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 0-9783
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McNEIL REAL ESTATE FUND XI, LTD.
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(Exact name of registrant as specified in its charter)
California 94-2669577
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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 ]
159,500 of the registrant's 159,813 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 40
TOTAL OF 43 PAGES
<PAGE>
PART I
ITEM 1. BUSINESS
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ORGANIZATION
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McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980
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 ("McNeil"). The Partnership is governed by an amended and restated
partnership agreement of limited partnership dated August 6, 1991, as amended
(the "Amended Partnership Agreement"). Prior to August 6, 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 dated June 2, 1980 (the "Original Partnership Agreement") as amended
August 29, 1980. The principal place of business for the Partnership and for the
General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas, 75240.
On September 18, 1980, a Registration Statement on Form S-11 was declared
effective by the Securities and Exchange Commission whereby the Partnership
offered for sale $80,000,000 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 June 1, 1981, with 160,000 Units sold at $500 each, or
gross proceeds of $80,000,000 to the Partnership. In addition, the original
general partners purchased a total of 140 Units for $70,000. During the years
1993 through 1998, 327 Units were rescinded leaving 159,813 Units outstanding as
of December 31, 1998.
SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER
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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 interests 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; (c) McNeil Real Estate
Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets
<PAGE>
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; and (d) the General Partner purchased
the short-term, unsecured loan owing from the Partnership to a Southmark
affiliate in the amount of $2,645,950. The unsecured loan has now been settled.
On August 6, 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 the 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 reimbursements 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:
During 1990, the Partnership filed claims in the Southmark bankruptcy in the
amount of $1,180,040. McNeil also filed claims on behalf of the Partnership in
an indeterminate amount, some of which overlapped in whole or in part with
claims filed by the Partnership. No claims were filed by McNeil or the
Partnership on behalf of individual limited partners.
In July 1991, the United States Bankruptcy Court for the Northern District of
Texas, Dallas Division, approved an agreement whereby the Partnership settled
its claims against Southmark. Under the settlement agreement, an affiliate of
McNeil agreed to waive on a dollar-for-dollar basis an amount equal to the
settled claims against affiliate advances owed by the Partnership, which at June
30, 1991, were in excess of the amount of the claim. The reduction of affiliate
advances resulted in an extraordinary gain on extinguishment of debt of
$1,180,040 in 1991.
CURRENT OPERATIONS
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General:
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. At December 31, 1998, the Partnership owned seven
income-producing properties as described in Item 2 - Properties.
The Partnership does not directly employ any personnel. 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 cost incurred by affiliates of the General Partner in connection with
the management of the Partnership's business. See Item 8 - Note 2 -
"Transactions with Affiliates."
<PAGE>
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.
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.
The Partnership has placed Rock Creek Apartments on the market for sale
effective October 1, 1996.
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 discussion of competitive conditions at the Partnership's
properties.
<PAGE>
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.
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.
<PAGE>
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 $63 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 $104.50 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 11.65% 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 have been
dismissed without prejudice.
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" and Item 8 - Note 6 - "Mortgage Note Payable - Affiliate." See also
Item 8 - Note 4 - "Real Estate Investments" and Schedule III - "Real Estate
Investments and Accumulated Depreciation." 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
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Real Estate Investments:
Acacia Lakes (1) Apartments
<S> <C> <C> <C> <C> <C>
Mesa, AZ 576 units $ 5,614,216 $ 8,680,219 $ 142,014 5/81
Gentle Gale (2) Apartments
Galveston, TX 133 units 1,586,638 2,489,136 75,379 5/81
Knollwood (3) Apartments
Kansas City, MO 315 units 2,814,547 4,326,728 76,410 5/81
Sun Valley (4) Apartments
Charlotte, NC 311 units 4,120,235 6,376,663 118,309 8/81
Villa Del Rio (5) Apartments
Jacksonville, FL 444 units 4,047,045 5,331,844 182,673 5/81
The Village (6) Apartments
Gresham, OR 152 units 1,488,086 2,635,000 81,221 5/81
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$ 19,670,767 $ 29,839,590 $ 676,006
============= ============= ===========
Asset held for sale:
Rock Creek (7) Apartments
Portland, OR 388 units $ 4,765,942 $ 6,225,000 $ 143,295 2/81
============= ============= ===========
</TABLE>
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Total: Apartments - 2,319 units
<PAGE>
(1) Acacia Lakes Apartments is owned by Acacia Lakes Fund XI Limited
Partnership which is wholly-owned by the Partnership and the General
Partner.
(2) Gentle Gale Apartments is owned by Gentle Gale Fund XI Limited Partnership
which is wholly-owned by the Partnership.
