UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K405
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to_____________
Commission file number 0-9325
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McNEIL REAL ESTATE FUND X, LTD.
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(Exact name of registrant as specified in its charter)
California 94-2577781
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (972) 448-5800
----------------------------
Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Limited partnership
units
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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. [ X ]
133,248 of the registrant's 134,980 limited partnership units are held by
non-affiliates of this registrant. The aggregate market value of units held by
non-affiliates is not determinable since there is no public trading market for
limited partnership units and transfers of units are subject to certain
restrictions.
Documents Incorporated by Reference: See Item 14, page 44
TOTAL OF 48 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
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ORGANIZATION
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McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized on June 1,
1979 as a limited partnership under provisions of the California Uniform Limited
Partnership Act. The general partner of the Partnership is McNeil Partners, L.P.
(the "General Partner"), a Delaware limited partnership, an affiliate of Robert
A. McNeil ("McNeil"). The Partnership is governed by an amended and restated
partnership agreement dated October 9, 1991, as amended (the "Amended
Partnership Agreement"). Prior to October 9, 1991, Pacific Investors Corporation
(the prior "Corporate General Partner"), a wholly-owned subsidiary of Southmark
Corporation ("Southmark"), and McNeil were the general partners of the
Partnership, which was governed by an agreement of limited partnership (the
"Original Partnership Agreement") dated June 1, 1979. The principal place of
business for the Partnership and the General Partner is 13760 Noel Road, Suite
600, LB70, Dallas, Texas, 75240.
On December 14, 1979, a Registration Statement on Form S-11 was declared
effective by the Securities and Exchange Commission whereby the Partnership
offered for sale $67,500,000 of limited partnership units ("Units"). The Units
represent equity interests in the Partnership and entitle the holders thereof to
participate in certain allocations and distributions of the Partnership. The
sale of Units closed on July 17, 1980, with 135,000 Units sold at $500 each, or
gross proceeds of $67,500,000 to the Partnership. The original general partners
purchased an additional 200 Units for $100,000. Limited partners relinquished
220 Units between 1993 and 1996, leaving 134,980 Units outstanding at December
31, 1998.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
- --------------------------------------------------
On July 14, 1989, Southmark filed a voluntary petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, McNeil nor the
Corporate General Partner were included in the filing. Southmark's
reorganization plan became effective August 10, 1990. Under the plan, most of
Southmark's assets, which included Southmark's interest in the Corporate General
Partner, were sold or liquidated for the benefit of creditors.
In accordance with Southmark's reorganization plan, Southmark, McNeil and
various of their affiliates entered into an asset purchase agreement on October
12, 1990 providing for, among other things, the transfer of control to McNeil or
his affiliates of 34 limited partnerships (including the Partnership) in the
Southmark portfolio.
On February 14, 1991, pursuant to the asset purchase agreement as amended on
that date: (a) an affiliate of McNeil purchased the Corporate General Partner's
economic interest in the Partnership; (b) McNeil became the managing general
partner of the Partnership pursuant to an agreement with the Corporate General
Partner that delegated management authority to McNeil; and (c) McNeil Real
Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets
relating to the property management and partnership administrative business of
Southmark and its affiliates and commenced management of the Partnership's
properties pursuant to an assignment of the existing property management
agreements from the Southmark affiliates.
<PAGE>
On October 11, 1991, the limited partners approved a restructuring proposal
providing for (i) the replacement of the Corporate General Partner and McNeil
with the General Partner; (ii) the adoption of the Amended Partnership
Agreement, which substantially alters provisions of the Original Partnership
Agreement relating to, among other things, compensation, reimbursement of
expenses, and voting rights; and (iii) the approval of a new property management
agreement with McREMI, the Partnership's property manager.
The Amended Partnership Agreement provides for a Management Incentive
Distribution ("MID") to replace all other forms of general partner compensation
other than property management fees and reimbursement of certain costs.
Additional Units may be issued in connection with the payment of the MID
pursuant to the Amended Partnership Agreement. See Item 8 - Note 2 -
"Transactions with Affiliates." For a discussion of the methodology for
calculating and distributing the MID, see Item 13 - Certain Relationships and
Related Transactions.
Settlement of Claims:
The Partnership filed claims with the United States Bankruptcy Court for the
Northern District of Texas, Dallas Division (the "Bankruptcy Court") against
Southmark for damages relating to improper overcharges, breach of contract and
breach of fiduciary duty. The Partnership settled these claims in 1991, and such
settlement was approved by the Bankruptcy Court.
An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April
14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in
May 1995, the Partnership received in full satisfaction of its claims $69,234 in
cash, and common and preferred stock in the reorganized Southmark. The cash and
stock represent the Partnership's pro-rata share of Southmark assets available
for Class 8 Claimants. The Partnership sold the Southmark common and preferred
stock in May 1995 for $22,283 which, when combined with the cash proceeds from
Southmark, resulted in a gain on settlement of litigation of $91,517.
CURRENT OPERATIONS
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General:
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential and commercial real estate
and other real estate related assets. At December 31, 1998, the Partnership
owned nine income-producing properties as described in Item 2 -Properties.
The Partnership does not directly employ any personnel. The General Partner
conducts the business of the Partnership directly and through its affiliates.
The Partnership is managed by the General Partner, and, in accordance with the
Amended Partnership Agreement, the Partnership reimburses affiliates of the
General Partner for certain expenses incurred by the affiliates in connection
with the management of the Partnership's business.
See Item 8 - Note 2 - "Transactions With Affiliates."
The business of the Partnership to date has involved only one industry segment.
See Item 8 - Financial Statements and Supplementary Data. The Partnership has no
foreign operations. The business of the Partnership is not seasonal.
<PAGE>
Business Plan:
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership, including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. It is possible that the General Partner
and its affiliates will receive non-cash consideration for their ownership
interests in connection with any such transaction. There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.
Competitive Conditions:
Since the principal business of the Partnership is to own and operate real
estate, the Partnership is subject to all of the risks incident to ownership of
real estate and interests therein, many of which relate to the illiquidity of
this type of investment. These risks include changes in general or local
economic conditions, changes in supply or demand for competing properties in an
area, changes in interest rates and availability of permanent mortgage funds
which may render the sale or refinancing of a property difficult or
unattractive, changes in real estate and zoning laws, increases in real property
tax rates and Federal or local economic or rent controls. The illiquidity of
real estate investments generally impairs the ability of the Partnership to
respond promptly to changed circumstances. The Partnership competes with
numerous established companies, private investors (including foreign investors),
real estate investment trusts, limited partnerships and other entities (many of
which have greater resources than the Partnership) in connection with the sale,
financing and leasing of properties. The impact of these risks on the
Partnership, including losses from operations and foreclosures of the
Partnership's properties, is described in Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations. See Item 2 -
Properties for a discussion of competitive conditions at the Partnership's
properties.
Forward-Looking Information:
Within this document, certain statements are made as to the expected occupancy
trends, financial condition, results of operations, and cash flows of the
Partnership for periods after December 31, 1998. All of these statements are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements are not
historical and involve risks and uncertainties. The Partnership's actual
occupancy trends, financial condition, results of operations, and cash flows for
future periods may differ materially due to several factors. These factors
include, but are not limited to, the Partnership's ability to control costs,
make necessary capital improvements, negotiate sales or refinancings of its
properties and respond to changing economic and competitive factors.
<PAGE>
Environmental Matters:
Environmental laws create potential liabilities that may affect property owners.
The environmental laws of Federal and certain state governments, for example,
impose liability on current and certain past owners of property from which there
is a release or threat of release of hazardous substances. This liability
includes costs of investigation and remediation of the hazardous substances and
natural resource damages. Liability for costs of investigation and remediation
is strict and may be imposed irrespective of whether the property owner was at
fault, although there are a number of defenses. Both governments and third
parties may seek recoveries under these laws.
Third parties also may seek recovery under the common law for damages to their
property or person, against owners of property from which there has been a
release of hazardous and other substances.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.
Various buildings at properties do or may contain building materials that are
the subject of various regulatory programs intended to protect human health.
Such building materials include, for example, asbestos, lead-based paint, and
lead plumbing components. The Company has implemented programs to deal with the
presence of those materials, which include, as appropriate, reduction of
potential exposure situations. The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory violations or liability claims resulting
from alleged exposure to such materials.
In connection with the proposed sale transaction as more fully described above,
Phase I environmental site assessments have been completed for each property
owned by the Partnership. Such environmental assessments performed on the
properties have not revealed any environmental liability that the Partnership
believes would have a material adverse effect on the Partnership's business,
assets, or results of operations. The Partnership has not been notified by any
governmental authority of any non-compliance, liability or other claim in
connection with any of its properties. There can be no assurances, however, that
environmental liabilities have not developed since such environmental
assessments were prepared, or that future uses or conditions (including, without
limitation, changes in applicable environmental laws and regulations) will not
result in imposition of environmental liability.
Other Information:
In August 1995, High River Limited Partnership, a Delaware limited partnership
controlled by Carl C. Icahn ("High River") made an unsolicited tender offer to
purchase from holders of Units up to approximately 45% of the outstanding Units
of the Partnership for a purchase price of $72 per Unit. In September 1996, High
River made another unsolicited tender offer to purchase any and all of the
outstanding Units of the Partnership for a purchase price of $85.50 per Unit. In
addition, High River made unsolicited tender offers for certain other
partnerships controlled by the General Partner. The Partnership recommended that
the limited partners reject the tender offers made with respect to the
Partnership and not tender their Units. The General Partner believes that as of
February 1, 1999, High River has purchased 8.8% of the outstanding Units
pursuant to the tender offers. In addition, all litigation filed by High River,
Mr. Icahn and his affiliates in connection with the tender offers has been
dismissed without prejudice.
<PAGE>
ITEM 2. PROPERTIES
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The following table sets forth the real estate investment portfolio of the
Partnership at December 31, 1998. The buildings and the land on which they are
located are owned by the Partnership in fee, subject in each case to a first
lien deed of trust as set forth more fully in Item 8 - Note 5 - "Mortgage Notes
Payable." See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III
- - "Real Estate Investments and Accumulated Depreciation and Amortization." In
the opinion of management, the properties are adequately covered by insurance.
<TABLE>
<CAPTION>
Net Basis 1998 Date
Property Description of Property Debt Property Tax Acquired
- -------- ----------- ----------- ---- ------------ --------
Briarwood (1) Apartments
<S> <C> <C> <C> <C> <C>
Tucson, AZ 196 units $ 1,648,259 $ 2,044,440 $ 54,082 07/80
Coppermill (2) Apartments
Tulsa, OK 544 units 3,042,433 4,927,868 106,108 10/80
La Plaza (3) Office Building
Las Vegas, NV 105,500 sq. ft. 4,526,059 3,185,000 64,745 09/80
Lakeview Plaza Retail Center
Lexington, KY 172,252 sq. ft. 3,396,292 2,930,625 84,490 07/80
Orchard (4) Apartments
Lawrence, IN 378 units 3,021,223 5,951,986 221,516 12/80
Quail Meadows (5) Apartments
Wichita, KS 440 units 3,753,617 5,644,355 64,497 06/80
Regency Park (6) Apartments
Ft. Wayne, IN 226 units 1,816,392 2,319,427 126,831 06/80
Sandpiper (7) Apartments
Westminster, CO 360 units 3,334,342 5,244,361 112,562 04/80
Spanish Oaks (8) Apartments
San Antonio, TX 239 units 2,123,797 3,892,238 131,743 08/80
--------------- ------------- ---------
$ 26,662,414 $ 36,140,300 $ 966,574
=============== ============= =========
</TABLE>
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Total: Apartments - 2,383 units
Retail Center - 172,252 sq. ft.
Office Building - 105,500 sq. ft.
<PAGE>
(1) Briarwood Apartments is owned by Briarwood Fund X Limited Partnership,
which is wholly-owned by the Partnership.
(2) Coppermill Apartments is owned by Coppermill Fund X Limited
Partnership, which is wholly-owned by the Partnership.
(3) La Plaza Office Building is owned by La Plaza Center Fund X Limited
Partnership, which is wholly-owned by the Partnership.
(4) Orchard Apartments is owned by Orchard Fund X Limited Partnership,
which is wholly-owned by the Partnership.
(5) Quail Meadows Apartments is owned by Quail Meadows Fund X Limited
Partnership, which is wholly-owned by the Partnership.
(6) Regency Park Apartments is owned by Regency Park Fund X Associates,
L.P. which is wholly-owned by the Partnership and the General Partner.
(7) Sandpiper Apartments is owned by Sandpiper Fund X Limited
Partnership, which is wholly-owned by the Partnership.
(8) Spanish Oaks Apartments is owned by Spanish Fund X, Ltd., which is
wholly-owned by the Partnership.
<PAGE>
The following table sets forth the occupancy rates and rent per square foot of
the Partnership's properties for each of the last five years:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- ----------
Briarwood
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 93% 95% 84% 92% 99%
Rent Per Square Foot...... $10.17 $ 9.57 $ 9.34 $ 9.91 $ 9.62
Coppermill
Occupancy Rate............ 98% 92% 89% 94% 92%
Rent Per Square Foot...... $ 6.47 $ 6.01 $ 5.74 $ 5.46 $ 5.28
La Plaza
Occupancy Rate............ 78% 78% 88% 77% 97%
Rent Per Square Foot...... $12.05 $13.06 $12.41 $10.10 $13.97
Lakeview Plaza
Occupancy Rate............ 97% 92% 99% 98% 100%
Rent Per Square Foot...... $ 4.65 $ 5.26 $ 5.55 $ 4.71 $ 5.69
Orchard
Occupancy Rate............ 95% 86% 93% 98% 94%
Rent Per Square Foot...... $ 7.23 $ 7.26 $ 7.40 $ 7.25 $ 6.95
Quail Meadows
Occupancy Rate............ 86% 97% 91% 94% 89%
Rent Per Square Foot...... $ 7.07 $ 6.65 $ 6.21 $ 5.80 $ 5.62
Regency Park
Occupancy Rate............ 90% 87% 89% 92% 94%
Rent Per Square Foot...... $ 5.61 $ 5.49 $ 5.19 $ 5.45 $ 5.09
Sandpiper
Occupancy Rate............ 96% 94% 96% 94% 95%
Rent Per Square Foot...... $10.22 $ 9.83 $ 9.48 $ 9.29 $ 8.93
Spanish Oaks
Occupancy Rate............ 87% 94% 87% 90% 91%
Rent Per Square Foot...... $ 6.32 $ 6.13 $ 6.17 $ 6.18 $ 5.97
</TABLE>
Occupancy rate represents all units or square footage leased divided by the
total number of units or square footage of the property as of December 31 of the
given year. Rent per square foot represents all revenue, except interest,
derived from the properties' operations divided by the leasable square footage
of the property.
<PAGE>
Competitive Conditions at Properties
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Briarwood Apartments
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Most of the tenants at Briarwood Apartments are students at nearby University of
Arizona. Briarwood has an excellent location near the University and a bike
route to the University. Due to the heavy student-tenant profile, occupancy at
the property typically drops during the summer months. After a two-year decline,
the Tucson market began a recovery in the second half of 1997. New construction
in the submarket has ceased, except for dormitory rooms being added by the
University of Arizona. Briarwood's excellent location helps the property absorb
market fluctuations better than most of its competitors.
Coppermill Apartments
- ---------------------
The occupancy rate at Coppermill Apartments was 98% at year end, ahead of the
94-95% range for the market. Most properties in southern Tulsa, including
Coppermill, were built by the same developer using identical floor plans. Thus,
the local market is very price-sensitive. Management is working to differentiate
Coppermill's units by upgrading interior fixtures and appliances. Major road
work commenced in November 1998 in front of Coppermill. The road work is
expected to completely block the two main entrances to the property. As a
result, occupancy rates are expected to decrease as prospective and current
tenants will find it difficult to get to the property. The road work is expected
to continue throughout 1999.
La Plaza Business Center
- ------------------------
The year end occupancy rate at La Plaza Business Center was 78%, unchanged from
a year earlier. Subsequent to year end, however, the Partnership signed a lease
with an existing tenant for expansion space that will increase the property's
occupancy rate to 91%. The Partnership continues to invest significant sums into
capital improvements at La Plaza for tenant improvements, building code
compliance, updating building interiors, and reconfiguring interior space. The
investments will continue throughout 1999. The Partnership intends to fund the
tenant improvements as lease negotiations proceed with new tenants. Demand for
office space in Las Vegas is expected to be strong in 1999. New construction is
aimed at the high-end of the market, and is not expected to compete with La
Plaza.
Lakeview Plaza
- --------------
Over the past three years, there has been significant turnover amongst the
property's tenants. One of the two anchor tenants sublet its space to two
tenants in 1996. Several new tenants signed leases during 1998. The property's
occupancy rate reached 97% at the end of 1998. The local market area appears to
be strong, with several national retailers opening new stores or announcing
plans for new stores in the Lexington area. There are several, newer competing
properties in close proximity to Lakeview Plaza.
<PAGE>
Orchard Apartments
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An aggressive marketing campaign and increasing market occupancy rates combined
to raise the occupancy rate at Orchard Apartments to 95% at the end of 1998.
Construction of new apartment properties is expected to have an overall impact
on Indianapolis market conditions, but should not directly impact Orchard
Apartments. The new construction is directed at the higher end of the market.
Continued first-time home buying is expected to be the property's principal
challenge for 1999. Orchard Apartments has good curb appeal, attractive grounds
and a favorable local reputation. These factors allow Orchard Apartments to
command rental rates slightly in excess of its competitors.
Quail Meadows Apartments
- ------------------------
Quail Meadows Apartments is one of the nicer properties in the Wichita area.
Both interiors and exteriors of the property are above average relative to the
property's competition. Quail Meadows traditionally maintains occupancy rates
higher than market averages. However, extensive layoffs in the local aircraft
industry during the fourth quarter of 1998 have noticeably affected the market,
and especially Quail Meadows. Market occupancy rates decreased to 91%, and Quail
Meadows occupancy rate dropped to 86% by the end of 1998. Management is
deferring rental rate increases until the property's occupancy rate recovers.
Another concern is the continued construction of new apartment projects in the
Wichita market.
Regency Park Apartments
- -----------------------
The primary challenge for Regency Park Apartments is a strong single-family
housing market augmented by low interest rates for home buyers. However, the
capital improvements placed in service over the past several years have enabled
Regency Park to be a solid performer in its market. The property competes with
numerous properties, some of which are newer or have more appeal to prospective
tenants. The rental market in the Ft. Wayne area, however, remains price
sensitive. Improvements in operating results generally are coming through
improved occupancy rather than rate increases.
Sandpiper Apartments
- --------------------
Capital improvements placed in service since 1992 and a strong local economy
have allowed Sandpiper Apartments to repeatedly increase its base rental rates.
Occupancy and rental rates are above market averages. There is significant new
construction under development in the metropolitan area, but only minimal
construction is expected in Sandpiper's submarket. A well-maintained Sandpiper
should be able to maintain high occupancy rates as well as periodically increase
rental rates.
<PAGE>
Spanish Oaks Apartments
- -----------------------
Occupancy rates at Spanish Oaks Apartments have been suppressed the past three
years due to competition with new construction, older properties that have been
renovated, military cutbacks at nearby Fort Sam Houston, and rate hikes at
Spanish Oaks. Rental rates at Spanish Oaks remain below San Antonio market
averages. The interiors at Spanish Oaks will need to be updated to allow the
property to raise its rents to current market levels.
