. Borrower's mailing address is Borrower's address stated
below.
32. WAIVERS BY SURETY. Any party who has signed this Instrument as a surety or
accommodation party, or who has subjected his property to this Instrument to
secure the indebtedness of another, hereby expressly waives the benefits of the
provision of Arizona Revised Statutes ss.ss. 12-1641 and 12-1642, as now
existing and hereafter amended.
33. FUTURE ADVANCES. Upon request of Borrower, Lender, at Lender's option so
long as this Instrument secures indebtedness held by Lender, may make Future
Advances to Borrower. Such Future Advances, with interest thereon, shall be
secured by this Instrument when evidenced by promissory notes stating that said
notes are secured hereby. At no time shall the principal amount of the
indebtedness secured by this Instrument, not including sums advanced in
accordance herewith to protect the security of this Instrument, exceed the
original amount of the Note (US $8,640,000.00) plus the additional sum of US $0.
34. NONRECOURSE LOAN. Subject to the qualifications set below on this PARAGRAPH
34, Borrower and its partners shall be fully and personally liable for the
payment and performance of all of the obligations, covenants and agreements of
Borrower under the Note, this Instrument, the Assignment of Leases and Rents
(herein so-called), dated of even date herewith, executed by Borrower to Lender,
the Environmental Indemnity Agreement dated of even date herewith, executed by
Borrower and Lender, and all other instruments and documents evidencing,
securing or governing the terms of the loan (the "Loan") evidenced by the Note
(collectively, the "Loan Documents"), including, without limitation, the timely
payment of all principal, interest and premium, if any, to the full extent (but
only to the extent) of all of the Property and any other items, property or
amounts which are collateral or security for the Loan. Notwithstanding the
foregoing and except as set forth below, so long as Lender's rights of recourse
to the Property are not suspended, reduced or impaired by or as a result of any
act, omission or misrepresentation of Borrower or any other party now or
hereafter liable for any part of the Loan and accrued interest hereon, or by or
as a result of any case, action, suit or proceeding to which Borrower or any
such other party, voluntarily becomes a party, if a default occurs in the timely
and proper payment of any portion of such indebtedness or in the timely
performance of any obligations, agreements or covenants, neither Borrower nor
any partner of Borrower shall be personally liable for the repayment of any of
the principal of, interest on, or prepayment fees or late charges, or other
charges or fees due in connection with the Loan, the performance of any
covenants of Borrower under the Note, this Instrument or any of the other Loan
Documents or for any deficiency judgment which Lender may obtain after default
by Borrower. Notwithstanding the foregoing provisions of this paragraph or any
other
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agreement, the Borrower shall be fully and personally liable for any and all:
(1) liabilities, costs, losses, damages, expenses or claims (including, without
limitation, any reduction in the value of the Property or any other items,
property or amounts which are collateral or security for the Loan) suffered or
incurred by Lender by reason of or in connection with (a) any fraud or
misrepresentation by Borrower in connection with the Loan, including but not
limited to any misrepresentation of Borrower contained in any Loan Document, (b)
any failure to pay taxes, insurance premiums (except to the extent that such
taxes and insurance premiums are then held by Lender), assessments, charges for
labor or materials or other charges that can create liens on any portion of the
Property, (c) any misapplication of (i) proceeds of insurance covering any
portion of the Property, or (ii) proceeds of the sale or condemnation of any
portion of the Property, (d) any rentals, income, profits, issues and products
received by or on behalf of Borrower subsequent to the date on which Lender
gives written notice that a default has occurred under the Loan and not applied
to the payment of principal or interest due under the Note or the payment of
operating expenses (excluding any operator's, manager's or developer's fee paid
to Borrower or any affiliate of Borrower) of the Property, (e) any failure to
maintain, repair or restore the Property in accordance with any Loan Document to
the extent not covered by insurance proceeds made available to Lender, (f) any
failure by Borrower to deliver to Lender all unearned advance rentals and
security deposits paid by tenants of the Property received by or on behalf of
Borrower, and not refunded to or forfeited by such tenants, (g) any failure by
Borrower to return to, or reimburse Lender for, all personalty taken from the
Property by or on behalf of Borrower, except in accordance with the provisions
of this Instrument, and (h) any and all indemnities given by Borrower to Lender
set forth in the Unsecured Environmental Indemnity Agreement or any other Loan
Document in connection with any environmental matter relating to the Property;
and (2) court costs and all attorneys' fees provided for in any Loan Document.
Furthermore, no limitation of liability or recourse provided above in this
paragraph shall (x) apply to the extent that the Lender's rights of recourse to
the Property are suspended, reduced or impaired by or as a result of any act,
omission or misrepresentation of the Borrower or any other party now or
hereafter liable for any part of the Loan and accrued interest thereon, or by or
as a result of any case, action, suit or proceeding to which the Borrower or any
such other party, voluntarily becomes a party; or (y) constitute a waiver,
forfeiture, abrogation or limitation of or on any right accorded by any law
establishing a debtor relief proceeding, including, but not limited to, Title
11, U.S. Code, which right provides for the assertion in such debtor relief
proceeding of a deficiency arising by reason of the insufficiency of collateral
notwithstanding an agreement of the Lender not to assert such deficiency.
35. REPRESENTATIONS OF BORROWER. The Borrower hereby represents and warrants to
Lender the following:
(a) Borrower is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. There are
no proceedings or actions pending, threatened or contemplated for the
liquidation, termination or dissolution of Borrower.
(b) Except for leases for the laundry facilities located at the Property,
no person or entity has any leasehold estate in, or any lease or other agreement
granting the right to use or occupy any portion of, the Property except the
lessees under the leases, rental and/or occupancy agreements and registration
cards and/or agreements (collectively, the "Leases") listed in the rent roll
(the "Rent Roll") provided by Borrower to Lender in connection with the closing
of the Loan; the Leases expire on the respective dates shown in the Rent Roll;
no rental in excess of one month's rent has been prepaid under any of the
Leases; the amount of the security deposit, if any, held by Borrower under each
of the Leases is as shown in the Rent Roll; each of the Leases is valid and
binding on the parties thereto in accordance with its terms; the execution of
this Instrument will not constitute an event of default under any of the Leases;
none of the tenants under any of the Leases has rights of offset or counterclaim
against the landlord; all of
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the obligations of the landlord pursuant to the Leases have been performed; and
all tenants are current in the payment of rent except as shown on the Rent Roll.
(c) Except as specifically listed in the schedule of exceptions to coverage
in the title policy insuring Lender's interest in the Property, Borrower is now
in possession of the Property; Borrower's possession of the Property is
peaceable and undisturbed; Borrower does not know any facts by reason of which
any claim to the Property, or any part thereof, might arise or be set up adverse
to Borrower; and the Property is free and clear of (i) any lien for taxes
(except real property taxes not yet due and payable for the calendar year in
which this Instrument is being executed), and (ii) any easements, rights-of-way,
restrictions, encumbrances, liens or other exceptions to title by mortgage,
decree, judgment, agreement, instrument, or, to the knowledge of Borrower,
proceeding in any court.
(d) All charges for labor, materials or other work of any kind furnished in
connection with the construction, improvement, renovation or rehabilitation of
the Property or any portion thereof have been paid in full, and no unreleased
affidavit claiming a lien against the Property, or any portion thereof, for the
supplying of labor, materials or services for the construction of improvements
on the Property has been executed or recorded in the mechanic's lien or other
appropriate records in the county in which the Property is located.
(e) To the knowledge of Borrower: the current and contemplated uses of the
Property are in compliance with all applicable federal, state and municipal
laws, rules, regulations and ordinances, applicable restrictions, zoning
ordinances, building codes and regulations, building lines and easements, or
appropriate variances therefrom have been issued and are in full force and
effect including, without limitation, federal and state environmental protection
laws, ordinances and regulations including, the Arizona Environmental Quality
Act of 1986, A.R.S. ss.ss. 49-101, et seq., including, without limitation, the
Arizona Underground Storage Tank Act, A.R.S. ss.ss. 49-1001 et seq.; the Arizona
Water Quality Assurance Revolving Fund Act, A.R.S. ss.ss. 49-281 through 49-287;
the Arizona Water Quality Control Program, A.R.S. ss.ss. 49-201, et seq.; and
the Air Pollution Control Program, A.R.S. ss.ss. 49-401, et seq.; and the
regulations adopted and publications promulgated pursuant thereto, and the
Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of
1988, all state and local laws or ordinances related to handicapped access, and
any statute, rule, regulation, ordinance, or order of governmental bodies or
regulatory agencies, or any order or decree of any court adopted or enacted with
respect thereto (collectively, "Applicable Laws"); no governmental authority
having jurisdiction over any aspect of the Property has made a claim or
determination that there is any such violation; the Property is not included in
any area identified by the Secretary of Housing and Urban Development pursuant
to the Flood Disaster Protection Act of 1973, as amended, as an area having
special flood hazards; and all permits, licenses and the like which are
necessary for the operation of the Property have been issued and are in full
force and effect.
(f) There have been no material adverse changes, financial or otherwise, in
the condition of Borrower from that disclosed to Lender in the loan application
submitted to Lender by Borrower, or in any supporting data submitted in
connection with the Loan, and all of the information contained therein was true
and correct when submitted and is now substantially and materially true and
correct on the date hereof.
(g) There is no claim, litigation or condemnation proceeding pending, or,
to the knowledge of the Borrower, threatened, against the Property or Borrower,
which would affect the Property or Borrower's ability to perform its obligations
in the connection with the Loan.
(h) Borrower does not own any real property or assets other than the
Property and does not operate any business other than the management and
operation of the Property.
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(i) No proceedings in bankruptcy or insolvency has ever been instituted by
or against Borrower or any affiliate thereof, and no such proceeding is now
pending or contemplated.
(j) Borrower is, and if there are any general partners or members of
Borrower, such partners or members are, solvent pursuant to the laws of the
United States, as reflected by the entries in Borrower's books and records and
as reflected by the actual facts.
(k) The Loan Documents have been duly authorized, executed and delivered by
Borrower and constitute valid and binding obligations of Borrower, enforceable
against Borrower in accordance with their respective terms. No approval,
consent, order or authorization of any governmental authority and no
designation, registration, declaration or filing with any governmental authority
is required in connection with the execution and delivery of the Note, this
Instrument or any other Loan Document.
(l) The execution and delivery of the Loan Documents will not violate or
contravene in any way the articles of incorporation or bylaws or partnership
agreement, articles of organization or operating agreement as the case may be,
of Borrower or any indenture, agreement or instrument to which Borrower is a
party or by which it or its property may be bound, or be in conflict with,
result in a breach of or constitute a default under any such indenture,
agreement or other instrument, result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the property or
assets of Borrower, except as contemplated by the provisions of such Loan
Documents, and no action or approval with respect thereto by any third person is
required.
(m) No part of the Property is all or a part of Borrower's homestead.
(n) All inspections, licenses and certificates required to be made or
issued with respect to all occupied portions of the Property and with respect to
the use and occupancy of the same, including, but not limited to, certificates
of occupancy and fire underwriter certificates, have been made by or obtained
from the appropriate governmental authorities.
(o) All liquid and solid waste disposal, septic and sewer systems located
on the Property are in and shall be maintained in a good and safe condition and
repair and in compliance with all applicable federal, state and local laws,
rules, regulations and ordinances.
(p) The Property is served by all utilities required for the current or
contemplated use thereof. All utility service is provided by public utilities
and the Property has accepted or is equipped to accept such utility service.
(q) All public roads and streets necessary for service of and access to the
Property for the current or contemplated use thereof have been completed, are
serviceable and all-weather and are physically and legally open for use by the
public.
(r) The Property is serviced by public water and sewer systems.
(s) The Property is free from damage caused by fire or other casualty.
(t) All liquid and solid waste disposal, septic and sewer systems located
on the Property are in a good and safe condition and repair and in compliance
with all Applicable Laws.
36. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby covenants, agrees and
undertakes to:
(a) from time to time, at the request of Lender, (i) promptly correct any
defect, error or omission which may be discovered in the contents of this
Instrument or in any other Loan Document or in the execution or acknowledgement
thereof; (ii) execute, acknowledge, deliver and record and/or file such further
documents or instruments (including,
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without limitation, further mortgages, security agreements, financing
statements, continuation statements, assignments of rents or leases and
environmental indemnity agreements) and perform such further acts and provide
such further assurances as may be necessary, desirable or proper, in Lender's
opinion, to carry out more effectively the purposes of this Instrument and such
other instruments and to subject to the liens and security interests hereof and
thereof any property intended by the terms hereof or thereof to be covered
hereby or thereby, including specifically, but without limitation, any renewals,
additions, substitutions, replacements, or appurtenances to the Property;
provided that such documents or instruments do not materially increase
Borrower's liability under the Loan Documents; and (iii) execute, acknowledge,
deliver, procure, and file and/or record any document or instrument (including
specifically, but without limitation, any financing statement) deemed advisable
by Lender to protect the liens and the security interests herein granted against
the rights or interests of third persons; provided that such documents or
instruments do not increase Borrower's liability under the Loan Documents.
Borrower will pay all reasonable costs connected with any of the foregoing in
this SUBPARAGRAPH (a);
(b) continuously maintain Borrower's existence and right to do business in
the State of Arizona;
(c) at any time any law shall be enacted imposing or authorizing the
imposition of any tax upon this Instrument, or upon any rights, titles, liens or
security interests created hereby, or upon the obligations secured hereby or any
part thereof, immediately pay all such taxes; provided that, if such law as
enacted makes it unlawful for Borrower to pay such tax, Borrower shall not pay
nor be obligated to pay such tax, and in the alternative, Borrower may, in the
event of the enactment of such a law, and must, if it is unlawful for Borrower
to pay such taxes, prepay the obligations secured hereby in full within sixty
(60) days after demand therefor by Lender;
(d) not execute or deliver any deed of trust, mortgage or pledge of any
type covering all or any portion of the Property;
(e) not acquire any real property or assets (other than the Property) or
operate any business other than the management and operation of the Property
during the term of the Loan;
(f) not permit any drilling or exploration for or extraction, removal or
production of any mineral, natural element, compound or substance from the
surface or subsurface of the Property regardless of the depth thereof or the
method of mining or extraction thereof;
(g) not change its name, identity, structure or employer identification
number during the term of the Loan;
(h) pay on demand all reasonable and bona fide out-of-pocket costs, fees
and expenses and other expenditures, including, but not limited to, reasonable
attorneys' fees and expenses, paid or incurred by Lender to third parties
incident to this Instrument or any other Loan Document (including, but not
limited to, reasonable attorneys' fees and expenses in connection with the
negotiation, preparation and execution hereof and of any other Loan Document and
any amendment hereto or thereto, any release hereof, any consent, approval or
waiver hereunder or under any other Loan Document, the making of any advance
under the Note, and any suit to which Lender is a party involving this
Instrument or the Property) or incident to the enforcement of the obligations
secured hereby or the exercise of any right or remedy of Lender under any Loan
Document; and
(i) comply with and make all payments required under all laws, ordinances,
regulations, covenants, conditions and restrictions now or hereafter affecting
the Property or any part thereof or the business or the activity conducted
thereon including, without limitation, the filing of any required prospectus
and/or the maintenance of any licenses or permits, the payment of any fees in
connection therewith and compliance with any and all other requirements
necessary for the operation of the
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Property, if expressly permitted herein, and the Americans with Disabilities Act
of 1990, as it may be amended from time to time.
CAPITAL IMPROVEMENTS RESERVE.
(a) (i) Commencing on the first day a monthly installment of principal and
interest is due and payable under the Note and continuing on the first calendar
day of each calendar month thereafter, Borrower shall deliver to Lender,
together with the regular installments of principal and interest an amount (a
"CIR Payment") equal to $9,065.42. Each CIR Payment shall be deemed "Other
Impositions" and "Funds" as defined in PARAGRAPH 2 of this Instrument. At such
time as the CIR Payments deposited in the Other Impositions Account together
with interest accrued thereon (the "CIR Reserve") equals or exceeds $163,000.00,
the CIR Payments shall cease to be due. If Borrower makes draws on the CIR
Reserve pursuant to subparagraph (a)(ii), so that the balance in the CIR Reserve
falls below $163,000.00, CIR Payments will again be required pursuant to this
paragraph (a) in amounts sufficient to bring the CIR Reserve up to $163,000.00
over an eighteen (18) month period. The CIR Payments will be placed in interest
bearing deposits or accounts in the name of Lender or Lender's loan servicer at
the same financial institution(s) as the other Funds (the "Other Impositions
Account"), shall be held in accordance with the terms of PARAGRAPH 2 of this
Instrument, and may be drawn on by Borrower for deferred maintenance and/or
ongoing capital improvement expenditures in connection with the Property,
pursuant to the terms set forth below in SUBPARAGRAPH (a)(ii). At Lender's
discretion, the CIR Payments may be increased to reflect any increase in the
"Consumer Price Index" published by the Bureau of Labor Statistics of the U.S.
Department of Labor, All Items, U.S. city average, all urban consumers
(presently denominated "CPI-U"), or a successor or substitute index
appropriately adjusted (the "CPI"). In the event Lender shall elect not to
increase the CIR Payment for any given year by the CPI, Lender, at its sole
discretion, may during any subsequent year elect to increase the CIR Payment by
the aggregate amount of CPI increases which Lender otherwise was entitled to
make during the previous years in which it did not elect to make such increases.
(ii) So long as Borrower (x) is not in default under any of the terms of
the Note, this Instrument or any of the other Loan Documents, and (y) no
situation exists which with the passage of time or the giving of notice or both
would constitute a default under the Note, this Instrument or any of the other
Loan Documents, Borrower, subject to the following provisions of this
SUBPARAGRAPH (II) and upon ten (10) days' prior written notice to Lender and
Lender's loan servicer (which notice shall include a brief statement of the
purpose for which the advance is to be used), shall be entitled to draw on the
CIR Payments on deposit in the Other Impositions Account solely for the payment
of the deferred maintenance and/or capital improvement expenditures for the
Property more particularly described on Schedule 1 attached hereto and made a
part hereof. Borrower may not make any drawing on the Other Impositions Account
(1) for less than $500 in the aggregate and (2) without the prior consent of
Lender. Lender reserves the right to require such information as Lender may
reasonably require, and to withhold consent in the event that Lender deems it
reasonably necessary to do so. Without limiting the foregoing, Lender may
request, in connection with a request by Borrower for a drawing on the Other
Impositions Account, that Borrower furnish written evidence reasonably
satisfactory to Lender that the amount requested by Borrower is for work
performed, services or materials furnished, and bills paid or payable with
respect to the deferred maintenance and/or ongoing capital improvement
expenditures (including, but not limited to, contracts and invoices for work
performed or materials supplied and mechanics' and materialmen' lien releases
and waivers from such parties performing such work or supplying such materials).
Lender also reserves the right to make any disbursement or portion thereof from
the Other Impositions Account directly to the party performing such work or
supplying such materials. Lender or Lender's servicing agent, as the case may
be, shall be entitled to charge Borrower a reasonable processing fee for
administering and reviewing Borrower's draw requests. In addition, Lender shall
be reimbursed by Borrower for any costs incurred by Lender
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<PAGE>
or Lender's servicing agent in inspecting the Property in connection with
Borrower's draw requests. Any such processing fees and inspection costs shall be
deducted by Lender from the Funds on deposit or account or, at Lender's option,
shall be paid to Lender by Borrower within ten (10) days of Lender's written
demand.
(iii) Each CIR Payment is pledged as additional security for the sums
secured by this Instrument and any of the other Loan Documents. Borrower hereby
grants to Lender a lien and security interest in each CIR Payment and the
deposit or other accounts in which such payments are placed.
37. REMEDIES. Upon the occurrence (and after the expiration of any applicable
grace or cure period) and during the continuance of an "event of default", the
Lender may, personally or through the Trustee, or by their respective
representative agents, in addition to all other rights and remedies herein
conferred or provided by law, to the extent permitted by law:
(a) From time to time sue for any sums required to be paid by the Borrower
under the terms of this Instrument as the same become without acceleration of
indebtedness and without prejudice to the right of the Lender thereafter to
bring any action or proceeding of foreclosure or any other action upon the
occurrence of any event of default existing at the time such earlier action was
commenced.
(b) Declare the entire principal of the Note then outstanding (if not then
due and payable), and all accrued and unpaid interest thereon, any prepayment
premium payable pursuant to the provisions contained in the Note, and all other
obligations of Borrower hereunder to be due and payable immediately.