(3) Knollwood Apartments is owned by Knollwood Fund XI Associates, a general
partnership, which is wholly-owned by the Partnership and the General
Partner.
(4) Sun Valley Apartments is owned by Sun Valley Fund XI Associates, a general
partnership, which is wholly-owned by the Partnership and the General
Partner.
(5) Villa Del Rio Apartments is owned by Villa Del Rio Fund XI Limited
Partnership which is wholly-owned by the Partnership.
(6) The Village Apartments is owned by Village Fund XI Associates Limited
Partnership which is wholly-owned by the Partnership and the General
Partner.
(7) Rock Creek Apartments is owned by Rock Creek Fund XI, Ltd., which is wholly
-owned by the Partnership.
The following table sets forth the properties' occupancy rate and rent per
square foot for each of the last five years:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- ------------- -------------- ------------- ----------
Acacia Lakes
<S> <C> <C> <C> <C> <C>
Occupancy Rate............ 96% 95% 94% 96% 97%
Rent Per Square Foot...... $8.07 $7.92 $7.73 $7.44 $6.64
Gentle Gale
Occupancy Rate............ 90% 93% 90% 88% 93%
Rent Per Square Foot...... $8.10 $7.90 $7.78 $7.86 $7.83
Knollwood
Occupancy Rate............ 97% 97% 96% 96% 93%
Rent Per Square Foot...... $6.20 $6.06 $5.72 $5.53 $5.17
Sun Valley
Occupancy Rate............ 96% 96% 96% 97% 97%
Rent Per Square Foot...... $8.01 $7.81 $7.40 $7.12 $6.51
Villa Del Rio
Occupancy Rate............ 96% 92% 96% 100% 98%
Rent Per Square Foot...... $5.83 $5.76 $5.67 $5.46 $4.98
The Village
Occupancy Rate............ 96% 98% 96% 100% 100%
Rent Per Square Foot...... $8.69 $8.31 $8.27 $7.96 $7.76
Asset held for sale:
Rock Creek
Occupancy Rate............ 95% 94% 95% 99% 94%
Rent Per Square Foot...... $8.58 $8.35 $8.27 $7.91 $7.54
</TABLE>
<PAGE>
Occupancy rate represents all units leased divided by the total number of units
of the property as of December 31 of the given year. Rent per square foot
represents all revenue, except interest, derived from the property's operations
divided by the leasable square footage of the property.
Competitive Conditions at Properties
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Acacia Lakes
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Due to a substantial investment of capital since 1994, Acacia Lakes has
increased its rent per square foot by 22% over the last five years. Currently,
the property is slightly above the average market occupancy rate of 95%. Over
the last year, approximately 8,250 multi-family units were added to the Mesa
submarket. Strong employment growth is expected to add renters to the market and
provide positive absorption. Rental rates at Acacia Lakes are lower than the
market rate.
Gentle Gale
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Gentle Gale is located in Galveston, Texas, where the local economy is dependent
upon the University of Texas Medical Branch and tourism. The University of Texas
announced a reduction of over 600 jobs effective January 1999 and additional cut
backs are anticipated. Over the last few years the economy has been sluggish.
Gentle Gale experienced a decrease in its occupancy rate and is currently at
90%. Gentle Gale competes with properties that are newer and offer better
amenity packages. Rental rates at Gentle Gale are just below many of their
competitors in the market. In 1998, an additional 177 units were added to the
already soft market. The property has been upgrading the units and offering
rental discounts to remain competitive in the market.
Knollwood
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Knollwood finished 1998 above the average market occupancy rate of 94%. The
current rental rates for Knollwood's townhouses and one and two bedroom
apartments are comparable to the market rate. Continued capital improvements are
planned to improve the curb appeal and upgrade the apartments to take advantage
of the strong market conditions.
Sun Valley
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Strong market conditions have stimulated new developments in the area
surrounding Sun Valley. Currently, 3,458 units are under construction in the
Charlotte market, and an additional 3,419 units are proposed. The market began
to soften in 1997 and the continued heavy development continued to increase the
market competitiveness in 1999. With the capital improvements made at the
property over the last few years, the property has been able to stay competitive
with the newer properties. Sun Valley finished 1998 at the market average
occupancy rate of 95%.
<PAGE>
Villa Del Rio
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Villa Del Rio's occupancy rate finished 1998 above the market average of 91%.
During 1998, 7,500 units were added to the market with other projects in the
planning stages. Villa Del Rio's advantage over its competitors is design and
layout of the property. All units are single story apartments and the property
is spread over 25 acres.
The Village
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The Village finished the year equal to the Gresham market occupancy rate of 96%.