The following schedule shows lease expirations for each of the Partnership's
commercial properties for 1999 through 2008:
<TABLE>
<CAPTION>
Number of Annual % of Gross
Expirations Square Feet Rent Annual Rent
----------- ----------- ------- -----------
La Plaza
<C> <C> <C> <C> <C>
1999 12 11,874 $ 184,416 12%
2000 11 22,142 356,897 23%
2001 6 23,691 370,425 24%
2002 2 37,524 616,135 40%
2003-2008 - - - -
Lakeview Plaza
1999 2 6,071 64,509 8%
2000 2 2,563 27,581 3%
2001 1 2,330 23,580 3%
2002 - - - -
2003 4 12,870 122,474 15%
2004 3 126,734 498,833 61%
2005-2007 - - - -
2008 1 13,571 84,825 10%
</TABLE>
No residential tenant leases 10% or more of the available rental space of any
residential property. The following schedule reflects information on commercial
tenants occupying 10% or more of the leasable square feet for each property:
<TABLE>
<CAPTION>
Nature of
Business Square Footage Lease
Use Leased Annual Rent Expiration
- --------- -------------- ----------- ----------
La Plaza:
<S> <C> <C> <C>
Government agency (a) 27,224 $449,196 2002
Lakeview Plaza:
Discount department store 78,337 253,000 2004
Grocery store 43,605 202,705 2004
</TABLE>
<PAGE>
(a) The referenced lease was originally scheduled to expire in 1999. The
tenant entered into a new lease with the Partnership on September 28,
1998 which increased the leased square footage to 27,224 square feet from
13,530 square feet. The lease term will commence during 1999, after the
Partnership completes certain tenant improvements for the tenant. The new
lease terms were utilized in the lease schedules above.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except as noted below.
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund
XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and
Regency North Associates, L.P., - Superior Court of the State of California for
the County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
<PAGE>
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil
Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of
the transaction contemplated in the settlement and Plaintiffs claim that an
effort should be made to sell the McNeil Partnerships, Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
For discussion of the Southmark bankruptcy, see Item 1 - Business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP AND
- ------- ------------------------------------------------------------
RELATED SECURITY HOLDER MATTERS
-------------------------------
(A) There is no established public trading market for limited partnership
units, nor is one expected to develop.
(B) Title of Class Number of Record Unit Holders
Limited partnership units 5,456 as of February 1, 1999
(C) The Partnership distributed $4,499,998 to the limited partners in
1998. No distributions were paid to the limited partners in 1997.
During the last week of March 1999, the Partnership distributed
approximately $499,000 to limited partners of record as of March 1,
1999. The Partnership accrued distributions of $884,065, $981,440 and
$1,048,667 for the benefit of the General Partner for the years ended
December 31, 1998, 1997 and 1996, respectively. These distributions
<PAGE>
are the Management Incentive Distribution ("MID") pursuant to the
Amended Partnership Agreement. See Item 8 - Note 2 - "Transactions
with Affiliates." See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations for a discussion of
distributions and the likelihood that the Partnership will continue
distributions to the limited partners.
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
The following table sets forth a summary of certain financial data for the
Partnership. This summary should be read in conjunction with the Partnership's
financial statements and notes thereto appearing in Item 8 - Financial
Statements and Supplementary Data.
<TABLE>
<CAPTION>
Statements of Years Ended December 31,
Operations 1998 1997 1996 1995 1994
- ------------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Rental revenue ................... $ 14,890,624 $ 15,471,277 $ 16,089,109 $ 16,878,076 $ 17,375,904
Gain on involuntary
nversion ....................... -- 65,800 285,127 -- --
Gain on sales of real estate ..... -- 3,063,438 353,389 3,183,698 --
Total revenue .................... 15,076,467 18,829,962 16,853,542 20,258,594 17,428,487
Income (loss) before
extraordinary items ............ (157,070) 3,636,976 872,382 2,193,164 (1,199,904)
Extraordinary items .............. -- 518,495 269,596 -- 292,539
Net income (loss) ................ (157,070) 4,155,471 1,141,978 2,193,164 (907,365)
Net income (loss) per
limited partnership unit:
Income (loss) before
extraordinary items ............ $ (1.11) $ 14.99 $ 6.14 $ 15.43 $ (10.25)
Extraordinary items ............ -- 2.14 1.90 -- 2.06 --
Net income (loss) per
limited partnership unit...... $ (1.11) $ 17.13 $ 8.04 $ 15.43 $ (8.19)
============ ============ =========== =========== ============
Distributions per limited
partnership unit .............. $ 33.34 $ -- $ -- $ -- $ --
============ ============ =========== =========== ============
As of December 31,
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ------------ ------------ ----------- ----------- ------------
Real estate investments, net .... $ 26,662,414 $ 28,566,426 $30,257,120 $36,699,530 $ 37,024,893
Assets held for sale ............ -- -- 5,308,731 2,237,733 7,215,032
Total assets .................... 32,051,540 37,112,416 41,407,352 43,638,649 48,379,933
Mortgage notes payable, net...... 36,140,300 36,769,603 42,412,292 44,454,316 52,078,850
Partners' deficit ............... (8,587,158) (3,046,025) (6,220,056) (6,313,367) (7,442,274)
</TABLE>
<PAGE>
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations. The Partnership sold the following properties during the
five year period ended December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------- -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
FINANCIAL CONDITION
- -------------------
The Partnership was formed to acquire, operate and ultimately dispose of a
portfolio of income-producing real properties. As of December 31, 1998, the
Partnership owned seven apartment buildings, one retail shopping center and one
office building. All of the Partnership's properties are subject to mortgage
indebtedness.
The Partnership sold two retail shopping centers in 1997, Cave Spring Corners,
located in Roanoke, Virginia, and Iberia Plaza, located in New Iberia,
Louisiana. The decision to sell the properties was influenced by the General
Partner's belief that the appreciation potential of the two properties was
limited and by the Partnership's announced plan to liquidate its real estate by
December 2001. In addition, the impending maturity of the related mortgage
notes, which were secured by the properties, also affected the decision to sell
the properties. The Partnership recorded a $3,063,438 gain on the sale of the
two properties. Net proceeds from the sales, after repayment of the related
mortgage notes, amounted to $3,679,598. The net proceeds from the sale were
added to the Partnership's balance of cash reserves.
On June 26, 1997, the Partnership resolved litigation regarding the disputed
pay-off amount on the former Spanish Oaks mortgage note. The mortgage note had
been refinanced in 1996, but the proceeds from the refinancing were placed in
escrow until a dispute regarding the exact repayment amount could be resolved.
In 1997, the Partnership and the holder of the former mortgage note agreed to
settle the dispute for a cash payment of $3,046,000. All remaining escrowed
funds and interest thereon, in the amount of $602,961, were released to the
Partnership. In connection with the refinancing, the Partnership recognized an
extraordinary gain on extinguishment of debt of $518,495 and $269,596 in 1997
and 1996, respectively.
On June 5, 1998, the Partnership refinanced the La Plaza mortgage note. The
Partnership obtained a three-year, $3,785,000 mortgage note from a
non-affiliated lender. However, only $3,185,000 of the mortgage note has been
funded by the lender. The remaining $600,000 of loan proceeds will be funded to
the Partnership as required for the completion of tenant improvements at La
Plaza Office Building, if such tenant improvements are needed to induce
prospective or current tenants to lease or release space at the property. The
new mortgage note bears interest at a variable rate equal to 1.75% plus the
London Interbank Offered Rate per annum. Proceeds from the refinancing amounted
to $48,971. See Item 8 - Note 8 - "Refinancing of Mortgage Notes."
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
1998 compared to 1997
Revenue:
Rental revenue decreased $580,653 or 3.8% in 1998 as compared to 1997. The
decreased rental revenue was due to the sale of Cave Spring Corners and Iberia
Plaza during the course of 1997. Of the Partnership's remaining properties,
rental revenue increased $334,014 or 2.3%. Rental revenue increased at six of
the Partnership's seven residential properties. Four of the Partnership's
residential properties, Briarwood Apartments, Coppermill Apartments, Sandpiper
Apartments and Spanish Oaks Apartments, reported increases of both base rental
rates and average occupancy rates in 1998 as compared to 1997. Rental revenue
increases at these four properties amounted to 6.3%, 7.7%, 3.9% and 3.1%,
respectively. Quail Meadows Apartments and Regency Park Apartments reported
increases in base rental rates that were partially offset by increased vacancy
losses. Rental revenue increases at these two properties amounted to 6.4% and
2.3%, respectively. Rental revenue decreased 0.4% at Orchard Apartments as an
increase in base rental rates was more than offset by an increase in discounts
and concessions which were given to increase occupancy rates.
The Partnership's two remaining commercial properties both reported decreased
rental revenue in 1998 as compared to 1997. Base rental rates and average
occupancy rates decreased at Lakeview Plaza, resulting in an 11.5% decrease in
rental revenue. Several tenants relinquished their space at Lakeview. The
Partnership was able to obtain new tenants for the Lexington, Kentucky property.
By the end of 1998, occupancy had been restored to 97%. Decreased average
occupancy at La Plaza Office Building was the factor behind a 7.7% decrease in
rental revenue at the Las Vegas, Nevada property. Subsequent to year end, the
property's largest tenant, a government agency, signed a new lease for 2 years
and 9 months for approximately 26% of the space at the property (see Item 2 -
Properties).
Interest revenue decreased $43,604 or 19% in 1998 as compared to 1997. The
decrease is attributable to decreased levels of Partnership cash invested in
interest bearing accounts.
In 1997, the Partnership reported a $65,800 gain on involuntary conversion
related to a fire at Regency Park Apartments, and $3,063,438 of gains related to
the sale of Cave Spring Corners and Iberia Plaza. The Partnership also reported
a $518,495 extraordinary gain on extinguishment of debt in 1997. No such
transactions occurred during 1998.
Expenses:
Partnership expenses increased $40,551 or 0.3% in 1998 as compared to 1997.
After excluding expenses related to Cave Spring Corners and Iberia Plaza,
however, expenses increased $613,912 or 4.2% at the Partnership's remaining
properties. Increases in personnel expenses and general and administrative
expenses exceeded a decrease in interest paid to affiliates.
<PAGE>
Interest paid to affiliates decreased $122,517 to $138,268 in 1998. Interest
paid to affiliates related to the La Plaza mortgage note that was due to McNeil
Real Estate Fund XXVII, L.P., an affiliate of the General Partner. This
affiliate mortgage note was refinanced on June 5, 1998 with an unaffiliated
lender. Interest expense on this mortgage note was charged to regular interest
expense subsequent to the refinancing. When considered on a combined basis, and
excluding interest on the Cave Spring Corner and Iberia Plaza mortgage notes,
interest expense on both affiliated and non-affiliated loans increased $34,399
or 1% in 1998 as compared to 1997.
Personnel expenses at the Partnership's remaining properties increased $199,811
or 11.7% in 1998 as compared to 1997. The Partnership increased wage rates,
salaries and benefits in order to retain property personnel in a competitive job
market.
General and administrative expenses increased $339,779 to $640,385 in 1998. The
increase was attributable to costs incurred to explore alternatives to maximize
the value of the Partnership (see Liquidity and Capital Resources).
1997 compared to 1996
Revenue:
Rental revenue decreased $617,832 or 3.8% for 1997 as compared to 1996. However,
after excluding the effects of Cave Spring Corners, sold June 5, 1997, and
Parkway Plaza, sold September 18, 1996, rental revenue at the remainder of the
Partnership's properties increased $371,359 or 2.5% in 1997 as compared to 1996.
Of the Partnership's nine remaining properties, rental revenue increased at six
properties, was unchanged at one property, and decreased at two properties.
Due to strong local markets, four of the Partnership's properties, Quail Meadows
Apartments, Regency Park Apartments, Sandpiper Apartments and La Plaza Office
Building, were able to increase both rental rates and decrease vacancy losses.
Increased rental revenue at these four properties ranged from 3.7% to 6.6%.
Coppermill Apartments was also able to increase its rental rates, but the
increased rental rates were partially offset by an increase in vacancy losses.
The Tulsa property recorded a net increase in rental revenue of 4.6%. Briarwood
Apartments also increased its rental revenue, but the 2.5% increase in rental
revenue at the Tucson property was the result of decreased vacancy losses
partially offset by decreased rental rates.
Increased rental rates at Spanish Oaks Apartments were offset by increases in
discounts and concessions and by increased vacancy losses, resulting in an
$8,773 decrease in rental revenue in 1997 as compared to 1996. Increased vacancy
losses at Orchard Apartments, reflecting strong competitive pressures in the
Indianapolis market, resulted in a 1.9% decrease in rental revenue. Decreased
reimbursements for common area maintenance and property taxes, as well as
decreased contingent rents resulted in a 5.3% decrease in rental revenue at
Lakeview Plaza.
Interest revenue increased 82% to $229,447 in 1997 as the Partnership had
increased amounts of cash reserves invested in interest-bearing accounts as
compared to 1996.
<PAGE>
The Partnership also reported $3,063,438 in gains on the sale of Cave Spring
Corners and Iberia Plaza. In 1996, the Partnership reported a $353,389 gain on
the sale of Parkway Plaza. Another non-recurring revenue item was the gain on
involuntary conversion related to a fire at Regency Park Apartments. The gain
amounted to $350,927, of which $65,800 was recognized in 1997, and $285,127 was
recognized in 1996.
Expenses:
Total Partnership expenses decreased $788,174 or 4.9% in 1997 as compared to
1996. However, after excluding expenses related to Cave Spring Corners and
Parkway Plaza, which were sold during the course of 1997 and 1996, Partnership
expenses decreased $94,415 or 0.6%, in 1997 as compared to 1996. Iberia Plaza
expenses are not excluded because Iberia Plaza was sold on December 12, 1997;
essentially, a full year of Iberia Plaza expenses is included in 1997's figures.
Interest paid to affiliates increased, while interest, general and
administrative and general and administrative expenses paid to affiliates
decreased.
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note due
to an unaffiliated party with a $2,336,029 mortgage note due to an affiliate of
the General Partner. The transfer of the La Plaza mortgage note from
non-affiliate to affiliate status accounts for the $185,870 increase in interest
expense due to affiliates as well as a $195,892 decrease in interest due to
non-affiliates. The 1997 sales of Cave Spring Corners and Iberia Plaza, and the
1996 sale of Parkway Plaza resulted in a $419,723 decrease in interest expense.
The remainder of the $716,788 decrease in interest expense results from regular
monthly amortization of the Partnership's mortgage notes which gradually reduces
the interest expense of the Partnership over time.
General and administrative expenses decreased $124,699 or 29% in 1997 as
compared to 1996. Expenses relating to unsolicited tender offers cost the
Partnership $263,124 in 1996. Such expenses for 1997 decreased to only $20,849.
Legal expenses increased $106,250 in 1997 as compared to 1996. $67,795 of the
increase was attributable to costs incurred to litigate and settle a lawsuit
regarding management of Briarwood Apartments. Also, investor relation services
that had previously been provided by an affiliate of the General Partner were
provided by an independent vendor in 1997. Such costs increased general and
administrative expenses by $30,148 in 1997, and correspondingly, accounted for
much of the $58,021 or 13.5% decrease in general and administrative expenses
paid to affiliates.
On June 26, 1997, the Partnership and the former Spanish Oaks mortgage note
holder agreed to settle their dispute regarding the correct payoff amount of the
former Spanish Oaks mortgage note that was refinanced during 1996. As a result
of the settlement, the Partnership received $602,961, which after appropriate
deductions for costs and related interest revenue, was recorded as a $518,495
extraordinary gain on extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During the three year period ended December 31, 1998, cash provided by the
Partnership's operating activities totaled $9,717,681. Despite the sale of Cave
Spring Corners and Iberia Plaza in 1997, cash flow from operating activities
increased 10.2% in 1998 as compared to 1997.
<PAGE>
The sale of Cave Spring Corners and Iberia Plaza in 1997 provided cash proceeds
of $8,530,207; however, $4,850,609 of that amount was used to retire the Cave
Spring Corners and Iberia Plaza mortgage notes. The net sales proceeds were
added to the Partnership's cash reserves. See Income Allocations and
Distributions below.
The Partnership continues to invest substantial resources into capital
improvements at its properties. A total of $4,980,570 of improvements have been
added to the Partnership's properties over the past three years. $518,922 of the
improvements were reimbursed to the Partnership by its insurance carrier as a
result of a fire that destroyed 16 units at Regency Park Apartments. An
additional $1,792,000 of capital improvements are budgeted for 1999.
MID payments to the General Partner, which had been suspended since the
beginning of 1994, were resumed during 1997. The Partnership paid $2,000,000 of
MID to the General Partner in 1997. See short-term liquidity below.
Short-term liquidity:
At December 31, 1998, the Partnership held cash and cash equivalents of
$2,680,102, down $3,075,874 from the balance at the end of 1997. The General
Partner believes this level of cash, combined with anticipated cash flow from
operating activities, is adequate to meet the Partnership operating expenses,
debt service requirements, and budgeted capital improvements for 1999.
Over the past three years, the Partnership has invested large amounts of funds
in capital improvements at the Partnership's properties. The General Partner
believes these capital improvements are necessary to allow the Partnership to
increase its rental revenues in the competitive markets in which the
Partnership's properties operate. These expenditures also allow the Partnership
to reduce future repair and maintenance expenses from amounts that would
otherwise be incurred. Significant resources may be needed at La Plaza Office
Building to renovate and refurbish vacated space for new tenants, and to bring
the property into compliance with local building codes. The new La Plaza
mortgage note contains a provision whereby the Partnership may borrow an
additional $600,000 to meet these capital needs, if necessary. See Item 8 - Note
8 - "Refinancing of Mortgage Notes."
Long-term liquidity:
For the long-term, property operations will remain the primary source of funds.
In this regard, the General Partner expects that the approximately $5 million of
capital improvements made by the Partnership during the past three years will
yield improved cash flow from property operations in the future. The General
Partner has budgeted an additional $1,792,000 of capital improvements for 1999.
If the Partnership's cash position deteriorates, the General Partner may elect
to defer certain of the capital improvements.
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership, including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
<PAGE>
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. It is possible that the General Partner
and its affiliates will receive non-cash consideration for their ownership
interests in connection with any such transaction. There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.
Income Allocations and Distributions:
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of the cumulative
amount of MID paid for which no income allocation has previously been made.
Depreciation is allocated in the ratio of 95:5 to the limited partners and the
General Partner, respectively. Therefore, the General Partner was allocated a
loss of $7,853 and allocated income of $1,843,741 and $57,099 for the three
years ended December 31, 1998, 1997 and 1996, respectively. The limited partners
were allocated a loss of $149,217 and allocated income of $2,311,730 and
$1,084,879 for the three years ended December 31, 1998, 1997 and 1996,
respectively.
The Partnership distributed $4,499,998 to the limited partners in 1998. No
distributions were paid to the limited partners in 1997 or 1996. During the last
week of March 1999, the Partnership distributed approximately $499,000 to the
limited partners of record as of March 1, 1999. The General Partner will
continue to monitor the cash reserves and working capital needs of the
Partnership to determine when cash flows will support additional distributions
to the limited partners.
The Partnership paid $2,000,000 of MID to the General Partner in 1997. No MID
payments were paid to the General Partner during 1998 or 1996. The General
Partner has elected to defer payment of administrative reimbursements and MID so
that the Partnership can pay distributions to the limited partners.
YEAR 2000 DISCLOSURE
- --------------------
State of readiness
- ------------------
The year 2000 problem is the result of computer programs being written using two
digits rather than four to define the applicable year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in major systems failure or
miscalculations.
Management has assessed its information technology ("IT") infrastructure to
identify any systems that could be affected by the year 2000 problem. The IT
used by the Partnership for financial reporting and significant accounting
functions was made year 2000 compliant during recent systems conversions. The
software utilized for these functions are licensed by third party vendors who
have warranted that their systems are year 2000 compliant.
<PAGE>
Management is in the process of evaluating the mechanical and embedded
technological systems at the various properties. Management has inventoried all
such systems and queried suppliers, vendors and manufacturers to determine year
2000 compliance. Management will complete assessment of findings by May 1, 1999.
In circumstances of non-compliance management will work with the vendor to
remedy the problem or seek alternative suppliers who will be in compliance.