(c) Without regard to the adequacy of any security for the indebtedness
secured hereby, enter into and upon all or any part of the Property, and each
and every part thereof, and may exclude Borrower, its agents and servants wholly
therefrom; and having and holding the same, may use, operate, manage and control
the Property and conduct the business thereof, either personally or by their
respective superintendents, managers, agents, servants, attorneys or receivers;
and upon every such entry, Trustee or Lender, at the expense of Borrower, from
time to time, either by purchase, repairs or construction, may maintain and
restore the Property, whereof it shall become possessed as aforesaid, may
complete the construction of the improvements and in the course of such
completion may make such changes in the contemplated improvements as it may deem
desirable and may insure the same; and likewise, from time to time, at the
expense of Borrower, Trustee or Lender may make all necessary or proper repairs,
renewals and replacements and such useful alterations, additions, betterments
and improvements thereto and thereon as it may deem advisable; and in every such
case, Trustee or Lender shall have the right to manage and operate the Property
and to carry on the business thereof and exercise all rights and powers of
Borrower with respect thereto either in the name of Borrower or otherwise as it
shall deem best; and Trustee or Lender shall be entitled to collect and receive
all earnings, revenues, rents, issues, profits and income of the Property and
every part thereof, all of which shall for all purposes constitute property of
Lender; and after deducting the expenses of conducting the business thereof and
of all maintenance, repairs, renewals, replacements, alterations, additions,
betterments and improvements and amounts necessary to pay for taxes,
assessments, insurance and prior or other proper charges upon the Property or
any part thereof, as well as just and reasonable compensation for the services
of Trustee or Lender and for all attorneys (including at any trial and any
appeal with respect thereto), counsel, agents, clerks, servants and other
employees by it properly engaged and employed, Lender shall apply the moneys
arising as aforesaid, in such order as Lender shall determine.
(d) Appoint a receiver to take charge of the Property, collect the rents,
issues and profits therefrom, care for and repair the same, improve the same
when necessary or desirable, lease and rent the Property or portions thereof
(including leases existing beyond the term of receivership), plant, cultivate
and harvest crops thereon, and otherwise use and utilize the Property, and to
have such other powers as
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may be fixed by the court. Borrower specifically agrees that the receiver may be
appointed without any notice to Borrower whatsoever, and the court may appoint a
receiver without reference to the adequacy or inadequacy of the security, or the
solvency or insolvency of Borrower, and without reference to other matters
normally taken into account by courts in the discretionary appointment of
receivers, it being the intention of Borrower to hereby authorize the
appointment of a receiver when Borrower is in default and Lender has requested
the appointment of a receiver. Borrower hereby agrees and consents to the
appointment of the particular person or firm (including an officer or employee
of Lender) designated by Lender as receiver and hereby waives its rights to
suggest or nominate any person or firm as receiver in opposition to that
designated by Lender. Lender shall have, in addition to all other rights and
remedies provided herein and at law or in equity, the rights and remedies
afforded by A.R.S. ss. 33-702.
(e) Foreclose this Instrument in the manner provided by law for the
foreclosure of mortgages on real property, bring an action for damages, or
exercise such other remedies or combination of remedies as Lender or Trustee may
have at law or in equity.
(f) Exercise the power of sale by delivering to Trustee a written notice of
the occurrence of an event of default and of Lender's election to cause the
Property to be sold. Trustee shall record a notice of trustee's sale in each
county in which the Property or some part thereof is located and shall mail
copies of such notice in the manner prescribed by applicable law to Borrower and
to the other persons prescribed by applicable law. After the lapse of such time
as may be required by applicable law and after publication and posting of the
notice of trustee's sale in accordance with the provisions of applicable law,
Trustee, without demand on Borrower, shall sell the Property either as a whole
or in separate parcels, and in such order as it may determine, by public auction
to the highest bidder for cash in lawful money of the United States, payable at
the time of sale or for the equivalent of cash as so determined by Trustee in
its sole discretion. If the indebtedness secured hereunder is additionally
secured by real property which is not subject to this Instrument, Trustee may
sell any property so given as security for Borrower's obligation which it is
authorized to sell, either in whole or in separate parcels and in such order as
it may determine. For purposes of such sale, Lender's credit may, at its option,
include all amounts due which are secured by this Instrument. Trustee may
postpone the sale of all or any portion of the Property by public announcement
at the time and place fixed for such sale, and from time to time thereafter may
postpone such sale by public announcement at the time fixed by the preceding
postponement. Following the sale, Trustee shall deliver to the purchaser its
deed conveying the Property so sold, but without any covenant or warranty,
express or implied. The recital in such deed of any matters of fact shall be
conclusive proof of the truth thereof. Any person, including Borrower, Trustee
and Lender may purchase at such sale. Trustee shall apply the proceeds of the
sale in the following order: (a) to the costs and expenses of exercising the
power of sale and of sale, including the payment of the Trustee's and reasonable
attorney's fees and costs of title search and report; (b) to all sums secured by
this Instrument; and (c) the excess, if any, to the person or persons or entity
or entities legally entitled thereto, or to the county treasurer of the county
in which the sale took place. Lender may, at any time, request cancellation of
trustee's notice of sale, whereupon Trustee shall execute and record, or cause
to be recorded, a cancellation of notice of sale in the same county in which the
notice of trustee's sale was recorded. The exercise by Lender of this right
shall not constitute a waiver of any default then existing or subsequently
occurring.
(g) Exercise all of the remedies of a secured party under the Uniform
Commercial Code of Arizona, including without limitation, the right and power to
sell, or otherwise dispose of, the collateral, or any part thereof, and for that
purpose may take immediate and exclusive possession of the collateral, or any
part thereof, and with or without judicial process, enter upon any Property on
which the collateral, or any part thereof, may be situated and remove the same
therefrom without being deemed guilty of trespass and without liability for
damages thereby occasioned, or, at Lender's option, Borrower shall assemble the
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collateral and make it available to Lender at the place and at the time
designate in any written demand from Lender to Borrower. Lender shall be
entitled to hold, maintain, preserve and prepare the collateral for sale. Lender
without removal may render the collateral unusable and dispose of the collateral
on the Property. To the extent permitted by law, Borrower expressly waives any
notice of sale or other disposition of the collateral and any other right or
remedy of Borrower existing after an event of default hereunder, and to the
extent any such notice is required and cannot be waived, Borrower agrees that,
as it relates to this PARAGRAPH 37(G) only, if notice of sale or other
disposition of the collateral is mailed, postage prepaid, to Borrower at the
above address at least ten (10) days before the time of the sale or disposition,
such notice shall be deemed reasonable and shall fully satisfy any requirement
for giving of such notice.
(h) Exercise all other rights and remedies provided herein, in the Loan
Documents or other document or agreement now or hereafter securing all or any
portion of the obligations secured hereby, or provided by law or equity.
(i) The remedies specified in this paragraph shall be in addition to all
other rights and remedies provided herein or in any other Loan Document and
which Lender may have at law or in equity and no single or partial exercise by
Lender of any right or remedy hereunder or under any other Loan Document or
which Lender may have at law or in equity shall exhaust the same or shall
preclude any other or further exercise thereof or of any other right or remedy
hereunder or under any other Loan Document or which Lender may have at law or in
equity, and every such right or remedy hereunder or under any other Loan
Document or which Lender may have at law or in equity may be exercised at any
time and from time to time after the occurrence of an event of default.
38. ASSUMABILITY.
(a) So long as (i) Borrower is not in default under any of the terms of the
Note, this Instrument or any other Loan Document, and (ii) no situation exists
which with the passage of time or the giving of notice or both would constitute
a default under the Note, this Instrument or any other Loan Document, in the
event Borrower desires to transfer all of the Property to another party (the
"Transferee") and have the Transferee assume all of Borrower's obligations under
the Note, this Instrument and all of the other Loan Documents (collectively, the
"Transfer and Assumption"), Borrower, subject to the terms of this paragraph,
may make a written application to Lender for Lender's consent to the Transfer
and Assumption, which consent will be given or withheld in the sole and absolute
discretion of Lender subject to the conditions set forth in SUBPARAGRAPH (b) of
this PARAGRAPH 38. Together with such written application (and afterwards if
requested by Lender), Borrower will submit to Lender true, correct and complete
copies of any and all information and documents of any kind requested by Lender
concerning the Property, Transferee and/or Borrower, together with the review
fee required by Lender.
(b) Lender shall have the sole and absolute discretion to determine whether
or not to grant Lender's consent, except that Lender shall not unreasonably
withhold its consent to a Transfer and Assumption provided and upon the
condition that:
(i) Lender receives an opinion from counsel acceptable to Lender that
(x) such Transfer and Assumption shall not affect, in any way,
the enforceability of the Loan Documents or the lien status, and
(y) that the Transferee complies in all respects with the
provisions of PARAGRAPH 35(h) and PARAGRAPH 36(e) of this
Instrument and such other conditions concerning the
organizational structure of the Transferee as were required by
Lender at the time of the making of the Loan;
(ii) Borrower has submitted to Lender true, correct and complete
copies of any and all information and documents of any kind
requested by Lender
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concerning the Property, Transferee and/or Borrower;
(iii) the Transferee, in Lender's sole judgment, has sufficient
experience in managing assets similar in size and type to the
Property;
(iv) in Lender's sole judgment, the Transferee and the partners,
members or shareholders of the Transferee are financially sound
or have sufficient financial resources to manage the Property for
the term of the Loan;
(v) the Loan has been placed, or Lender plans to place the Loan, in
an offering of Securities (as defined in PARAGRAPH 40) and Lender
receives written confirmation from the rating agencies that the
Transfer and Assumption will not result in any downgrade,
qualification or withdrawal of the ratings assigned to the pool
and assets in which the Loan has been placed; and
(vi) Borrower has paid a review fee of $2,500 required by Lender.
(c) If Lender consents to the Transfer and Assumption, the Transferee
and/or Borrower as the case may be, shall deliver the following to Lender:
(i) Borrower shall deliver to Lender an assumption fee in the amount
of one percent (1%) of the then unpaid principal balance of the
Loan;
(ii) Borrower and Transferee shall execute and deliver to Lender any
and all documents required by Lender, in form and substance
required by Lender, in Lender's sole discretion (the "Assumption
Documents");
(iii) Borrower shall cause to be delivered to Lender, an endorsement
to the mortgagee policy of title insurance then insuring the lien
created by this Instrument in form and substance acceptable to
Lender, in Lender's sole discretion (the "Endorsement"); and
(iv) Borrower shall deliver to Lender a payment in the amount of all
costs incurred by Lender in connection with the Transfer and
Assumption, including but not limited to, Lender's attorneys fees
and expenses, all recording fees for the Assumption Documents,
and all fees payable to the title company for the delivery to
Lender of the Endorsement.
(d) Notwithstanding anything contained in this paragraph to the contrary,
(x) under no circumstances may the Property and Loan be transferred and assumed
by any party under the terms of this paragraph more than once during the entire
term of the Loan and (y) except based on Lender's written agreement to the
Transfer and Assumption and Borrower's and Transferee's compliance with all of
the terms and provisions of this paragraph, the terms and provisions of this
paragraph shall in no way amend or modify the terms and provisions contained in
PARAGRAPH 19 of this Instrument.
39. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT THE BORROWER MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONJUNCTION WITH THE NOTE, THIS INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY OTHER
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY.
25-A
<PAGE>
40. TRANSFER OF LOAN. Lender may, at any time, sell, transfer or assign the
Note, this Instrument and the Loan Documents, or any part thereof, and any or
all servicing rights with respect thereto, or grant participations therein or
issue mortgage pass-through certificates or other securities evidencing a
beneficial interest in a rated or unrated public offering or private placement
(the "Securities"). Lender may forward to each purchaser, transferee, assignee,
servicer, participant, investor in such Securities or any rating agency rating
such Securities (singularly, an "Investor," and collectively, the "Investors")
and each prospective Investor, all documents and information which Lender now
has or may hereafter acquire relating to the Loan and to Borrower, any
guarantor, any indemnitors and/or the Property, whether furnished by Borrower,
any guarantor, any indemnitors or otherwise, as Lender determines necessary or
desirable. Borrower shall furnish and Borrower consents to Lender furnishing to
such Investors or such prospective Investors or rating agency any and all
information concerning the Property, the leases, the financial condition of
Borrower, any guarantor and any indemnitor as may be requested by Lender, any
Investor or any prospective Investor or rating agency in connection with any
sale, transfer or participation interest.
41. ENVIRONMENTAL HAZARDS.
A. Except as disclosed in The Phase I Environmental Report forwarded to
Lender by Borrower in connection with this Loan, Borrower represents and
warrants, to the best of Borrower's knowledge that: (a) there are no Hazardous
Substances or underground storage tanks in, on, or under the Property, except
those that are both (i) in compliance with Environmental Laws, and (ii) fully
disclosed to Lender in writing pursuant to the Environmental Report; (b) there
are no past, present or threatened Releases of Hazardous Substances in, on,
under or from the Property; (c) there is no threat of any Release of Hazardous
Substances migrating to or from the Property affecting any land surface waters,
ground waters or airspace adjacent to or in the vicinity of the Property; (d)
there is no past or present noncompliance with Environmental Laws in connection
with the Property; (e) all interior and exterior painted surfaces at the
Property are not flaking, peeling, cracking, blistering or chipping and do not
contain lead; (f) Borrower does not know of, and has not received, any written
or oral notice or other communication from any person or entity relating to
Hazardous Substances or Remediation thereof, of possible liability of any person
or entity pursuant to any Environmental Law, other environmental conditions in
connection with the Property, or any actual or potential administrative or
judicial proceedings in connection with any of the foregoing; and (g) Borrower
has provided to Lender, in writing, any and all information relating to
environmental conditions in, on, under or from the Property that is known to
Borrower. For the purposes of this Mortgage, the terms "Environmental Law",
"Hazardous Substances", "Release", and "Remediation" shall have each the same
meaning as ascribed to it in that certain Unsecured Environment Indemnity
Agreement of even date herewith (the "Environmental Indemnity") from Borrower
and any other indemnitor named therein (the "Indemnitor") in favor of Lender.
B. Borrower covenants and agrees that, so long as the Borrower owns,
manages, is in possession of, or otherwise controls the operation of the
Property: (a) all uses and operations on or of the Property shall be in
compliance with all Environmental Laws; (b) there shall be no Releases of
Hazardous Substances in, on, under or from the Property, except and solely to
the extent in compliance with all Environmental Laws; (c) there shall be no
Hazardous Substances in, on, or under the Property, except those that are in
compliance with all Environmental Laws; (d) Borrower shall, at its expense,
perform all Remediation required by any Environmental Laws in compliance with
all applicable Environmental Laws; (e) Borrower shall keep the Property free and
clear of all liens and other encumbrances imposed pursuant to any Environmental
Law (the "Environmental Liens"); (f) Borrower shall, at its expense, fully and
expeditiously cooperate in all activities pursuant to PARAGRAPH 41C. below; (g)
Borrower shall, at its expense, comply with all written requests of Lender to
(i) comply with any Environmental Law; (ii) comply with any directive from any
governmental authority; and (iii) take any other reasonable action necessary or
25-B
<PAGE>
appropriate for protection of human health or the environment; and (h) Borrower
shall immediately notify Lender in writing as soon as it becomes aware of (A)
any presence or Releases or threatened Releases of Hazardous Substances in, on,
under, from or migrating towards the Property; (B) any non-compliance with any
Environmental Laws related to the Property; (C) any actual or potential
Environmental Lien affecting the Property; (D) any required or proposed
Remediation of environmental conditions relating to the Property; and (E) any
written or oral notice or other communication from any source whatsoever
relating in any way to Hazardous Substances or Remediation thereof, possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with the Property, or any actual or
potential administrative or judicial proceedings in connection with this
PARAGRAPH 41.
C. Lender and any other person or entity designated by Lender, shall have
the right, but not the obligation, after notice to Borrower, to enter upon the
Property at all reasonable times to assess the environmental condition of the
Property, including conducting any environmental assessment or audit and taking
samples of soil, groundwater or other water, air, or building materials and
conducting other invasive testing. Borrower shall cooperate with and provide
access to Lender and its designated representative, with the costs of such
assessments being immediately due and payable by Borrower.
This Instrument may be executed in any number of duplicate originals and
each duplicate original shall be deemed to be an original.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
25-C
<PAGE>
In Witness Whereof, Borrower has executed this Instrument or has caused the
same to be executed by its representatives thereunto duly authorized.
Sunrise Ridge, L.L.C.
a Delaware limited liability
company,
/s/ STEVEN A. GELMAN
- ---------------------------------- By: Sunrise Ridge Holding, Inc., a
Witness: Delaware corporation, Managing
------------------------- Member
Name: Steven A. Gelman
By: SHERRY WILZIG IZAK
---------------------------------
Name: Sherry Wilzig Izak
Title: Chairman of the Board
and CEO
Borrower's Address:
c/o Mr. Steven Gelman, Controller
921 Bergen Avenue
Jersey City, New Jersey 07306
[There is no requirement for a corporate seal for Arizona corporations]
STATE OF NEW JERSEY )
) ss.
County of Essex )
The foregoing instrument was executed before me, the undersigned notary
public, this 24th day of October, 1997 by Sherry Wilzig Izak, the Chairman of
the Board and CEO of Sunrise Ridge Holding, Inc., on behalf of the limited
liability company.
/s/ EVELYN VERDON
---------------------------
Notary Public
My Commission Expires:
EVELYN VERDON
- -----------------------------
A Notary Public of New Jersey
My Commission Expires 3-3-99
<PAGE>
EXHIBIT A
Property Description
CASE NO. 502028
Parcel 1
Lot 1 of Amended Plat of INNISFREE TOWNHOUSES, a subdivision of Pima County,
Arizona, according to the map of plat thereof of record in the office of the
County Recorder of Pima County, Arizona, in Book 45 of Maps and Plats at page 3
thereof.
Lot 126 of SKYLINE BEL AIR ESTATES, a subdivision of Pima County, Arizona,
according to the map of plat thereof of record in the office of the County
Recorder of Pima County, Arizona, in Book 17 of Maps and Plats at page 83
thereof; EXCEPT therefrom any part of said Lot 126 lying within INNISFREE
TOWNHOUSES, a subdivision of Pima County, Arizona, according to the map of plat
thereof of record in the office of the County Recorder of Pima County, Arizona,
in Book 26 of Maps and Plats at page 46 thereof.
TOGETHER WITH those portions of that certain alley as provided in Resolution and
Order No. 1979-148 under proceedings No. 2283, recorded in Docket 6155 at page
659.
<PAGE>
SCHEDULE 1
<PAGE>
DEFERRED MAINTENANCE ITEMS
(a) Office Accessibility
(b) Balcony Rails
(c) Stucco Repairs
(d) Painting
(e) Concrete wall/walk repair
(f) Erosion Control
(g) Misc. Pool/Spa
(h) Entrance Landscaping
MULTIFAMILY NOTE
US$8,640,000.00 Tucson, Arizona
October __, 1997
FOR VALUE RECEIVED, the undersigned promise to pay Citicorp Real Estate,
Inc. or order, the principal sum of Eight Million Six Hundred Forty Thousand
Dollars and No/100 (US $8,640,000.00), with interest on the unpaid principal
balance from the date of this Note, until paid, at the rate of seven and forty
eight one hundredths percent (7.48%) per annum ("Interest Rate"). The principal
and interest shall be payable at c/o Criimi Mae Inc., Loan Administration, 11200
Rockville Pike, Rockville, MD 20852, or such other place as the holder hereof
may designate in writing, in consecutive monthly installments of Sixty Thousand
Two Hundred Ninety Three 85/100 Dollars (US $60,923.85) on the first day of each
month beginning December 1, 1997, (herein "amortization commencement date"),
until the entire indebtedness evidenced hereby is fully paid, except that any
remaining indebtedness, if not sooner paid, shall be due and payable on November
1, 2007 (the "Maturity Date").
If any installment under this Note is not paid when due, the entire
principal amount outstanding hereunder and accrued interest thereon shall at
once become due and payable, at the option of the holder hereof. The holder
hereof may exercise this option to accelerate during any default by the
undersigned regardless of any prior forbearance. In the event of any default in
the payment of this Note, or any other payment due under the Instrument or any
other Loan Document (as such terms are hereinafter defined), and if the same is
referred to an attorney at law for collection or any action at law or in equity
is brought with respect hereto, the undersigned shall pay the holder hereof all
reasonable expenses and costs, including, but not limited to, attorneys' fees.