The expanding economy in Portland is slowing down after several years growth.
The new construction over the last couple of years has softened the market with
higher vacancies and rental concessions. The market rental rate is slightly
lower than the rental rate at The Village. The Village should continue to remain
competitive in the marketplace.
Asset held for sale:
Rock Creek
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Rock Creek finished the year at the market average of 95%. The Portland market
has become saturated with new multi-family units with the addition of 1,500
units in 1998. Over the past few years the property has been upgrading the
interiors of the units as well as improving the outside appearances with
landscaping and a renovation of the clubhouse and office. These enhancements
have allowed the property to remain competitive in the market and compete with
the new apartments being built in the area.
ITEM 3. LEGAL PROCEEDINGS
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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).
<PAGE>
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.
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 a discussion of the Southmark bankruptcy, see Item 1 - Business.
<PAGE>
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 6,802 as of February 1, 1999
(C) Cash distributions of $4,221,415 were made to the limited partners
during 1998. No distributions were made to the partners in 1997. During
the last week of March 1999, the Partnership distributed approximately
$500,000 to the limited partners of record at March 1, 1999. The
Partnership accrued distributions of $853,756 and $905,153 for the
benefit of the General Partner for the years ended December 31, 1998
and 1997, respectively. Total distributions of $2,597,224 remain unpaid
at December 31, 1998. These distributions are the 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 they 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................. $ 15,012,339 $ 15,187,999 $ 14,855,652 $ 14,304,055 $ 13,313,091
Total revenue.................. 18,569,006 15,536,941 15,582,063 14,451,813 13,425,413
Net income (loss).............. 4,453,260 1,744,719 1,592,611 307,243 (193,822)
Net income (loss)
per limited
partnership unit.............. $ 26.44 $ 3.61 $ 5.03 $ 1.83 $ (3.98)
Distributions per limited
partnership unit.............. $ 26.41 $ - $ - $ - $ -
As of December 31,
Balance Sheets 1998 1997 1996 1995 1994
- -------------- ------------- ------------- -------------- ------------- -------------
Real estate investments, net... $ 19,670,767 $ 20,677,187 $ 22,992,254 $ 27,251,831 $ 27,916,213
Assets held for sale........... 4,765,942 5,910,865 4,203,597 - -
Total assets................... 29,746,379 32,369,919 32,592,153 32,508,764 33,355,998
Mortgage notes payable, net.... 36,064,590 38,796,649 39,255,045 39,684,440 40,090,432
Partners' deficit.............. (10,415,809) (9,793,898) (10,633,464) (11,323,378) (10,759,568)
</TABLE>
<PAGE>
See Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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 properties. All of the Partnership's
properties are subject to mortgage notes.
RESULTS OF OPERATIONS
- ---------------------
1998 compared to 1997
Revenue:
Total Partnership revenues for 1998 increased by $3,032,065 as compared to 1997.
Rental revenue decreases were offset by increased interest revenue. The
Partnership also recognized a gain of $3,319,137 on the sale of The Park
Apartments. No such gain was recognized in 1997.
Rental revenue for 1998 decreased $175,660 primarily due to the sale of The Park
Apartments in April of 1998. Excluding the revenue from The Park, rental revenue
increased $367,910 or 3%. Interest income for 1998 increased by $108,216 as
compared to the prior year due to higher average cash balances being invested in
interest bearing accounts.
Expenses:
Partnership expenses increased by $323,524 or 2% for the year ended 1998 as
compared to 1997. The effects from the sale of The Park in April 1998 were
declines of $96,205 for interest, $5,817 for property taxes, $69,876 for
personnel expenses, $32,376 for repairs and maintenance, $13,699 for property
management fees, $17,064 for utilities and $28,339 for other property operating
expenses.
In addition to the sale of The Park, other factors affected the level of
expenses reported by the remaining properties. Interest expense - affiliates
decreased by $138,241 in 1998 as compared to 1997. This decrease is due to the
repayment of the affiliate mortgage note in April 1998.
Personnel expenses increased by $126,098 or 7% in 1998 due to an increase of
compensation and benefits at all the properties.
General and administrative expenses increased $394,531 for the year ended
December 31, 1998 and compared to the same period last year. The increase was
mainly due to the costs incurred to explore alternatives to maximize the value
of the Partnership. The increase was partially offset by decreases attributable
to investor services. During 1997, charges for investor services were provided
by a third party vendor. Beginning with 1998, these services are provided by
affiliates of the General Partner. As a result of this, general and
administrative affiliates increased by $65,155 in 1998.