Management believes that the remediation of any outstanding year 2000 conversion
issues will not have a material or adverse effect on the Partnership's
operations. However, no estimates can be made as to the potential adverse impact
resulting from the failure of third party service providers and vendors to be
year 2000 compliant.
Cost
- ----
The cost of IT and embedded technology systems testing and upgrades is not
expected to be material to the Partnership. Because all the IT systems have been
upgraded over the last three years, all such systems were compliant, or made
compliant at no additional cost by third party vendors. Management anticipates
the costs of assessing, testing, and if necessary replacing embedded technology
components will be less than $50,000. Such costs will be funded from operations
of the Partnership.
Risks
- -----
Ultimately, the potential impact of the year 2000 issue will depend not only on
the corrective measures the Partnership undertakes, but also on the way in which
the year 2000 issue is addressed by government agencies and entities that
provide services or supplies to the Partnership. Management has not determined
the most likely worst case scenario to the Partnership. As management studies
the findings of its property systems assessment and testing, management will
develop a better understanding of what would be the worst case scenario.
Management believes that progress on all areas is proceeding and that the
Partnership will experience no adverse effect as a result of the year 2000
issue. However, there is no assurance that this will be the case.
Contingency plans
- -----------------
Management is developing contingency plans to address potential year 2000
non-compliance of IT and embedded technology systems. Management believes that
failure of any IT system could have an adverse impact on operations. However,
management believes that alternative systems are available that could be
utilized to minimize such impact. Management believes that any failure in the
embedded technology systems could have an adverse impact on that property's
performance. Management will assess these risks and develop plans to mitigate
possible failures by June, 1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------- -----------------------------------------------------------
Not Applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
<TABLE>
<CAPTION>
Page
Number
------
INDEX TO FINANCIAL STATEMENTS
- -----------------------------
Financial Statements:
<S> <C>
Report of Independent Public Accountants....................................... 20
Balance Sheets at December 31, 1998 and 1997................................... 21
Statements of Operations for each of the three years in the
period ended December 31, 1998.............................................. 22
Statements of Partners' Equity (Deficit) for each of the three
years in the period ended December 31, 1998................................. 23
Statements of Cash Flows for each of the three years in the
period ended December 31, 1998.............................................. 24
Notes to Financial Statements.................................................. 26
Financial Statement Schedule:
Schedule III - Real Estate Investments and Accumulated
Depreciation and Amortization............................................ 40
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
McNeil Real Estate Fund X, Ltd.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund X,
Ltd. (a California limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' equity (deficit) and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements and the schedule referred to below are the responsibility
of the Partnership's management. Our responsibility is to express an opinion on
these financial statements and the schedule 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 McNeil Real Estate Fund X, Ltd.
as of December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Dallas, Texas
March 19, 1999
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
------------- -------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ........................................................ $ 8,836,046 $ 8,836,046
Buildings and improvements .................................. 73,756,560 72,544,744
------------ ------------
82,592,606 81,380,790
Less: Accumulated depreciation and amortization ............ (55,930,192) (52,814,364)
------------ ------------
26,662,414 28,566,426
Cash and cash equivalents ...................................... 2,680,102 5,755,976
Cash segregated for security deposits .......................... 426,327 358,396
Cash restricted for mortgage payments .......................... 79,800 --
Accounts receivable ............................................ 309,043 356,496
Prepaid expenses and other assets .............................. 233,432 212,031
Escrow deposits ................................................ 759,317 816,017
Deferred borrowing costs, net of accumulated
amortization of $668,233 and $452,021 at
December 31, 1998 and 1997, respectively .................... 901,105 1,047,074
------------ ------------
$ 32,051,540 $ 37,112,416
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage notes payable, net .................................... $ 36,140,300 $ 33,633,574
Mortgage notes payable - affiliate ............................. -- 3,136,029
Accounts payable ............................................... -- 76,689
Accrued interest ............................................... 258,427 244,393
Accrued interest - affiliate ................................... -- 24,977
Accrued property taxes ......................................... 473,177 470,105
Other accrued expenses ......................................... 400,581 296,729
Payable to affiliates - General Partner ........................ 2,965,226 1,858,835
Security deposits and deferred rental revenue .................. 400,987 417,110
------------ ------------
40,638,698 40,158,441
------------ ------------
Partners' equity (deficit)
Limited partners - 135,200 limited partnership
units authorized; 134,980 limited partnership units
outstanding at December 31, 1998 and
1997, respectively ........................................ (3,041,534) 1,607,681
General Partner ............................................. (5,545,624) (4,653,706)
------------ ------------
(8,587,158) (3,046,025)
------------ ------------
$ 32,051,540 $ 37,112,416
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Revenue:
<S> <C> <C> <C>
Rental revenue ............................. $ 14,890,624 $ 15,471,277 $ 16,089,109
Interest ................................... 185,843 229,447 125,917
Gain on sales of real estate ............... -- 3,063,438 353,389
Gain on involuntary conversion ............. -- 65,800 285,127
------------ ------------ ------------
Total revenue ............................ 15,076,467 18,829,962 16,853,542
------------ ------------ ------------
Expenses:
Interest ................................... 3,331,409 3,488,193 4,204,981
Interest - affiliate ....................... 138,268 260,785 74,915
Depreciation and amortization .............. 3,115,828 3,125,175 3,232,454
Property taxes ............................. 966,574 978,796 1,035,988
Personnel expenses ......................... 1,914,558 1,740,917 1,694,914
Utilities .................................. 1,217,386 1,267,432 1,231,498
Repairs and maintenance .................... 1,917,682 1,869,523 1,879,831
Property management fees -
affiliates ............................... 736,272 765,290 791,081
Other property operating expenses .......... 904,164 1,023,196 979,099
General and administrative ................. 640,385 300,606 425,305
General and administrative -
affiliates ............................... 351,011 373,073 431,094
------------ ------------ ------------
Total expenses ........................... 15,233,537 15,192,986 15,981,160
------------ ------------ ------------
Income (loss) before extraordinary items ...... (157,070) 3,636,976 872,382
Extraordinary items ........................... -- 518,495 269,596
------------ ------------ ------------
Net income (loss) ............................. $ (157,070) $ 4,155,471 $ 1,141,978
============ ============ ============
Net income (loss) allocated to limited
partners ................................... $ (149,217) $ 2,311,730 $ 1,084,879
Net income (loss) allocated to General
Partner .................................... (7,853) 1,843,741 57,099
------------ ------------ ------------
Net income (loss) ............................. $ (157,070) $ 4,155,471 $ 1,141,978
============ ============ ============
Net income (loss) per limited
partnership unit:
Income (loss) before
extraordinary items ...................... $ (1.11) $ 14.99 $ 6.14
Extraordinary items ........................ -- 2.14 1.90
------------ ------------ ------------
Net income (loss) per limited
partnership unit ......................... $ (1.11) $ 17.13 $ 8.04
============ ============ ============
Distributions per limited
partnership unit ........................... $ 33.34 $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
Partners'
General Limited Equity
Partner Partners (Deficit)
------------ ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1995 ............ $(4,524,439) $(1,788,928) $(6,313,367)
Net income .............................. 57,099 1,084,879 1,141,978
Management Incentive Distribution........ (1,048,667) -- (1,048,667)
----------- ----------- -----------
Balance at December 31, 1996 ............ (5,516,007) (704,049) (6,220,056)
Net income .............................. 1,843,741 2,311,730 4,155,471
Management Incentive Distribution ....... (981,440) -- (981,440)
----------- ----------- -----------
Balance at December 31, 1997 ............ (4,653,706) 1,607,681 (3,046,025)
Net loss ................................ (7,853) (149,217) (157,070)
Distribution to limited partners ........ -- (4,499,998) (4,499,998)
Management Incentive Distribution ....... (884,065) -- (884,065)
----------- ----------- -----------
Balance at December 31, 1998 ............ $(5,545,624) $(3,041,534) $(8,587,158)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
Cash flows from operating activities:
<S> <C> <C> <C>
Cash received from tenants ................. $ 14,831,585 $ 15,431,085 $ 16,001,867
Cash paid to suppliers ..................... (6,537,798) (6,146,043) (6,361,556)
Cash paid to affiliates .................... (864,957) (1,816,311) (1,622,989)
Interest received .......................... 185,843 229,447 125,917
Interest paid .............................. (3,011,274) (3,331,353) (3,904,205)
Interest paid to affiliate ................. (163,245) (242,433) (74,915)
Property taxes paid and escrowed ........... (934,979) (943,837) (1,132,168)
------------ ------------ ------------
Net cash provided by operating
activities ................................. 3,505,175 3,180,555 3,031,951
------------ ------------ ------------
Cash flows from investing activities:
Additions to real estate investments
and assets held for sale ................. (1,211,816) (1,440,625) (2,328,129)
Proceeds from sale of real estate .......... -- 8,530,207 2,958,375
Insurance proceeds for fire damage ......... -- 96,303 422,619
------------ ------------ ------------
Net cash provided by (used in) investing
activities ................................. (1,211,816) 7,185,885 1,052,865
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from refinancing
mortgage notes payable ................... 3,185,000 518,495 600,408
Repayment of mortgage note payable ......... -- (2,373,955) --
Repayment of mortgage notes payable -
affiliate ................................ (3,136,029) (800,000) --
Proceeds from mortgage note
payable - affiliate ...................... -- 3,136,029 --
Retirement of mortgage notes due to
sales of real estate ..................... -- (4,850,609) (2,544,466)
Principal payments on mortgage notes
payable .................................. (768,163) (901,103) (1,036,077)
Cash restricted for mortgage payments ...... (79,800) -- --
Reduction of mortgage note payable ......... -- -- (132,959)
Management Incentive Distribution
paid ..................................... -- (2,000,000) --
Additions to deferred borrowing costs ...... (70,243) -- (124,637)
Distributions to limited partners .......... (4,499,998) -- --
------------ ------------ ------------
Net cash used in financing activities ......... (5,369,233) (7,271,143) (3,237,731)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ........................... (3,075,874) 3,095,297 847,085
Cash and cash equivalents at
beginning of year .......................... 5,755,976 2,660,679 1,813,594
------------ ------------ ------------
Cash and cash equivalents at
end of year ................................ $ 2,680,102 $ 5,755,976 $ 2,660,679
============ ============ ============
</TABLE>
See discussion of noncash investing and financing activity in Note 2 -
"Transactions with Affiliates," Note 7 "Sales of Real Estate," Note 8 -
"Refinancing of Mortgage Notes," Note 9 - "Gain on Extinguishment of Debt" and
Note 10 - "Gain on Involuntary Conversion."
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income (Loss) to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1998 1997 1996
------------ ----------- -----------
<S> <C> <C> <C>
Net income (loss) .......................... $ (157,070) $ 4,155,471 $ 1,141,978
----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization ........... 3,115,828 3,125,175 3,232,454
Amortization of deferred borrowing
costs ................................. 216,212 118,853 132,377
Amortization of discounts on
mortgage notes payable ................ 89,889 103,571 144,886
Gain on sales of real estate ............ -- (3,063,438) (353,389)
Gain on involuntary conversion .......... -- (65,800) (285,127)
Extraordinary items ..................... -- (518,495) (269,596)
Changes in assets and liabilities:
Cash segregated for security
deposits ............................ (67,931) (57,137) 16,575
Accounts receivable ................... 47,453 73,428 (102,151)
Prepaid expenses and other
assets .............................. (21,401) 64,021 3,529
Escrow deposits ....................... 56,700 (13,176) (182,808)
Accounts payable ...................... (76,689) 15,333 (125,429)
Accrued interest ...................... 14,034 (65,584) 23,513
Accrued interest - affiliate .......... (24,977) 18,352 --
Accrued property taxes ................ 3,072 (60,868) 8,022
Other accrued expenses ................ 103,852 (13,252) 58,101
Payable to affiliates - General
Partner ............................. 222,326 (677,948) (400,814)
Security deposits and deferred
rental revenue ...................... (16,123) 42,049 (10,170)
----------- ----------- -----------
Total adjustments ................... 3,662,245 (974,916) 1,889,973
----------- ----------- -----------
Net cash provided by operating
activities .............................. $ 3,505,175 $ 3,180,555 $ 3,031,951
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------------------
Organization
- ------------
McNeil Real Estate Fund X, Ltd. (the "Partnership") was organized on June 1,
1979 as a limited partnership under the provisions of the California Uniform
Limited Partnership Act. The general partner of the Partnership is McNeil
Partners, L.P. (the "General Partner"), a Delaware limited partnership, an
affiliate of Robert A. McNeil. The Partnership is governed by an amended and
restated partnership agreement dated October 9, 1991, as amended (the "Amended
Partnership Agreement"). The principal place of business for the Partnership and
the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
The Partnership is engaged in diversified real estate activities, including the
ownership, operation and management of residential and commercial real estate
and other real estate related assets. At December 31, 1998, the Partnership
owned nine income-producing properties as described in Note 4 - "Real Estate
Investments."
As previously announced, the Partnership has retained PaineWebber, Incorporated
("PaineWebber") as its exclusive financial advisor to explore alternatives to
maximize the value of the Partnership, including, without limitation, a
transaction in which limited partnership interests in the Partnership are
converted into cash. The Partnership, through PaineWebber, provided financial
and other information to interested parties as part of an auction process and
until early March 1999 was conducting discussions with one bidder in an attempt
to reach a definitive agreement with respect to a sale transaction. In early
March 1999, because the Partnership had been unable to conclude negotiations for
a transaction with such bidder, the Partnership terminated such discussions and
commenced discussions with respect to a sale transaction with another
well-financed bidder who had been involved in the original auction process.
During the last full week of March, the Partnership entered into a 45 day
exclusivity agreement with such party. It is possible that the General Partner
and its affiliates will receive non-cash consideration for their ownership
interests in connection with any such transaction. There can be no assurance
regarding whether any such agreement will be reached nor the terms thereof.
Basis of Presentation
- ---------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of financial
statements in conformity with GAAP 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.
<PAGE>
The Partnership's financial statements include the accounts of the tier limited
partnerships listed on the following page. These single asset tier limited
partnerships were formed to accommodate the refinancing of the respective
properties. The Partnership's and the General Partner's ownership interests in
each tier limited partnership are detailed below. The Partnership retains
effective control of each tier limited partnership. The General Partner's
minority interest is not presented as it is both negative and immaterial.
<TABLE>
<CAPTION>
% of Ownership Interest
Tier Partnership Partnership General Partner
---------------- ----------- ---------------
<S> <C> <C>
Briarwood Fund X Limited Partnership (a)..................... 100 -
Coppermill Fund X Limited Partnership (a).................... 100 -
La Plaza Center Fund X Limited Partnership (a)............... 100 -
Orchard Fund X Limited Partnership (a)....................... 100 -
Quail Meadows Fund X Limited Partnership (a)................. 100 -
Regency Park Fund X Associates, L.P. ........................ 99 1
Sandpiper Fund X Limited Partnership (a)..................... 100 -
Spanish Fund X, Ltd. (a)..................................... 100 -
</TABLE>
(a) The general partner of these limited partnerships is a corporation whose
stock is 100% owned by the Partnership.
Adoption of Recent Accounting Pronouncements
- --------------------------------------------
The Partnership has adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 requires an enterprise to report financial information about its
reportable operating segments, which are defined as components of a business for
which separate financial information is evaluated regularly by the chief
decision maker in allocating resources and assessing performance. The
Partnership does not prepare such information for internal use, since it
analyzes the performance of and allocates resources for each property
individually. The Partnership's management has determined that it operates one
line of business and it would be impracticable to report segment information.
Therefore, the adoption of SFAS 131 has no impact on the Partnership's financial
statements.
Real Estate Investments
- -----------------------
Real estate investments are generally stated at the lower of depreciated cost or
fair value. Real estate investments are reviewed for impairment whenever events
or changes in circumstances indicate that their carrying amounts may not be
recoverable in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". When the carrying value of a property exceeds the sum
of all estimated future cash flows, an impairment loss is recognized. At such
time, a write-down is recorded to reduce the basis of the property to its
estimated fair value.
Improvements and betterments are capitalized and expensed through depreciation
charges. Repairs and maintenance are charged to operations as incurred.
<PAGE>
Depreciation and Amortization
- -----------------------------
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 3 to 38 years. Tenant
improvements are amortized over the terms of the related tenant leases using the
straight-line method.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include cash on hand and cash on deposit with
financial institutions with original maturities of three months or less.
Carrying amounts for cash and cash equivalents approximate fair value.
Escrow Deposits
- ---------------
The Partnership is required to maintain escrow accounts in accordance with the
terms of various mortgage indebtedness agreements. These escrow accounts are
controlled by the mortgagee and are used for payment of property taxes, hazard
insurance, capital improvements and property replacements. Carrying amounts for
escrow deposits approximate fair value.
Deferred Borrowing Costs
- ------------------------
Loan fees and other related costs incurred to obtain long-term financing on real
property are capitalized and amortized using the effective interest method over
the terms of the related mortgage notes payable. Amortization of deferred
borrowing costs is included in interest expense on the Statements of Operations.
Discounts on Mortgage Notes Payable
- -----------------------------------
Discounts on mortgage notes payable are amortized over the remaining terms of
the related mortgage notes using the effective interest method. Amortization of
discounts on mortgage notes payable is included in interest expense on the
Statements of Operations.
Rental Revenue
- --------------
The Partnership leases its residential properties under short-term operating
leases. Lease terms generally are less than one year in duration. Rental revenue
is recognized as earned.
The Partnership leases its commercial properties under non-cancelable operating
leases. Certain leases provide concessions and/or periods of escalating or free
rent. Rental revenue is recognized on a straight-line basis over the term of the
related leases. The excess of the rental revenue recognized over the contractual
rental payments is recorded as accrued rent receivable and included in accounts
receivable on the Balance Sheets.
<PAGE>
Income Taxes
- ------------
No provision for Federal income taxes is necessary in the financial statements
of the Partnership because, as a partnership, it is not subject to Federal
income tax and the tax effect of its activities accrues to the partners.
Allocation of Net Income and Net Loss
- -------------------------------------
The Amended Partnership Agreement provides for net income or net loss of the
Partnership for both financial statement and income tax reporting purposes to be
allocated as indicated below. For allocation purposes, net income and net loss
of the Partnership is determined prior to deductions for depreciation.
(a) First, 5% of all deductions for depreciation shall be allocated to the
General Partner, and 95% of all deductions for depreciation shall be
allocated to the limited partners;
(b) then, an amount of net income equal to the cumulative amount of the
Management Incentive Distribution ("MID") paid to the General Partner for
which no income has previously been allocated (see Note 2 "Transactions
with Affiliates") shall be allocated to the General Partner; provided,
however, that if all or a portion of such payment consists of limited
partnership units ("Units"), the amount of net income allocated to the
General Partner shall be equal to the amount of cash the General Partner
would have otherwise received;
(c) then, any remaining net income shall be allocated to the General Partner
and to the limited partners so that the total amount of net income
allocated to the General Partner pursuant to (b) above and this paragraph
(c) and to the limited partners pursuant to this paragraph (c) shall be
in the ratio of 5% to the General Partner and 95% to the limited
partners.
(d) Net loss shall be allocated 5% to the General Partner and 95% to the
limited partners.
Federal income tax law provides that the allocation of loss to a partner will
not be recognized unless the allocation is in accordance with a partner's
interest in the partnership or the allocation has substantial economic effect.
Internal Revenue Code Section 704(b) and accompanying Treasury Regulations
establish criteria for allocations of Partnership deductions attributable to
debt. The Partnership's tax allocations for 1998, 1997 and 1996 have been made
in accordance with these provisions.
Distributions
- -------------
Pursuant to the Amended Partnership Agreement and at the discretion of the
General Partner, distributions during each taxable year shall be made as
follows:
(a) first, to the General Partner, an amount equal to the MID, and
(b) any remaining distributable cash, as defined, shall be distributed 100%
to the limited partners.