If any installment under this Note, including the installment due at
maturity, is not received by the holder hereof within ten (10) calendar days
after the installment is due, the undersigned shall pay to the holder hereof a
late charge of the greater of (a) US $250.00 or (b) five percent (5%) of such
installment (collectively, the "Late Charge"), such late charge is to be
immediately due and payable without demand by the holder hereof and is to
reimburse Lender for the administrative expense incurred by Lender in connection
with such late payment. If any installment under this Note or any other monetary
payment due under this Note, the Instrument or any other Loan Document,
including the installment due at maturity, remains past due for ten (10)
calendar days or more, the outstanding principal balance of this Note shall bear
interest during the period in which the undersigned is in default at a rate of
the Interest Rate plus five (5%) percent per annum, or if there shall exist any
non-monetary default under this Note, the Instrument or any other Loan Document
which remains uncured for the later of (i) ten (10) calendar days or (ii) the
expiration of any applicable grace or cure period specifically provided in the
Instrument, the outstanding principal balance of this Note shall bear interest
during the period the undersigned is in default at a rate of the Interest Rate
plus two percent (2%) per annum, or, if such increased rate of interest may not
be collected from the undersigned under applicable law, then at the maximum
increased rate of interest, if any, which may be collected from the undersigned
under applicable law (the "Default Rate").
From time to time, without affecting the obligation of the undersigned or
the successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein, in the Instrument or in any other Loan Document without affecting the
guaranty of any person, corporation, partnership or other entity for payment of
the outstanding principal balance of this Note, without giving notice to or
obtaining the consent of the undersigned, the successors or assigns of the
undersigned or guarantors, and without liability on the part of the holder
hereof, the holder hereof may, at the option of the holder hereof, extend the
time for payment of said outstanding principal balance or any part thereof,
reduce the payments thereon, release anyone liable on any of said outstanding
principal balance accept a renewal of this Note, modify the terms and time of
payment of said outstanding principal balance, join in any extension or
subordination agreement, release any security given herefor, take or release
other or additional security, and agree in writing with the undersigned to
modify the rate of interest or period of amortization of this Note or change the
amount of the monthly installments payable hereunder.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the joint
and several obligation of all makers, sureties, guarantors, and endorsers, and
shall be binding upon them and their successors and assigns.
The indebtedness evidenced by this Note is secured by, among other things,
that certain Multifamily Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing (the "Instrument"), executed by the undersigned, encumbering
real property more particularly described therein (the "Property"), dated of
even date herewith, and reference is made thereto for rights as to acceleration
of the indebtedness evidenced by this Note. Said Instrument covers Property
known as Sunrise Ridge Apartments. This Note shall be governed by the law of the
jurisdiction in which the Property is located.
This Note may be prepaid whether voluntarily or involuntarily (except as
hereinafter provided), and including any acceleration by the holder hereof) in
whole (but not in part) upon not less than forty five (45) days and not more
than ninety(90) days prior written notice by the undersigned to the holder
hereof and the simultaneous payment by the undersigned to the holder hereof of
the following prepayment premiums (the "Prepayment Premium"):
(i) In the event of a prepayment of this Note on or before October
31, 2000, the Prepayment Premium shall be equal to three percent
(3%) of the then unpaid principal balance hereof plus the
interest which would have accrued on the amount of such
prepayment during the full calendar month within which such
prepayment is made;
(ii) In the event of a prepayment of this Note on or after November 1,
2000, and on or before October 31, 2003, the Prepayment Premium
shall be equal to two percent (2%) of the then unpaid principal
balance plus the interest which would have accrued on the amount
of such prepayment during the full calendar month within which
such prepayment is made;
(iii) In the event of a prepayment of this Note on or after November
1, 2003, and on or before October 31, 2006, the Prepayment
Premium shall be equal to one (1%) percent of the then unpaid
principal balance plus the interest which would have accrued on
the amount of such prepayment during the full calendar month
within which such prepayment is made;
(iv) In the event of a prepayment of this Note on or after November 1,
2006, there shall be no Prepayment Premium accrued.
<PAGE>
Notwithstanding anything herein contained to the contrary, any permitted
prepayment of this Note during the prepayment prohibition period may only be
made together with all interest and any other sums due under this Note, the
Instrument or any other Loan Document.
Except as otherwise specified in the Deed of Trust, the undersigned shall
pay the Prepayment Premium due under this Note whether the prepayment is
voluntary or involuntary (in connection with the holder hereof's acceleration of
the unpaid principal balance of this Note) or the Instrument is satisfied or
released by foreclosure (whether by power of sale or judicial proceeding), deed
in lieu of foreclosure or by any other means. Notwithstanding any other
provision herein to the contrary, the undersigned shall not be required to pay
any Prepayment Premium in connection with any prepayment occurring as a result
of the application, in inverse order of maturity of insurance proceeds or
condemnation awards under the Instrument.
The contracted for rate of interest of the loan evidenced hereby shall
consist of, without limitation, the following:
(a) The Interest Rate, calculated and applied to the principal balance
of this Note in accordance with the provisions of this Note and the
Instrument;
(b) The Late Charge and/or Default Rate calculated and applied to the
principal balance of this Note in accordance with the provisions of this
Note and the Instrument;
(c) The Prepayment Premium calculated in accordance with the
provisions of this Note; and
(d) All Additional Sums (as hereinafter defined), if any.
The undersigned agrees to pay an effective contracted for rate of interest which
is the sum of the Interest Rate referred to in clause (a) above, plus any
additional rate of interest resulting from the application of the Late Charge,
the Default Rate referred to in clause(b) above, plus the Prepayment Premium
referred to in clause(c) above, and the Additional Sums, if any, referred to in
clause(d) above.
All fees, charges, goods, things in action or any other sums or things of
value (other than the interest resulting from the Interest Rate and the Default
Rate), paid or payable by the undersigned or any member of the undersigned
(collectively, the "Additional Sums"), whether pursuant to this Note or any
other document or instrument in any way pertaining to this lending transaction,
or otherwise with respect to this lending transaction, that, under the laws of
the State of Arizona, may be deemed to be interest with respect to this lending
transaction, for the purpose of any laws of the State of Arizona that may limit
the maximum amount of interest to be charged with respect to this lending
transaction, shall be payable by the undersigned as, and shall be deemed to be,
additional interest, and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the Additional Sums. The
undersigned and its members understand and believe that this lending transaction
complies with the usury laws of the State of Arizona and with the usury laws of
all other jurisdictions, to the extent such laws are applicable hereto;
provided, however, in the event that any interest or other charges in connection
with this lending transaction are ever determined in a final judgment by a court
of competent jurisdiction to exceed the maximum amount permitted by law, then
the undersigned agrees that (a) the amount of interest or charges payable
pursuant to this lending transaction shall be reduced to the maximum amount
permitted by law and (b) any excess amount previously collected from Borrower in
connection with this lending transaction that exceeded the maximum amount
permitted by law, shall be credited against the principal balance of this Note
then outstanding and/or the Prepayment Premium. If the outstanding principal
balance hereunder and the Prepayment Premium has been paid in full, the excess
amount paid shall be refunded to the undersigned and the undersigned agrees to
accept such refund.
Subject to the qualifications set forth below, the undersigned and its
general partner shall be fully and personally liable for the payment and
performance of all of the obligations, covenants and agreements of the
undersigned under this Note, the Instrument, the Assignment of Leases and Rents
(herein so called), dated of even date herewith, and executed by the undersigned
to the holder hereof, the Unsecured Environmental Indemnity Agreement (herein so
called), dated of even date herewith, and executed by the undersigned and the
holder hereof, and all other instruments and documents evidencing, securing or
governing the terms of the loan (the "Loan") evidenced by this Note
(collectively, the "Loan Documents"), including, without limitation, the timely
payment of all principal, interest and premium, if any, to the full extent (but
only to the extent) of all the Property and any other items, property or amounts
which are collateral or security for the Loan. Notwithstanding the foregoing and
except as set forth below, so long as the holder's rights of recourse to the
Property are not suspended, reduced or impaired by or as a result of any act,
omission or misrepresentation of the undersigned or any other party now or
hereafter liable for any part of the Loan and accrued interest hereon, or by or
as a result of any case, action, suit or proceeding to which the undersigned or
any such other party, voluntarily becomes a party, if a default occurs in the
timely and proper payment of any portion of such indebtedness or in the timely
performance of any obligations, agreements or covenants under any of the Loan
Documents, neither the undersigned nor any partner of the undersigned shall be
personally liable for the repayment of any of the principal of, interest on, or
prepayment fees or late charges, or other charges or fees due in connection with
the Loan, the performance of any covenants of the undersigned under this Note,
or any of the other Loan Documents or for any deficiency judgment which the
holder hereof may obtain after default by the undersigned. Notwithstanding the
foregoing provision of this paragraph or any other agreement, the undersigned
shall be fully and personally liable for any and all; (1) liabilities, costs,
losses, damages, expenses or claims (including, without limitation any reduction
in the value of the Property or any other items, property or amounts which are
collateral or security for the Loan) suffered or incurred by the holder hereof
by reason of or in connection with (a) any fraud or misrepresentation by the
undersigned in connection with the Loan, including but not limited to any
misrepresentation of the undersigned contained in any Loan Document, (b) any
failure to pay taxes, insurance premiums (except to the extent that such taxes
and insurance premiums are then held by the holder hereof), assessments, charges
for labor or materials or other charges that can create liens on any portion of
the Property, (c) any misapplication of (i) proceeds of insurance covering any
portion of the Property, or (ii) proceeds of the sale or condemnation of any
portion of the Property, (d) any rentals, income, profits, issues and products
received by or on behalf of the undersigned subsequent to the date on which the
holder hereof gives written notice that a default has occurred under the Loan
and not applied to the payment of principal or interest due under this Note or
the payment of operating expenses (excluding any operator's, manager's, or
developer's fee payable to the undersigned or any affiliate of the undersigned)
of the Property, (e) any failure to maintain, repair or restore the Property in
accordance with any Loan Document, to the extent not covered by insurance
proceeds made available to the holder hereof, (f) any failure by the undersigned
to deliver to the holder hereof all unearned advance rentals and security
deposits paid by tenants of the Property received by or on behalf of the
undersigned, and not refunded to or forfeited by such tenants, (g) any failure
by the undersigned to return to, or reimburse the holder hereof for, all
personalty taken from the Property by or on behalf of the undersigned, except in
accordance with the provisions of the Instrument, and (h) any and all
indemnities given by the undersigned to the holder hereof set forth in the
Unsecured Environmental Indemnity Agreement or any other Loan Document in
connection with any environmental matter relating to the Property; and (2) court
costs and all attorneys' fees provided for in any Loan Document. Furthermore, no
limitation of liability or recourse provided above in this paragraph shall (x)
apply to the extent that the Lender's rights of recourse to the Property are
suspended, reduced or impaired by or as a result of any act, omission or
misrepresentation of the Borrower or any other party now or hereafter liable for
any part of the Loan and accrued interest
2
<PAGE>
thereon, or by or as a result of any case, action, suit or interest thereon, or
by or as a result of any case, action, suit or proceeding to which the Borrower
or any such other party, voluntarily becomes a party; or (y) constitute a
waiver, forfeiture, abrogation or limitation of or on any right accorded by any
law establishing a debtor relief proceeding, including, but not limited to,
Title 11, U.S. Code, which rights provides for the assertion in such debtor
relief proceeding of a deficiency arising by reason of the insufficiency of
collateral notwithstanding an agreement of the holder hereof not to assert such
deficiency.
THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT THE UNDERSIGNED MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THIS NOTE, THE
INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY OTHER AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
The holder hereof shall have the right to assign, in whole or in part, this
Note, the Instrument and any other Loan Document and all of its rights hereunder
and thereunder, and all of the provisions herein and therein shall continue to
apply to the Loan. The holder hereof shall have the right to participate the
Loan with other parties.
Interest on the principal sum of this Note shall be calculated on the basis
of the actual number of days elapsed over a year consisting of 360 days.
Interest on this Note shall be paid in arrears.
The undersigned shall pay the holder hereof, in advance, on the date
hereof, interest only on the outstanding principal balance of this Note, at the
interest rate first mentioned above, from the date hereof through and including
the last day of the calendar month in which this Note is executed.
Executed as of the date set forth above.
Sunrise Ridge, L.L.C.,
a Delaware limited liability company
By: Sunrise Ridge Holding, Inc.
Managing Member
By: /s/ SHERRY WILZIG IZAK
-------------------------------------
Name: Sherry Wilzig Izak
Title: Chairman and CEO
3
WHEN RECORDED MAIL TO
Joanne Feil, Esq.
Rogers & Wells
200 Park Avenue
New York, NY 10166-0153
Attn: David Djaha, Esq.
(5052/9) SPACE ABOVE THIS LINE FOR RECORDER'S USE
- -------------------------- ----------------------------------------------------
MULTIFAMILY DEED OF TRUST,
ASSIGNMENT OF RENTS, SECURITY AGREEMENT AND FIXTURE FILING
THIS DEED OF TRUST (herein "Instrument") is made this day of October,
1997, among the Trustor/Grantor, Biltmore Club Apartments, L.L.C., a Delaware
limited liability company, whose address is 921 Bergen Avenue, Jersey City, New
Jersey 07306 (herein "Borrower"), Lawyers Title of Arizona, Inc. whose address
is 2425 East Camelback Road, Suite 700, Phoenix, Arizona 85016 (herein
"Trustee"), and the Beneficiary, Citicorp Real Estate, Inc., a corporation
organized and existing under the laws of Delaware, whose address is c/o Criimi
Mae Inc., Loan Administration, 11200 Rockville Pike, Rockville, MD 20852,
together with its successors, assigns and transferees, (herein "Lender").
BORROWER, in consideration of the indebtedness herein recited and the
trust herein created, irrevocably grants, conveys and assigns to Trustee in
trust, with power of sale, the following described property located in County of
Maricopa, City of Phoenix, State of Arizona, and more particularly described on
Exhibit "A" attached hereto and incorporated herein by reference for all
purposes.
TOGETHER with all and singular the tenements, hereditaments, and
appurtenances "hereunto belonging or in anywise appertaining, including without
limitation all easements, rights-of-way, parking rights, and all rights and
privileges of ingress and egress for the benefit thereof, and the reversion or
reversions, remainder and remainders thereof; and also all of the estate, right,
title, interest, property, claim and demand whatsoever of the Borrower of, in
and to the same and of, in and to every part and parcel thereof;
TOGETHER with all buildings and improvements, now or hereafter
erected on the property, any and all royalties, mineral, oil and gas rights and
profits, crops, timber, trees, shrubs, flowers, and landscaping features, water,
water rights, and water stock (whether decreed or undecreed, surface or
underground, appropriated or unappropriated, or otherwise), and all fixtures,
appliances, building materials, including, without limitation, any mobile home
units or manufactured housing units (collectively, "Mobile Homes") and
recreational vehicles and other tangible property now or hereafter attached to
the property encumbered by this Instrument; and all of the foregoing and
following described property, together with said property, are herein referred
to as the "Property";
TOGETHER with any and all air rights, development rights, zoning
rights or other similar rights or interests which benefit or are appurtenant to
the Property or the improvements or both and any proceeds arising therefrom;
TOGETHER with, all rents, issues, profits, royalties, income and
other benefits derived from the Property (collectively, the "Rents"), subject to
the right, power and authority hereinafter given to Borrower to collect and
apply such Rents;
TOGETHER with, all ground leases, leasehold estate, right, title and
interest of Borrower in and to all leases or subleases covering the Property or
any portion thereof now or hereafter existing or entered into, and all right,
title and interest of Borrower thereunder, including, without limitation, all
cash or security deposits, advance rentals, and deposits or payments of similar
nature;
<PAGE>
TOGETHER with, all right, title and interest of Borrower in and to
all options to purchase or lease the Property or any portion thereof or interest
therein, and any greater estate in the Property owned or hereafter acquired;
TOGETHER with all right, title and interest of the Borrower, now
owned or hereafter acquired, in and to the land lying in the bed or within the
right of way of any street, road, avenue, way, sidewalk or alley, opened or
proposed, in front of or adjoining the above-described Property to the center
line thereof;
TOGETHER with a lien and/or security interest hereby granted to
Lender in all machinery, apparatus, equipment, fittings, fixtures (except trade
fixtures belonging to any tenant), whether actually or constructively attached
to said Property and including all trade, domestic and ornamental fixtures, and
articles of personal property of every kind and nature whatsoever (hereinafter
collectively called "Personal Property"), now or hereafter located in, upon or
under said Property or any part thereof and used or usable in connection with
any present or future operation of said Property, including but not limiting the
generality of the foregoing, all heating, air conditioning, sprinklers,
freezing, lighting, laundry, incinerating and dynamo and generating equipment;
engines, pipes, pumps, tanks, motors, conduits, switchboards, plumbing and
plumbing fixtures; lifting, cleaning, fire prevention, fire extinguishing,
refrigerating, ventilating and communications apparatus; boilers, ranges,
furnaces, oil burners or units thereof; appliances, air cooling and
air-conditioning apparatus; vacuum cleaning systems; elevators, escalators;
shades, awnings, screens; storm doors and windows; stoves; refrigerators;
cooking apparatus and mechanical equipment, gas and electric fixtures;
partitions, furniture of any public spaces, halls and lobbies; attached
cabinets; partitions; ducts and compressors; rugs and carpets; draperies,
furniture and furnishings used in the operation of said Property; together with
all additions thereto and replacements thereof (Borrower hereby agreeing with
respect to all additions and replacements, to execute and deliver from time to
time such further instruments as may be requested by Lender to confirm the
conveyance, transfer and assignment of and granting of a security interest in
any of the foregoing);
TOGETHER with any and all right, title and interest of Borrower to
the proceeds of all insurance in effect with respect to the Property or Personal
Property and to any and all awards or payments, including interest thereon, and
the right to receive the same, which may be made with respect to the Property or
Personal Property as a result of or in lieu of (a) the exercise of the right of
eminent domain, (b) alteration of the grade of any street, or (c) any other
damage or injury to, taking of, or decrease in the value of the Property or
Personal Property, to the extent of all amounts which may be secured by this
Instrument at the date of receipt of any such award or payment, and of the
reasonable counsel fees, costs and disbursements incurred by the Lender in
connection with the collection of such proceeds, award or payment, and the
rights of Borrower under present or future contracts involving said Property or
Personal Property;
TOGETHER with, all monetary deposits which Borrower has been required
to give to any public or private utility with respect to utilities services
furnished to the Property;
TOGETHER with, all licenses, permits, including, without limitation,
permits and approvals now or hereafter issued by any governmental agencies with
respect to the Property and plans, specifications and contract drawings relating
to the Property;
TOGETHER with, all contracts relating to the design or construction
of the improvements and the acquisition and installation of the Personal
Property and all warranties and guarantees related thereto (collectively, the
"Contracts");
TOGETHER with, all funds, accounts, instruments, documents, general
intangibles (including trademarks, trade names and symbols used in connection
therewith) used in connection with and arising from or by virtue of any
transactions related to the Property, and all permits, licenses, franchises,
certificates and other rights and privileges obtained in connection with the
Property, and payments for goods or property sold or leased or for services
rendered, whether or not yet earned by performance, and not evidenced by an
instrument or chattel paper, including, without limitation, (i) all accounts
arising from the operation of a recreational vehicle park or resort on the real
property described above and (ii) all rights to payment from any consumer
credit/charge card organization or entity;
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TOGETHER with, all proceeds of the conversion, voluntary or
involuntary, of any of the foregoing into cash or liquidated claims.
TO SECURE TO LENDER (a) the repayment of the indebtedness evidenced
by Borrower's note dated of even date herewith (herein "Note") in the principal
sum of Eight Million Nine Hundred Thousand Dollars and No/100 (U.S.
$8,900,000.00), with interest thereon, with the balance of the indebtedness, if
not sooner paid, due and payable on November 1, 2007 (the "Maturity Date"), and
all renewals, extensions and modifications thereof; (b) the repayment of any
future advances, with interest thereof, made by Lender to Borrower pursuant to
paragraph 33 hereof (herein "Future Advances"); (c) the payment of all other
sums, with interest thereon, advanced in accordance herewith to protect the
security of this Instrument; and (d) the performance of the covenants and
agreements of Borrower herein contained, or contained in any other Loan Document
(as hereinafter defined).