<PAGE>
1997 compared to 1996
Revenue:
Total Partnership revenues for 1997 decreased by $45,122 as compared to 1996.
Rental revenue increased $332,347 or 2%. In 1997, the Partnership recognized a
gain on involuntary conversion of $219,628 for fires at The Park, The Village
and Knollwood as compared to $598,859 in 1996.
Rental revenue for 1997 was $15,187,999 as compared to $14,855,652 for 1996.
This increase of $332,347 is due to an increase in the rental rates at seven of
the eight Partnership's properties, offset by decreases in the occupancy rates
at three of the eight Partnership's properties.
Expenses:
Total Partnership expenses decreased by $197,230 for the year ended December 31,
1997 as compared to 1996. Decreases in depreciation, general and administrative,
and general and administrative - affiliates were offset by increases in repairs
and maintenance and interest - affiliate.
Interest expense decreased by $249,546 or 7% as compared to the same period last
year. This decrease is due to the November 1996 refinancing of the mortgage note
on The Village with an affiliate mortgage note. As a result of this refinancing,
interest expense - affiliates increased by $221,118 for the year ended December
31, 1997.
Depreciation declined by $289,254 or 12% for the period ended December 31, 1997
as compared to the same period in 1996. This decrease is mainly due to Rock
Creek, which is currently classified as an asset held for sale, for which no
depreciation has been recognized since October 1, 1996. The Park was also
classified as an asset held for sale as of August 1, 1997, and no depreciation
has been recognized since that date.
Repairs and maintenance expense increased by $211,296 or 11% for the period
ended December 31, 1997 compared to the same period in 1996. The increase can be
attributed to increases in service expenses and the replacement of carpeting.
Carpet replacements of $162,461 for three of the Partnership properties, which
met the Partnership's criteria for capitalization in 1996, were expensed in
1997.
General and administrative expenses decreased $234,637 or 54% for the year ended
December 31, 1997 as compared to the same period last year. In 1996, the
Partnership incurred costs to evaluate and disseminate information regarding an
unsolicited tender offer. The decrease was slightly offset by charges for
investor services, which beginning in 1997, was provided by a third party
vendor. In 1996, these costs were paid to an affiliate of the General Partner
and were included in general and administrative - affiliates.
General and administrative - affiliates expense decreased by $74,448 or 22% for
1997 as compared to the same period last year due to the reduction of overhead
expenses allocable to the Partnership. Allocated expenses decreased in part due
to investor services being performed by an unrelated third party in 1997, as
discussed above.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At December 31, 1998, the Partnership held cash and cash equivalents of
$2,397,968, down $647,817 as compared to 1997.
The Partnership has experienced positive cash flow from operations of
$10,761,719 for the three years ended December 31, 1998. During 1996, the
Partnership received a mortgage loan from affiliates of $2,588,971. The
Partnership has also received $1,009,178 in insurance proceeds for the three
years ended December 31, 1998. Over the last three years the Partnership has
used cash to fund $5,325,786 in additions to real estate investments, $1,446,347
in principal payments, $152,564 for additions to deferred borrowing costs and
$2,513,937 for the payment of the MID.
The Partnership received $4,787,389 as proceeds from the sale of The Park, of
which $2,565,604 was used to retire the related mortgage note payable.
On April 27, 1998, the Partnership refinanced the mortgage note payable on The
Village. The new mortgage note, in the amount of $2,635,000 bears interest at a
variable rate equal to 1.75% plus the London Interbank Offered Rate per annum.
The new mortgage note requires monthly interest only payments and quarterly
principal payments in the amount necessary to reduce the principal balance of
the note by 5% annually. The maturity date of the new mortgage note is May 1,
2001. The Partnership realized $46,029 of cash proceeds from the transaction;
however, the cash proceeds together with additional cash reserves were used to
fund various deferred borrowing costs of $57,134 related to the transaction.
On September 28, 1998, the Partnership refinanced the mortgage note payable on
Rock Creek. The new mortgage note, in the amount of $6,225,000 bears interest at
a variable rate equal to 1.75% plus the London Interbank Offered Rate per annum.
The new mortgage note requires monthly interest only payments and quarterly
principal payments in the amount necessary to reduce the principal balance of
the note by 5% annually. The maturity date of the new mortgage note is October
1, 2001. The Partnership realized $250,217 of cash proceeds from the
transaction; however, $82,273 of the cash proceeds was used to fund various
deferred borrowing costs related to the transaction.
The Partnership generated $3,645,973 through operating activities in 1998 as
compared to $3,703,741 in 1997. The decrease of $57,768 can be attributed to the
decrease in cash received from tenants and increases in cash paid to suppliers
and property taxes paid. The decrease was partially offset with decreases in
interest paid and interest - affiliate paid.