<PAGE>
The Partnership distributed $4,499,998 to the limited partners in 1998. No
distributions were paid to the limited partners in 1997 or 1996. The Partnership
paid or accrued distributions of $884,065, $981,440 and $1,048,667 for the
benefit of the General Partner for the years ended December 31, 1998, 1997 and
1996, respectively. These distributions are the MID pursuant to the Amended
Partnership Agreement. During the last week of March 1999, the Partnership
distributed approximately $499,000 to the limited partners of record as of March
1, 1999.
Net Income (Loss) Per Limited Partnership Unit
- ----------------------------------------------
Net income (loss) per Unit is computed by dividing net income (loss) allocated
to the limited partners by the weighted average number of Units outstanding. Per
Unit information has been computed based on 134,980 Units outstanding in 1998,
1997 and 1996.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
- -------------------------------------
The Partnership pays property management fees equal to 5% of the gross rental
receipts of the Partnership's properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management services for the Partnership's residential and commercial properties
and leasing services for its residential properties. McREMI may choose to
perform leasing services for the Partnership's commercial properties, in which
case McREMI will receive a property management fee equal to 3% of the gross
rental receipts of the Partnership's commercial properties plus a commission for
performing leasing services equal to the prevailing market rate for such
services in the area where the property is located.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
Under terms of the Amended Partnership Agreement, the Partnership is paying the
MID to the General Partner. The maximum MID is calculated as 1% of the tangible
asset value of the Partnership. Tangible asset value is determined by using the
greater of (i) an amount calculated by applying a capitalization rate of 9% of
the annualized net operating income of each property or (ii) a value of $10,000
per apartment unit for residential property or $50 per gross square foot for
commercial property to arrive at the property tangible asset value. The property
tangible asset value is then added to the book value of all other assets
excluding intangible assets. The maximum MID percentage decreases to .75% in
2000, .50% in 2001 and .25% thereafter.
The MID will be paid to the extent of the lesser of the Partnership's excess
cash flow, as defined, or net operating income (the "Entitlement Amount"), and
may be paid (i) in cash, unless there is insufficient cash to pay the
distribution in which event any unpaid portion not taken in Units will be
deferred and is payable, without interest, from the first available cash and/or
(ii) in Units. A maximum of 50% of the MID may be paid in Units. The number of
Units issued in payment of the MID is based on the greater of $50 per Unit or
the net tangible asset value, as defined, per Unit. During 1998, 1997 and 1996,
no Units were issued as payment for the MID.
<PAGE>
During 1991, the Partnership amended its capitalization policy and began
capitalizing certain costs of improvements and betterments which, under policies
of prior management, had been expensed when incurred. The purpose of the
amendment was to more properly recognize items which were capital in nature. The
effect of the amendment standing alone was evaluated at the time the change was
made and determined not to be material to the financial statements of the
Partnership in 1991, nor was it expected to be material in any future year.
However, the amendment does have a material effect on the calculation of the
Entitlement Amount which determines the amount of MID earned. Capital
improvements are excluded from cash flow, as defined. The majority of the base
period cash flow was measured under the previous capitalization policy, while
incentive period cash flow is determined using the amended policy. Under the
amended policy, more items are capitalized, and cash flow increases. The
amendment of the capitalization policy did not materially affect MID for 1998,
1997 or 1996 as the Entitlement Amount was sufficient to pay the MID
notwithstanding the amendment to the capitalization policy.
Any amount of MID which is paid to the General Partner in Units will be treated
as if cash is distributed to the General Partner and is then contributed to the
Partnership by the General Partner. The MID represents a return of equity to the
General Partner for increasing cash flow, as defined, and accordingly is treated
as a distribution.
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner or its affiliates are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1998 1997 1996
---------- ---------- ----------
Property management fees -
<S> <C> <C> <C>
affiliates ....................... $ 736,272 $ 765,290 $ 791,081
Interest - affiliates ............... 138,268 260,785 74,915
Charged to general and
administrative - affiliates:
Partnership administration ....... 351,011 373,073 431,094
---------- ---------- ----------
$1,225,551 $1,399,148 $1,297,090
========== ========== ==========
Charged to General Partner's deficit:
Management Incentive Distribution $ 884,065 $ 981,440 $1,048,667
========== ========== ==========
</TABLE>
Payable to affiliates - General Partner at December 31, 1998 and 1997 consists
of MID, reimbursable costs and property management fees which are due and
payable from current operations. The General Partner has waived the collection
terms of MID and reimbursable expenses, and has elected for the Partnership to
pay limited partner distributions before the payment of such amounts.
<PAGE>
NOTE 3 - TAXABLE INCOME
- -----------------------
McNeil Real Estate Fund X, Ltd. is a partnership and is not subject to Federal
and state income taxes. Accordingly, no recognition has been given to income
taxes in the accompanying financial statements of the Partnership since the
income or loss of the Partnership is to be included in the tax returns of the
individual partners. The tax returns of the Partnership are subject to
examination by Federal and state taxing authorities. If such examinations result
in adjustments to distributive shares of taxable income or loss, the tax
liability of the partners could be adjusted accordingly.
The Partnership's net assets and liabilities for tax purposes exceeded the net
assets and liabilities for financial reporting purposes by $16,168,845,
$14,157,196 and $14,833,249 at December 31, 1998, 1997 and 1996, respectively.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The basis and accumulated depreciation and amortization of the Partnership's
real estate investments at December 31, 1998 and 1997 are set forth in the
following tables:
<TABLE>
<CAPTION>
Accumulated
Buildings and Depreciation Net Book
1998 Land Improvements and Amortization Value
---- -------------- ------------ ---------------- ----------------
Briarwood
<S> <C> <C> <C> <C>
Tucson, AZ $ 489,437 $ 5,324,698 $ (4,165,876) $ 1,648,259
Coppermill
Tulsa, OK 1,176,980 12,548,448 (10,682,995) 3,042,433
La Plaza
Las Vegas, NV 2,761,442 6,965,744 (5,201,127) 4,526,059
Lakeview Plaza
Lexington, KY 1,554,404 7,526,945 (5,685,057) 3,396,292
Orchard
Lawrence, IN 366,938 9,832,784 (7,178,499) 3,021,223
Quail Meadows
Wichita, KS 754,551 11,362,603 (8,363,537) 3,753,617
Regency Park
Ft. Wayne, IN 280,131 5,619,794 (4,083,533) 1,816,392
Sandpiper
Westminster, CO 866,107 8,199,149 (5,730,914) 3,334,342
Spanish Oaks
San Antonio, TX 586,056 6,376,395 (4,838,654) 2,123,797
------------- ------------- ------------- -------------
$ 8,836,046 $ 73,756,560 $ (55,930,192) $ 26,662,414
============= ============= ============= =============
Accumulated
Buildings and Depreciation Net Book
1997 Land Improvements and Amortization Value
---- -------------- ------------ ---------------- ---------------
Briarwood $ 489,437 $ 5,260,242 $ (3,953,267) $ 1,796,412
Coppermill 1,176,980 12,388,116 (10,068,984) 3,496,112
La Plaza 2,761,442 6,808,333 (4,829,120) 4,740,655
Lakeview Plaza 1,554,404 7,413,258 (5,479,551) 3,488,111
Orchard 366,938 9,648,427 (6,820,654) 3,194,711
Quail Meadows 754,551 11,190,367 (7,908,383) 4,036,535
Regency Park 280,131 5,521,015 (3,830,560) 1,970,586
Sandpiper 866,107 8,045,866 (5,384,980) 3,526,993
Spanish Oaks 586,056 6,269,120 (4,538,865) 2,316,311
------------- ------------- ------------- -------------
$ 8,836,046 $ 72,544,744 $ (52,814,364) $ 28,566,426
============= ============= ============= =============
</TABLE>
<PAGE>
During 1994, the General Partner placed Parkway Plaza on the market for sale.
Parkway Plaza was sold on September 18, 1996. On October 1, 1996, the General
Partner placed Cave Spring Corners and Iberia Plaza on the market for sale. The
Partnership sold Cave Spring Corners on June 5, 1997. The Partnership sold
Iberia Plaza on December 12, 1997. See Note 7 - "Sales of Real Estate."
The results of operations for the assets held for sale were $339,909 and
$210,456 for the years ended December 31, 1997 and 1996, respectively. Results
of operations are operating revenues less operating expenses including
depreciation and amortization and interest expense.
The Partnership leases its commercial properties under various non-cancelable
operating leases. In most cases, the Partnership expects that in the normal
course of business these leases will be renewed or replaced by other leases.
Future minimum rents to be received from commercial properties as of December
31, 1998, are as follows:
1999...................................... $ 2,163,725
2000...................................... 2,017,837
2001...................................... 1,677,279
2002...................................... 973,677
2003...................................... 664,693
Thereafter................................ 855,062
------------
$ 8,352,273
============
Future minimum rents do not include contingent rents based on sales volume of
tenants. Contingent rents amounted to $11,953, $41,589 and $199,927 for the
years ended December 31, 1998, 1997 and 1996, respectively. Future minimum rents
also do not include expense reimbursements for common area maintenance, property
taxes, and other expenses. The expense reimbursements amounted to $105,886,
$192,430 and $307,372 for the years ended December 31, 1998, 1997 and 1996,
respectively. Contingent rents and expense reimbursements, including amounts for
Parkway Plaza (sold September 18, 1996), Cave Spring Corners (sold June 5,
1997), and Iberia Plaza (sold December 12, 1997), are included in rental revenue
on the Statements of Operations.
The Partnership's real estate investments are encumbered by mortgage
indebtedness as discussed in Note 5 - "Mortgage Notes Payable" and Note 6 -
"Mortgage Note Payable - Affiliate."
<PAGE>
NOTE 5 - MORTGAGE NOTES PAYABLE
- -------------------------------
The following table sets forth the mortgage notes payable of the Partnership at
December 31, 1998 and 1997. All mortgage notes payable are secured by the
Partnership's real estate assets.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1998 1997
- -------- -------------- ------- -------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Briarwood (b) First 8.150 $18,340 07/03 (f) $ 2,078,739 $ 2,127,234
Discount (e) (34,299) (41,489)
------------- -------------
2,044,440 2,085,745
------------- -------------
Coppermill First 10.405 45,800 01/02 (f) 4,927,868 4,962,725
------------- --------------
La Plaza (c) First (c) (c) 06/01 (f) 3,185,000 -
------------- --------------
Lakeview Plaza First 9.125 38,815 06/08 2,930,625 3,119,519
------------- --------------
Orchard (b) First 8.150 53,393 07/03 (f) 6,051,841 6,193,025
Discount (e) (99,855) (120,787)
------------- --------------
5,951,986 6,072,238
------------- --------------
Quail Meadows (b) First 8.150 50,634 07/03 (f) 5,739,128 5,873,015
Discount (e) (94,773) (118,878)
------------- -------------
5,644,355 5,754,137
------------- -------------
Regency Park First 8.375 23,382 10/17 2,654,481 2,710,189
Discount (e) (335,054) (354,345)
------------- --------------
2,319,427 2,355,844
------------- --------------
Sandpiper (b) First 8.150 47,046 07/03 (f) 5,332,418 5,456,817
Discount (e) (88,057) (106,428)
------------- --------------
5,244,361 5,350,389
------------- --------------
Spanish Oaks (d) First 7.710 28,546 01/03 (f) 3,892,238 3,932,977
------------- --------------
$ 36,140,300 $ 33,633,574
============= ==============
</TABLE>
<PAGE>
(a) The debt is non-recourse to the Partnership.
(b) Financing for the mortgage notes referenced above was obtained under the
terms of a Real Estate Mortgage Investment Conduit financing. The
referenced mortgage notes are cross-collateralized. Principal prepayments
made before July 2000 are subject to a Yield Maintenance Premium, as
defined. Additionally, the Partnership must pay a release payment equal
to 25% of the prepaid balance which will be applied to the remaining
referenced mortgage notes.
(c) On June 5, 1998, the Partnership refinanced the La Plaza mortgage note.
The new mortgage note bears interest at a variable rate equal to 1.75%
plus the London Interbank Offered Rate. The interest rate is adjusted
every three months. Terms of the mortgage note require monthly
interest-only debt service payments, plus annual principal payments equal
to 5% of the outstanding principal balance. At December 31, 1998, the
interest rate of the mortgage note was 6.97%. See Note 8 - "Refinancing
of Mortgage Notes."
(d) The Partnership refinanced the Spanish Oaks mortgage note on January
26, 1996. See Note 8 - "Refinancing of Mortgage Notes."
(e) The discount for the Regency Park mortgage note is based on an effective
interest rate of 10.375%. Discounts for the Briarwood, Orchard, Quail
Meadows and Sandpiper mortgage notes are based on an effective interest
rate of 8.622%.
(f) Balloon payments on the Partnership's mortgage notes are due as follows:
Property Balloon Payment Date
-------- --------------- ----
La Plaza......................... $ 2,874,462 06/01
Coppermill....................... 4,798,763 01/02
Spanish Oaks..................... 3,689,221 01/03
Briarwood........................ 1,804,449 07/03
Orchard.......................... 5,253,301 07/03
Quail Meadows.................... 4,987,151 07/03
Sandpiper........................ 4,628,805 07/03
Scheduled principal maturities of the Partnership's mortgage notes, but before
consideration of discounts of $652,038, are shown below.
1999............................. $ 995,200
2000............................. 1,061,043
2001............................. 3,864,574
2002............................. 5,823,614
2003............................. 21,073,950
Thereafter....................... 3,973,957
------------
$ 36,792,338
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of the
Partnership's mortgage notes payable was approximately $36,914,000 and
$35,310,000 at December 31, 1998 and 1997, respectively.
<PAGE>
NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE
- ------------------------------------------
The following table sets forth the Partnership's mortgage note payable due to an
affiliate at December 31, 1998 and 1997. The affiliate mortgage note was secured
by the La Plaza Office Center. The Partnership refinanced the La Plaza affiliate
mortgage note on June 5, 1998 with a mortgage note due to a non-affiliate. See
Note 8 "Refinancing of Mortgage Notes."
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date 1998 1997
- -------- ------------ ------- ------------------ --------------- -----------
<S> <C> <C> <C> <C> <C>
La Plaza (b) First (c) (c) $ -- $ 3,136,029
------------- ----------
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) On February 28, 1997, the Partnership refinanced the La Plaza mortgage
note with a $2,336,029 mortgage note from McNeil Real Estate Fund
XXVII, L.P. ("Fund XXVII"), an affiliate of the General Partner. On
August 1, 1997, the La Plaza affiliate mortgage note was amended to
increase the principal amount of the affiliate mortgage note by
$800,000 to $3,136,029. The Partnership used the $800,000 additional
borrowings to repay the $800,000 Lakeview Plaza second mortgage note
that was also due to Fund XXVII. The La Plaza affiliate mortgage note
was fully repaid in 1998 with the proceeds from a new mortgage loan
from an unaffiliated lender. See Note 8 - "Refinancing of Mortgage
Notes."
(c) The affiliate mortgage note due to Fund XXVII required monthly
interest-only payments equal to 1% plus the prime lending rate of Bank
of America. The prime lending rate of Bank of America was 8.5% at
December 31, 1997. The maturity date of the affiliate mortgage note was
February 28, 2000.
Under terms of the Amended Partnership Agreement, borrowings from affiliates
approximate fair market value.
<PAGE>
NOTE 7 - SALES OF REAL ESTATE
- ------------------------------
On June 5, 1997, the Partnership sold Cave Spring Corners Shopping Center to an
unaffiliated purchaser for a cash sales price of $5,250,000. Cave Spring Corners
Shopping Center is located in Roanoke, Virginia. Cash proceeds from this
transaction, as well as the gain on sale are detailed below.
<TABLE>
<CAPTION>
Gain on Sale Cash Proceeds
---------------- ---------------
<S> <C> <C>
Cash sales price..................................... $ 5,250,000 $ 5,250,000
Selling costs........................................ (15,346) (15,346)
Deferred borrowing costs written off................. (3,901)
Straight-line rent receivables written off........... (33,977)
Prepaid leasing commissions written off.............. (25,232)
Basis of real estate sold............................ (2,259,104)
------------- -------------
Gain on sale......................................... $ 2,912,440
==============
Proceeds from sale of real estate.................... 5,234,654
Retirement of mortgage note.......................... (3,058,762)
-------------
Net cash proceeds.................................... $ 2,175,892
=============
On December 12, 1997, the Partnership sold Iberia Plaza to an unaffiliated
purchaser for a cash sales price of $3,384,000. Iberia Plaza is located in New
Iberia, Louisiana. Cash proceeds from this transaction, as well as the gain on
sale are detailed below.
Gain on Sale Cash Proceeds
---------------- ---------------
Cash sales price..................................... $ 3,384,000 $ 3,384,000
Selling costs........................................ (88,447) (88,447)
Mortgage discount written off........................ (43,378)
Deferred borrowing costs written off................. (1,763)
Straight-line rent receivables written off........... (15,791)
Prepaid leasing commissions written off.............. (27,852)
Basis of real estate sold............................ (3,055,771)
------------- -------------
Gain on sale......................................... $ 150,998
==============
Proceeds from sale of real estate.................... 3,295,553
Retirement of mortgage note.......................... (1,791,847)
-------------
Net cash proceeds.................................... $ 1,503,706
=============
</TABLE>
<PAGE>
On September 18, 1996, the Partnership sold Parkway Plaza to an unaffiliated
purchaser for a cash sales price of $2,900,000. Parkway Plaza is located in
Lafayette, Louisiana. Cash proceeds from this transaction, as well as the gain
on sale are detailed below.
<TABLE>
<CAPTION>
Gain on Sale Cash Proceeds
---------------- ---------------
<S> <C> <C>
Cash sales price..................................... $ 2,900,000 $ 2,900,000
Selling costs........................................ (71,949) (71,949)
Mortgage discount written off........................ (250,817)
Straight-line rent receivables written off........... (56,303)
Basis of real estate sold............................ (2,245,507)
------------- -------------
Gain on sale......................................... $ 275,424
==============
Proceeds from sale of real estate.................... 2,828,051
Retirement of mortgage note.......................... (2,544,466)
-------------
Net cash proceeds.................................... $ 283,585
=============
</TABLE>
On January 9, 1996, the Partnership sold an outparcel of land, amounting to
0.675 acres, connected with Iberia Plaza for a purchase price of $142,985. The
Partnership recorded a $77,965 gain on the sale. Proceeds from the sale of the
outparcel were used to pay down the Iberia Plaza mortgage note.
NOTE 8 - REFINANCING OF MORTGAGE NOTES
- --------------------------------------
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with
a $2,336,029 affiliate mortgage note from Fund XXVII. The affiliate mortgage
note bore interest at a variable interest rate equal to 1% plus the prime
lending rate of Bank of America, and required monthly interest-only debt service
payments until the affiliate mortgage note's February 28, 2000 maturity date.
Cash used to close the refinancing transaction was as follows:
New loan proceeds................................... $ 2,336,029
Amount required to payoff existing debt............. (2,373,955)
------------
Cash used to refinance mortgage note................ $ (37,926)
===========
<PAGE>
On August 1, 1997, the Partnership and Fund XXVII amended the La Plaza affiliate
mortgage note to increase the principal amount by $800,000. The Partnership used
the $800,000 additional borrowing to repay the Lakeview Plaza second mortgage
note that was also due to Fund XXVII.