Borrower covenants that Borrower is lawfully seised of the estate
hereby conveyed and has the right to grant, convey and assign the Property (and,
if this Instrument is on a leasehold, that the ground lease is in full force and
effect without modification except as noted above and without default on the
part of either lessor or lessee thereunder), that the Property is unencumbered,
and that Borrower will warrant and defend generally the title to the Property
against all claims and demands, subject to any easements and restrictions listed
in a schedule of exceptions to coverage in any title insurance policy insuring
Lender's interest in the Property.
UNIFORM COVENANTS. Borrower and Lender covenant and agree as follows:
1. PAYMENT OF PRINCIPAL AND INTEREST. Borrower shall promptly pay
when due the principal of and interest on the indebtedness evidenced by the
Note, any prepayment and late charges provided in the Note and all other sums
secured by this Instrument.
2. FUNDS FOR TAXES, INSURANCE AND OTHER CHARGES. Subject to
applicable law or to a written waiver by Lender, Borrower shall pay to Lender on
the day monthly installments of principal or interest are payable under the Note
(or on another day designated in writing by Lender), until the Note is paid in
full, a sum (herein "Funds") equal to one-twelfth of (a) the yearly taxes and
assessments which may be levied on the Property, (b) the yearly ground rents, if
any, (c) the yearly premium installments for fire and other hazard insurance,
rent loss insurance and such other insurance covering the Property as Lender may
require pursuant to paragraph 5 hereof, (d) the yearly premium installments for
mortgage insurance, if any, and (e) if this Instrument is on a leasehold, the
yearly fixed rents, if any, under the ground lease, all as reasonably estimated
initially and from time to time by Lender on the basis of assessments and bills
and reasonable estimates thereof. Any waiver by Lender of a requirement that
Borrower pay such Funds may be revoked by Lender, in Lender's sole discretion,
at any time upon notice in writing to Borrower. Lender may require Borrower to
pay to Lender, in advance, such other Funds for other taxes, charges, premiums,
assessments and impositions in connection with Borrower or the Property which
Lender shall reasonably deem necessary to protect Lender's interests (herein
"Other Impositions"). Unless otherwise provided by applicable law, Lender may
require Funds for Other Impositions to be paid by Borrower in a lump sum or in
periodic installments, at Lender's option.
The Funds shall be held in an institution(s) the deposits or accounts
of which are insured or guaranteed by a Federal or state agency (including
Lender if Lender is such an institution). Lender shall apply the Funds to pay
said rents, taxes, assessments, insurance premiums and Other Impositions so long
as Borrower is not in breach of any covenant or agreement of Borrower in this
Instrument. Lender shall make no charge for so holding and applying the Funds,
analyzing said account or for verifying and compiling said assessments and
bills, unless Lender pays Borrower interest, earnings or profits on the Funds
and applicable law permits Lender to make such a charge. Borrower and Lender may
agree in writing at the time of execution of this Instrument that interest on
the Funds shall be paid to Borrower, and unless such agreement is made or
applicable law requires interest, earnings or profits to be paid, Lender shall
not be required to pay Borrower any interest, earnings or profits on the Funds.
Lender shall give to Borrower, without charge, an annual accounting of the Funds
in Lender's normal format showing credits and debits to the Funds and the
purpose for which each debit to the Funds was made. The Funds are pledged as
additional security for the sums secured by this Instrument.
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<PAGE>
If the amount of the Funds held by Lender at the time of the annual
accounting thereof shall exceed the amount deemed necessary by Lender to provide
for the payment of taxes, assessments, insurance premiums, rents and Other
Impositions, as they fall due, such excess shall be credited to Borrower on the
next monthly installment or installments of Funds due. If at any time the amount
of the Funds held by Lender shall be less than the amount deemed necessary by
Lender to pay taxes, assessments, insurance premiums, rents and Other
Impositions, as they fall due, Borrower shall pay to Lender any amount necessary
to make up the deficiency within thirty days after notice from Lender to
Borrower requesting payment thereof.
Upon Borrower's breach of any covenant or agreement of Borrower in
this Instrument beyond any applicable grace or cure period, Lender may apply, in
any amount and in any order as Lender shall determine in Lender's sole
discretion, any Funds held by Lender at the time of application (i) to pay
rents, taxes, assessments, insurance premiums and Other Impositions which are
now or will hereafter become due, or (ii) as a credit against sums secured by
this Instrument. Upon payment in full of all sums secured by this Instrument,
Lender shall promptly refund to Borrower any Funds held by Lender. Except as
otherwise specified above, all amounts deposited shall be held by the Lender
without interest and the amount deposited shall not constitute trust funds and
may be commingled with the general funds of the Lender.
3. APPLICATION OF PAYMENTS. Unless applicable law provides otherwise,
all payments received by Lender from Borrower under the Note or this Instrument
shall be applied by Lender in the following order of priority: (i) amounts
payable to Lender by Borrower under paragraph 2 hereof; (ii) interest payable on
the Note; (iii) principal of the Note; (iv) interest payable on advances made
pursuant to paragraph 8 hereof; (v) principal of advances made pursuant to
paragraph 8 hereof; (vi) interest payable on any Future Advance, provided that
if more than one Future Advance is outstanding, Lender may apply payments
received among the amounts of interest payable on the Future Advances in such
order as Lender, in Lender's sole discretion, may determine; (vii) principal of
any Future Advance, provided that if more than one Future Advance is
outstanding, Lender may apply payments received among the principal balances of
the Future Advances in such order as Lender, in Lender's sole discretion, may
determine; and (viii) any other sums secured by this Instrument in such order as
Lender, at Lender's option, may determine: provided, however, that Lender may,
at Lender's option, apply any sums payable pursuant to paragraph 8 hereof prior
to interest on and principal of the Note, but such application shall not
otherwise affect the order of priority of application specified in this
paragraph 3.
4. CHARGES; LIENS. Borrower shall pay all rents, taxes, assessments,
premiums, and Other Impositions attributable to the Property in the manner
provided under paragraph 2 hereof or, if not paid in such manner, by Borrower
making payment, when due, directly to the payee thereof, or in such other manner
as Lender may designate in writing. Borrower shall promptly furnish to Lender
all notices of amounts due under this paragraph 4, and in the event Borrower
shall make payment directly, Borrower shall promptly furnish to Lender receipts
evidencing such payments. Borrower shall promptly discharge any lien which has,
or may have, priority over or equality with, the lien of this Instrument, and
Borrower shall pay, when due, the claims of all persons supplying labor or
materials to or in connection with the Property. Without Lender's prior written
permission, which permission may be withheld at the sole discretion of Lender,
Borrower shall not allow any lien inferior to this Instrument to be perfected
against the Property.
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<PAGE>
5. HAZARD INSURANCE. Borrower shall keep the improvements now
existing or hereafter erected on the Property insured by carriers at all times
satisfactory to Lender against loss by fire, hazards included within the term
"extended coverage", rent loss and such other hazards, casualties, liabilities
and contingencies as Lender (and, if this Instrument is on a leasehold, the
ground lease) shall require and in such amounts and for such periods as Lender
shall require. Borrower shall purchase policies of insurance with respect to the
Property with such insurers, in such amounts and covering such risks as shall be
satisfactory to Lender, including, but not limited to, (i) personal injury and
death; (ii) loss or damage by fire, lightning, hail, windstorm, explosion,
hurricane (to the extent available), and such other hazards, casualties and
contingencies (including at least twelve (12) months rental insurance in an
amount equal to the gross rentals for such period and broad form boiler and
machinery insurance) as are normally and usually covered by extended coverage
policies in effect where the Property is located and comprehensive general
public liability insurance in an amount not less than $1,000,000.00 per
occurrence, $2,000,000 in the aggregate together with $3,000,000.00 excess
liability coverage and containing an "Ordinance or Law Coverage" or
"Enforcement" endorsement if any of the improvements or the use of the Property
shall at any time constitute legal nonconforming structures or uses; provided,
that each policy shall provide by way of endorsement, rider or otherwise that no
such insurance policy shall be canceled, endorsed, altered, or reissued to
effect a change in coverage unless such insurer shall have first given Lender
thirty (30) days prior written notice thereof, such policy shall be on a
replacement cost basis, with a waiver of depreciation, in an amount not less
than that necessary to comply with any coinsurance percentage stipulated in the
policy, but not less than one hundred percent (100%) of the insurable value
(based upon replacement cost) of the Property and the deductible clause, if any,
of the fire and extended coverage policy may not exceed the lesser of one
percent (1%) of the face amount of the policy or $1,000.00; (iii) loss or damage
by flood, if the Property is in an area designated by the Secretary of Housing
and Urban Development as an area having special flood hazards, in an amount
equal to the principal amount of the Note or the maximum amount available under
the Flood Disaster Protection Act of 1973, and regulations issued pursuant
thereto, as amended from time to time, whichever is less, in form complying with
the "insurance purchase requirement" of that Act; and (iv) such other insurance
and endorsements, if any, as Lender may require from time to time, or which is
required by the Loan Documents. Borrower shall cause all insurance (except
general public liability insurance) carried in accordance with this paragraph 5
to be payable to Lender as a mortgagee and not as a coinsured, and, in the case
of all policies of insurance carried by each lessee for the benefit of Borrower,
if any, to cause all such policies to be payable to Lender as Lender's interest
may appear. All premiums on insurance policies shall be paid in the manner
provided under paragraph 2 hereof, or in such other manner as Lender may
designate in writing.
All insurance policies and renewals thereof shall be in a form
acceptable to Lender and shall include a standard mortgagee clause in favor of
and in form acceptable to Lender. Lender shall have the right to hold the
policies, and Borrower shall promptly furnish to Lender all renewal notices and
all receipts of paid premiums. At least thirty (30) days prior to the expiration
date of a policy, Borrower shall deliver to Lender a renewal policy in form
satisfactory to Lender. If this Instrument is on a leasehold, Borrower shall
furnish Lender a duplicate of all policies, renewal notices, renewal policies
and receipts of paid premiums if, by virtue of the ground lease, the originals
thereof may not be supplied by Borrower to Lender.
In the event of loss, Borrower shall give immediate written notice to
the insurance carrier and to Lender. Borrower hereby authorizes and empowers
Lender as attorney-in-fact for Borrower to make proof of loss, to adjust and
compromise any claim under insurance policies, to appear in and prosecute any
action arising from such insurance policies, to collect and receive insurance
proceeds, and to deduct therefrom Lender's expenses incurred in the collection
of such proceeds; provided however, that nothing contained in this paragraph 5
shall require Lender to incur any expense or take any action hereunder. Borrower
further authorizes Lender, at Lender's option, (a) to hold the balance of such
proceeds to be used to reimburse Borrower for the cost of reconstruction or
repair of the Property or (b) subject to the immediately following paragraph, to
apply such proceeds to the payment of the sums secured by this Instrument
whether or not then due, in the order of application set forth in paragraph 3
hereof (subject, however, to the rights of the lessor under the ground lease if
this Instrument is on a leasehold).
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<PAGE>
Lender shall not exercise Lender's option to apply insurance proceeds
to the payment of the sums secured by this Instrument if all of the following
conditions are met: (i) Borrower is not in breach or default of any covenant or
agreement of this Instrument, the Note or any other Loan Document; (ii) Lender
determines that there will be sufficient funds to restore and repair the
Property to the Pre-existing Condition (as hereinafter defined); (iii) Lender
agrees in writing that the rental income of the Property, after restoration and
repair of the Property to the Pre-existing Condition, will be sufficient to meet
all operating costs and other expenses, payments for reserves and loan repayment
obligations (including any obligations under any permitted subordinate
financing) relating to the Property; (iv) Lender determines that restoration and
repair of the Property to the Pre-existing Condition will be completed within
one year of the date of the loss or casualty to the Property, but in no event
later than six months prior to the Maturity Date; and (v) Lender is reasonably
satisfied that the Property can be restored and repaired as nearly as possible
to the condition it was in immediately prior to such casualty and in compliance
with all applicable zoning, building and other laws and codes (the "Pre-existing
Condition"). If Lender elects to make the insurance proceeds available for the
restoration and repair of the Property, Borrower agrees that, if at any time
during the restoration and repair, the cost of completing such restoration and
repair, as determined by Lender, exceeds the undisbursed insurance proceeds,
Borrower shall, immediately upon demand by Lender, deposit the amount of such
excess with Lender, and Lender shall first disburse such deposit to pay for the
costs of such restoration and repair on the same terms and conditions as the
insurance proceeds are disbursed. In the event the Property cannot be restored
to the equivalent of its original condition, as concerns height, floor area, use
and number of apartment units, Lender may, in its sole discretion, (I) require
that the insurance proceeds be applied to the payment of the sums secured by
this Instrument, whether or not then due (the "Loan Balance"), in the order of
application set forth in paragraph 3 hereof, or (II) require that (a) only a
portion of the Property be restored and repaired, (b) that the insurance
proceeds be applied to reduce the Loan Balance such that the ratio of the Loan
Balance to the number of apartment units that existed immediately prior to the
event of loss shall equal the ratio of the reduced Loan Balance to the reduced
number of apartment units to exist after the partial restoration and repair of
the Property, and (c) any insurance proceeds not used to reduce the Loan Balance
shall be held by Lender in accordance with paragraph 5 hereof to reimburse
Borrower for the cost of such partial restoration and repair. Any insurance
proceeds not applied to the repair or restoration of the Property shall be
applied to reduce the Loan Balance in the order of application set forth in
paragraph 3 above.
If the insurance proceeds are held by Lender to reimburse Borrower
for the cost of restoration and repair of the Property, the Property shall be
restored to the equivalent of its original condition or such other condition as
Lender may approve in writing. Lender may, at Lender's option, condition
disbursement of said proceeds on Lender's approval of such plans and
specifications of an architect satisfactory to Lender, contractor's cost
estimates, architect's certificates, waivers of liens, sworn statements of
mechanics and materialmen and such other evidence of costs, percentage
completion of construction, application of payments, and satisfaction of liens
as Lender may reasonably require. If the insurance proceeds are applied to the
payment of the sums secured by this Instrument, any such application of proceeds
to principal shall not extend or postpone the due dates of the monthly
installments referred to in paragraphs 1 and 2 hereof or change the amounts of
such installments. If the Property is sold pursuant to paragraph 27 hereof or if
Lender acquires title to the Property, Lender shall have all of the right, title
and interest of Borrower in and to any insurance policies and unearned premiums
thereon and in and to the proceeds resulting from any damage to the Property
prior to such sale or acquisition.
6. PRESERVATION AND MAINTENANCE OF PROPERTY; LEASEHOLDS. Borrower (a)
shall not commit waste or permit impairment or deterioration of the Property,
(b) shall not abandon the Property, (c) shall restore or repair promptly and in
a good and workmanlike manner all or any part of the Property to the equivalent
of its original condition, or such other condition as Lender may approve in
writing, in the event of any damage, injury or loss thereto, whether or not
insurance proceeds are available to cover in whole or in part the costs of such
restoration or repair, (d) shall keep the Property, including improvements,
fixtures, equipment, machinery and appliances thereon in good repair and shall
replace fixtures, equipment, machinery and appliances on the Property when
necessary to keep such items in good repair, (e) shall comply with all laws,
ordinances, regulations and requirements of any governmental body applicable to
the Property, (f) shall provide for professional management of the Property by a
residential rental property manager satisfactory to Lender pursuant to a
contract approved by Lender in writing, unless such requirement shall be waived
by Lender in writing, (g) shall generally operate and maintain the Property in a
manner to ensure maximum rentals, and (h) shall give notice in writing to Lender
of and, unless otherwise directed in writing by Lender, appear in and defend any
action or proceeding purporting to affect the Property, the security of this
Instrument or the rights of powers of Lender. Neither Borrower nor any tenant or
other person shall remove, demolish or alter any improvement now existing or
hereafter erected on the Property or any fixture, equipment, machinery or
appliance in or on the Property except when incident to the replacement of
fixtures, equipment, machinery and appliances with items of like kind.
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If this Instrument is on a leasehold, Borrower (i) shall comply with
the provisions of the ground lease, (ii) shall give immediate written notice to
Lender of any default by lessor under the ground lease or of any notice received
by Borrower from such lessor of any default under the ground lease by Borrower,
(iii) shall exercise any option to renew or extend the ground lease and give
written confirmation thereof to Lender within thirty days after such option
becomes exercisable, (iv) shall give immediate written notice to Lender of the
commencement of any remedial proceedings under the ground lease by any party
thereto and, if required by Lender, shall permit Lender as Borrower's
attorney-in-fact to control and act for Borrower in any such remedial
proceedings and (v) shall within thirty days after request by Lender obtain from
the lessor under the ground lease and deliver to Lender the lessor's estoppel
certificate required thereunder, if any. Borrower hereby expressly transfers and
assigns to Lender the benefit of all covenants contained in the ground lease,
whether or not such covenants run with the land, but Lender shall have no
liability with respect to such covenants nor any other covenants contained in
the ground lease.
Borrower shall not surrender the leasehold estate and interests
herein conveyed nor terminate or cancel the ground lease creating said estate
and interests, and Borrower shall not, without the express written consent of
Lender, alter or amend said ground lease. Borrower covenants and agrees that
there shall not be a merger of the ground lease, or of the leasehold estate
created thereby, with the fee estate covered by the ground lease by reason of
said leasehold estate or said fee estate, or any part of either, coming into
common ownership, unless Lender shall consent in writing to such merger; if
Borrower shall acquire such fee estate, then this Instrument shall
simultaneously and without further action be spread so as to become a lien on
such fee estate.
7. USE OF PROPERTY. Unless required by applicable law or unless
Lender has otherwise agreed in writing, Borrower shall not allow changes in the
use for which all or any part of the Property was intended at the time this
Instrument was executed. Borrower shall not subdivide the Property or initiate
or acquiesce in a change in the zoning classification of the Property without
Lender's prior written consent. Except as may be shown on the Title Policy (i)
Borrower shall not, by act or omission, permit any property which is not subject
to this Instrument to rely on the Property or any part thereof or any interest
therein to fulfill any governmental requirement for the existence or use of such
property, and (ii) the Property shall not rely on any property which is not
subject to this Instrument to fulfill any governmental requirement for the
existence or use of the Property. Borrower shall not by act or omission impair
the integrity of the Property as a single separate subdivided zoning lot
separate and apart from all other lots.
8. PROTECTION OF LENDER'S SECURITY. If Borrower fails to perform the
covenants and agreements contained in this Instrument, or if any action or
proceeding is commenced which affects the Property or title thereto or the
interest of Lender therein, including, but not limited to, eminent domain,
insolvency, code enforcement, or arrangements or proceedings involving a
bankrupt or decedent, then Lender at Lender's option may make such appearances,
disburse such sums and take such action as Lender deems necessary, in its sole
discretion, to protect Lender's interest, including, but not Iimited to, (i)
disbursement of attorney's fees, (ii) entry upon the Property to make repairs,
(iii) procurement of satisfactory insurance as provided in paragraph 5 hereof,
(iv) if this Instrument is on a leasehold, exercise of any option to renew or
extend the ground lease on behalf of Borrower and the curing of any default of
Borrower in the terms and conditions of the ground lease, and (v) the payment of
any taxes and/or assessments levied against the Property and then due and
payable.
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<PAGE>
Any amounts disbursed by Lender pursuant to this paragraph 8, with
interest thereon, shall become additional indebtedness of Borrower secured by
this Instrument. Unless Borrower and Lender agree to other terms of payment,
such amounts shall be immediately due and payable and shall bear interest from
the date of disbursement at the rate stated in the Note unless collection from
Borrower of interest at such rate would be contrary to applicable law, in which
event such amounts shall bear interest at the highest rate which may be
collected from Borrower under applicable law. Borrower hereby covenants and
agrees that Lender shall be subrogated to the lien of any mortgage or other lien
discharged, in whole or in part, by the indebtedness secured hereby. Nothing
contained in this paragraph 8 shall require Lender to incur any expense or take
any action hereunder.
9. INSPECTION. Lender may make or cause to be made reasonable entries
upon and inspections of the Property including, but not limited to, phase I
and/or phase II environmental audits and inspections which phase II inspections
will not unreasonably disturb Borrower's use of the Property.