The Partnership generated $3,703,741 through operating activities in 1997 as
compared to $3,412,005 in 1996. The increase of $291,736 can be attributed to
the increase in tenant receipts as a result of the increased rental rates at all
the Partnership's properties and a decrease in the cash paid to affiliates.
Short-term liquidity:
The Partnership expended considerable resources during the past three years to
restore its properties to good operating condition. These expenditures have been
necessary to maintain the competitive position of the Partnership's aging
properties in each of their markets. The capital improvements made during the
past three years have enabled the Partnership to increase its rental revenues
and reduce certain of its repairs and maintenance expenses. The Partnership has
budgeted an additional $1.03 million of capital improvements for 1999, to be
funded from property operations and cash reserves.
<PAGE>
At December 31, 1998, the Partnership held cash and cash equivalents of
$2,397,968. The General Partner considers this level of cash reserves to be
adequate to meet the Partnership's operating needs. The General Partner
anticipates continuing MID payments if the Partnership's properties continue to
perform as projected. The General Partner believes that anticipated operating
results for 1999 will be sufficient to fund the Partnership's budgeted capital
improvements for 1999 and to repay the current portion of the Partnership's
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 $5.3 million of capital
improvements made by the Partnership during the past three years will yield
improved cash flow from property operations in the future. If the Partnership's
cash position deteriorates, the General Partner may elect to defer certain of
the capital improvements, except where such improvements are expected to
increase the competitiveness or marketability of the Partnership's properties.
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.
The Partnership has placed Rock Creek Apartments on the market for sale
effective October 1, 1996
Income allocation and distributions:
Terms of the Amended Partnership Agreement specify that income before
depreciation is allocated to the General Partner to the extent of MID paid in
cash. Depreciation is allocated in the ratio of 95:5 to the limited partners and
the General Partner, respectively. Therefore, for each of the three years in the
period ended December 31, 1998, $228,243, $1,167,537 and $788,575, respectively,
of net income was allocated to the General Partner. The limited partners
received allocations of net income of $4,225,017, $577,182 and $804,036,
respectively, for the three year period ended December 31, 1998.
During 1998, the limited partners received a cash distribution of $4,221,415.
The distributions consisted of funds from operations and cash reserves. A
distribution of $853,756 for the MID has been accrued by the Partnership for the
year ended December 31, 1998 for the General Partner. During the last week of
March 1999, the General Partner distributed approximately $500,000 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.
<PAGE>
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.
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.
<PAGE>
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....................................... 16
Balance Sheets at December 31, 1998 and 1997................................... 17
Statements of Operations for each of the three years in the period
ended December 31, 1998..................................................... 18
Statements of Partners' Deficit for each of the three years
in the period ended December 31, 1998....................................... 19
Statements of Cash Flows for each of the three years in the period
ended December 31, 1998..................................................... 20
Notes to Financial Statements.................................................. 22
Financial Statement Schedule -
Schedule III - Real Estate Investments and Accumulated
Depreciation............................................................. 32
</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 XI, Ltd.:
We have audited the accompanying balance sheets of McNeil Real Estate Fund XI,
Ltd. (a California limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' 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 XI,
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 XI, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997
------------ -------------
ASSETS
- ------
Real estate investments:
<S> <C> <C>
Land ................................................. $ 4,407,325 $ 4,407,325
Buildings and improvements ........................... 48,327,237 47,211,527
------------ ------------
52,734,562 51,618,852
Less: Accumulated depreciation ...................... (33,063,795) (30,941,665)
------------ ------------
19,670,767 20,677,187
Assets held for sale .................................... 4,765,942 5,910,865
Cash and cash equivalents ............................... 2,397,968 3,045,785
Cash segregated for security deposits ................... 459,382 413,487
Cash restricted for mortgage payments ................... 286,160 --
Accounts receivable ..................................... 149,681 40,018
Prepaid expenses and other assets ....................... 233,791 242,961
Escrow deposits ......................................... 617,502 683,785
Deferred borrowing costs, net of accumulated
amortization of $682,223 and $677,649 at
December 31, 1998 and 1997, respectively ............. 1,165,186 1,355,831
------------ ------------
$ 29,746,379 $ 32,369,919
============ ============
LIABILITIES AND PARTNERS' DEFICIT
- ---------------------------------
Mortgage notes payable, net ............................. $ 36,064,590 $ 36,207,678
Mortgage note payable - affiliate ....................... -- 2,588,971
Accrued interest ........................................ 240,794 292,766
Accrued expenses and deferred rental income ............. 414,875 382,446
Payable to affiliates - General Partner ................. 2,950,388 2,231,389
Deferred gain - fire .................................... 25,037 --
Security deposits ....................................... 466,504 460,567
------------ ------------
40,162,188 42,163,817
------------ ------------
Partners' deficit:
Limited partners - 159,813 limited partnership
units issued and outstanding at December 31,
1998 and 1997 .................................... (3,598,672) (3,602,274)
General Partner .................................... (6,817,137) (6,191,624)
------------ ------------
(10,415,809) (9,793,898)
------------ ------------
$ 29,746,379 $ 32,369,919
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------
1998 1997 1996
----------- ----------- -----------
Revenue:
<S> <C> <C> <C>
Rental revenue ........................... $15,012,339 $15,187,999 $14,855,652
Interest ................................. 237,530 129,314 127,552
Gain on involuntary conversion ........... -- 219,628 598,859
Gain on disposition of real estate ....... 3,319,137 -- --
----------- ----------- -----------
Total revenue .......................... 18,569,006 15,536,941 15,582,063
----------- ----------- -----------
Expenses:
Interest ................................. 3,443,644 3,535,009 3,784,555
Interest - affiliates .................... 106,497 244,738 23,620
Depreciation ............................. 2,135,144 2,083,616 2,372,870
Property taxes ........................... 825,119 793,994 787,865
Personnel expenses ....................... 1,934,708 1,808,610 1,716,875
Repairs and maintenance .................. 2,028,214 2,133,196 1,921,900
Property management fees -
affiliates ............................. 811,452 752,909 734,247
Utilities ................................ 1,159,166 1,161,104 1,093,688
Other property operating expenses ........ 742,860 809,790 775,491
General and administrative ............... 592,301 197,770 432,407
General and administrative -
affiliates ............................. 336,641 271,486 345,934
----------- ----------- -----------
Total expenses ......................... 14,115,746 13,792,222 13,989,452
----------- ----------- -----------
Net income .................................. $ 4,453,260 $ 1,744,719 $ 1,592,611
=========== =========== ===========
Net income allocable to limited
partners ................................. $ 4,225,017 $ 577,182 $ 804,036
Net income allocable to General
Partner .................................. 228,243 1,167,537 788,575
----------- ----------- -----------
Net income .................................. $ 4,453,260 $ 1,744,719 $ 1,592,611
=========== =========== ===========
Net income per limited partnership unitxxxxxx $ 26.44 $ 3.61 $ 5.03
=========== =========== ===========
Distributions per limited partnership
unit ..................................... $ 26.41 $ -- $ --
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF PARTNERS' DEFICIT
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Total
General Limited Partners'
Partner Partners Deficit
------------- ------------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995 ........... $ (6,339,886) $ (4,983,492) $(11,323,378)
Net income ............................. 788,575 804,036 1,592,611
Management Incentive Distribution....... (902,697) -- (902,697)
------------ ------------ ------------
Balance at December 31, 1996 ........... (6,454,008) (4,179,456) (10,633,464)
Net income ............................. 1,167,537 577,182 1,744,719
Management Incentive Distribution ...... (905,153) -- (905,153)
------------ ------------ ------------
Balance at December 31, 1997 ........... (6,191,624) (3,602,274) (9,793,898)
Net income ............................. 228,243 4,225,017 4,453,260
Distributions to limited partners ...... -- (4,221,415) (4,221,415)
Management Incentive Distribution ...... (853,756) -- (853,756)
------------ ------------ ------------
Balance at December 31, 1998 ........... $ (6,817,137) $ (3,598,672) $(10,415,809)
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, 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 ............... $ 14,884,390 $ 15,197,251 $ 14,877,289
Cash paid to suppliers ................... (6,352,045) (6,259,909) (5,836,491)
Cash paid to affiliates .................. (879,258) (984,779) (1,369,172)
Interest received ........................ 237,530 129,314 127,552
Interest paid ............................ (3,271,612) (3,352,192) (3,645,580)
Interest paid to affiliates .............. (106,497) (244,738) (23,620)
Property taxes paid ...................... (866,535) (781,206) (717,973)
------------ ------------ ------------
Net cash provided by operating
activities ............................... 3,645,973 3,703,741 3,412,005
------------ ------------ ------------
Cash flows from investing activities:
Additions to real estate investments
and assets held for sale ............... (1,342,388) (1,516,353) (2,467,045)
Insurance proceeds from fire damage ...... -- 260,164 681,998
Insurance proceeds from hail damage
Proceeds from disposition of
real estate ............................ 4,787,389 -- --
------------ ------------ ------------
Net cash provided by (used in)
investing activities ..................... 3,445,001 (1,256,189) (1,718,031)
------------ ------------ ------------
Cash flows from financing activities:
Principal payments on mortgage
notes payable .......................... (487,451) (481,928) (476,968)
Cash restricted for mortgage note
payment ................................ (286,160) -- --
Deferred borrowing costs paid ............ (139,407) -- (13,157)
Proceeds from mortgage notes
payable ................................ 8,860,000 -- --
Repayment of mortgage note -
affiliate .............................. (2,588,971) -- --
Retirement of mortgage note payable ...... (5,974,783) -- (2,564,266)
Retirement of mortgage note
payable due to disposition ............. (2,565,604) -- --
Distributions to limited partners ........ (4,221,415) -- --
Mortgage loan from affiliate ............. -- -- 2,588,971
Management Incentive Distribution ........ (335,000) (1,271,718) (907,219)
------------ ------------ ------------
Net cash used in financing activities ....... (7,738,791) (1,753,646) (1,372,639)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ....................... (647,817) 693,906 321,335
Cash and cash equivalents at
beginning of year ...................... 3,045,785 2,351,879 2,030,544
------------ ------------ ------------
Cash and cash equivalents at end
of year ................................ $ 2,397,968 $ 3,045,785 $ 2,351,879
============ ============ ============
</TABLE>
See discussion of noncash investing and financing activities in Note 2, 7 and 9.