On June 5, 1998, the Partnership refinanced the La Plaza affiliate mortgage note
with a $3,785,000 mortgage note from an unaffiliated lender. However, only
$3,185,000 of the mortgage note has been funded by the lender. The remaining
$600,000 of loan proceeds will be funded to the Partnership as required for the
completion of tenant improvements at La Plaza Office Building, if such tenant
improvements are needed to induce prospective or current tenants to lease or
release space at the property. The outstanding balance of the new La Plaza
mortgage note bears interest at a variable rate equal to 1.75% plus the London
Interbank Offered Rate per annum. The new La Plaza mortgage note requires
monthly interest-only debt service payments and annual principal payments equal
to 5% of the outstanding principal balance of the mortgage note. Terms of the
new La Plaza mortgage note require the Partnership to deposit funds into a
restricted cash account on a quarterly basis and are included in "Cash
restricted for mortgage payments" on the Balance Sheet. The restricted funds
will be used to pay the annual principal payment. The new La Plaza mortgage note
matures on June 5, 2001. Cash proceeds from the refinancing transaction are as
follows:
New loan proceeds.................................... $ 3,785,000
Holdback for capital improvements.................... (600,000)
Amount required to payoff existing debt.............. (3,136,029)
------------
Cash proceeds from refinancing....................... $ 48,971
============
The Partnership incurred $70,243 of deferred borrowing costs related to the
refinancing of the La Plaza mortgage note.
On January 26, 1996, the Partnership refinanced the Spanish Oaks mortgage note.
The new mortgage note, in the amount of $4,000,000, bears interest at 7.71%,
requires monthly principal and interest payments of $28,546, and matures on
January 26, 2003. Cash proceeds from the refinancing transaction received in
1996 are as follows:
New loan proceeds.................................... $ 4,000,000
New loan proceeds placed in escrow................... (3,399,592)
------------
Proceeds received in 1996............................ $ 600,408
============
See Note 9 - "Gain on Extinguishment of Debt" for a discussion of proceeds from
the refinancing transaction received in 1997.
The Partnership incurred $166,403 of deferred borrowing costs related to the
refinancing of the Spanish Oaks mortgage note. The Partnership was also required
to fund $165,291 into various escrows for property taxes, hazard insurance and
deferred maintenance.
<PAGE>
NOTE 9 - GAIN ON EXTINGUISHMENT OF DEBT
- ---------------------------------------
In connection with the refinancing of the Spanish Oaks mortgage note (see Note 8
- - "Refinancing of Mortgage Notes"), the Partnership and the former mortgage note
holder did not agree on the amount of funds necessary to retire the former
mortgage note. At the time the mortgage note was refinanced, the Partnership and
the former mortgage note holder agreed to place $3,399,592 of the proceeds from
the new mortgage note in escrow pending negotiations regarding the amount of
funds necessary to retire the former mortgage note. The excess of the carrying
amount of the former mortgage note over the funds placed in escrow was recorded
in 1996 as a $269,596 extraordinary gain on extinguishment of debt. Neither the
former mortgage note nor the related funds placed in escrow were included on the
Partnership's December 31, 1996 Balance Sheet.
On June 26, 1997, the Partnership and the former mortgage note holder reached an
agreement to retire the former mortgage note for $3,046,000. The funds in the
escrow account in excess of $3,046,000, plus accrued interest thereon, were
released to the Partnership. The funds so released amounted to $602,961. The
payment to the Partnership resulted in a $518,495 extraordinary gain on
extinguishment of debt, computed as follows:
New loan proceeds placed in escrow................... $ 3,399,592
Interest earned on funds placed in escrow............ 249,369
Amount required to payoff former mortgage
note payable....................................... (3,046,000)
------------
Escrowed funds released to Partnership............... 602,961
Interest recorded on funds placed in escrow.......... (41,206)
Litigation and other costs........................... (43,260)
------------
Cash proceeds received in 1997 as
extraordinary gain on extinguishment
of debt............................................ $ 518,495
============
NOTE 10 - GAIN ON INVOLUNTARY CONVERSION
- ----------------------------------------
On March 31, 1996, a fire destroyed or damaged 16 units and 2 laundry rooms at
Regency Park Apartments. The total cost to repair the fire damage was $530,148.
The Partnership's insurance carrier will reimburse the Partnership for all costs
incurred as a result of the fire less a standard deductible. The excess of cash
to be received over the basis of the property destroyed in the fire resulted in
a $350,927 gain on involuntary conversion.
Because only part of the insurance proceeds were received by December 31, 1996,
only $285,127 of the gain on involuntary conversion was recognized on the
Partnership's Statement of Operations for the year ended December 31, 1996. The
remainder of the gain was shown as a $65,800 deferred gain on involuntary
conversion on the Partnership's December 31, 1996 Balance Sheet. The $65,800
deferred gain was recognized in 1997 as a gain on involuntary conversion when
the Partnership received the remaining proceeds of $96,303 from its insurance
carrier.
<PAGE>
NOTE 11 - LEGAL PROCEEDINGS
- ---------------------------
The Partnership is not party to, nor are any of the Partnership's properties the
subject of, any material pending legal proceedings, other than ordinary, routine
litigation incidental to the Partnership's business, except for the following:
James F. Schofield, Gerald C. Gillett, Donna S. Gillett, Jeffrey Homburger,
Elizabeth Jung, Robert Lewis, and Warren Heller et al. v. McNeil Partners L.P.,
McNeil Investors, Inc., McNeil Real Estate Management, Inc., Robert A. McNeil,
Carole J. McNeil, McNeil Pacific Investors Fund 1972, Ltd., McNeil Real Estate
Fund IX, Ltd., McNeil Real Estate Fund X, Ltd., McNeil Real Estate Fund XI,
Ltd., McNeil Real Estate Fund XII, Ltd., McNeil Real Estate Fund XIV, Ltd.,
McNeil Real Estate Fund XV, Ltd., McNeil Real Estate Fund XX, L.P., McNeil Real
Estate Fund XXI, L.P., McNeil Real Estate Fund XXII, L.P., McNeil Real Estate
Fund XXIII, L.P., McNeil Real Estate Fund XXIV, L.P., McNeil Real Estate Fund
XXV, L.P., McNeil Real Estate Fund XXVI, L.P., and McNeil Real Estate Fund
XXVII, L.P., Hearth Hollow Associates, McNeil Midwest Properties I, L.P. and
Regency North Associates, L.P., - Superior Court of the State of California for
the County of Los Angeles, Case No. BC133799 (Class and Derivative Action
Complaint).
The action involves purported class and derivative actions brought by limited
partners of each of the limited partnerships that were named as nominal
defendants as listed above (the "Partnerships"). Plaintiffs allege that McNeil
Investors, Inc., its affiliate McNeil Real Estate Management, Inc. and three of
their senior officers and/or directors (collectively, the "Defendants") breached
their fiduciary duties and certain obligations under the respective Amended
Partnership Agreement. Plaintiffs allege that Defendants have rendered such
Units highly illiquid and artificially depressed the prices that are available
for Units on the resale market. Plaintiffs also allege that Defendants engaged
in a course of conduct to prevent the acquisition of Units by an affiliate of
Carl Icahn by disseminating purportedly false, misleading and inadequate
information. Plaintiffs further allege that Defendants acted to advance their
own personal interests at the expense of the Partnerships' public unit holders
by failing to sell Partnership properties and failing to make distributions to
unitholders.
On December 16, 1996, the Plaintiffs filed a consolidated and amended complaint.
Plaintiffs are suing for breach of fiduciary duty, breach of contract and an
accounting, alleging, among other things, that the management fees paid to the
McNeil affiliates over the last six years are excessive, that these fees should
be reduced retroactively and that the respective Amended Partnership Agreements
governing the Partnerships are invalid.
Defendants filed a demurrer to the consolidated and amended complaint and a
motion to strike on February 14, 1997, seeking to dismiss the consolidated and
amended complaint in all respects. A hearing on Defendant's demurrer and motion
to strike was held on May 5, 1997. The Court granted Defendants' demurrer,
dismissing the consolidated and amended complaint with leave to amend. On
October 31, 1997, the Plaintiffs filed a second consolidated and amended
complaint. The case was stayed pending settlement discussions. A Stipulation of
Settlement dated September 15, 1998 has been signed by the parties. Preliminary
Court approval was received on October 6, 1998. A hearing for Final Approval of
Settlement, initially scheduled for December 17, 1998, has been continued to May
25, 1999.
<PAGE>
Because McNeil Real Estate Fund XXIII, L.P., Hearth Hollow Associates, McNeil
Midwest Properties I, L.P. and Regency North Associates, L.P. would be part of
the transaction contemplated in the settlement and Plaintiffs claim that an
effort should be made to sell the McNeil Partnerships, Plaintiffs have included
allegations with respect to McNeil Real Estate Fund XXIII, L.P., Hearth Hollow
Associates, McNeil Midwest Properties I, L.P. and Regency North Associates, L.P.
in the third consolidated and amended complaint.
Plaintiff's counsel intends to seek an order awarding attorney's fees and
reimbursements of their out-of-pocket expenses. The amount of such award is
undeterminable until final approval is received from the court. Fees and
expenses shall be allocated amongst the Partnerships on a pro rata basis, based
upon tangible asset value of each such partnership, less total liabilities,
calculated in accordance with the Amended Partnership Agreements for the quarter
most recently ended.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
Environmental laws create potential liabilities that may affect property owners.
The environmental laws of Federal and certain state governments, for example,
impose liability on current and certain past owners of property from which there
is a release or threat of release of hazardous substances. This liability
includes costs of investigation and remediation of the hazardous substances and
natural resource damages. Liability for costs of investigation and remediation
is strict and may be imposed irrespective of whether the property owner was at
fault, although there are a number of defenses. Both governments and third
parties may seek recoveries under these laws.
Third parties also may seek recovery under the common law for damages to their
property or person, against owners of property from which there has been a
release of hazardous and other substances.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral.
Various buildings at properties do or may contain building materials that are
the subject of various regulatory programs intended to protect human health.
Such building materials include, for example, asbestos, lead-based paint, and
lead plumbing components. The Company has implemented programs to deal with the
presence of those materials, which include, as appropriate, reduction of
potential exposure situations. The Company does not believe that the costs of
such programs are likely to have a material adverse effect. Failure to implement
such programs can result in regulatory violations or liability claims resulting
from alleged exposure to such materials.
In connection with the proposed sale transaction as more fully described in Note
1 - "Organization and Summary of Significant Accounting Policies", Phase I
environmental site assessments have been completed for each property owned by
the Partnership. Such environmental assessments performed on the properties have
not revealed any environmental liability that the Partnership believes would
have a material adverse effect on the Partnership's business, assets, or results
of operations. The Partnership has not been notified by any governmental
authority of any non-compliance, liability or other claim in connection with any
of its properties. There can be no assurances, however, that environmental
liabilities have not developed since such environmental assessments were
prepared, or that future uses or conditions (including, without limitation,
changes in applicable environmental laws and regulations) will not result in
imposition of environmental liability.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1998
<TABLE>
<CAPTION>
Costs
Initial Cost (b) Cumulative Capitalized
Related Buildings and Write-down for Subsequent
Description Encumbrances (b) Land Improvements Impairment (c) To Acquisition
- ----------- ---------------- ---- -------------- --------------- --------------
Apartments:
Briarwood
<S> <C> <C> <C> <C> <C>
Tucson, AZ $ 2,044,440 $ 489,437 $ 4,356,477 $ - $ 968,221
Coppermill
Tulsa, OK 4,927,868 1,176,980 13,146,794 (2,600,000) 2,001,654
Orchard
Lawrence, IN 5,951,986 366,938 7,611,708 - 2,221,076
Quail Meadows
Wichita, KS 5,644,355 754,551 9,387,261 - 1,975,342
Regency Park
Fort Wayne, IN 2,319,427 280,131 4,060,970 - 1,558,824
Sandpiper
Westminster, CO 5,244,361 866,107 5,991,007 - 2,208,142
Spanish Oaks
San Antonio, TX 3,892,238 586,056 4,618,711 - 1,757,684
Office Building:
La Plaza
Las Vegas, NV 3,185,000 2,761,442 4,388,847 - 2,576,897
Retail Center:
Lakeview Plaza
Lexington, KY 2,930,625 1,554,404 6,986,277 (129,914) 670,582
-------------- -------------- -------------- ------------ -------------
$ 36,140,300 $ 8,836,046 $ 60,548,052 $ (2,729,914) $ 15,938,422
============== ============== ============== ============ =============
</TABLE>
(b) The initial cost and encumbrances reflect the present value of future loan
payments discounted, if appropriate, at a rate estimated to be the
prevailing interest rate at the date of acquisition or refinancing.
(c) The carrying value of Coppermill Apartments was reduced by $1,228,000
and $1,372,000 in 1986 and 1989, respectively. The carrying value of
Lakeview Plaza was reduced by $129,914 in 1991.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1998
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period Accumulated
Buildings and Depreciation
Description Land Improvements Total (a) and Amortization
- ----------- ---- -------------- --------- ----------------
Apartments:
Briarwood
<S> <C> <C> <C> <C>
Tucson, AZ $ 489,437 $ 5,324,698 $ 5,814,135 $ (4,165,876)
Coppermill
Tulsa, OK 1,176,980 12,548,448 13,725,428 (10,682,995)
Orchard
Lawrence, IN 366,938 9,832,784 10,199,722 (7,178,499)
Quail Meadows
Wichita, KS 754,551 11,362,603 12,117,154 (8,363,537)
Regency Park
Fort Wayne, IN 280,131 5,619,794 5,899,925 (4,083,533)
Sandpiper
Westminster, CO 866,107 8,199,149 9,065,256 (5,730,914)
Spanish Oaks
San Antonio, TX 586,056 6,376,395 6,962,451 (4,838,654)
Office Building:
La Plaza
Las Vegas, NV 2,761,442 6,965,744 9,727,186 (5,201,127)
Retail Center:
Lakeview Plaza
Lexington, KY 1,554,404 7,526,945 9,081,349 (5,685,057)
-------------- -------------- ---------------- -------------
$ 8,836,046 $ 73,756,560 $ 82,592,606 $ (55,930,192)
============== ============== ================ =============
</TABLE>
(a) For Federal income tax purposes, the properties are depreciated over lives
ranging from 5-27.5 years using ACRS or MACRS methods. The aggregate cost
of real estate investments for Federal income tax purposes was $66,781,745
and accumulated depreciation and amortization was $44,860,488 at December
31, 1998.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION
December 31, 1998
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
Apartments:
Briarwood
<S> <C> <C> <C>
Tucson, AZ 1978 07/80 4-33
Coppermill
Tulsa, OK 1978 10/80 6-38
Orchard
Lawrence, In 1973 12/80 3-33
Quail Meadows
Wichita, KS 1978 06/80 6-35
Regency Park
Fort Wayne, IN 1970 06/80 3-30
Sandpiper
Westminster, CO 1974 04/80 3-34
Spanish Oaks
San Antonio, TX 1968 08/80 3-30
Office Building:
La Plaza
Las Vegas, NV 1977 09/80 4-34
Retail Center:
Lakeview Plaza
Lexington, KY 1979 07/80 15-35
</TABLE>
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
Notes to Schedule III
Real Estate Investments and Accumulated Depreciation and Amortization
A summary of activity for the Partnership's real estate investments, accumulated
depreciation and amortization, and assets held for sale is as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1998 1997 1996
------------ ------------ ------------
Real estate investments:
<S> <C> <C> <C>
Balance at beginning of year .................. $ 81,380,790 $ 79,946,309 $ 89,351,035
Improvements .................................. 1,211,816 1,434,481 2,233,614
Sale of real estate ........................... -- -- (52,359)
Assets replaced ............................... -- -- (370,287)
Reclassification of assets held
for sale ................................... -- -- (11,215,694)
------------ ------------ ------------
Balance at end of year ........................ $ 82,592,606 $ 81,380,790 $ 79,946,309
============ ============ ============
Accumulated depreciation and amortization:
Balance at beginning of year .................. $ 52,814,364 $ 49,689,189 $ 52,651,505
Depreciation and amortization ................. 3,115,828 3,125,175 3,232,454
Assets replaced ............................... -- -- (201,066)
Reclassification of assets held
for sale ................................... -- -- (5,993,704)
------------ ------------ ------------
Balance at end of year ........................ $ 55,930,192 $ 52,814,364 $ 49,689,189
============ ============ ============
Assets Held for Sale:
Balance at beginning of year .................. $ -- $ 5,308,731 $ 2,237,733
Reclassification of assets held
for sale ................................... -- -- 5,221,990
Improvements .................................. 6,144 94,515
Sale of assets held for sale .................. -- (5,314,875) (2,245,507)
------------ ------------ ------------
Balance at end of year ........................ $ -- $ -- $ 5,308,731
============ ============ ============
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Neither the Partnership nor the General Partner has any directors or executive
officers. The names and ages of, as well as the positions held by, the officers
and directors of McNeil Investors, Inc., the general partner of the General
Partner, are as follows:
Other Principal Occupations and Other
Name and Position Age Directorships During the Past 5 Years
- ----------------- --- -------------------------------------
Robert A. McNeil, 78 Mr. McNeil is also Chairman of the
Chairman of the Board and Director of McNeil Real Estate
Board and Director Management, Inc. ("McREMI") which is an
affiliate of the General Partner. He has
held the foregoing positions since the
formation of such an entity in 1990. Mr.
McNeil received his B.A. degree from
Stanford University in 1942 and his
L.L.B. degree from Stanford Law School
in 1948. He is a member of the State Bar
of California and has been involved in
real estate financing since the late
1940's and in real estate acquisitions,
syndications and dispositions since
1960. From 1986 until active operations
of McREMI and McNeil Partners, L.P.
began in February 1991, Mr. McNeil was a
private investor. Mr. McNeil is a member
of the International Board of Directors
of the Salk Institute, which promotes
research in improvements in health care.
<PAGE>
Carole J. McNeil 55 Mrs. McNeil is Co-Chairman, with husband
Co-Chairman of the Robert A. McNeil, of McNeil Investors,
Board Inc. Mrs. McNeil has twenty years of
real estate experience, most recently as
a private investor from 1986 to 1993. In
1982, she founded Ivory & Associates, a
commercial real estate brokerage firm in
San Francisco, CA. Prior to that, she
was a commercial real estate associate
with the Madison Company and, earlier, a
commercial sales associate and analyst
with Marcus and Millichap in San
Francisco. In 1978, Mrs. McNeil
established Escrow Training Centers,
California's first accredited commercial
training program for title company
escrow officers and real estate agents
needing college credits to qualify for
brokerage licenses. She began in real
estate as Manager and Marketing Director
of Title Insurance and Trust in Marin
County, CA. Mrs. McNeil serves on the
International Board of Directors of the
Salk Institute.
Ron K. Taylor 41 Mr. Taylor is the President and Chief
President and Chief Executive Officer of McNeil Real Estate
Executive Officer Management which is an affiliate of the
General Partner. Mr. Taylor has been in
this capacity since the resignation of
Donald K. Reed on March 4, 1997. Prior
to assuming his current
responsibilities, Mr. Taylor served as a
Senior Vice President of McREMI. Mr.
Taylor has been in this capacity since
McREMI commenced operations in 1991.
Prior to joining McREMI, Mr. Taylor
served as an Executive Vice President
for a national syndication/property
management firm. In this capacity, Mr.
Taylor had the responsibility for the
management and leasing of a 21,000,000
square foot portfolio of commercial
properties. Mr. Taylor has been actively
involved in the real estate industry
since 1983.
Each director shall serve until his successor shall have been duly elected and
qualified.
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
No direct compensation was paid or payable by the Partnership to directors or
officers (since it does not have any directors or officers) for the year ended
December 31, 1998, nor was any direct compensation paid or payable by the
Partnership to directors or officers of the general partner of the General
Partner for the year ended December 31, 1998. The Partnership has no plans to
pay any such remuneration to any directors or officers of the general partner of
the General Partner in the future.
See Item 13 - Certain Relationships and Related Transactions for amounts of
compensation and reimbursements paid by the Partnership to the General Partner
and its affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
(A) Security ownership of certain beneficial owners.
No individual or group, as defined by Section 13(d)(3) of the
Securities Exchange Act of 1934, known to the Partnership is the
beneficial owner of more than 5 percent of the Partnership's securities
except as noted below:
1. High River Limited Partnership, 100 S. Bedford Road, Mount
Kisco, New York, 10549, owns 11,836 Units (8.8%) as of
February 1, 1999.