10. BOOKS AND RECORDS. Borrower shall keep and maintain at all times
at Borrower's address stated below, or such other place as Lender may approve in
writing, complete and accurate books of accounts and records adequate to reflect
correctly the results of the operation of the Property and copies of all written
contracts, leases and other instruments which affect the Property. Such books,
records, contracts, leases and other instruments shall be subject to examination
and inspection at any reasonable time by Lender. Upon Lender's request, Borrower
shall furnish to Lender, within sixty (60) days after the end of each three
month quarter of each fiscal year of Borrower, a balance sheet and a statement
of income and expenses of the Property, each in reasonable detail and certified
by Borrower and, if Lender shall require, annual financial statements shall be
certified but only after a monetary default, by an independent certified public
accountant. Borrower shall furnish, together with the foregoing financial
statements and at any other time upon Lender's request, a rent schedule for the
Property, certified by Borrower, showing the name of each tenant, and for each
tenant, the space occupied, identify those Mobile Homes which are owned and
leased by Borrower or owner occupied the lease expiration date, the rent payable
and the rent paid. In addition to the above delivery of financial statements and
rent schedule, Borrower shall deliver to Lender updated versions of such
financial statements at any other time upon Lender's request, including monthly
balance sheets and monthly statements of income and expenses of the Property.
11. CONDEMNATION. Borrower shall promptly notify Lender of any action
or proceeding relating to any condemnation or other taking, whether direct or
indirect, of the Property, or part thereof, and Borrower shall appear in and
prosecute any such action or proceeding unless otherwise directed by Lender in
writing. Borrower authorizes Lender, at Lender's option, as attorney-in-fact for
Borrower, to commence, appear in and prosecute, in Lender's or Borrower's name,
any action or proceeding relating to any condemnation or other taking of the
Property, whether direct or indirect, and to settle or compromise any claim in
connection with such condemnation or other taking. The proceeds of any award,
payment or claim for damages, direct or consequential, in connection with any
condemnation or other taking, whether direct or indirect, of the Property, or
part thereof, or for conveyances in lieu of condemnation, are hereby assigned to
and shall be paid to Lender subject, if this Instrument is on a leasehold, to
the rights of lessor under the ground lease.
Borrower authorizes Lender to apply such awards, payments, proceeds
or damages, after the deduction of Lender's expenses incurred in the collection
of such amounts, at Lender's option in the same manner as casualty proceeds are
applied pursuant to paragraph 5 hereof, to restoration or repair of the Property
or to payment of the sums secured by this Instrument, whether or not then due,
in the order of application set forth in paragraph 3 hereof, with the balance,
if any, to Borrower. Unless Borrower and Lender otherwise agree in writing, any
application of proceeds to principal shall not extend or postpone the due date
of the monthly installments referred to in paragraphs 1 and 2 hereof or change
the amount of such installments. Borrower agrees to execute such further
evidence of assignment of any awards, proceeds, damages or claims arising in
connection with such condemnation or taking as Lender may require.
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12. BORROWER AND LIEN NOT RELEASED. From time to time, Lender may, at
Lender's option, without giving notice to or obtaining the consent of Borrower,
Borrower's successors or assigns or of any junior lienholder or guarantors,
without liability on Lender's part and notwithstanding Borrower's breach of any
covenant or agreement of Borrower in this Instrument, extend the time for
payment of said indebtedness or any part thereof, reduce the payments thereon,
release anyone liable on any of said indebtedness, accept a renewal note or
notes therefor, modify the terms and time of payment of said indebtedness,
release from the lien of this Instrument any part of the Property, take or
release other or additional security, reconvey any part of the Property, consent
to any map or plan of the Property, consent to the granting of any easement,
join in any extension or subordination agreement, and agree in writing with
Borrower to modify the rate of interest or period of amortization of the Note or
change the amount of the monthly installments payable thereunder. Any actions
taken by Lender pursuant to the terms of this paragraph 12 shall not affect the
obligation of Borrower or Borrower's successors or assigns to pay the sums
secured by this Instrument and to observe the covenants of Borrower contained
herein, shall not affect the guaranty of any person, corporation, partnership or
other entity for payment of the indebtedness secured hereby, and shall not
affect the lien or priority of lien hereof on the Property. Borrower shall pay
Lender a reasonable service charge, together with such title insurance premiums
and attorney's fees as may be incurred at Lender's option, for any such action
if taken at Borrower's request. Borrower waives to the extent permitted by law,
(a) the benefit of all laws now existing or that may hereafter be enacted
providing for any appraisement before sale of any portion of the Property, (b)
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the indebtedness secured hereby
and marshaling in the event of foreclosure of the liens hereby created, and (c)
all rights and remedies which Borrower may have or be able to assert by reason
of applicable laws pertaining to the rights and remedies of sureties. Borrower
expressly waives and relinquishes any and all rights and remedies under or
pursuant to Arizona Revised Statutes "A.R.S.") ss.ss. 12-1566, 12-1641, et seq.,
33-727, 33-814, 44-142 and 16 A.R.S., Rules of Civil Procedure, Rule 17(f).
13. FORBEARANCE BY LENDER NOT A WAIVER. Any forbearance by Lender in
exercising any right or remedy hereunder, or otherwise afforded by applicable
law, shall not be a waiver of or preclude the exercise of any right or remedy.
The acceptance by Lender of payment of any sum secured by this Instrument after
the due date of such payment shall not be a waiver of Lender's right to either
require prompt payment when due of all other sums so secured or to declare a
default for failure to make prompt payment. The procurement of insurance or the
payment of taxes or other liens or charges by Lender shall not be a waiver of
Lender's right to accelerate the maturity of the indebtedness secured by this
Instrument, nor shall Lender's receipt of any awards, proceeds or damages under
paragraphs 5 and 11 hereof operate to cure or waive Borrower's default in
payment of sums secured by this Instrument.
14. ESTOPPEL CERTIFICATE. Borrower shall within ten (10) days of a
written request from Lender furnish Lender with a written statement, duly
acknowledged, setting forth the sums secured by this Instrument and any right of
set-off, counterclaim or other defense which exists against such sums and the
obligations of this Instrument and attaching true, correct and complete copies
of the Note, this Instrument: and any other Loan Documents and any and all
modifications, amendments and substitutions thereof. In addition, upon any
transfer or proposed transfer contemplated by paragraph 41 of this Instrument,
upon Lender's request, Borrower and any guarantors or indemnitors of the
obligations or liabilities hereunder shall provide an estoppel certificate to
the Investor (hereinafter defined) or any prospective Investor in such form,
substance and detail as Lender, such Investor or prospective Investor may
reasonably require.
15. FIXTURE FILING. This Instrument shall constitute a security
agreement and "fixture filing" as those terms are used in the Uniform Commercial
Code, and information concerning the security interest created hereby may be
obtained by application to the Lender (secured party) at the address specified
in the introduction hereto. The mailing address of the Borrower is also set
forth in the introduction hereto. The Borrower irrevocably authorizes the
Lender, without the signature of the Borrower, to execute and file any financing
or continuation statement which the Lender deems necessary or advisable to
perfect or continue the perfection of the security interest granted hereby, or
to preserve and maintain the priority of the lien hereof. Upon ten (10) days
prior written notice from Lender to Borrower, Borrower shall execute and file
any financing or continuation statement which the Lender deems necessary or
advisable to perfect or continue the perfection of the security interest granted
hereby, or to preserve and maintain the priority of the lien hereof. The
Borrower, upon demand, shall pay, or shall reimburse the Lender for paying, any
and all costs and expenses from time to time incurred in connection with the
preparation, execution and filing of any such statements, and all payments made
by the Lender shall be a lien on the Premises and shall be deemed secured by
this Instrument. The filing of such statements shall under no circumstance be
construed as impairing either the Lender's remedies or the priority of the
mortgage lien granted hereby, and the Borrower agrees that all of the collateral
is, and at all times, for all purposes and in all proceedings (both legal and
equitable) shall be, at the election of the Lender, regarded as part of the real
estate covered by this Instrument.
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16. LEASES OF THE PROPERTY. As used in this paragraph 16, the word
"lease" shall mean "sublease" if this Instrument is on a leasehold. Borrower
shall comply with and observe Borrower's obligations as landlord under all
leases of the Property or any part thereof. Borrower will not lease any portion
of the Property for non-residential use except with the prior written approval
of Lender, which approval may be made in Lender's sole but reasonable
discretion. All renewals of leases and proposed leases shall be in writing and
shall provide for rental rates or registration fees comparable to existing local
market rates and shall be arms-length transactions. Borrower shall be required
to obtain Lender's consent, which shall not be unreasonably withheld, for any
nonresidential lease and subleases (except for laundry leases or similar type
leases) at the Property. The request for approval of each such proposed lease
shall be made to Lender in writing and Borrower shall furnish to Lender (and any
loan servicer specified from time to time by Lender): (i) such biographical and
financial information about the proposed tenant as Lender may require in
conjunction with its review, (ii) a copy of the proposed form of lease, and
(iii) a summary of the material terms of such proposed lease (including, without
limitation, rental terms and the term of the proposed lease and any options).
Borrower, at Lender's request, shall furnish Lender with executed copies of all
leases hereafter made of all or any part of the Property, and all leases now or
hereafter entered into will be in form and substance subject to the approval of
Lender. All leases of the Property or a separate agreement in recordable form
and substance satisfactory to Lender shall specifically provide that such leases
are subordinate to this Instrument; that the tenant attorns to Lender, such
attornment to be effective upon Lender's acquisition of title to the Property;
that the tenant agrees to execute such further evidences of attornment as Lender
may from time to time request; that the attornment of the tenant shall not be
terminated by foreclosure; that in no event shall Lender, as holder of this
Instrument or as successor landlord, be liable to the tenant for any act or
omission of any prior landlord or for any liability or obligation of any prior
landlord occurring prior to the date that Lender or any subsequent owner
acquires title to the Property; and that Lender may, at Lender's option, accept
or reject such attornments. Except as otherwise provided in this paragraph 16,
Borrower shall not, without Lender's written consent, execute, modify, surrender
or terminate, either orally or in writing, any lease now existing or hereafter
made of all or any part of the Property providing for a term of three (3) years
or more, permit an assignment or sublease of a lease without Lender's written
consent, or request or consent to the subordination of any lease of all or any
part of the Property to any lien subordinate to this Instrument. If Borrower
becomes aware that any tenant proposes to do, or is doing, any act or thing
which may give rise to any right of set-off against rent, Borrower shall (i)
take such steps as shall be reasonably calculated to prevent the accrual of any
right to a set-off against rent, (ii) notify Lender thereof and of the amount of
said set-offs, and (iii) within ten (10) days after such accrual, reimburse the
tenant who shall have acquired such right to set-off or take such other steps as
shall effectively discharge such set-off and as shall assure that rents
thereafter due shall continue to be payable without set-off or deduction.
Borrower shall absolutely assign to Lender, by written instrument
satisfactory to Lender, all leases including, without limitation, rental
agreements, registration cards and agreements and all other agreements affecting
the Property now existing or hereafter made of all or any part of the Property
and all security deposits made by tenants in connection with such leases of the
Property. Upon assignment by Borrower to Lender of any leases of the Property,
Lender shall have all of the rights and powers possessed by Borrower prior to
such assignment and Lender shall have the right to modify, extend or terminate
such existing leases and to execute new leases, in Lender's sole discretion.
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17. REMEDIES CUMULATIVE. Except as required by Arizona law, each
remedy provided in this Instrument is distinct and cumulative to all other
rights or remedies under this Instrument or afforded by law or equity, and may
be exercised concurrently, independently, or successively, in any order
whatsoever.
18. ACCELERATION IN CASE OF BORROWER'S INSOLVENCY. If Borrower shall
voluntarily file a petition under Title 11 of the U.S. Code (the "Act"), as such
Act may from time to time be amended, or under any similar or successor Federal
statute relating to bankruptcy, insolvency, arrangements or reorganizations, or
under any state bankruptcy or insolvency act, or file an answer in any
involuntary proceeding admitting insolvency or inability to pay debts, or if
Borrower shall fail to obtain a vacation or stay of involuntary proceedings
brought for the reorganization, dissolution or liquidation of Borrower within
one hundred and twenty (120) days of the filing of such involuntary proceeding,
or if Borrower shall be adjudged a bankrupt, or if a trustee or receiver shall
be appointed for Borrower or Borrower's property, or if the Property shall
become subject to the jurisdiction of a Federal bankruptcy court or similar
state court, or if Borrower shall make an assignment for the benefit of
Borrower's creditors, or if there is an attachment, execution or other judicial
seizure of any portion of Borrower's assets and such seizure is not discharged
within ten (10) days, then Lender may, at Lender's option, declare all of the
sums secured by this Instrument to be immediately due and payable without prior
notice to Borrower, and Lender may invoke any remedies permitted by paragraph 27
of this Instrument. Any attorney's fees and other expenses incurred by Lender in
connection with Borrower's bankruptcy or any of the other aforesaid events shall
be additional indebtedness of Borrower secured by this Instrument pursuant to
paragraph 8 hereof.
19. TRANSFERS OF THE PROPERTY OR BENEFICIAL INTERESTS IN BORROWER.
(a) Except as provided in subparagraph (c) of this paragraph 19 or paragraph 38,
upon the sale or transfer of (i) all or any part of the Property, or any
interest therein, or (ii) beneficial interests in Borrower (if Borrower is not a
natural person or persons but is a corporation, partnership, trust or other
legal entity), Lender may, at Lender's option, declare all of the sums secured
by this Instrument to be immediately due and payable, and Lender may invoke any
remedies permitted by paragraph 27 of this Instrument.
(b) For purposes of this paragraph 19, a sale or transfer of a
beneficial interest in Borrower shall be deemed to include, but is not limited
to:
(i) if Borrower or any general partner of Borrower is a
corporation or limited liability company, the
voluntary or involuntary sale, conveyance, transfer
or pledge of a majority of such corporation's or
limited liability company's stock (or the stock of
any corporation directly or indirectly controlling
such corporation or limited liability company by
operation of law or otherwise) or the creation or
issuance of new stock by which an aggregate of more
than 49of such corporation's or limited liability
company's stock shall be vested in a party or
parties who are not now stockholders;
(ii) if Borrower is a limited liability company, the
change, removal or resignation of a managing
member;
(iii) if Borrower, or any general partner of Borrower, is
a limited or general partnership, the change,
removal or resignation of a general partner or
managing partner or the transfer or pledge of the
partnership interest of any general partner or
managing partner or any profits or proceeds
relating to such partnership interest;
(iv) if Borrower is a limited partnership, the transfer
or pledge of a majority of the limited partnership
interests which in the aggregate constitute more
than a 49% interest in Borrower, or any profits or
proceeds relating to such limited partnership
interests.
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<PAGE>
(c) Notwithstanding the foregoing, the following shall not be deemed
a sale or transfer of a beneficial interest in Borrower for purposes of this
paragraph 19:
(i) a transfer of less than a 49% interest in Borrower,
or any partner, shareholder or member of Borrower,
by devise, descent or by operation of law upon the
death of a partner, member or stockholder of
Borrower;
(ii) a transfer of a limited partner, shareholder or
non-managing member interest in Borrower for estate
planning purposes to an immediate family member of
such limited partner, shareholder or member, or a
trust for the benefit of an immediate family
member; or
(iii) a transfer of a general partner or managing member
interest in Borrower for estate planning purposes
to an immediate family member of such partner or
member, or a trust for the benefit of an immediate
family member, subject to obtaining Lender's prior
written consent, which consent shall not be
unreasonably withheld subject to the criteria set
forth in subparagraph (b) of paragraph 38 of this
Instrument.
See paragraph 38 of this Instrument.
20. NOTICE. Except for any notice required under applicable law to be
given in another manner, (a) any notice to Borrower provided for in this
Instrument or in the Note shall be given by mailing such notice by certified
mail addressed to Borrower at Borrower's address stated above or at such other
address as Borrower may designate by notice to Lender as provided herein, and
(b) any notice to Lender shall be given by certified mail, return receipt
requested, to Lender's address stated herein or to such other address as Lender
may designate by notice to Borrower as provided herein. Any notice provided for
in this Instrument or in the Note shall be deemed to have been given to Borrower
or Lender when given in the manner designated herein.
21. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY;
AGENTS; CAPTIONS. The covenants and agreements herein contained shall bind, and
the rights hereunder shall inure to, the respective successors and assigns of
Lender and Borrower, subject to the provisions of paragraph 19 hereof. All
covenants and agreements of Borrower shall be joint and several. In exercising
any rights hereunder or taking any actions provided for herein, Lender may act
through its employees, agents or independent contractors as authorized by
Lender. The captions and headings of the paragraphs of this Instrument are for
convenience only and are not to be used to interpret or define the provisions
hereof.
22. UNIFORM MULTIFAMILY INSTRUMENT; GOVERNING LAW; SEVERABILITY. This
form of multifamily instrument combines uniform covenants for national use and
non-uniform covenants with limited variations by jurisdiction to constitute a
uniform security instrument covering real property and related fixtures and
personal property. This Instrument shall be governed by the law of the
jurisdiction in which the Property is located. In the event that any provision
of this Instrument or the Note conflicts with applicable law, such conflict
shall not affect other provisions of this Instrument or the Note which can be
given effect without the conflicting provisions, and to this end the provisions
of this Instrument and the Note are declared to be severable. In the event that
any applicable law limiting the amount of interest or other charges permitted to
be collected from Borrower is interpreted so that any charge provided for in
this Instrument or in the Note, whether considered separately or together with
other charges levied in connection with this Instrument and the Note, violates
such law, and Borrower is entitled to the benefit of such law, such charge is
hereby reduced to the extent necessary to eliminate such violation. The amounts,
if any, previously paid to Lender in excess of the amounts payable to Lender
pursuant to such charges as reduced shall be applied by Lender to reduce the
principal of the indebtedness evidenced by the Note. For the purposes of
determining whether any applicable law limiting the amount of interest or other
charges permitted to be collected from Borrower has been violated, all
indebtedness which is secured by this Instrument or evidenced by the Note and
which constitutes interest, as well as all other charges levied in connection
with such indebtedness which constitute interest, shall be deemed to be
allocated and spread over the stated term of the Note. Unless otherwise required
by applicable law, such allocation and spreading shall be effected in such a
manner that the rate of interest computed thereby is uniform throughout the
stated term of the Note. Borrower agrees to pay an effective rate of interest
which is the stated rate provided for in the Note plus any additional rate of
interest resulting from any charges of interest or in the nature of interest
paid or to be paid in connection with the loan evidenced by the Note, including
without limitation, any charges paid pursuant to the provisions of that certain
commitment letter dated September 23, 1997, from Lender to Borrower.
Notwithstanding any provision herein, or in the Note, or in any related
agreement between Borrower and Lender, the total liability of Borrower for
payments of interest and in the nature of interest shall not exceed the limits
imposed by the usury laws of the State of Arizona. If Lender receives as
interest an amount which would exceed such limits, such amount which would be
excessive interest shall be applied to the reduction of the unpaid principal
balance and not to the payment of interest, and if a surplus remains after full
payment of principal and lawful interest, the surplus shall be remitted to
Borrower by Lender, and Borrower hereby agrees to accept such remittance.
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23. WAIVER OF STATUTE OF LIMITATIONS. Borrower hereby waives the
right to assert any statute of limitations as a bar to the enforcement of the
lien of this Instrument or to any action brought to enforce the Note or any
other obligation secured by this Instrument.
24. WAIVER OF MARSHALLING. Notwithstanding the existence of any other
security interest in the Property held by Lender or by any other party, Lender
shall have the right to determine the order in which any or all of the Property
shall be subjected to the remedies provided herein. Lender shall have the right
to determine the order in which any or all portions of the indebtedness secured
hereby are satisfied from the proceeds realized upon the exercise of the
remedies provided herein. Borrower, any party who consents to this Instrument
and any party who now or hereafter acquires a security interest in the Property
and who has actual or constructive notice hereof hereby waives any and all right
to require the marshalling of assets in connection with the exercise of any of
the remedies permitted by applicable law or provided herein.