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
STATEMENTS OF CASH FLOWS
Reconciliation of Net Income to Net Cash Provided by
Operating Activities
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income ................................... $ 4,453,260 $ 1,744,719 $ 1,592,611
----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on involuntary conversion ............ -- (219,628) (598,859)
Gain on disposition of real estate ........ (3,319,137) -- --
Depreciation .............................. 2,135,144 2,083,616 2,372,870
Amortization of discounts on
mortgage notes payable .................. 24,750 23,532 22,868
Amortization of deferred borrowing
costs ................................... 199,254 161,947 123,008
Changes in assets and liabilities:
Cash segregated for security
deposits .............................. (45,895) (9,538) (17,824)
Accounts receivable ..................... (75,368) (10,132) 1,441
Prepaid expenses and other
assets ................................ 9,170 13,190 20,634
Escrow deposits ......................... 66,283 (21,782) 175,504
Accounts payable ........................ -- (52,886) (9,170)
Accrued interest ........................ (51,972) (2,662) (6,901)
Accrued expenses and deferred
rental income ......................... 44,304 (73,411) (1,127)
Payable to affiliates - General
Partner ............................... 200,243 39,616 (288,991)
Security deposits ....................... 5,937 27,160 25,941
----------- ----------- -----------
Total adjustments ................... 807,287 1,959,022 1,819,394
----------- ----------- -----------
Net cash provided by operating
activities ................................ $ 3,645,973 $ 3,703,741 $ 3,412,005
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- -------------
McNeil Real Estate Fund XI, Ltd. (the "Partnership") was organized June 2, 1980
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 of limited partnership dated August 6, 1991, as amended (the "Amended
Partnership Agreement"). The principal place of business for the Partnership and
for the General Partner is 13760 Noel Road, Suite 600, LB70, Dallas, Texas,
75240.
The Partnership is engaged in real estate activities, including the ownership,
operation and management of residential real estate and other real estate
related assets. At December 31, 1998, the Partnership owned seven
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.
The Partnership has placed Rock Creek Apartments on the market for sale
effective October 1, 1996
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 following
listed tier partnerships for the years ended December 31, 1998, 1997 and 1996.
These single asset tier partnerships were formed to accommodate the refinancing
of the respective property. The Partnership's and the General Partner's
ownership interest in each tier partnership is detailed below. The Partnership
retains effective control of each tier partnership. The General Partner's
minority interest is not presented as it is both negative or immaterial.
<TABLE>
<CAPTION>
% of Ownership Interest
Tier Partnership Partnership General Partner
---------------- ----------- ---------------
Limited Partnerships:
<S> <C> <C>
Acacia Lakes Fund XI Limited Partnership 99% 1%
Gentle Gale Fund XI Limited Partnership* 100 -
Rock Creek Fund XI Limited* 100 -
Villa Del Rio XI Limited Partnership* 100 -
Village Fund XI Associates 99 1
General Partnerships:
Knollwood XI Associates 99 1
The Park Fund XI Associates** 99 1
Sun Valley Fund XI Associates 99 1
</TABLE>
* The general partner of these partnerships is a corporation whose stock is
100% owned by the Partnership.
** The Partnership sold The Park Apartments on April 30, 1998. See Note 7.
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.
<PAGE>
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.