(B) Security ownership of management.
The General Partner and the officers and directors of its general
partner collectively own 1,732 Units (1.3%) as of February 1, 1999.
(C) Change in control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Under terms of the Amended Partnership Agreement, the Partnership is paying the
MID to the General Partner. The maximum MID is calculated as 1% of the
Partnership's tangible asset value. Tangible asset value is determined by using
the greater of (i) an amount calculated by applying a capitalization rate of 9%
to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit for residential property and $50 per gross square
foot for commercial property to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items. The maximum MID percentage decreases to .75%
in 2000, .50% in 2001 and .25% thereafter.
<PAGE>
MID will be paid to the extent of the lesser of the Partnership's excess cash
flow, as defined, or net operating income (the "Entitlement Amount"), and may be
paid (i) in cash, unless there is insufficient cash to pay the distribution in
which event any unpaid portion not taken in Units will be deferred and is
payable, without interest, from the first available cash and/or (ii) in Units. A
maximum of 50% of the MID may be paid in Units. The number of Units issued in
payment of the MID is based on the greater of $50 per Unit or the net tangible
asset value, as defined, per Unit. For the year ended December 31, 1998, the
Partnership accrued MID in the amount of $884,065.
Any amount of the MID which is paid to the General Partner in Units will be
treated as if cash is distributed to the General Partner and is then contributed
to the Partnership by the General Partner. The MID represents a return of equity
to the General Partner for increasing cash flow, as defined, and accordingly is
treated as a distribution.
The Partnership pays property management fees equal to 5% of gross rental
receipts of the Partnership's properties to McREMI for providing property
management and leasing services for the Partnership's residential properties and
property management services for the Partnership's commercial properties. The
Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs. For the year ended December 31, 1998,
the Partnership paid or accrued $1,087,283 in property management fees and
reimbursements.
On February 28, 1997, the Partnership refinanced the La Plaza mortgage note with
a $2,336,029 mortgage note obtained from McNeil Real Estate Fund XXVII, L.P.
("Fund XXVII"), an affiliate of the General Partner. The new mortgage note was
secured by a first lien on La Plaza Office Building. On August 1, 1997, the La
Plaza mortgage note was amended to increase the amount outstanding by $800,000
to $3,136,029. The mortgage note bore a variable interest rate of 1% plus the
prime lending rate of Bank of America. The mortgage note was refinanced with an
unaffiliated lender on June 5, 1998. Total interest expense for this mortgage
note was $138,268 for the year ended December 31, 1998.
See Item 1 - Business, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, Item 8 - Note 2 - "Transactions
with Affiliates" and Note 6 - "Mortgage Note Payable - Affiliate."
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
- -------- -----------------------------------------------------------------
See accompanying index to Financial Statements at Item 8 - Financial Statements
and Supplementary Date.
(A) The following documents are incorporated by reference and are an integral
part of this report:
Exhibits
Exhibit
Number Description
------- -----------
3. Limited Partnership Agreement
(Incorporated by reference to the
Annual Report on Form 10-K for the
fiscal year ended September 30,
1987).
3.1 The Amended and Restated Limited
Partnership Agreement (incorporated
by reference to the Quarterly Report
on Form 10-Q for the quarter ended
September 30, 1991).
3.2 Amendment No. 1 to the Amended and
Restated Partnership Agreement of
McNeil Real Estate Fund X, Ltd.
dated to be effective July 31, 1993.
(4)
3.3 Amendment No. 2 to the Amended and
Restated Partnership Agreement of
McNeil Real Estate Fund X, Ltd.
dated March 28, 1994. (4)
10.1 Assignment and Assumption Agreement,
dated as of October 9, 1991, between
Pacific Investors Corporation,
Robert A. McNeil and McNeil
Partners, L.P. regarding McNeil Real
Estate Fund X, Ltd. (1)
10.2 Property Management Agreement, dated
as of October 9, 1991, between
McNeil Real Estate Fund X, Ltd. and
McNeil Real Estate Management, Inc.
(1)
10.3 Asset Management Agreement, dated
as of October 9, 1991, between
McNeil Real Estate Fund X, Ltd. and
McNeil Partners, L.P. (1)
10.5 Amendment of Property Management
Agreement dated March 5, 1993,
between the Partnership and McNeil
Real Estate Management, Inc. (2)
10.6 Loan Agreement dated June 24, 1993,
between Lexington Mortgage Company
and McNeil Real Estate Fund X, Ltd.,
et. al. (3)
10.7 Master Property Management Agree-
ment, dated as of June 24, 1993,
between McNeil Real Estate
Management, Inc. and McNeil Real
Estate Fund X, Ltd. (4)
<PAGE>
Exhibit
Number Description
------- -----------
10.8 Multifamily Note, dated as of
December 8, 1994, between Coppermill
Fund X Limited Partnership and Arbor
National Commercial Mortgage
Corporation. (5)
10.12 Promissory Note, dated February 25,
1992, between McNeil Real Estate
Fund X, Ltd. and Life Insurance
Company of the Southwest. (5)
10.13 Multifamily Note, dated September
4, 1992, between Regency Park Fund X
Associates, L.P. and Metmor
Financial, Inc. (5)
10.15 Note, dated July 1, 1978, between
M H Kentucky Ventures and First of
Boston Mortgage Corporation. (5)
10.18 Property Management Agreement, dated
November 30, 1994, between
Coppermill Fund X Limited
Partnership and McNeil Real Estate
Management, Inc. (5)
10.19 Promissory Note, dated June 5, 1998,
between La Plaza Center Fund X
Limited Partnership and NationsBank,
N.A.
11. Statement regarding computation of
Net income (loss) per Limited
Partnership Unit (see Item 8 - Note
1 - "Organization and Summary of
Significant Accounting Policies").
22. List of subsidiaries of the
Partnership.
<TABLE>
<CAPTION>
Names Under
Jurisdiction of Which It Is
Name of Subsidiary Incorporation Doing Business
------------------ ---------------- --------------
Briarwood Fund X
<S> <C> <C>
Limited Partnership Delaware None
Coppermill Fund X
Limited Partnership Texas None
La Plaza Center Fund X
Limited Partnership Nevada None
Orchard Fund X
Limited Partnership Delaware None
Quail Meadows Fund X
Limited Partnership Delaware None
Regency Park Fund X
Associates, L.P. Indiana None
Sandpiper Fund X
Limited Partnership Delaware None
Spanish Fund X, Ltd. Texas None
</TABLE>
27. Financial Data Schedule for the year
ended December 31, 1998.
(1) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund X, Ltd., (File No. 0-9325), on
Form 10-K for the period ended
December 31, 1991, as filed with the
Securities and Exchange Commission
on March 30, 1992.
(2) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund X, Ltd. (File No. 0-9325), on
Form 10-K for the period ended
December 31, 1992, as filed with the
Securities and Exchange Commission
on March 30, 1993.
(3) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund XI, Ltd. (File No. 0-9783), on
Form 10-K for the period ended
December 31, 1993, as filed with the
Securities and Exchange Commission
on March 30, 1994.
(4) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund X, Ltd. (File No. 0-9325), on
Form 10-K for the period ended
December 31, 1993, as filed with the
Securities and Exchange Commission
on March 30, 1994.
(5) Incorporated by reference to the
Annual Report of McNeil Real Estate
Fund X, Ltd. (File No. 0-9325), on
Form 10-K for the period ended
December 31, 1994, as filed with the
Securities and Exchange Commission
on March 30, 1995.
The Partnership has omitted instruments with respect to long-term debt where the
total amount of the securities authorized thereunder does not exceed 10% of the
total assets of the Partnership. The Partnership agrees to furnish a copy of
each such instrument to the Commission upon request.
(B) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended December 31, 1998.
<PAGE>
McNEIL REAL ESTATE FUND X, LTD.
A Limited Partnership
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
McNEIL REAL ESTATE FUND X, LTD.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
March 31, 1999 By: /s/ Robert A. McNeil
- -------------- ---------------------------------------------
Date Robert A. McNeil
Chairman of the Board and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
March 31, 1999 By: /s/ Ron K. Taylor
- -------------- ---------------------------------------------
Date Ron K. Taylor
President and Director of McNeil
Investors, Inc.
(Principal Financial Officer)
March 31, 1999 By: /s/ Brandon K. Flaming
- -------------- ---------------------------------------------
Date Brandon K. Flaming
Vice President of McNeil Investors, Inc.
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,680,102
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 82,592,606
<DEPRECIATION> (55,930,192)
<TOTAL-ASSETS> 32,051,540
<CURRENT-LIABILITIES> 0
<BONDS> 36,140,300
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32,051,540
<SALES> 14,890,624
<TOTAL-REVENUES> 15,076,467
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,763,860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,469,677
<INCOME-PRETAX> (157,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (157,070)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
PROMISSORY NOTE
$3,785,000.00 Dallas, Texas June 5, 1998
FOR VALUE RECEIVED, LA PLAZA CENTER FUND X LIMITED PARTNERSHIP, a
Nevada limited partnership ("Maker"), hereby promises to pay to the order of
NATIONSBANK, N.A., a national banking association ("Lender"), at its banking
house in the City of Dallas, Dallas County, Texas, the principal sum of THREE
MILLION SEVEN HUNDRED EIGHTY-FIVE THOUSAND AND NO/100 DOLLARS ($3,785,000.00)
(the "Maximum Principal Amount") (or the unpaid balance of all principal
advanced against this Note, if that amount is less), together with interest on
the unpaid principal balance of this Note from day to day outstanding, as
hereinafter provided.
1. Definitions. When used in this Note, the following terms
shall have the following meanings:
(a) "Adjusted LIBOR Rate" means a rate per annum equal to the
quotient (rounded upwards, if necessary, to the next higher
one/one-hundredth [1/100] of one percent [1%]) obtained by dividing (i)
the applicable "Euro-Dollar" (as such term is hereafter defined) by
(ii) 1.00 minus the "Euro-Dollar Reserve Percentage" (as such term is
hereafter defined) and increased by the amount of any impositions,
assessments or other reserves (collectively, the "Assessments") to
which Lender or any participant (a "Participant") in the Loan may be or
become subject, including, but not limited to, the cost of Federal
Deposit Insurance Corporation insurance or other insurance, and other
fees, assessments and surcharges allocable to Lender's sale of the
certificate(s) of deposit that establish the Euro-Dollar with respect
to a particular Matching Funds Election; provided that the Adjusted
LIBOR Rate shall automatically be adjusted from time to time during the
term of a Matching Funds Election to account for any fluctuations in
the Euro-Dollar Reserve Percentage and the other costs to Lender of
such Assessments.
(b) "Advance" means a disbursement by Lender, whether by
journal entry, deposit to Maker's account, check to third party or
otherwise of any of the proceeds of the Loan.
(c) "Election" means a Matching Funds Election.
(d) "Euro-Dollar Business Days" means any domestic
business day on which commercial banks are open for international
business (including dealings in U.S. dollar deposits) in London.
(e) "Euro-Dollar Rate" means the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of any interest
period for a term comparable to such interest period. If for any reason
such rate is not available, the term "Eurodollar Rate" shall mean the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of an interest
period for a term comparable to such interest period; provided,
however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such
rates.
<PAGE>
(f) "Euro-Dollar Reserve Percentage" means for any day during
the term of this Note, that percentage (expressed as a decimal) that is
in effect on such day, as the same is prescribed by the Board of
Governors of the Federal Reserve System (or its successor) for
determining the maximum reserve requirement for Lender or any
Participant in respect of "Euro-currency liabilities" (or in respect of
any other category of liabilities which includes deposits, by reference
to which the interest rate on a borrowing is determined, or any
category of extensions of credit or other assets which includes loans
by a non-United States office of any bank to United States residents).
(g) "Formula Rate" means the per annum interest rate,
calculated for the applicable day, equal to the "Prime Rate" (as such
term is hereafter defined) for that day, computed for the actual number
of calendar days elapsed during which the principal of this Note is
outstanding but as if each year consisted of 360 days, subject to the
controlling terms of Section 2(d) hereinbelow.
(h) "Initial Advance" means the advance of a $3,185,000.00
portion of the Maximum Principal Amount to be made at the time of the
execution of this Note and the other Loan Documents.
(i) "Matching Funds Election" means an election by Maker to
cause a portion of the proceeds of the Loan to be segregated into a
separate account and to bear interest at the applicable "Matching Funds
Rate" rather than the "Stated Rate" (as such terms are hereafter
defined) for the term of the Election.
(j) "Matching Funds Principal" means the portion of the
proceeds of the Loan advanced to Maker which is segregated into an
account pursuant to an effective Election.
(k) "Matching Funds Rate" means a rate one hundred
seventy-five (175) basis points (the "LIBOR Rate Adjustment") per annum
in excess of the Adjusted LIBOR Rate as it exists from time to time.
(l) "Maturity Date" means the first to occur of (i) June 5,
2001; (ii) the date on which the entity comprising the Maker ceases to
exist; or (iii) the date on which Maker makes a Disposition [as defined
in the Mortgage (hereinafter defined)] of all or any portion of the
Property (hereinafter defined), other than a Permitted Disposition.
(m) "Maximum Lawful Rate" shall have the meaning ascribed
to such term in Section 14 hereof.
(n) Outstanding Principal Balance" means the portion of the
Maximum Principal Amount then advanced and outstanding and payable from
Maker to Lender in accordance with this Note. The Outstanding Principal
Balance shall be reduced by any Principal Reduction Payment and
interest earned on the Principal Reduction Account, as described
hereinbelow.
(o) "Past Due Rate" means, on any day, a rate per annum equal
to the lesser of (a) the Maximum Lawful Rate, or (b) the Stated Rate
plus four percent (4%) per annum computed for the actual number of
calendar days elapsed during which such a past due amount is
outstanding.
<PAGE>
(p) "Prime Rate" means that variable rate of interest per
annum established and announced by Lender at its principal office in
Dallas, Texas from time to time as its "prime rate." Such rate is set
by Lender as a general reference rate of interest, taking into account
such factors as Lender may deem appropriate, it being understood that
it is not necessarily the lowest or best rate actually charged to any
customer or a favored rate and that Lender may make various business or
other loans at rates of interest having no relationship to that rate.
(q) "Required Leases" means (i) the amendment to the existing
lease agreement between Maker and the Office of Civil Rights, amended
to reflect the finishing out of its space in accordance with the
provisions of Section 8 of this Note, and (ii) either (A) the amendment
to the existing lease agreement between Maker and the Environmental
Protection Agency, an agency of the United States of America, amended
to reflect an expansion of its existing space in accordance with the
provisions of Section 8 of this Note, or (B) the lease agreement
between Maker and a prospective tenant that is approved by Lender and
containing terms and with provisions acceptable to Lender in all
respects in Lender's sole and absolute discretion and in accordance
with the provisions of Section 8 of this Note.
(r) "Stated Rate" means, on any day, a rate per annum equal to
and calculated on the basis of the Formula Rate. If on any day the
Stated Rate shall exceed the maximum permitted by application of the
Maximum Lawful Rate in effect on that day, the Stated Rate shall be
fixed at the maximum permitted by application of the Maximum Lawful
Rate on that day and on each day thereafter until the total amount of
interest accrued at the fixed Stated Rate on the unpaid balance of this
Note equals the total amount of interest which would have accrued if
there were no limitation by the Maximum Lawful Rate and the Stated Rate
had not been so fixed.
(s) "Tenant Improvement Advances" means the advances of the
remaining $600,000.00 undisbursed portion of the Maximum Principal
Amount to be made, if at all, at the time Maker satisfies the
conditions set forth in Section 8 of this Note.
2 Interest. As hereinafter provided, the principal balance of
this Note may be segregated into separate accounts and shall bear interest as
follows:
(a) At any time when the principal balance of this Note as is
not subject to an effective Election, such balance shall constitute one
account (the "Stated Rate Account") and shall bear interest prior to an
Event of Default or maturity at a varying rate per annum equal to the
lesser of (i) the Maximum Lawful Rate, or (ii) the Stated Rate.
(b) The principal balance of this Note which may from time to
time be subject to an effective Election shall constitute a separate
account (the "Matching Funds Account") and shall bear interest prior to
an Event of Default or maturity at a rate per annum equal to the lesser
of (i) the Maximum Lawful Rate, or (ii) the Matching Funds Rate
applicable to such Election.
<PAGE>
(c) Any principal of, and to the extent permitted by
applicable law any interest on, this Note which is not paid when due
shall bear interest at a varying rate per annum equal to the Past Due
Rate from the date due and payable until paid.
(d) Subject always to limitation by the Maximum Lawful Rate,
interest on this Note shall be calculated on the basis of the 360-day
method, which computes a daily amount of interest for a hypothetical
year of 360 days, then multiplies such amount by the actual number of
days elapsed in an interest calculation period.
(e) Without notice to Maker or anyone else, the Prime Rate and
the Maximum Lawful Rate shall each automatically fluctuate upward and
downward as and in the amount by which the Lender's prime rate and such
maximum nonusurious rate of interest permitted by applicable law,
respectively, fluctuate, subject always to limitation of the Stated
Rate and the Past Due Rate by the Maximum Lawful Rate.
3 Payment of Principal and Interest.
(a) Accrued but unpaid interest shall be due and payable (i)
in monthly installments beginning on August 1, 1998, (ii) continuing on
the first (1st) day of each consecutive calendar month thereafter
before maturity, and (iii) at the final maturity of this Note. Maker
agrees and acknowledges that Lender has no obligation to give notice to
Maker of the amount of interest which is due and payable each month.
Maker further agrees and acknowledges that Maker is solely responsible
for, and shall not be relieved of, its obligation to pay such interest
on the first day of each month until maturity of this Note,
notwithstanding the fact that notice of such amount may not have been
sent by Lender and/or received by Maker even if Lender regularly gives
such notice.
(b) The entire principal balance of this Note then unpaid and
all interest then outstanding shall be due and payable on the Maturity
Date or upon any earlier termination of this Note.
(c) Whenever any payment shall be due under this Note on a day
which is not a "Business Day" (as such term is hereafter defined), the
date on which such payment is due shall be extended to the next
succeeding Business Day. "Business Day" means a day other than a
Saturday, Sunday or other day on which national banks in Dallas, Texas
are authorized or required to be closed.
(d) All principal, interest and other sums payable under this
Note shall be paid, not later than 2:00 o'clock p.m. (Dallas, Texas
time) on the day when due, in immediately available funds and in lawful
money of the United States of America. Funds received after 2:00
o'clock p.m. (Dallas, Texas time) shall be treated for all purposes as
having been received by Lender on the Business Day next following the
date of receipt of such funds. Any payment under this Note or under any
other "Loan Document" (as such term is hereafter defined) other than in
the required amount in good, unrestricted U.S. funds immediately
available to the holder hereof shall not, regardless of any receipt or
<PAGE>
credit issued therefor, constitute payment until the required amount is
actually received by the holder hereof in such funds and shall be made
and accepted subject to the condition that any check or draft may be
handled for collection in accordance with the practice of the
collecting bank or banks.
(e) Except to the extent specific provisions are set forth in
this Note or another Loan Document with respect to application of
payments, all payments received by the holder hereof shall be applied,
to the extent thereof, to the "secured indebtedness" (as defined in the
Mortgage) in the order and manner which the holder hereof shall deem
appropriate, any instructions from Maker to the contrary
notwithstanding. All payments made as scheduled on this Note shall be
applied, to the extent thereof, first to accrued but unpaid interest
and the balance to unpaid principal. All prepayments on this Note shall
be applied, to the extent thereof, first to accrued but unpaid interest
which is then past due under the terms of this Note and the balance to
the remaining principal installments. Nothing herein shall limit or
impair any rights of the holder hereof to apply as provided in the Loan
Documents any past due payments, any proceeds from the disposition of
any collateral by foreclosure or other collections after an Event of
Default. Except to the extent specific provisions are set forth in this
Note or another Loan Document with respect to application of payments,
all payments received by the holder hereof shall be applied, to the
extent thereof, to the indebtedness secured by the Mortgage in such
order and manner as the holder hereof shall deem appropriate, any
instructions from Maker or anyone else to the contrary notwithstanding.