25. INTENTIONALLY OMITTED.
26. ASSIGNMENT OF RENTS; APPOINTMENT OF RECEIVER; LENDER IN
POSSESSION. As part of the consideration for the indebtedness evidenced by the
Note, Borrower hereby absolutely and unconditionally assigns and transfers to
Lender all the rents and revenues of the Property, including those now due, past
due, or to become due by virtue of any lease or other agreement for the
occupancy or use of all or any part of the Property, regardless of to whom the
rents and revenues of the Property are payable. Borrower hereby authorizes
Lender or Lender's agents to collect the aforesaid rents and revenues and hereby
directs each tenant of the Property to pay such rents to Lender or Lender's
agents; provided, however, that prior to written notice given by Lender to
Borrower of the breach by Borrower of any covenant or agreement of Borrower in
this Instrument or any other Loan Document, Borrower shall collect and receive
all rents and revenues of the Property as trustee for the benefit of Lender and
Borrower, to apply the rents and revenues so collected to the sums secured by
this Instrument in the order provided in paragraph 3 hereof with the balance, so
long as no such breach has occurred, to the account of Borrower, it being
intended by Borrower and Lender that this assignment of rents constitutes an
absolute assignment and not an assignment for additional security only. Upon
delivery of written notice by Lender to Borrower of the breach by Borrower of
any covenant or agreement of Borrower in this Instrument and the expiration of
any grace and cure period, and without the necessity of Lender entering upon and
taking and maintaining full control of the Property in person, by agent or by a
court-appointed receiver, Lender shall immediately be entitled to possession of
all rents and revenues of the Property as specified in this paragraph 26 as the
same become due and payable, including, but not limited to, rents then due and
unpaid, and all such rents shall immediately upon delivery of such notice and
the expiration of any grace and cure period be held by Borrower as trustee for
the benefit of Lender only; provided, however, that the written notice by Lender
to Borrower of the breach by Borrower shall contain a statement that Lender
exercises its rights to such rents. Borrower agrees that commencing upon
delivery of such written notice of Borrower's breach by Lender to Borrower and
the expiration of any grace and cure period, each tenant of the Property shall
make such rents payable to and pay such rents to Lender or Lender's agents on
Lender's written demand to each tenant therefor, delivered to each tenant
personally, by mail or by delivering such demand to each rental unit, without
any liability on the part of said tenant to inquire further as to the existence
of a default by Borrower.
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<PAGE>
Borrower hereby covenants that Borrower has not executed any prior
assignment of said rents, that Borrower has not performed, and will not perform,
any acts or has not executed, and will not execute, any instrument which would
prevent Lender from exercising its rights under this paragraph 26, and that at
the time of execution of. this Instrument there has been no anticipation or
prepayment of any of the rents of the Property for more than one month prior to
the due dates of such rents. Borrower covenants that Borrower will not hereafter
collect or accept payment of any rents of the Property more than one month prior
to the due dates of such rents. Borrower further covenants that Borrower will
execute and deliver to Lender such further assignments of rents and revenues of
the Property as Lender may from time to time request.
Upon Borrower's breach of any covenant or agreement of Borrower in
this Instrument and after the expiration of any grace or cure period, Lender
shall be entitled to the appointment of a receiver for the Property, without
notice to Borrower or any other person or entity and Lender may in person, by
agent or by a court appointed receiver, regardless of the adequacy of Lender's
security, enter upon and take and maintain full control of the Property in order
to perform all acts necessary and appropriate for the operation and maintenance
thereof including, but not limited to, the execution, cancellation or
modification of leases, the collection of all rents and revenues of the
Property, the making of repairs to the Property and the execution or termination
of contracts providing for the management or maintenance of the Property, all on
such terms as are deemed best to protect the security of this Instrument. In the
event Lender elects to seek the appointment of a receiver for the Property upon
Borrower's breach of any covenant or agreement of Borrower in this Instrument,
Borrower hereby expressly consents to the appointment of such receiver. Lender
or the receiver shall be entitled to receive a reasonable fee for so managing
the Property.
All rents and revenues collected subsequent to delivery of written
notice by Lender to Borrower of the breach by Borrower of any covenant or
agreement of Borrower in this Instrument shall be applied first to the costs, if
any, of taking control of and managing the Property and collecting the rents,
including, but not limited to, attorney's fees, receiver's fees, premiums on
receiver's bonds, costs of repairs to the Property, premiums on insurance
policies, taxes, assessments and other charges on the Property, and the costs of
discharging any obligation or liability of Borrower as lessor or landlord of the
Property and then to the sums secured by this Instrument. Lender or the receiver
shall have access to the books and records used in the operation and maintenance
of the Property and shall be liable to account only for those rents actually
received. Lender shall not be liable to Borrower, anyone claiming under or
through Borrower or anyone having an interest in the Property by reason of
anything done or left undone by Lender under this paragraph 26.
If the rents of the Property are not sufficient to meet the costs, if
any, of taking control of and managing the Property and collecting the rents,
any funds expended by Lender for such purposes shall become indebtedness of
Borrower to Lender secured by this Instrument pursuant to paragraph 8 hereof.
Unless Lender and Borrower agree in writing to other terms of payment, such
amounts shall be payable upon notice from Lender to Borrower requesting payment
thereof and shall bear interest from the date of disbursement at the rate stated
in the Note unless payment of interest at such rate would be contrary to
applicable law, in which event such amounts shall bear interest at the highest
rate which may be collected from Borrower under applicable law.
Any entering upon and taking and maintaining of control of the
Property by Lender or the receiver and any application of rents as provided
herein shall not cure or waive any default hereunder or invalidate any other
right or remedy of Lender under applicable law or provided herein. This
assignment of rents of the Property shall terminate at such time as this
Instrument ceases to secure indebtedness held by Lender.
NON-UNIFORM COVENANTS. Borrower and Lender further covenant and agree
as follows:
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27. ACCELERATION; REMEDIES. Upon Borrower's breach of any
representation, covenant or agreement of Borrower in this Instrument, the Note,
the Unsecured Environmental Indemnity Agreement or any other Loan Document,
including, but not limited to, the covenants to pay when due any sums secured by
this Instrument and after the expiration of any grace or cure period, Lender at
Lender's option may declare all of the sums secured by this Instrument to be
immediately due and payable without further demand, and may invoke the power of
sale and any other remedies permitted by applicable law or provided herein.
Borrower acknowledges that the power of sale herein granted may be exercised by
Lender without prior judicial hearing. Borrower has the right to bring an action
to assert the non-existence of a breach or any other defense of Borrower to
acceleration and sale. Lender shall be entitled to collect all costs and
expenses incurred in pursuing such remedies, including, but not limited to,
attorney's fees and costs of documentary evidence, abstracts and title reports.
Notwithstanding the foregoing, Lender shall not invoke any remedy
provided hereunder, under the Loan Documents, at law or in equity upon
Borrower's breach of a non-monetary representation, covenant, or agreement of
Borrower in this Instrument, the Note, the Unsecured Environmental Indemnity
Agreement or any other Loan Document, other than a breach of paragraphs 5, 19,
34(d), 34(e) or 34(g) of this Instrument, or paragraph 2 of the Environmental
Indemnity Agreement, provided Borrower shall have, on or before the date that is
ten (10) days after Borrower's receipt of notice thereof, cured such default or,
if such default cannot be cured within such ten (10) day period, Borrower shall
have commenced to cure within such ten (10) day period and is taking all actions
required to diligently cure such default and such default is cured on or before
the date that is thirty (30) days after Borrower's receipt of a notice to cure
such default.
See paragraph 37 of this Instrument.
Trustee shall deliver to the purchaser a Trustee's deed conveying the
Property so sold without any covenant or warranty, expressed or implied. The
recitals in the Trustee's deed shall be prima facie evidence of the truth of the
statements made therein. Trustee shall apply the proceeds of the sale in the
following order: (a) to all costs and expenses of the sale, including, but not
limited to, Trustee's and attorney's fees and costs of title evidence; (b) to
all sums secured by this Instrument in such order as Lender, in Lender's sole
discretion, directs; and (c) the excess, if any, to the person or persons
legally entitled thereto, or to the clerk of the superior court of the county in
which the sale took place. In the event of reinstatement of this Instrument
prior to a foreclosure hereunder, fees of Trustee are limited as set forth in
A.R.S. ss. 33-813.B.
28. RELEASE. Upon written request of Lender stating that all sums
secured by this Instrument have been fully paid and the covenants and agreements
of Borrower have been fully performed (the "Secured Obligations"), and upon
payment by Borrower of Trustee's fees, Trustee shall reconvey to Borrower, or to
the person or persons legally entitled thereto, without warranty, any portion of
the Property then held hereunder. The recitals in such reconveyance of any
matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto". Trustee is authorized and instructed hereby to reconvey the
lien and charge of this Instrument when so directed in writing by Lender,
without delivery by Lender to Trustee of this Instrument or any instrument
evidencing any or all of the Secured Obligations. Trustee shall be entitled to
rely solely upon the written instruction of Lender and shall incur no liability
under this Instrument to Lender or Borrower by acting in accordance with
Lender's written instruction believed by Trustee to be genuine and signed by the
proper party. Trustee shall have no obligation to require and shall not require
Lender to present this Instrument or any instrument evidencing any or all of the
Secured Obligations as a condition precedent to Trustee's taking the action
requested by Lender in writing with respect to the release and reconveyance of
the lien and discharge of this Instrument.
29. SUBSTITUTE TRUSTEE; ACTION BY SINGLE TRUSTEE. Lender at Lender's
option may from time to time remove Trustee and appoint a successor trustee to
any Trustee appointed hereunder. Without conveyance of the Property, the
successor trustee shall succeed to all the title, power and duties conferred
upon the Trustee herein and by applicable law.
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30. TIME OF ESSENCE. Time is of the essence of each covenant of this
Instrument.
31. MAILING ADDRESS. Borrower's mailing address is Borrower's address
stated below.
32. WAIVERS BY SURETY. Any party who has signed this Instrument as a
surety or accommodation party, or who has subjected his property to this
Instrument to secure the indebtedness of another, hereby expressly waives the
benefits of the provision of Arizona Revised Statutes ss.ss. 12-1641 and
12-1642, as now existing and hereafter amended.
33. FUTURE ADVANCES. Upon request of Borrower, Lender, at Lender's
option so long as this Instrument secures indebtedness held by Lender, may make
Future Advances to Borrower. Such Future Advances, with interest thereon, shall
be secured by this Instrument when evidenced by promissory notes stating that
said notes are secured hereby. At no time shall the principal amount of the
indebtedness secured by this Instrument, not including sums advanced in
accordance herewith to protect the security of this Instrument, exceed the
original amount of the Note (US $8,640,000.00) plus the additional sum of US $0.
34. NONRECOURSE LOAN. Subject to the qualifications set below on this
paragraph 34, Borrower and its partners shall be fully and personally liable for
the payment and performance of all of the obligations, covenants and agreements
of Borrower under the Note, this Instrument, the Assignment of Leases and Rents
(herein so-called), dated of even date herewith, executed by Borrower to Lender,
the Environmental Indemnity Agreement dated of even date herewith, executed by
Borrower and Lender, and all other instruments and documents evidencing,
securing or governing the terms of the loan (the "Loan") evidenced by the Note
(collectively, the "Loan Documents"), including, without limitation, the timely
payment of all principal, interest and premium, if any, to the full extent (but
only to the extent) of all of the Property and any other items, property or
amounts which are collateral or security for the Loan. Notwithstanding the
foregoing and except as set forth below, so long as Lender's rights of recourse
to the Property are not suspended, reduced or impaired by or as a result of any
act, omission or misrepresentation of Borrower or any other party now or
hereafter liable for any part of the Loan and accrued interest hereon, or by or
as a result of any case, action, suit or proceeding to which Borrower or any
such other party, voluntarily becomes a party, if a default occurs in the timely
and proper payment of any portion of such indebtedness or in the timely
performance of any obligations, agreements or covenants, neither Borrower nor
any partner of Borrower shall be personally liable for the repayment of any of
the principal of, interest on, or prepayment fees or late charges, or other
charges or fees due in connection with the Loan, the performance of any
covenants of Borrower under the Note, this Instrument or any of the other Loan
Documents or for any deficiency judgment which Lender may obtain after default
by Borrower. Notwithstanding the foregoing provisions of this paragraph or any
other agreement, the Borrower shall be fully and personally liable for any and
all: (1) liabilities, costs, losses, damages, expenses or claims (including,
without limitation, any reduction in the value of the Property or any other
items, property or amounts which are collateral or security for the Loan)
suffered or incurred by Lender by reason of or in connection with (a) any fraud
or misrepresentation by Borrower in connection with the Loan, including but not
limited to any misrepresentation of Borrower contained in any Loan Document, (b)
any failure to pay taxes, insurance premiums (except to the extent that such
taxes and insurance premiums are then held by Lender), assessments, charges for
labor or materials or other charges that can create liens on any portion of the
Property, (c) any misapplication of (i) proceeds of insurance covering any
portion of the Property, or (ii) proceeds of the sale or condemnation of any
portion of the Property, (d) any rentals, income, profits, issues and products
received by or on behalf of Borrower subsequent to the date on which Lender
gives written notice that a default has occurred under the Loan and not applied
to the payment of principal or interest due under the Note or the payment of
operating expenses (excluding any operator's, manager's or developer's fee paid
to Borrower or any affiliate of Borrower) of the Property, (e) any failure to
maintain, repair or restore the Property in accordance with any Loan Document to
the extent not covered by insurance proceeds made available to Lender, (f) any
failure by Borrower to deliver to Lender all unearned advance rentals and
security deposits paid by tenants of the Property received by or on behalf of
Borrower, and not refunded to or forfeited by such tenants, (g) any failure by
Borrower to return to, or reimburse Lender for, all personally taken from the
Property by or on behalf of Borrower, except in accordance with the provisions
of this Instrument, and (h) any and all indemnities given by Borrower to Lender
set forth in the Unsecured Environmental Indemnity Agreement or any other Loan
Document in connection with any environmental matter relating to the Property;
and (2) court costs and all attorneys' fees provided for in any Loan Document.
Furthermore, no limitation of liability or recourse provided above in this
paragraph shall (x) apply to the extent that the Lender's rights of recourse to
the Property are suspended, reduced or impaired by or as a result of any act,
omission or misrepresentation of the Borrower or any other party now or
hereafter liable for any part of the Loan and accrued interest thereon, or by or
as a result of any case, action, suit or proceeding to which the Borrower or any
such other party, voluntarily becomes a party; or (y) constitute a waiver,
forfeiture, abrogation or limitation of or on any right accorded by any law
establishing a debtor relief proceeding, including, but not limited to, Title
11, U.S. Code, which right provides for the assertion in such debtor relief
proceeding of a deficiency arising by reason of the insufficiency of collateral
notwithstanding an agreement of the Lender not to assert such deficiency.
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35. REPRESENTATIONS OF BORROWER. The Borrower hereby represents and
warrants to Lender the following:
(a) Borrower is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. There are
no proceedings or actions pending, threatened or contemplated for the
liquidation, termination or dissolution of Borrower.
(b) Except for leases for the laundry facilities located at the
Property, no person or entity has any leasehold estate in, or any lease or other
agreement granting the right to use or occupy any portion of, the Property
except the lessees under the leases, rental and/or occupancy agreements and
registration cards and/or agreements (collectively, the "Leases"') listed in the
rent roll (the "Rent Roll") provided by Borrower to Lender in connection with
the closing of the Loan; the Leases expire on the respective dates shown in the
Rent Roll; no rental in excess of one month's rent has been prepaid under any of
the Leases; the amount of the security deposit, if any, held by Borrower under
each of the Leases is as shown in the Rent Roll; each of the Leases is valid and
binding on the parties thereto in accordance with its terms; the execution of
this Instrument will not constitute an event of default under any of the Leases;
none of the tenants under any of the Leases has rights of offset or counterclaim
against the landlord; all of the obligations of the landlord pursuant to the
Leases have been performed; and all tenants are current in the payment of rent
except as shown on the Rent Roll.
(c) Except as specifically listed in the schedule of exceptions to
coverage in the title policy insuring Lender's interest in the Property,
Borrower is now in possession of the Property; Borrower's possession of the
Property is peaceable and undisturbed; Borrower does not know any facts by
reason of which any claim to the Property, or any part thereof, might arise or
be set up adverse to Borrower; and the Property is free and clear of (i) any
lien for taxes (except real property taxes not yet due and payable for the
calendar year in which this Instrument is being executed), and (ii) any
easements, rights-of-way, restrictions, encumbrances, liens or other exceptions
to title by mortgage, decree, judgment, agreement, instrument, or, to the
knowledge of Borrower, proceeding in any court.
(d) All charges for labor, materials or other work of any kind
furnished in connection with the construction, improvement, renovation or
rehabilitation of the Property or any portion thereof have been paid in full,
and no unreleased affidavit claiming a lien against the Property, or any portion
thereof, for the supplying of labor, materials or services for the construction
of improvements on the Property has been executed or recorded in the mechanic's
lien or other appropriate records in the county in which the Property is
located.
(e) To the knowledge of Borrower: the current and contemplated uses
of the Property are in compliance with all applicable federal, state and
municipal laws, rules, regulations and ordinances, applicable restrictions,
zoning ordinances, building codes and regulations, building lines and easements,
or appropriate variances therefrom have been issued and are in full force and
effect including, without limitation, federal and state environmental protection
laws, ordinances and regulations including, the Arizona Environmental Quality
Act of 1986, A.R.S. ss.ss. 49-101, et seq., including, without limitation, the
Arizona Underground Storage Tank Act, A.R.S. ss.ss. 49-1001 et seq.; the Arizona
Water Quality Assurance Revolving Fund Act, A.R.S. ss.ss. 49-281 through 49-287;
the Arizona Water Quality Control Program, A.R.S. ss.ss. 49201, et seq.; and the
Air Pollution Control Program, A.R.S. ss.ss. 49-401, et seq.; and the
regulations adopted and publications promulgated pursuant thereto, and the
Americans with Disabilities Act of 1990, the Fair Housing Amendments Act of
1988, all state and local laws or ordinances related to handicapped access, and
any statute, rule, regulation, ordinance, or order of governmental bodies or
regulatory agencies, or any order or decree of any court adopted or enacted with
respect thereto (collectively, "Applicable Laws"); no governmental authority
having jurisdiction over any aspect of the Property has made a claim or
determination that there is any such violation; the Property is not included in
any area identified by the Secretary of Housing and Urban Development pursuant
to the Flood Disaster Protection Act of 1973, as amended, as an area having
special flood hazards; and all permits, licenses and the like which are
necessary for the operation of the Property have been issued and are in full
force and effect.
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(f) There have been no material adverse changes, financial or
otherwise, in the condition of Borrower from that disclosed to Lender in the
loan application submitted to Lender by Borrower, or in any supporting data
submitted in connection with the Loan, and all of the information contained
therein was true and correct when submitted and is now substantially and
materially true and correct on the date hereof.
(g) There is no claim, litigation or condemnation proceeding pending,
or, to the knowledge of the Borrower, threatened, against the Property or
Borrower, which would affect the Property or Borrower's ability to perform its
obligations in the connection with the Loan.
(h) Borrower does not own any real property or assets other than the
Property and does not operate any business other than the management and
operation of the Property.
(i) No proceedings in bankruptcy or insolvency has ever been
instituted by or against Borrower or any affiliate thereof, and no such
proceeding is now pending or contemplated.
(j) Borrower is, and if there are any general partners or members of
Borrower, such partners or members are, solvent pursuant to the laws of the
United States, as reflected by the entries in Borrower's books and records and
as reflected by the actual facts.
(k) The Loan Documents have been duly authorized, executed and
delivered by Borrower and constitute valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms. No
approval, consent, order or authorization of any governmental authority and no
designation, registration, declaration or filing with any governmental authority
is required in connection with the execution and delivery of the Note, this
Instrument or any other Loan Document.
(1) The execution and delivery of the Loan Documents will not violate
or contravene in any way the articles of incorporation or bylaws or partnership
agreement, articles of organization or operating agreement as the case may be,
of Borrower or any indenture, agreement or instrument to which Borrower is a
party or by which it or its property may be bound, or be in conflict with,
result in a breach of or constitute a default under any such indenture,
agreement or other instrument, result in the creation or imposition of any lien,
charge or encumbrance of any nature whatsoever upon any of the property or
assets of Borrower, except as contemplated by the provisions of such Loan
Documents, and no action or approval with respect thereto by any third person is
required.
(m) No part of the Property is all or a part of Borrower's homestead.
(n) All inspections, licenses and certificates required to be made or
issued with respect to all occupied portions of the Property and with respect to
the use and occupancy of the same, including, but not limited to, certificates
of occupancy and fire underwriter certificates, have been made by or obtained
from the appropriate governmental authorities.
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(o) All liquid and solid waste disposal, septic and sewer systems
located on the Property are in and shall be maintained in a good and safe
condition and repair and in compliance with all applicable federal, state and
local laws, rules, regulations and ordinances.
(p) The Property is served by all utilities required for the current
or contemplated use thereof. All utility service is provided by public utilities
and the Property has accepted or is equipped to accept such utility service.
(q) All public roads and streets necessary for service of and access
to the Property for the current or contemplated use thereof have been completed,
are serviceable and all-weather and are physically and legally open for use by
the public.