4 Prepayment. Maker may at any time pay the full amount or any part of
this Note without payment of any premium or fee; provided, however, that if
Maker prepays any portion of the Matching Funds Account prior to the expiration
of the term of the Matching Funds Election applicable to such portion, Maker
shall pay Lender the prepayment penalty hereinafter described in Section 7
hereof. All prepayments shall be applied first to accrued interest, the balance
to principal.
5 Mortgage. This Note has been issued in connection with and is secured
by, among other things, a certain Deed of Trust, Assignment, Security Agreement
and Financing Statement of even date herewith executed by Maker for the benefit
of Lender, covering and affecting certain property (the "Property") located in
Las Vegas, Nevada, more fully described therein (which, as it may have been or
may be amended, restated, modified or supplemented from time to time, herein
called the "Mortgage"). Lender is entitled to the benefits of and security
provided for in the Mortgage. This Note, the Mortgage, any guaranty executed in
connection therewith and any other document now or hereafter evidencing,
securing, guaranteeing or executed in connection with the loan currently
evidenced by this Note are, as the same have been or may be amended, restated,
modified or supplemented from time to time, herein sometimes called individually
a "Loan Document" and together the "Loan Documents." Terms used herein with
initial capital letters and not defined herein, if any, have the meanings given
them in the Mortgage. Any notice required or which any party desires to give
under this Note shall be given and effective as provided in the Mortgage.
<PAGE>
6 Matching Funds Election.
(a) From time to time during the term of the Loan, so long as
no Event of Default has occurred and is continuing, Maker may elect to
cause a portion of the Loan proceeds, which portion must be in the
amount of $200,000.00 or more, to bear interest at the Matching Funds
Rate rather than the Stated Rate; provided, however, that (i) Maker may
not exercise an Election at any time when the Matching Funds Rate would
exceed the Maximum Lawful Rate, (ii) no more than three (3) Elections
may be in force at any time regarding the Loan. Upon the effective date
of the Election, the portion of the Loan proceeds as to which the
Election is exercised shall be segregated into a separate account and
shall bear interest prior to an Event of Default or maturity from the
effective date of the Election to the end of the term of the Election
at the Matching Funds Rate applicable on the effective date of the
Election; provided that the Matching Funds Rate shall be adjusted from
time to time during the term of the Election in accordance with any
fluctuations in the Adjusted LIBOR Rate caused solely by fluctuations
in the Euro-Dollar Reserve Percentage and the Assessments referenced in
Section l(a)(ii) hereinabove.
(b) Maker shall inform Lender when Maker wishes to exercise an
Election, and Lender shall advise Maker as to the then applicable
Matching Funds Rates and the available periods for which Maker may
exercise the Election. To exercise the Election, Maker shall advise
Lender by 1:00 p.m. (Dallas, Texas time) at least three (3) days prior
to the desired effective date of the Election of (i) the amount of the
Matching Funds Principal as to which Maker wishes to exercise the
Election, (ii) the desired effective date of the election, and (iii)
the desired term of the Election, which term shall be a 30, 60, 90 day
period, provided that the term of an Election for the Adjusted LIBOR
Rate must not end on a day other than a Euro-Dollar Business Day, and
no Election may end on a day that is later than the stated maturity
date of this Note. The Election shall become effective three (3)
Euro-Dollar Business Days following the date of Maker's advising Lender
of the particular terms of the Election. On or before the effective
date of the Election, Maker shall execute and deliver to Lender a
written confirmation of (i) the amount of the Matching Funds Principal
subject to the Election, (ii) the term of the Election and (iii) the
initial Matching Funds Rate applicable to the Election.
(c) Maker may not extend an Election beyond the original term
thereof at the Matching Funds Rate applicable during the original term.
However, at the end of the term of an Election, Maker may make an
additional Election to cause the Matching Funds Principal subject to
the expired Election to bear interest at the Matching Funds Rate
applicable on the day of the expiration of the prior Election for the
term of the new Election by so advising Lender three (3) Euro-Dollar
Business Days before the expiration of the prior Election, and giving
to Lender a written confirmation by the effective date of the new
Election in the manner specified above accompanied by the payment of an
additional fee if any is required by this Note. Otherwise, upon the
expiration of the prior Election, the Matching Funds Principal subject
to the expired Election shall be returned to the same account as the
Loan proceeds which bear interest at the Stated Rate and shall again
bear interest prior to an Event of Default or maturity at the Stated
Rate.
<PAGE>
(d) Notwithstanding any other provision of this Note, if (i)
any change in applicable law, rule or regulation or in the
interpretation or administration thereof shall make it unlawful for
Lender to issue certificates of deposit or impair or restrict Lender's
ability to do so for terms and at rates which permit Lender to respond
to an Election by obtaining funds at the Adjusted LIBOR Rate, or (ii)
Lender reasonably determines that by reason of circumstances affecting
the Interbank euro-dollar market generally, either adequate or
reasonable means do not exist for ascertaining the Adjusted LIBOR Rate
for any period, or (iii) Lender reasonably determines that it is
impracticable for Lender to obtain funds against which to match
Matching Funds Principal in connection with an Election (by purchasing
U.S. Dollars in the Interbank euro-dollar market); then, in any of the
foregoing instances, Maker's right to make any further Elections or to
continue any Elections then in force shall be suspended for the
duration of such illegality or impairment or restriction.
7 Prepayment of Matching Funds Principal. If Maker prepays the
Matching Funds Principal prior to the expiration of the term of the Matching
Funds Election applicable thereto, Maker shall pay Lender a prepayment fee in an
amount calculated as follows:
D x (A-B) x C
-----
360
A = the 360-day interest yield (as of the beginning of the term of the
applicable Matching Funds Election and expressed as a decimal) on a U.S.
Government Treasury bill, note or bond (a "Treasury Obligation") selected by
Lender in Lender's reasonable discretion and having, as of the beginning of the
term of the applicable Election, a remaining term until its maturity
approximately equal to the term of the Election.
B = the 360-day interest yield (as of the Business Day immediately
preceding the prepayment date and expressed as a decimal) on a Treasury
Obligation selected by Lender in Lender's reasonable discretion and having, as
of the Business Day preceding the prepayment date, a term approximately equal to
the unexpired term of the term of the applicable Matching Funds Election.
C = the number of calendar days from the date of prepayment to the date
on which the applicable Matching Funds Election would have expired but for the
prepayment.
D = the amount of the Matching Funds Principal that is being prepaid.
The amount so determined shall then be discounted to its present value as of the
date of prepayment; the interest rate used to compute such discount shall be the
rate used in item B in the above formula. In no event shall the result of A-B be
less than 0.00.
The Treasury Obligation selected by Lender shall be from among those
included in the over the counter quotations supplied to The Wall Street Journal
by the Federal Reserve Bank of New York City based on transactions of $1,000,000
or more.
<PAGE>
It is expressly understood that all provisions of this Note, including
but not limited to the provisions regarding the charging of interest at a
Matching Funds Rate for the term of an Election, are subject to the provisions
hereof limiting the amount of interest contracted for, charged, received or
collected hereunder to the maximum amount permitted under applicable law.
8 Funding: The obligation of Lender to make any Tenant
Improvement Advances shall be subject to the prior or simultaneous occurrence or
satisfaction of each of the following conditions:
(a) Enforceability: The Loan Documents shall remain
outstanding and enforceable in accordance with their terms, all as
required hereunder.
(b) Each of the Required Leases shall have been fully executed
in form previously stated to Lender and Lender shall have received a
copy of same;
(c) No Event of Default (as defined herein) or other event
which invokes monetary obligations which, with the giving of notice or
the passing of time, or both would constitute an Event of Default has
occurred;
(d) Cost Breakdown: Maker shall furnish to Lender a proposed
completion and draw schedule and a breakdown of all construction costs
including, but not limited to, commitment, legal, architect and real
estate agents' fees and direct construction items required to be paid
to satisfactorily complete the proposed improvements in accordance with
the terms of the Required Leases (the "Improvements"), free and clear
of liens or claims for liens for material supplied and for labor
services performed in connection with construction of the Improvements,
which schedule and breakdown shall be subject to the approval of the
Lender and any inspector or consultant (the "Inspecting Person") Lender
may designate from time to time and who shall inspect the Improvements
from time to time for the benefit of Lender. The Inspecting Person
shall be any person or entity designated by Lender, the fees of which
shall be paid by Maker.
(e) Plans and Specifications: Maker shall furnish Lender with
a set of Plans and Specifications (herein so called) reasonably
satisfactory to Lender and prepared by an architect reasonably
acceptable to Lender. The Plans and Specifications shall be approved by
the tenants of the Required Leases, all applicable governmental
authorities, and Maker's general contractor (and Maker shall furnish to
Lender satisfactory evidence of such approval). There will be no
material deviation from the Plans and Specifications, and no change
orders will be made without the prior written consent of Lender.
(f) Construction Contract: Lender shall be furnished
with an A.I.A. form construction contract for the completion of
the Improvements in accordance with the approved Plans and
Specifications, which contract shall be, in form and content,
reasonably satisfactory to Lender and approved by the tenant of the
Required Leases.
<PAGE>
(g) Title: If requested by Lender, Lender shall have received
a title report dated within two (2) days of the requested advance
showing no state of facts objectionable to Lender, including, but not
limited to, a showing that title to the Mortgaged Property is vested in
Maker and that no claim for mechanics' or materialmen's liens has been
filed against the Mortgaged Property.
(h) Request for Payment: Lender shall have received from Maker
(i) a written request for an advance, in such form as Lender shall
reasonably require, (ii) the approval by the tenants of the Required
Leases of the construction with respect to the applicable portion of
the Improvements subject to such Required Lease, and (iii) from Maker's
architect a certificate on A.I.A. form G 702 (or such other forms
reasonably required by Lender), completed, executed and sworn to by
Maker (and such other inspector and consultant as Lender may require),
stating that the requested amount does not exceed ninety percent (90%)
[or such other lesser percentage as Lender may require] of the then
unpaid cost of construction of the Improvements since the last
certificate furnished pursuant to the provisions hereof; and that said
construction was performed in substantial accordance with the Plans and
Specification.
(i) Final Advance: Prior to the last Advance under the Loan,
the Lender shall be furnished with the following items all in form and
content acceptable to Lender, in Lender's sole discretion: (i) Final
certificate from the approved contractor, inspector and any other
consultant that Lender may require that the Improvements have been
completed in substantial accordance with the Plans and Specifications
and that the Improvements, and the operation thereof, are in compliance
with all applicable building codes, zoning ordinances and other rules
and regulations promulgated by the applicable regulatory and
governmental authorities and that all bills and expenses in connection
with the construction of the Improvements have been paid or that
arrangements satisfactory to Lender have been made for the payment
thereof; (ii) A certified copy of a certificate of occupancy issued by
the appropriate governmental authority; (iii) Any other certificates of
approval, acceptances or compliance required or as determined necessary
by Lender, in Lender's reasonable discretion, from or by the city,
county, state or federal departments or authorities having jurisdiction
over the Mortgaged Property and/or Improvements; (iv) Evidence that the
tenants of the Required Leases have approved all construction and are
obligated to have made the first payment of rent under the Required
Leases in the amount as required under the Required Leases as amended,
as of the date of this Note and such evidence of such rental payment in
the form of a copy of a tenant check in such amount and an executed
estoppel certificate acceptable to Lender in all respects.
If, at any time Lender shall, in its reasonable discretion, deem that the
undisbursed funds available under the Loan are insufficient to meet the costs of
completing construction of the Improvements, Lender may refuse to make any
additional advances to Maker until such time as Maker shall have deposited with
Lender sufficient additional funds to cover such deficiency as Lender shall so
deem to exist, which funds will be disbursed by Lender to Maker pursuant to the
terms and conditions hereof as if they constituted a portion of the Loan being
committed to hereunder. Maker agrees upon fifteen (15) days' written demand by
Lender to deposit with Lender any such additional funds.
<PAGE>
Notwithstanding anything contained herein to the contrary, in the event
that either (i) the conditions contained in this Section 8(b) are not satisfied
on or before December 31, 1998, or (ii) all of the conditions of this Section 8
are not satisifed on or before April 30, 1999, the Lender will make no further
Tenant Improvement Advances subsequent to such date. No principal amount repaid
by Maker may be reborrowed by Maker.
9 Loan Limitation. Notwithstanding anything in this Agreement
to the contrary, the amount of the Loan, at the time of the initial disbursement
of the proceeds of the Loan, shall not exceed an amount equal to the lesser of
the following: (i) the amount equal to sixty percent (60%) of the fair market
value of the Mortgaged Property, as reflected in an appraisal acceptable to
Lender; or (ii) the amount which would allow a Debt Coverage Ratio (hereinafter
defined) of not less than 1.40 to 1.00, as calculated in accordance with the
other terms and provisions therefor as herein required. In calculating the debt
service coverage ratio specified above, the calculation shall be based on annual
(or, if applicable, annualized) Net Operating Income (hereinafter defined) and
applicable debt service for the corresponding annual (or annualized) period
(being all principal and interest payments required or anticipated, if
annualized, pursuant to the Note). As used herein, the following terms shall
have the following meanings:
(a) "Operating Expenses" for each such applicable annual
period shall mean all reasonable expenses in an amount equal to the
greater of (i) those specific sums set forth in the annual operating
budget for the Mortgaged Property for the applicable calendar period,
or (ii) those amounts actually incurred and paid by Owner with respect
to the ownership, operation, management, leasing and occupancy of the
Mortgaged Property determined on a cash basis, except as otherwise
specified herein, including, but not limited to, any and all of the
following (but without duplication of any item):
(i) ad valorem taxes calculated on an accrual basis
(and not on the cash basis) of accounting for the calendar
period; such accrual accounting for ad valorem taxes shall be
based upon taxes actually assessed for the current calendar
year, or if such assessment for the current year has not been
made, then until such assessment has been made (and with any
retroactive adjustments for prior calendar months as may
ultimately be needed when the actual assessments has been
made), ad valorem taxes for the calendar period shall be
estimated to be an amount equal to one hundred percent (100%)
of the assessment for the immediately preceding calendar
period;
(ii) foreign, U.S., state and local sales, use
or other taxes (except for taxes measured by net income);
(iii) special assessments or similar charges
against the Mortgaged Property;
(iv) costs of utilities, air conditioning and
heating for the Mortgaged Property to the extent not paid by
lessees or tenants;
<PAGE>
(v) maintenance and repair costs for the Mortgaged
Property, including the replenishment of any reserve
account(s) required by Lender pursuant to the Loan Documents
and assuming, at a minimum, an annual capital expenditure of
$0.25 per square foot of net leasable area;
(vi) the greater of actual management fees under any
management agreement for the Property or an assumed annual
management fee of four percent (4%) of the annual Gross Income
of the Property;
(vii) all salaries, wages and other benefits to
"on-site" employees of Owner or its property manager
(excluding all salaries, wages and other benefits of officers
and supervisory personnel, and other general overhead expenses
of Owner and its property manager) employed in connection with
the leasing, maintenance and management of the Mortgaged
Property;
(viii) insurance premiums calculated on an accrual
basis (and not on the cash basis) of accounting for the
calendar period; such accrual accounting for insurance
premiums shall be based upon the insurance premiums for the
Mortgaged Property which was last billed to Owner, adjusted to
an annualized premium if necessary, and multiplied by one
hundred percent (100%);
(ix) costs, including leasing commissions, allowances
and incentives, advertising, marketing and promotion costs, to
obtain new leases or to extend or renew existing leases, and
the costs of work performed and materials provided to ready
tenant space in the Property for new or renewal occupancy
under leases;
(x) outside accounting and audit fees and costs and
administrative expenses in each case reasonably incurred by
Owner in connection with the direct operation and management
of the Mortgaged Property;
(xi) any payments, and any related interest thereon,
to lessees or tenants of the Mortgaged Property with respect
to security deposits or other deposits required to be paid to
tenants but only to the extent any such security deposits and
related interest thereon have been previously included in
Gross Income; and
(xii) to the extent not included in any other
Operating Expense category, the sums actually paid by Owner
into any tax accounts or other reserve account(s) for the time
period in question and approved by Lender.
Notwithstanding anything to the contrary as being included in the definition of
Operating Expenses, there shall be excluded from Operating Expenses the
following: (i) depreciation and any other non-cash deduction allowed to Owner
for income tax purposes; (ii) any compensation or fees paid to leasing agents,
brokers or other third parties or affiliates of Owner which are in excess of
reasonable and necessary compensation or fees which would be payable to
<PAGE>
unrelated third parties in arms' length transactions for similar services in the
area in which the Mortgaged Property is located; (iii) all salaries, wages and
other benefits to "off-site" employees and all other general "off-site" overhead
expenses of Owner, its property manager or other professional manager of the
Mortgaged Property; (iv) any and all payments of ad valorem taxes for either
real or personal property (except for the accrual amount allowed pursuant to
subpart (i) above); (v) any and all payments of insurance premiums (except for
the accrual amount allowed pursuant to subpart (viii) above); (vi) the initial
funding of the reserve account and any subsequent replenishment thereof up to or
exceeding the amount required pursuant to the Loan Documents; (vii) any and all
principal, interest or other costs paid under or with respect to the Loan, and
the subordinate loans or with respect to any other financings with respect to
the Mortgaged Property, whether unsecured or secured by all or any portion of
the Mortgaged Property; and (viii) capital improvements (only to the extent not
paid from any reserve account).
(b) "Gross Income" for each such applicable annual period
shall mean rentals, revenues and other recurring forms of
consideration, received by, or paid to or for the account of or for the
benefit of, Owner resulting from or attributable to the operation,
leasing and occupancy of the Mortgaged Property determined on a cash
basis (except as specified herein) and using for all calculations
hereunder the greater of (i) actual vacancy of the Mortgaged Property
at the time of such calculation or (ii) a vacancy factor of seven
percent (7%), including, but not limited to, the following:
(i) rents by any lessees or tenants of the
Mortgaged Property;
(ii) rents and receipts evidenced by or for the
benefit of Owner with respect to the full or partial
reimbursement of Operating Expenses from any lessee or tenant
of the Mortgaged Property;
(iii) proceeds received by or for the benefit of
Owner in connection with any rental loss or business
interruption insurance with respect to the Mortgaged Property;
(iv) any other fees, payment or rents collected
by, for or on behalf of Owner with respect to the leasing and
operating the Mortgaged Property;
(v) any refunds of deposits for obtaining, using
or maintaining utility services for all or any portion of the
Mortgaged Property;
(vi) interest, if any, earned by Owner on
security and other type deposits of and advance rentals paid
by, any lessees or tenants of the Mortgaged Property; and
(vii) the amount of any security and other type
deposits and advance rentals relating to the Mortgaged
Property which have been forfeited.
<PAGE>
Notwithstanding anything included within the above definition of Gross Income,
there shall be excluded from Gross Income the following: (i) any security or
other deposits of lessees and tenants (even when applied to sums due under
leases); (ii) rents and receipts received by or for the benefit of Owner with
respect to services provided by Owner to lessees relating to the Mortgaged
Property; (iii) the proceeds of any financing or refinancing with respect to all
or any part of the Mortgaged Property which has been previously approved in
writing by Lender; (iv) the proceeds of any sale or other capital transaction
(excluding leases for occupancy purposes only) of all or any portion of the
Mortgaged Property; (v) any insurance or condemnation proceeds paid with respect
to the Mortgaged Property to the extent such proceeds are available and are used
to restore or rebuild the Mortgaged Property as may be permitted in accordance
with the terms of the Mortgage, except for rental loss or business interruption
insurance; (vi) any insurance and condemnation proceeds applied in reduction of
the principal of the Note in accordance with the terms of the Loan Documents;
and (vii) any Collateral Account Payment (hereinafter defined) on deposit with
Lender in the Collateral Account (hereinafter defined); provided, however,
nothing set forth herein shall in any manner imply Lender's consent to a sale,
refinancing or other capital transaction.