(r) The Property is serviced by public water and sewer systems.
(s) The Property is free from damage caused by fire or other
casualty.
(t) All liquid and solid waste disposal, septic and sewer systems
located on the Property are in a good and safe condition and repair and in
compliance with all Applicable Laws.
36. BORROWER'S ADDITIONAL COVENANTS. Borrower hereby covenants,
agrees and undertakes to:
(a) from time to time, at the request of Lender, (i) promptly correct
any defect, error or omission which may be discovered in the contents of this
Instrument or in any other Loan Document or in the execution or acknowledgment
thereof; (ii) execute, acknowledge, deliver and record and/or file such further
documents or instruments (including, without limitation, further mortgages,
security agreements, financing statements, continuation statements, assignments
of rents or leases and environmental indemnity agreements) and perform such
further acts and provide such further assurances as may be necessary, desirable
or proper, in Lender's opinion, to carry out more effectively the purposes of
this Instrument and such other instruments and to subject to the liens and
security interests hereof and thereof any property intended by the terms hereof
or thereof to be covered hereby or thereby, including specifically, but without
limitation, any renewals, additions, substitutions, replacements, or
appurtenances to the Property; provided that such documents or instruments do
not materially increase Borrower's liability under the Loan Documents; and (iii)
execute, acknowledge, deliver, procure, and file and/or record any document or
instrument (including specifically, but without limitation, any financing
statement) deemed advisable by Lender to protect the liens and the security
interests herein granted against the rights or interests of third persons;
provided that such documents or instruments do not increase Borrower's liability
under the Loan Documents. Borrower will pay all reasonable costs connected with
any of the foregoing in this subparagraph (a);
(b) continuously maintain Borrower's existence and right to do
business in the State of Arizona;
(c) at any time any law shall be enacted imposing or authorizing the
imposition of any tax upon this Instrument, or upon any rights, titles, liens or
security interests created hereby, or upon the obligations secured hereby or any
part thereof, immediately pay all such taxes; provided that, if such law as
enacted makes it unlawful for Borrower to pay such tax, Borrower shall not pay
nor be obligated to pay such tax, and in the alternative, Borrower may, in the
event of the enactment of such a law, and must, if it is unlawful for Borrower
to pay such taxes, prepay the obligations secured hereby in full within sixty
(60) days after demand therefor by Lender;
(d) not execute or deliver any deed of trust, mortgage or pledge of
any type covering all or any portion of the Property;
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(e) not acquire any real property or assets (other than the Property)
or operate any business other than the management and operation of the Property
during the term of the Loan;
(f) not permit any drilling or exploration for or extraction, removal
or production of any mineral, natural element, compound or substance from the
surface or subsurface of the Property regardless of the depth thereof or the
method of mining or extraction thereof;
(g) not change its name, identity, structure or employer
identification number during the term of the Loan;
(h) pay on demand all reasonable and bona fide out-of-pocket costs,
fees and expenses and other expenditures, including, but not limited to,
reasonable attorneys' fees and expenses, paid or incurred by Lender to third
parties incident to this Instrument or any other Loan Document (including, but
not limited to, reasonable attorneys' fees and expenses in connection with the
negotiation, preparation and execution hereof and of any other Loan Document and
any amendment hereto or thereto, any release hereof, any consent, approval or
waiver hereunder or under any other Loan Document, the making of any advance
under the Note, and any suit to which Lender is a party involving this
Instrument or the Property) or incident to the enforcement of the obligations
secured hereby or the exercise of any right or remedy of Lender under any Loan
Document; and (i) comply with and make all payments required under all laws,
ordinances, regulations, covenants, conditions and restrictions now or hereafter
affecting the Property or any part thereof or the business or the activity
conducted thereon including, without limitation, the filing of any required
prospectus and/or the maintenance of any licenses or permits, the payment of any
fees in connection therewith and compliance with any and all other requirements
necessary for the operation of the Property if expressly permitted herein, and
the Americans with Disabilities Act of 1990, as it may be amended from time to
time.
CAPITAL IMPROVEMENTS RESERVE.
(a) (i) Commencing on the first day a monthly installment of
principal and interest is due and payable under the Note and continuing on the
first calendar day of each calendar month thereafter, Borrower shall deliver to
Lender, together with the regular installments of principal and interest an
amount (a "CIR Payment") equal to $6,587.50. Each CIR Payment shall be deemed
"Other Impositions" and "Funds" as defined in paragraph 2 of this Instrument. At
such time as the CIR Payments deposited in the Other Impositions Account
together with interest accrued thereon (the "CIR Reserve") equals or exceeds
$118,500.00, the CIR Payments shall cease to be due. If Borrower makes draws on
the CIR Reserve pursuant to subparagraph 37(a)(ii), so that the balance in the
CIR Reserve falls below $118,500.00, CIR Payments will again be required
pursuant to this paragraph (a) in amounts sufficient to bring the CIR Reserve up
to $118,500.00 over an eighteen (18) month period. The CIR Payments will be
placed in interest bearing deposits or accounts in the name of Lender or
Lender's loan servicer at the same financial institution(s) as the other Funds
(the "Other Impositions Account"), shall be held in accordance with the terms of
paragraph 2 of this Instrument, and may be drawn on by Borrower for deferred
maintenance and/or ongoing capital improvement expenditures in connection with
the Property, pursuant to the terms set forth below in subparagraph (a)(ii). At
Lender's discretion, the CIR Payments may be increased to reflect any increase
in the "Consumer Price Index" published by the Bureau of Labor Statistics of the
U.S. Department of Labor, All Items, U.S. city average, all urban consumers
(presently denominated "CPI-U"), or a successor or substitute index
appropriately adjusted (the "CPI"). In the event Lender shall elect not to
increase the CIR Payment for any given year by the CPI, Lender, at its sole
discretion, may during any subsequent year elect to increase the CIR Payment by
the aggregate amount of CPI increases which Iender otherwise was entitled to
make during the previous years in which it did not elect to make such increases.
(ii) So long as Borrower (x) is not in default under any of the terms
of the Note, this Instrument or any of the other Loan Documents, and (y) no
situation exists which with the passage of time or the giving of notice or both
would constitute a default under the Note, this Instrument or any of the other
Loan Documents, Borrower, subject to the following provisions of this
subparagraph (ii) and upon ten (10) days' prior written notice to Lender and
Lender's loan servicer (which notice shall include a brief statement of the
purpose for which the advance is to be used), shall be entitled to draw on the
CIR Payments on deposit in the Other Impositions Account solely for the payment
of the deferred maintenance and/or capital improvement expenditures for the
Property more particularly described on Schedule 1 attached hereto and made a
part hereof. Borrower may not make any drawing on the Other Impositions Account
(1) for less than $500 in the aggregate and (2) without the prior consent of
Lender. Lender reserves the right to require such information as Lender may
reasonably require, and to withhold consent in the event that Lender deems it
reasonably necessary to do so. Without limiting the foregoing, Lender may
request, in connection with a request by Borrower for a drawing on the Other
Impositions Account, that Borrower furnish written evidence reasonably
satisfactory to Lender that the amount requested by Borrower is for work
performed, services or materials furnished, and bills paid or payable with
respect to the deferred maintenance and/or ongoing capital improvement
expenditures (including, but not limited to, contracts and invoices for work
performed or materials supplied and mechanics' and materialmen' lien releases
and waivers from such parties performing such work or supplying such materials).
Lender also reserves the right to make any disbursement or portion thereof from
the Other Impositions Account directly to the party performing such work or
supplying such materials. Lender or Lender's servicing agent, as the case may
be, shall be entitled to charge Borrower a reasonable processing fee for
administering and reviewing Borrower's draw requests. In addition, Lender shall
be reimbursed by Borrower for any costs incurred by Lender or Lender's servicing
agent in inspecting the Property in connection with Borrower's draw requests.
Any such processing fees and inspection costs shall be deducted by Lender from
the Funds on deposit or account or, at Lender's option, shall be paid to Lender
by Borrower within ten (10) days of Lender's written demand.
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(iii) Each CIR Payment is pledged as additional security for the sums
secured by this Instrument and any of the other Loan Documents. Borrower hereby
grants to Lender a lien and security interest in each CIR Payment and the
deposit or other accounts in which such payments are placed.
37. REMEDIES. Upon the occurrence (and after the expiration of any
applicable grace or cure period) and during the continuance of an "event of
default", the Lender may, personally or through the Trustee, or by their
respective representative agents, in addition to all other rights and remedies
herein conferred or provided by law, to the extent permitted by law:
(a) From time to time sue for any sums required to be paid by the
Borrower under the terms of this Instrument as the same become without
acceleration of indebtedness and without prejudice to the right of the Lender
thereafter to bring any action or proceeding of foreclosure or any other action
upon the occurrence of any event of default existing at the time such earlier
action was commenced.
(b) Declare the entire principal of the Note then outstanding (if not
then due and payable), and all accrued and unpaid interest thereon, any
prepayment premium payable pursuant to the provisions contained in the Note, and
all other obligations of Borrower hereunder to be due and payable immediately.
(c) Without regard to the adequacy of any security for the
indebtedness secured hereby, enter into and upon all or any part of the
Property, and each and every part thereof, and may exclude Borrower, its agents
and servants wholly therefrom; and having and holding the same, may use,
operate, manage and control the Property and conduct the business thereof,
either personally or by their respective superintendents, managers, agents,
servants, attorneys or receivers; and upon every such entry, Trustee or Lender,
at the expense of Borrower, from time to time, either by purchase, repairs or
construction, may maintain and restore the Property, whereof it shall become
possessed as aforesaid, may complete the construction of the improvements and in
the course of such completion may make such changes in the contemplated
improvements as it may deem desirable and may insure the same; and likewise,
from time to time, at the expense of Borrower, Trustee or Lender may make all
necessary or proper repairs, renewals and replacements and such useful
alterations, additions, betterments and improvements thereto and thereon as it
may deem advisable; and in every such case, Trustee or Lender shall have the
right to manage and operate the Property and to carry on the business thereof
and exercise all rights and powers of Borrower with respect thereto either in
the name of Borrower or otherwise as it shall deem best; and Trustee or Lender
shall be entitled to collect and receive all earnings, revenues, rents, issues,
profits and income of the Property and every part thereof, all of which shall
for all purposes constitute property of Lender; and after deducting the expenses
of conducting the business thereof and of all maintenance, repairs, renewals,
replacements, alterations, additions, betterments and improvements and amounts
necessary to pay for taxes, assessments, insurance and prior or other proper
charges upon the Property or any part thereof, as well as just and reasonable
compensation for the services of Trustee or Lender and for all attorneys
(including at any trial and any appeal with respect thereto), counsel, agents,
clerks, servants and other employees by it properly engaged and employed, Lender
shall apply the moneys arising as aforesaid, in such order as Lender shall
determine.
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(d) Appoint a receiver to take charge of the Property, collect the
rents, issues and profits therefrom, care for and repair the same, improve the
same when necessary or desirable, lease and rent the Property or portions
thereof (including leases existing beyond the term of receivership), plant,
cultivate and harvest crops thereon, and otherwise use and utilize the Property,
and to have such other powers as may be fixed by the court. Borrower
specifically agrees that the receiver may be appointed without any notice to
Borrower whatsoever, and the court may appoint a receiver without reference to
the adequacy or inadequacy of the security, or the solvency or insolvency of
Borrower, and without reference to other matters normally taken into account by
courts in the discretionary appointment of receivers, it being the intention of
Borrower to hereby authorize the appointment of a receiver when Borrower is in
default and Lender has requested the appointment of a receiver. Borrower hereby
agrees and consents to the appointment of the particular person or firm
(including an officer or employee of Lender) designated by Lender as receiver
and hereby waives its rights to suggest or nominate any person or firm as
receiver in opposition to that designated by Lender. Lender shall have, in
addition to all other rights and remedies provided herein and at law or in
equity, the rights and remedies afforded by A.R.S. ss. 33-702.
(e) Foreclose this Instrument in the manner provided by law for the
foreclosure of mortgages on real property, bring an action for damages, or
exercise such other remedies or combination of remedies as Lender or Trustee may
have at law or in equity.
(f) Exercise the power of sale by delivering to Trustee a written
notice of the occurrence of an event of default and of Lender's election to
cause the Property to be sold. Trustee shall record a notice of trustee's sale
in each county in which the Property or some part thereof is located and shall
mail copies of such notice in the manner prescribed by applicable law to
Borrower and to the other persons prescribed by applicable law. After the lapse
of such time as may be required by applicable law and after publication and
posting of the notice of trustee's sale in accordance with the provisions of
applicable law, Trustee, without demand on Borrower, shall sell the Property
either as a whole or in separate parcels, and in such order as it may determine,
by public auction to the highest bidder for cash in lawful money of the United
States, payable at the time of sale or for the equivalent of cash as so
determined by Trustee in its sole discretion. If the indebtedness secured
hereunder is additionally secured by real property which is not subject to this
Instrument, Trustee may sell any property so given as security for Borrower's
obligation which it is authorized to sell, either in whole or in separate
parcels and in such order as it may determine. For purposes of such sale,
Lender's credit may, at its option, include all amounts due which are secured by
this Instrument. Trustee may postpone the sale of all or any portion of the
Property by public announcement at the time and place fixed for such sale, and
from time to time thereafter may postpone such sale by public announcement at
the time fixed by the preceding postponement. Following the sale, Trustee shall
deliver to the purchaser its deed conveying the Property so sold, but without
any covenant or warranty, express or implied. The recital in such deed of any
matters of fact shall be conclusive proof of the truth thereof. Any person,
including Borrower, Trustee and Lender may purchase at such sale. Trustee shall
apply the proceeds of the sale in the following order: (a)-to the costs and
expenses of exercising the power of sale and of sale, including the payment of
the Trustee's and reasonable attorney's fees and costs of title search and
report; (b) to all sums secured by this Instrument; and (c) the excess, if any,
to the person or persons or entity or entities legally entitled thereto, or to
the county treasurer of the county in which the sale took place. Lender may, at
any time, request cancellation of trustee's notice of sale, whereupon Trustee
shall execute and record, or cause to be recorded, a cancellation of notice of
sale in the same county in which the notice of trustee's sale was recorded. The
exercise by Lender of this right shall not constitute a waiver of any default
then existing or subsequently occurring.
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(g) Exercise all of the remedies of a secured party under the Uniform
Commercial Code of Arizona, including without limitation, the right and power to
sell, or otherwise dispose of, the collateral, or any part thereof, and for that
purpose may take immediate and exclusive possession of the collateral, or any
part thereof, and with or without judicial process, enter upon any Property on
which the collateral, or any part thereof, may be situated and remove the same
therefrom without being deemed guilty of trespass and without liability for
damages thereby occasioned, or, at Lender's option, Borrower shall assemble the
collateral and make it available to Lender at the place and at the time
designate in any written demand from Lender to Borrower. Lender shall be
entitled to hold, maintain, preserve and prepare the collateral for sale. Lender
without removal may render the collateral unusable and dispose of the collateral
on the Property. To the extent permitted by law, Borrower expressly waives any
notice of sale or other disposition of the collateral and any other right or
remedy of Borrower existing after an event of default hereunder, and to the
extent any such notice is required and cannot be waived, Borrower agrees that,
as it relates to this paragraph 37(g) only, if notice of sale or other
disposition of the collateral is mailed, postage prepaid, to Borrower at the
above address at least ten (10) days before the time of the sale or disposition,
such notice shall be deemed reasonable and shall fully satisfy any requirement
for giving of such notice.
(h) Exercise all other rights and remedies provided herein, in the
Loan Documents or other document or agreement now or hereafter securing all or
any portion of the obligations secured hereby, or provided by law or equity.
(i) The remedies specified in this paragraph shall be in addition to
all other rights and remedies provided herein or in any other Loan Document and
which Lender may have at law or in equity and no single or partial exercise by
Lender of any right or remedy hereunder or under any other Loan Document or
which Lender may have at law or in equity shall exhaust the same or shall
preclude any other or further exercise thereof or of any other right or remedy
hereunder or under any other Loan Document or which Lender may have at law or in
equity, and every such right or remedy hereunder or under any other Loan
Document or which Lender may have at law or in equity may be exercised at any
time and from time to time after the occurrence of an event of default.
38. ASSUMABILITY.
(a) So long as (i) Borrower is not in default under any of the terms
of the Note, this Instrument or any other Loan Document, and (ii) no situation
exists which with the passage of time or the giving of notice or both would
constitute a default under the Note, this Instrument or any other Loan Document,
in the event Borrower desires to transfer all of the Property to another party
(the "Transferee") and have the Transferee assume all of Borrower's obligations
under the Note, this Instrument and all of the other Loan Documents
(collectively, the "Transfer and Assumption"), Borrower, subject to the terms of
this paragraph, may make a written application to Lender for Lender's consent to
the Transfer and Assumption, which consent will be given or withheld in the sole
and absolute discretion of Lender subject to the conditions set forth in
subparagraph (b) of this paragraph 38. Together with such written application
(and afterwards if requested by Lender), Borrower will submit to Lender true,
correct and complete copies of any and all information and documents of any kind
requested by Lender concerning the Property, Transferee and/or- Borrower,
together with the review fee required by Lender.
(b) Lender shall have the sole and absolute discretion to determine
whether or not to grant Lender's consent, except that Lender shall not
unreasonably withhold its consent to a Transfer and Assumption provided and upon
the condition that:
(i) Lender receives an opinion from counsel acceptable
to Lender that (x) such Transfer and Assumption
shall not affect, in any way, the enforceability of
the Loan Documents or the lien status, and (y) that
the Transferee complies in all respects with the
provisions of paragraph 35(h) and paragraph 36(e)
of this Instrument and such other conditions
concerning the organizational structure of the
Transferee as were required by Lender at the time
of the making of the Loan;
-23-
<PAGE>
(ii) Borrower has submitted to Lender true, correct and
complete copies of any and all information and
documents of any kind requested by Lender
concerning the Property, Transferee and/or
Borrower;
(iii) the Transferee, in Lender's sole judgment, has
sufficient experience in managing assets similar in
size and type to the Property;
(iv) in Lender's sole judgment, the Transferee and the
partners, members or shareholders of the Transferee
are financially sound or have sufficient financial
resources to manage the Property for the term of
the Loan;
(v) the Loan has been placed, or Lender plans to place
the Loan, in an offering of Securities (as defined
in paragraph 40) and Lender receives written
confirmation from the rating agencies that the
Transfer and Assumption will not result in any
downgrade, qualification or withdrawal of the
ratings assigned to the pool and assets in which
the Loan has been placed; and
(vi) Borrower has paid a review fee of $2,500 required
by Lender.
(c) If Lender consents to the Transfer and Assumption, the Transferee
and/or Borrower as the case may be, shall deliver the following to Lender:
(i) Borrower shall deliver to Lender an assumption fee
in the amount of one percent (1%) of the then
unpaid principal balance of the Loan;
(ii) Borrower and Transferee shall execute and deliver
to Lender any and all documents required by Lender,
in form and substance required by Lender, in
Lender's sole discretion (the "Assumption
Documents");
(iii) Borrower shall cause to be delivered to Lender, an
endorsement to the mortgagee policy of title
insurance then insuring the lien created by this
Instrument in form and substance acceptable to
Lender, in Lender's sole discretion (the
"Endorsement"); and
(iv) Borrower shall deliver to Lender a payment in the
amount of all costs incurred by Lender in
connection with the Transfer and Assumption,
including but not limited to, Lender's attorneys
fees and expenses, all recording fees for the
Assumption Documents, and all fees payable to the
title company for the delivery to Lender of the
Endorsement.
(d) Notwithstanding anything contained in this paragraph to the
contrary, (x) under no circumstances may the Property and Loan be transferred
and assumed by any party under the terms of this paragraph more than once during
the entire term of the Loan and (y) except based on Lender's written agreement
to the Transfer and Assumption and Borrower's and Transferee's compliance with
all of the terms and provisions of this paragraph, the terms and provisions of
this paragraph shall 1n no way amend or modify the terms and provisions
contained in paragraph 19 of this Instrument.
39. WAIVER OF JURY TRIAL. BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT THE BORROWER MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONJUNCTION WITH THE NOTE, THIS INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY OTHER
AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF
EITHER PARTY.