(c) "Net Operating Income" for the applicable annual period
shall mean all Gross Income for such annual period less all Operating
Expenses for such corresponding annual period, as determined or
approved by Lender.
(d) "Debt Coverage Ratio" means the ratio of (i) Net Operating
Income from the Property for any calendar month in question, as
verified to Lender, to (ii) the greater of (A) the amount of principal
and interest that would be due monthly on a promissory note with an
outstanding principal balance equal to the Outstanding Principal
Balance and an obligation of Maker to pay equal monthly installments of
principal and interest calculated by amortizing the Outstanding
Principal Balance over twenty (20) years at a rate of interest equal to
the higher of (1) nine percent (9%) per annum or (2) the per annum rate
equal to the Treasury Note Rate plus 250 basis points, or (B) the
actual monthly interest payment due under the Note for the calendar
month in question. In determining the Outstanding Principal Balance for
the purposes of this Section 8 of the Note, no monies deposited in any
Accounts (hereinafter defined) or any interest earned thereon shall be
considered to reduce the Outstanding Principal Balance unless and until
such deposits and interest have actually been applied to the Loan in
accordance with Section 9 of this Note. As used herein, the term
"Treasury Note Rate" means the latest Treasury Constant Maturity Series
yields reported, as of the first day of the calendar month in question,
in the Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to seven (7) years. Such
implied yield shall be determined, if necessary, by (i) converting U.S.
Treasury bill quotations to bond-equivalent yields in accordance with
accepted financial practice and (ii) interpolating linearly between
reported yields.
<PAGE>
10 Additional Financial Covenants.
(a) Maker shall establish an interest bearing principal
reduction account (the "Principal Reduction Account") with Lender.
Concurrently herewith, Maker shall execute and deliver to Lender a
"Security Agreement" (herein so called) granting to Lender a security
interest in the Principal Reduction Account and the Collateral Account
(hereinafter defined; the Principal Reduction Account and the
Collateral Account are sometimes hereinafter collectively referred to
as the "Accounts"), including all monies deposited in the Accounts at
any time and all interest earned thereon. On June 1, 1999, Maker shall
deposit into the Principal Reduction Account monies, which shall not
include any proceeds of the loan evidenced by the Note, in an amount
equal to five percent (5.0%) of the Outstanding Principal Balance (the
"Principal Reduction Payment"). On each of September 30, 1998 and
December 31, 1998, March 31, June 30, September 30 and December 31
1999, and March 31, June 30, September 30, and December 31, 2000, Maker
shall deposit into the Principal Reduction Account a Principal
Reduction Payment equal to one and 25/100 percent (1.25%) of the
Outstanding Principal Balance. Interest earned on deposits in the
Principal Reduction Account may be used as a part of the next-due
Principal Reduction Payment. Provided there has been no Event of
Default (as hereinafter defined), then (i) on each of July 15, 1999 and
July 15, 2000, as applicable, Lender shall apply all sums then on
deposit in the Principal Reduction Account (together with all interest
earned thereon that has not already been used as part of a Principal
Reduction Payment) to the Loan to reduce the amount of the Outstanding
Principal Balance on the Note and (ii) all Principal Reduction Payments
made in the year 2000 and interest earned thereon will be applied to
reduce the Outstanding Principal Balance on the Note at the end of the
Term; provided, however, if an Event of Default has occurred, then upon
any such Event of Default, Lender may exercise all remedies available
to Lender under the Security Agreement or any other Loan Document,
including using the funds on deposit in the Principal Reduction Account
and all interest thereon at Lender's discretion for any purpose
permitted under the Loan Documents.
(b) Maker shall provide to Lender, on a monthly basis, the
financial and operating information required by the Mortgage. If, at
the end of any quarter of a calendar year, such data indicates that the
Debt Coverage Ratio for the Property is less than 1.40 to 1.00, then
Lender shall so notify Maker and, within five (5) business days of such
notice, Maker (i) shall establish with Lender a collateral account (the
"Collateral Account") and (ii) shall deposit into the Collateral
Account sufficient funds, which shall not include any proceeds of the
loan evidenced by the Note, such that if such funds were to be applied
to reduce the Outstanding Principal Balance, the Debt Coverage Ratio
would return to a ratio equal to or greater than 1.40 to 1.00 (the
"Collateral Account Payment"). A Collateral Account Payment shall not
be applied to reduce the Outstanding Principal Balance, but, unless an
Event of Default has occurred, shall be held by Lender pursuant to the
terms of the Security Agreement and this Note. If the Debt Coverage
Ratio for the Property at the end of the next calendar year quarter (or
any subsequent quarter) is equal to or greater than 1.40 to 1.00, then
within twenty (20) days after Lender's determination of such ratio,
Lender shall refund to Maker any Collateral Account Payment then on
deposit in the Collateral Account. If during any subsequent quarter of
<PAGE>
a calendar year the Debt Coverage Ratio is again less than 1.40 to
1.00, Maker shall make an additional Collateral Account Payment in an
amount such that if such Collateral Account Payment were to be applied
to reduce the Outstanding Principal Balance, the Debt Coverage Ratio
would return to a ratio equal to or greater than 1.40 to 1.00;
provided, however, that so long as no Event of Default has occurred,
any funds then being held in the Collateral Account shall be applied to
reduce the amount of such subsequent Collateral Account Payment. The
Security Agreement shall also grant to Lender a security interest in
all funds deposited in the Collateral Account and all interest earned
thereon. If an Event of Default has occurred, Lender may exercise all
remedies available to Lender under the Security Agreement, including
using the funds in the Collateral Account and all interest thereon at
Lender's discretion for any purpose permitted under the Loan Documents.
If no Event of Default has occurred, upon the end of the Term or
earlier payment in full to Lender of the Outstanding Principal Balance
under this Note, any monies then on deposit in the Collateral Account
and any interest earned thereon shall, at Maker's election, (i) be
applied to reduce such Outstanding Principal Balance or (ii) be paid by
Lender to Maker.
11 Events of Default. The occurrence of any one of the following
shall be a default under this Note ("Event of Default"):
(a) Any principal and interest payment and any other sum of
money due under this Note, including any Earnings Deposit, any
Principal Reduction Payment or any obligation involving the payment of
money by Maker under the Loan Documents is not paid within five (5)
days after written notice from Lender that such payment is due;
provided that such five (5) day grace period shall not be applicable to
sums due and payable at the Maturity Date or upon prepayment, by
acceleration or otherwise; or
(b) The Debt Coverage Ratio for the Property falls below
1.25 to 1.00; or
(c) The occurrence of any other default, breach or Event of
Default (however such term is defined therein or whether or not such
term is defined) under any Loan Document and such default or Event of
Default is not cured within any applicable notice and cure periods
provided therein.
Any Event of Default under this Note shall constitute a default
(however such term is defined therein or whether or not such term is defined
therein) under each of the Loan Documents, and any default, breach, or event of
default (however such term is defined therein or whether or not such term is
defined therein) under any of the Loan Documents shall constitute an Event of
Default under this Note and under each of the Loan Documents. Upon the
occurrence of an Event of Default, the holder hereof shall have the right to
declare the unpaid principal balance and accrued but unpaid interest on this
Note at once due and payable (and upon such declaration, the same shall be at
once due and payable), to foreclose any liens and security interests securing
payment hereof and to exercise any of its other rights, powers and remedies
under this Note, under any other Loan Document, or at law or in equity.
<PAGE>
12 No Waiver by Holder. Neither the failure by the holder
hereof to exercise, nor delay by the holder hereof in exercising, the right to
accelerate the maturity of this Note or any other right, power or remedy upon
any Event of Default shall be construed as a waiver of such Event of Default or
as a waiver of the right to exercise any such right, power or remedy at any
time. No single or partial exercise by the holder hereof of any right, power or
remedy shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy may be exercised at any time and
from time to time. All remedies provided for in this Note and in any other Loan
Document are cumulative of each other and of any and all other remedies existing
at law or in equity, and the holder hereof shall, in addition to the remedies
provided herein or in any other Loan Document, be entitled to avail itself of
all such other remedies as may now or hereafter exist at law or in equity for
the collection of the indebtedness owing hereunder, and the resort to any remedy
provided for hereunder or under any such other Loan Document or provided for by
law or in equity shall not prevent the concurrent or subsequent employment of
any other appropriate remedy or remedies. Without limiting the generality of the
foregoing provisions, the acceptance by the holder hereof from time to time of
any payment under this Note which is past due or which is less than the payment
in full of all amounts due and payable at the time of such payment, shall not
(i) constitute a waiver of or impair or extinguish the rights of the holder
hereof to accelerate the maturity of this Note or to exercise any other right,
power or remedy at the time or at any subsequent time, or nullify any prior
exercise of any such right, power or remedy, or (ii) constitute a waiver of the
requirement of punctual payment and performance, or a novation in any respect.
13 Collection of Costs. If any holder of this Note retains an
attorney in connection with any Event of Default or at maturity or to collect,
enforce, or defend this Note or any other Loan Document in any lawsuit or in any
probate, reorganization, bankruptcy or other proceeding, or if Maker sues any
holder in connection with this Note or any other Loan Document and does not
prevail, then Maker agrees to pay to each such holder, in addition to principal
and interest, all reasonable costs and expenses incurred by such holder in
trying to collect this Note or in any such suit or proceeding, including
reasonable attorneys' fees.
14 Interest Provisions.
(a) Savings Clause. It is expressly stipulated and agreed to
be the intent of Maker and Lender at all times to comply strictly with
the applicable Texas law governing the maximum rate or amount of
interest payable on this Note or the Related Indebtedness (or
applicable United States federal law to the extent that it permits
Lender to contract for, charge, take, reserve or receive a greater
amount of interest than under Texas law). If the applicable law is ever
judicially interpreted so as to render usurious any amount (i)
contracted for, charged, taken, reserved or received pursuant to this
Note, any of the other Loan Documents or any other communication or
writing by or between Maker and Lender related to the transaction or
transactions that are the subject matter of the Loan Documents, (ii)
contracted for, charged or received by reason of Lender's exercise of
the option to accelerate the maturity of this Note and/or Related
Indebtedness, or (iii) Maker will have paid or Lender will have
received by reason of any voluntary prepayment by Borrower of this Note
and/or Related Indebtedness, then it is Maker's and Lender's express
intent that all amounts charged in excess of the Maximum Lawful Rate
<PAGE>
shall be automatically cancelled, ab initio, and all amounts in excess
of the Maximum Lawful Rate theretofore collected by Lender shall be
credited on the principal balance of this Note and/or the Related
Indebtedness (or, if this Note and all Related Indebtedness have been
or would thereby be paid in full, refunded to Maker), and the
provisions of this Note and the other Loan Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and
thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder and
thereunder; provided, however, if this Note has been paid in full
before the end of the stated term of this Note, then Maker and Lender
agree that Lender shall, with reasonable promptness after Lender
discovers or is advised by Maker that interest was received in an
amount in excess of the Maximum Lawful Rate, either refund such excess
interest to Maker and/or credit such excess interest against this Note
and/or any Related Indebtedness then owing by Maker to Lender. Maker
hereby agrees that as a condition precedent to any claim seeking usury
penalties against Lender, Maker will provide written notice to Lender,
advising Lender in reasonable detail of the nature and amount of the
violation, and Lender shall have sixty (60) days after receipt of such
notice in which to correct such usury violation, if any, by either
refunding such excess interest to Maker or crediting such excess
interest against this Note and/or any Related Indebtedness then owing
by Maker to Lender. All sums contracted for, charged or received by
Lender for the use, forbearance or detention of any debt evidenced by
this Note and/or any Related Indebtedness shall, to the extent
permitted by applicable law, be amortized or spread, using the
actuarial method, throughout the stated term of this Note and/or the
Related Indebtedness (including any and all renewal and extension
periods) until payment in full so that the rate or amount of interest
on account of this Note and/or any Related Indebtedness does not exceed
the Maximum Lawful Rate from time to time in effect and applicable to
this Note and/or any Related Indebtedness for so long as debt is
outstanding. In no event shall the provisions of Chapter 346 of the
Texas Finance Code (which regulates certain revolving credit loan
accounts and revolving triparty accounts) apply to this Note and/or any
Related Indebtedness. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, it is not the
intention of Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
(b0 Definitions. As used herein, the term "Maximum Lawful
Rate" shall mean the maximum lawful rate of interest which may be
contracted for, charged, taken, received or reserved by Lender in
accordance with the applicable laws of the State of Texas (or
applicable United States federal law to the extent that it permits
Lender to contract for, charge, take, receive or reserve a greater
amount of interest than under Texas law), taking into account all
Charges (as herein defined) made in connection with the transaction
evidenced by this Note and the other Loan Documents. As used herein,
the term "Charges" shall mean all fees, charges and/or any other things
of value, if any, contracted for, charged, received, taken or reserved
by Lender in connection with the transactions relating to this Note and
<PAGE>
the other Loan Documents, which are treated as interest under
applicable law. As used herein, the term "Related Indebtedness" shall
mean any and all debt paid or payable by Maker to Lender pursuant to
the Loan Documents or any other communication or writing by or between
Maker and Lender related to the transaction or transactions that are
the subject matter of the Loan Documents except such debt which has
been paid or is payable by Maker to Lender under the Note.
(c0 Ceiling Election. To the extent that Lender is relying on
Chapter 1D of the Texas Credit Title to determine the Maximum Lawful
Rate payable on this Note and/or this Note and/or the Related
Indebtedness, Lender will utilize the weekly ceiling from time to time
in effect as provided in such Chapter 1D, as amended. To the extent
United States federal law permits Lender to contract for, charge, take,
receive or reserve a greater amount of interest than under Texas law,
Lender will rely on United States federal law instead of such Chapter
1D for the purpose of determining the Maximum Lawful Rate.
Additionally, to the extent permitted by applicable law now or
hereafter in effect, Lender may, at its option and from time to time,
utilize any other method of establishing the Maximum Lawful Rate under
such Chapter 1D or under other applicable law by giving notice, if
required, to Maker as provided by applicable law now or hereafter in
effect.
15. Joint and Several Liability. If more than one person or entity
executes this Note as Maker, all of said parties shall be jointly and severally
liable for payment of the indebtedness evidenced hereby. Maker and all sureties,
endorsers, guarantors and any other party now or hereafter liable for the
payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
notice (except only for any notices which are specifically required by this Note
or any other Loan Document), filing of suit and diligence in collecting this
Note or enforcing any of the security therefor; (ii) agree to any substitution,
subordination, exchange or release of any such security or the release of any
party primarily or secondarily liable hereon; (iii) agree that the holder hereof
shall not be required first to institute suit or exhaust its remedies hereon
against Maker or others liable or to become liable hereon or to enforce its
rights against them or any security therefor; (iv) consent to any extension or
postponement of time of payment of this Note for any period or periods of time
and to any partial payments, before or after maturity, and to any other
indulgences with respect hereto, without notice thereof to, any of them; and (v)
submit (and waive all rights to object) to non-exclusive personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas, for the enforcement of
any and all obligations under the Loan Documents.
16. Amendments. This Note may not be changed, amended or modified
except in a writing expressly intended for such purposes and executed by the
party against whom enforcement of the change, amendment or modification is
sought.
17. Purpose of Loan. The loan evidenced by this Note is made
solely for business purposes and is not for personal, family, household or
agricultural purposes.
<PAGE>
18. Participation. The holder of this Note may, from time to time,
sell or offer to sell the loan evidenced by this Note, or interests therein, to
one or more assignees or participants and is hereby authorized to disseminate
any information it now has or hereafter obtains pertaining to the loan evidenced
by this Note including, without limitation, any security for this Note and
credit information on Maker, any of its principals and any guarantor of this
Note to any assignee or participant or prospective assignee or prospective
participant, the holder's affiliates including NationsBanc Montgomery
Securities, Inc. in the case of Lender, any regulatory body having jurisdiction
over the holder, and to any other parties as necessary or appropriate in
holder's reasonable judgment. Maker shall execute, acknowledge and deliver any
and all instruments reasonably requested by Lender in connection therewith, and
to the extent, if any, specified in any such assignment or participation, such
companies, assignee(s), and participant(s) shall have the rights and benefits
with respect to this Note and the other Loan Documents as such person(s) would
have had if such person(s) had been Lender hereunder.
19. Successors and Assigns. The terms, provisions, covenants and
conditions of this Note shall be binding upon Maker and the heirs, devisees,
representatives, successors and assigns of Maker.
20. Governing Law. THIS NOTE, AND ITS VALIDITY, ENFORCEMENT
AND INTERPRETATION, SHALL BE GOVERNED BY LAWS OF THE STATE OF TEXAS (WITHOUT
REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL
LAW. MAKER HEREBY ACKNOWLEDGES THAT ITS BUSINESS OFFICE IS IN DALLAS COUNTY,
TEXAS, AND THAT THE NOTE IS PAYABLE IN DALLAS COUNTY, TEXAS; THEREFORE, MAKER
HEREBY CONFIRMS AND AGREES THAT ALL LEGAL ACTIONS INVOLVING THE VALIDITY OR
ENFORCEMENT OF THIS NOTE (INCLUDING, BUT NOT LIMITED TO, ANY BANKRUPTCY
PROCEEDINGS INVOLVING MAKER) SHALL HAVE JURISDICTION AND VENUE IN DALLAS COUNTY,
TEXAS.
21. Time of Essence. Time shall be of the essence in this Note
with respect to all of Maker's obligations hereunder.
22. Captions. The paragraph headings used in this Note are for
convenience of reference only and shall not affect the meaning or interpretation
of this Note.
23. Limited Recourse. Subject to the exceptions and qualifications
described below, Maker shall not be personally liable for the payment of the
indebtedness evidenced by or created or arising under this Note and any judgment
or decree in any action brought to enforce the obligation of Maker to pay such
indebtedness shall be enforceable against Maker only to the extent of its
interest in the Mortgaged Property (as defined in the Mortgage) and any such
judgment or decree shall not be subject to execution upon or be a lien upon the
assets of Maker other than its interest in such Mortgaged Property. The
foregoing limitation of personal liability shall be subject to the following
exceptions and qualifications:
(a) Maker shall be fully and personally liable for the following:
(i) failure to pay taxes, assessments and any other charges
which could result in liens against any portion of the
Mortgaged Property; (ii) fraud or material misrepresentation;
(iii) retention by Maker of any payments, rental income or
other funds arising with respect to any of the Mortgaged
Property which, under the terms of the Loan Documents, should
have been paid to Lender; (iv) all insurance proceeds,
<PAGE>
condemnation awards or other similar funds or payments
attributable to the Mortgaged Property which, under the terms
of the Loan Documents, should have been paid to Lender; (v)
failure to protect and maintain the Mortgaged Property in
accordance with the terms of the Loan Documents; and (vi) the
failure of the Loan Documents to constitute a first and prior
lien, assignment, pledge or security interest in or upon the
Mortgaged Property, subject only to the matters permitted by
the Loan Documents.
(b) Nothing contained in this paragraph shall affect or limit the
ability of the holder hereof to enforce any of its rights or
remedies with respect to the Mortgaged Property.
(c) Nothing contained in this paragraph shall affect or limit the
rights of the holder hereof to proceed against any person or
entity, including Maker, any partner in Maker or any other
party, with respect to the enforcement of any guarantees of
payment, guarantees of performance and completion, hazardous
materials indemnification agreements or other similar rights.
24. Statute of Frauds Notice. THE LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Maker has duly executed this Note effective as of
the date first above written.
MAKER:
LA PLAZA CENTER FUND X
LIMITED PARTNERSHIP,
a Nevada limited partnership
By: La Plaza Fund X Corp.,
a Texas corporation,
its general partner
By:_____________________________
Name: ______________________
Title: ______________________