-24-
<PAGE>
40. TRANSFER OF LOAN. Lender may, at any time, sell, transfer or
assign the Note, this Instrument and the Loan Documents, or any part thereof,
and any or all servicing rights with respect thereto, or grant participations
therein or issue mortgage pass-through certificates or other securities
evidencing a beneficial interest in a rated or unrated public offering or
private placement (the "Securities"). Lender may forward to each purchaser,
transferee, assignee, servicer, participant, investor in such Securities or any
rating agency rating such Securities (singularly, an "Investor," and
collectively, the "Investors") and each prospective Investor, all documents and
information which Lender now has or may hereafter acquire relating to the Loan
and to Borrower, any guarantor, any indemnitors and/or the Property, whether
furnished by Borrower, any guarantor, any indemnitors or otherwise, as Lender
determines necessary or desirable. Borrower shall furnish and Borrower consents
to Lender furnishing to such Investors or such prospective Investors or rating
agency any and all information concerning the Property, the leases, the
financial condition of Borrower, any guarantor and any indemnitor as may be
requested by Lender, any Investor or any prospective Investor or rating agency
in connection with any sale, transfer or participation interest.
41. ENVIRONMENTAL HAZARDS.
A. Except as disclosed in The Phase I Environmental Report forwarded
to Lender by Borrower in connection with this Loan (provided Borrower adheres to
the Operations and Maintenance Plan forwarded to Lender in connection with this
Loan), Borrower represents and warrants, to the best of Borrower's knowledge
that: (a) there are no Hazardous Substances or underground storage tanks in, on,
or under the Property, except those that are both (i) in compliance with
Environmental Laws, and (ii) fully disclosed to Lender in writing pursuant to
the Environmental Report; (b) there are no past, present or threatened Releases
of Hazardous Substances in, on, under or from the Property; (c) there is no
threat of any Release of Hazardous Substances migrating to or from the Property
affecting any land surface waters, ground waters or airspace adjacent to or in
the vicinity of the Property; (d) there is no past or present noncompliance with
Environmental Laws in connection with the Property; (e) all interior and
exterior painted surfaces at the Property are not flaking, peeling, cracking,
blistering or chipping and do not contain lead; (f) Borrower does not know of,
and has not received, any written or oral notice or other communication from any
person or entity relating to Hazardous Substances or Remediation thereof, of
possible liability of any person or entity pursuant to any Environmental Law,
other environmental conditions in connection with the Property, or any actual or
potential administrative or judicial proceedings in connection with any of the
foregoing; and (g) Borrower has provided to Lender, in writing, any and all
information relating to environmental conditions in, on, under or from the
Property that is known to Borrower. For the purposes of this Mortgage, the terms
"Environmental Law", "Hazardous Substances", "Release", and "Remediation" shall
have each the same meaning as ascribed to it in that certain Unsecured
Environment Indemnity Agreement of even date herewith (the "Environmental
Indemnity") from Borrower and any other indemnitor named therein (the
"Indemnitor") in favor of Lender.
B. Borrower covenants and agrees that, so long as the Borrower owns,
manages, is in possession of, or otherwise controls the operation of the
Property: (a) all uses and operations on or of the Property shall be in
compliance with all Environmental Laws; (b) there shall be no Releases of
Hazardous Substances in, on, under or from the Property, except and solely to
the extent in compliance with all Environmental Laws; (c) there shall be no
Hazardous Substances in, on, or under the Property, except those that are in
compliance with all Environmental Laws; (d) Borrower shall, at its expense,
perform all Remediation required by any Environmental Laws in compliance with
all applicable Environmental Laws; (e) Borrower shall keep the Property free and
clear of all liens and other encumbrances imposed pursuant to any Environmental
Law (the "Environmental Liens"); (f) Borrower shall, at its expense, fully and
expeditiously cooperate in all activities pursuant to paragraph 41C. below; (g)
Borrower shall, at its expense, comply with all written requests of Lender to
(i) comply with any Environmental Law; (ii) comply with any directive from any
governmental authority; and (iii) take any other reasonable action necessary or
appropriate for protection of human health or the environment; and (h) Borrower
shall immediately notify Lender in writing as soon as it becomes aware of (A)
any presence or Releases or threatened Releases of Hazardous Substances in, on,
under, from or migrating towards the Property; (B) any non-compliance with any
Environmental Laws related to the Property; (C) any actual or potential
Environmental Lien affecting the Property; (D) any required or proposed
Remediation of environmental conditions relating to the Property; and (E) any
written or oral notice or other communication from any source whatsoever
relating in any way to Hazardous Substances or Remediation thereof, possible
liability of any person or entity pursuant to any Environmental Law, other
environmental conditions in connection with the Property, or any actual or
potential administrative or judicial proceedings in connection with this
paragraph 41.
-25-
<PAGE>
C. Lender and any other person or entity designated by Lender, shall
have the right, but not the obligation, after notice to Borrower, to enter upon
the Property at all reasonable times to assess the environmental condition of
the Property, including conducting any environmental assessment or audit and
taking samples of soil, groundwater or other water, air, or building materials
and conducting other invasive testing. Borrower shall cooperate with and provide
access to Lender and its designated representative, with the costs of such
assessments being immediately due and payable by Borrower.
This Instrument may be executed in any number of duplicate originals
and each duplicate original shall be deemed to be an original.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
In Witness Whereof, Borrower has executed this Instrument or has
caused the same to be executed by its representatives thereunto duly authorized.
Biltmore Club Apartments, L.L.C.,
a Delaware limited liability company,
BY Biltmore Club Holding, Inc., a
/S/ STEVEN A. GELMAN Delaware corporation, Managing
- --------------------------- Member
Witness: Steven A. Gelman
----------------
Name
By: /S/ SHERRY WILZIG IZAK
---------------------------------
Name: Sherry Wilzig Izak
Title: Chairman of the Board and CEO
Borrower's Address:
c/o Mr. Steven Gelman, Controller
921 Bergen Avenue
Jersey City, New Jersey 07306
[There is no requirement for a corporate seal for Arizona corporations]
STATE OF NEW JEERSEY )
) ss.
COUNTY OF ESSEX )
The foregoing instrument as executed before me, the undersigned
notary public, this 24TH day of October, 1997 by Sherry Wilzig Izak, the
Chairman of the Board and CEO of Biltmore Club Holding, Inc., on behalf of the
_limited liability company.
/s/ Evelyn Verdon
Notary Public
My Commission Expires:
3/3/99
-27-
<PAGE>
Exhibit A
Property Description
-28-
<PAGE>
SCHEDULE 1
-29-
MULTIFAMILY NOTE
US $8,900,000.00 Phoenix, Arizona
October __, 1997
FOR VALUE RECEIVED, the undersigned promise to pay Citicorp Real Estate,
Inc. or order, the principal sum of Eight Million Nine Hundred Thousand Dollars
and No/100 (US$8,900,000.00), with interest on the unpaid principal balance
from the date of this Note, until paid, at the rate of seven and forty eight
hundredths percent (7.48%) per annum ("Interest Rate"). The principal and
interest shall be payable at c/o Criimi Mae Inc., Loan Administration, 11200
Rockville Pike, Rockville, MD 20852, or such other place as the holder hereof
may designate in writing, in consecutive monthly installments of Sixty Two
Thousand One Hundred Eight 25/100 Dollars (US$62,108.25) on the first day of
each month beginning December 1, 1997, (herein "amortization commencement
date"), until the entire indebtedness evidenced hereby is fully paid, except
that any remaining indebtedness, if not sooner paid, shall be due and payable on
November 1, 2007 (the "Maturity Date").
If any installment under this Note is not paid when due, the entire
principal amount outstanding hereunder and accrued interest thereon shall at
once become due and payable, at the option of the holder hereof. The holder
hereof may exercise this option to accelerate during any default by the
undersigned regardless of any prior forbearance. In the event of any default in
the payment of this Note, or any other payment due under the Instrument or any
other Loan Document (as such terms are hereinafter defined), and if the same is
referred to an attorney at law for collection or any action at law or in equity
is brought with respect hereto, the undersigned shall pay the holder hereof all
reasonable expenses and costs, including, but not limited to, attorneys' fees.
If any installment under this Note, including the installment due at
maturity, is not received by the holder hereof within ten (10) calendar days
after the installment is due, the undersigned shall pay to the holder hereof a
late charge of the greater of (a) US$250.00 or (b) five percent (5%) of such
installment (collectively, the "Late Charge"), such late charge is to be
immediately due and payable without demand by the holder hereof and is to
reimburse Lender for the administrative expense incurred by Lender in connection
with such late payment. If any installment under this Note or any other monetary
payment due under this Note, the Instrument or any other Loan Document,
including the installment due at maturity, remains past due for ten (10)
calendar days or more, the outstanding principal balance of this Note shall bear
interest during the period in which the undersigned is in default at a rate of
the Interest Rate plus five percent (5%) per annum, or if there shall exist any
non-monetary default under this Note, the Instrument or any other Loan Document
which remains uncured for the later of (i) ten (10) calendar days or (ii) the
expiration of any applicable grace or cure period specifically provided in the
Instrument, the outstanding principal balance of this Note shall bear interest
during the period the undersigned is in default at a rate of the Interest Rate
plus two percent (2%) per annum, or, if such increased rate of interest may not
be collected from the undersigned under applicable law, than at the maximum
increased rate of interest, if any, which may be collected from the undersigned
under applicable law (the "Default Rate").
From time to time, without affecting the obligation of the undersigned or
the successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein, in the Instrument or in any other Loan Document without affecting the
guaranty of any person, corporation, partnership or other entity for payment of
the outstanding principal balance of this Note, without giving notice to or
obtaining the consent of the undersigned, the successors or assigns of the
undersigned or guarantors, and without liability on the part of the holder
hereof, the holder hereof may, at the option of the holder hereof, extend the
time for payment of said outstanding principal balance or any part thereof,
reduce the payments thereon, release anyone liable on any of said outstanding
principal balance, accept a renewal of this Note, modify the terms and time of
payment of said outstanding principal balance, join in any extension or
subordination agreement, release any security given herefor, take or release
other or additional security, and agree in writing with the undersigned to
modify the rate of interest or period of amortization of this Note or change the
amount of the monthly installments payable hereunder.
Presentment, notice of dishonor, and protest are hereby waived by all
makers, sureties, guarantors and endorsers hereof. This Note shall be the joint
and several obligation of all makers, sureties, guarantors, and endorsers, and
shall be binding upon them and their successors and assigns.
The indebtedness evidenced by this Note is secured by, among other things,
that certain Multifamily Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing (the "Instrument"), executed by the undersigned, encumbering
real property more particularly described therein (the "Property"), dated of
even date herewith, and reference is made thereto for rights as to acceleration
of the indebtedness evidenced by this Note. Said Instrument covers property
known as Sunrise Ridge Apartments. This Note shall be governed by the law of the
jurisdiction in which the Property is located.
This Note may be prepaid whether voluntarily or involuntarily (except as
hereinafter provided), and including any acceleration by the holder hereof) in
whole (but not in part) upon not less than forty five (45) days and not more
than ninety (90) days prior written notice by the undersigned to the holder
hereof and the simultaneous payment by the undersigned to the holder hereof of
the following prepayment premiums (the "Prepayment Premium"):
(i) In the event of a prepayment of this Note on or before October 31,
2000, the Prepayment Premium shall be equal to three percent (3%) of
the then unpaid principal balance hereof plus the interest which
would have accrued on the amount of such prepayment during the full
calendar month within which such prepayment is made;
(ii) In the event of a prepayment of this Note on or after November 1,
2000, and on or before October 31, 2003, the Prepayment Premium
shall be equal to two percent (2%) of the then unpaid principal
balance plus the interest which would have accrued on the amount of
such prepayment during the full calendar month within which such
prepayment is made;
(iii) In the event of a prepayment of this Note on or after November 1,
2003, and on or before October 31, 2006, the Prepayment Premium
shall be equal to one percent (1%) of the then unpaid principal
balance plus the interest which would have accrued on the amount of
such prepayment during the full calendar month within which such
prepayment is made;
(iv) In the event of a prepayment of this Note on or after November 1,
2006, there shall be no Prepayment Premium accrued.
<PAGE>
Notwithstanding anything herein contained to the contrary, any permitted
prepayment of this Note during the prepayment prohibition period may only be
made together with all interest and any other sums due under this Note, the
Instrument or any other Loan Document.
Except as otherwise specified in the Deed of Trust, the undersigned shall
pay the Prepayment Premium due under this Note whether the prepayment is
voluntary or involuntary (in connection with the holder hereof's acceleration of
the unpaid principal balance of this Note) or the Instrument is satisfied or
released by foreclosure (whether by power of sale or judicial proceeding), deed
in lieu of foreclosure or by any other means. Notwithstanding any other
provision herein to the contrary, the undersigned shall not be required to pay
any Prepayment Premium in connection with any prepayment occurring as a result
of the application, in inverse order of maturity, of insurance proceeds or
condemnation awards under the Instrument.
The contracted for rate of interest of the loan evidenced hereby shall
consist of, without limitation, the following:
(a) The Interest Rate, calculated and applied to the principal balance
of this Note in accordance with the provisions of this Note and the
Instrument;
(b) The Late Charge and/or Default Rate calculated and applied to the
principal balance of this Note in accordance with the provisions of
this Note and the Instrument;
(c) The Prepayment Premium calculated in accordance with the provisions
of this Note; and
(d) All Additional Sums (as hereinafter defined), if any.
The undersigned agrees to pay an effective contracted for rate of interest which
is the sum of the Interest Rate referred to in clause (a) above, plus any
additional rate of interest resulting from the application of the Late Charge,
the Default Rate referred to in clause (b) above, plus the Prepayment Premium
referred to in clause (c) above, and the Additional Sums, if any, referred to in
clause (d) above.
All fees, charges, goods, things in action or any other sums or things of
value (other than the interest resulting from the Interest Rate and the Default
Rate), paid or payable by the undersigned or any member of the undersigned
(collectively, the "Additional Sums"), whether pursuant to this Note or any
other document or instrument in any way pertaining to this lending transaction,
or otherwise with respect to this lending transaction, that, under the laws of
the State of Arizona, may be deemed to be interest with respect to this lending
transaction, for the purpose of any laws of the State of Arizona that may limit
the maximum amount of interest to be charged with respect to this lending
transaction, shall be payable by the undersigned as, and shall be deemed to be,
additional interest, and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the Additional Sums. The
undersigned and its members understand and believe that this lending transaction
complies with the usury laws of the State of Arizona and with the usury laws of
all other jurisdictions, to the extent such laws are applicable hereto;
provided, however, in the event that any interest or other charges in connection
with this lending transaction are ever determined in a final judgment by a court
of competent jurisdiction to exceed the maximum amount permitted by law, then
the undersigned agrees that (a) the amount of interest or charges payable
pursuant to this lending transaction shall be reduced to the maximum amount
permitted by law and (b) any excess amount previously collected from Borrower in
connection with this lending transaction that exceeded the maximum amount
permitted by law, shall be credited against the principal balance of this Note
then outstanding and/or the Prepayment Premium. If the outstanding principal
balance hereunder and the Prepayment Premium has been paid in full, the excess
amount paid shall be refunded to the undersigned and the undersigned agrees to
accept such refund.
Subject to the qualifications set forth below, the undersigned and its
general partner shall be fully and personally liable for the payment and
performance of all of the obligations, covenants and agreements of the
undersigned under this Note, the Instrument, the Assignment of Leases and Rents
(herein so called) dated of even date herewith, and executed by the undersigned
to the holder hereof, the Unsecured Environmental Indemnity Agreement (herein so
called), dated of even date herewith, and executed by the undersigned and the
holder hereof, and all other instruments and documents evidencing, securing or
governing the terms of the loan (the "Loan") evidenced by this Note
(collectively, the "Loan Documents"), including, without limitation, the timely
payment of all principal, interest and premium, if any. Notwithstanding the
foregoing and except as set forth below, so long as the holder's rights of
recourse to the Property are not suspended, reduced or impaired by or as a
result of any act, omission or misrepresentation of the undersigned or any other
party now or hereafter liable for any part of the Loan and accrued interest
hereon, or by or as a result of any case, action, suit or proceeding to which
the undersigned or any such other party, voluntarily becomes a party, if a
default occurs in the timely and proper payment of any portion of such
indebtedness or in the timely performance of any obligations, agreements or
covenants under any of the Loan Documents, neither the undersigned nor any
partner of the undersigned shall be personally liable for the repayment of any
of the principal of, interest on, or prepayment fees or late charges, or other
charges or fees due in connection with the Loan, the performance of any
covenants of the undersigned under this Note, or any of the other Loan Documents
or for any deficiency judgment which the holder hereof may obtain after default
by the undersigned. Notwithstanding the foregoing provision of this paragraph or
any other agreement, the undersigned shall be fully and personally liable for
any and all: (1) liabilities, costs, losses, damages, expenses or claims
(including, without limitation, any reduction in the value of the Property or
any other items, property or amounts which are collateral or security for the
Loan) suffered or incurred by the holder hereof by reason of or in connection
with (a) any fraud or misrepresentation by the undersigned in connection with
the Loan, including but not limited to any misrepresentation of the undersigned
contained in any Loan Document, (b) any failure to pay taxes, insurance premiums
(except to the extent that such taxes and insurance premiums are then held by
the holder hereof), assessments, charges for labor or materials or other charges
that can create liens on any portion of the Property, (c) any misapplication of
(i) proceeds of insurance covering any portion of the Property, or (ii) proceeds
of the sale or condemnation of any portion of the Property, (d) any rentals,
income, profits, issues and products received by or on behalf of the undersigned
subsequent to the date on which the holder hereof gives written notice that a
default has occurred under the Loan and not applied to the payment of principal
or interest due under this Note or the payment of operating expenses (excluding
any operator's, manager's, or developer's fee payable to the undersigned or any
affiliate of the undersigned) of the Property, (e) any failure to maintain,
repair or restore the Property in accordance with any Loan Document, to the
extent not covered by insurance proceeds made available to the holder hereof,
(f) any failure by the undersigned to deliver to the holder hereof all unearned
advance rentals and security deposits paid by tenants of the Property received
by or on behalf of the undersigned, and not refunded to or forfeited by such
tenants, (g) any failure by the undersigned to return to, or reimburse the
holder hereof for, all personalty taken from the Property by or on behalf of the
undersigned, except in accordance with the provisions of the Instrument, and (h)
any and all indemnities given by the undersigned to the holder hereof set forth
in the Unsecured Environmental Indemnity Agreement or any other Loan Document in
connection with any environmental matter relating to the Property; and (2) court
costs and all attorneys' fees provided for in any Loan Document. Furthermore, no
limitation of liability or recourse provided above in this paragraph shall (x)
apply to the extent that the Lender's rights of recourse to the Property are
suspended, reduced or impaired by or as a result of any act, omission or
misrepresentation of the Borrower or any other party now or hereafter liable for
any part of the Loan and accrued interest thereon, or by or as a result of any
case, action, suit or interest thereon, or by or as a result of any case,
action, suit or proceeding to which the Borrower or any such other party,
2
<PAGE>
voluntarily becomes a party; or (y) constitute a waiver, forfeiture, abrogation
or limitation of or on any right accorded by any law establishing a debtor
relief proceeding, including, but not limited to, Title 11, U.S. Code, which
right provides for the assertion in such debtor relief proceeding of a
deficiency arising by reason of the insufficiency of collateral notwithstanding
an agreement of the holder hereof not to assert such deficiency.
THE UNDERSIGNED HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT THE UNDERSIGNED MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONJUNCTION WITH THIS NOTE, THE
INSTRUMENT, ANY OTHER LOAN DOCUMENT, ANY OTHER AGREEMENT CONTEMPLATED TO BE
EXECUTED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF EITHER PARTY.
The holder hereof shall have the right to assign, in whole or in part,
this Note, the Instrument and any other Loan Document and all of its rights
hereunder and thereunder, and all of the provisions herein and therein shall
continue to apply to the Loan. The holder hereof shall have the right to
participate the Loan with other parties.
Interest on the principal sum of this Note shall be calculated on the
basis of the actual number of days elapsed over a year consisting of 360 days.
Interest on this Note shall be paid in arrears.
The undersigned shall pay the holder hereof, in advance, on the date
hereof, interest only on the outstanding principal balance of this Note, at the
interest rate first mentioned above, from the date hereof through and including
the last day of the calendar month in which this Note is executed.
Executed as of the date set forth above.
Biltmore Club Apartments, L.L.C.
a Delaware limited liability company
By: Biltmore Club Holding, Inc.,
Managing Member
By: /s/ SHERRY WILZIG IZAK
---------------------------------
Name: Sherry Wilzig Izak
Title: Chairman of the Board
and CEO
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0
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