Assets Held for Sale
- --------------------
The assets held for sale are stated at the lower of depreciated cost or fair
value less costs to sell. Depreciation on these assets ceased at the time they
were placed on the market for sale.
Depreciation
- ------------
Buildings and improvements are depreciated using the straight-line method over
the estimated useful lives of the assets, ranging from 3 to 40 years.
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/or 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 a method that approximates 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.
<PAGE>
Discounts on Mortgage Notes Payable
- -----------------------------------
Discounts on mortgage notes payable are being amortized over the remaining terms
of the related mortgage notes using the effective interest method. Amortization
of discounts on the 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.
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 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 are determined prior to deductions for depreciation:
a) first, deductions for depreciation shall be allocated 5% to the General
Partner and 95% to the limited partners;
b) then, net income in an amount equal to the cumulative amount paid to
the General Partner for the Management Incentive Distribution ("MID"),
for which no previous income allocations have been made, 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 shall be equal to the
amount of cash the General Partner would have otherwise received; and
c) then, any remaining net income shall be allocated to achieve the
allocation of 5% to the General Partner and 95% to the limited partners.
The Amended Partnership Agreement provides that net losses, other than that
arising from a sale or refinancing, shall be allocated 5% to the General Partner
and 95% to the limited partners.
Net losses arising from a sale or refinancing shall be allocated 1% to the
General Partner and 99% 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.
<PAGE>
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, in an amount equal to the MID; and
(b) any remaining distributable cash, as defined, shall be distributed 100%
to the limited partners.
Cash distributions of $4,221,415 were made to the limited partners in 1998. No
distributions were made to the limited partners in 1997 or 1996. The Partnership
paid or accrued distributions of $853,756, $905,153 and $902,697 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. The General Partner has waived the collection terms of
reimbursable expenses and MID, and has elected for the Partnership to pay
limited partner distributions before the payment of such amounts. During the
last week of March 1999, the Partnership distributed approximately $500,000 to
the limited partners of record at March 1, 1999.
Net Income Per Limited Partnership Unit
- ---------------------------------------
Net income per Unit is computed by dividing net income allocated to the limited
partners by the number of Units outstanding. Per Unit information has been
computed based on 159,813 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 and leasing services.
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% to
the annualized net operating income of each property or (ii) a value of $10,000
per apartment unit for residential 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.
The MID will be paid to the extent of the lesser of the Partnership's excess
cash flow as defined, or net operating income, as defined (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 per Unit, as defined. No Units were issued in
payment of the MID in 1998, 1997 or 1996.
<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 can 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 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 the MID for
1998, 1997 or 1996 because the Entitlement Amount was sufficient to pay MID
notwithstanding the amendment to the capitalization policy.
Any amount of the MID that 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 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
---------- ---------- ----------
<S> <C> <C> <C>
Property management fees - affiliates ....... $ 811,452 $ 752,909 $ 734,247
Interest - affiliates ....................... 106,497 244,738 23,620
Charged to general and
administrative - affiliates:
Partnership administration ............... 336,641 271,486 345,934
---------- ---------- ----------
$1,254,590 $1,269,133 $1,103,801
========== ========== ==========
Charged to General Partner's deficit:
MID ...................................... $ 853,756 $ 905,153 $ 902,697
========== ========== ==========
</TABLE>
Payable to affiliates - General Partner at December 31, 1998 and 1997 consisted
primarily of accrued property management fees, MID and cost reimbursements and
are due and payable from operations. In 1998 and 1997, the Partnership paid
$335,000 and $1,271,718, respectively, from cash reserves for the MID. The
General Partner has waived the collection terms of reimbursable expenses and
MID, 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 XI, 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 were less than the
net assets and liabilities for financial reporting purposes by $2,449,717 in
1998, $261,840 in 1997and $831,834 in 1996.
NOTE 4 - REAL ESTATE INVESTMENTS
- --------------------------------
The basis and accumulated depreciation of the Partnership's real estate
investments at December 31, 1998 and 1997 are set forth in the following tables:
<TABLE>
<CAPTION>
Buildings and Accumulated Net Book
1998 Land Improvements Depreciation Value
---- -------------- ------------ ------------ ---------------
Acacia Lakes
<S> <C> <C> <C> <C>
Mesa, AZ $ 1,953,090 $ 13,505,267 $ (9,844,141) $ 5,614,216
Gentle Gale
Galveston, TX 450,155 3,837,200 (2,700,717) 1,586,638
Knollwood
Kansas City, MO 330,547 7,481,953 (4,997,953) 2,814,547
Sun Valley
Charlotte, NC 562,797 8,887,177 (5,329,739) 4,120,235
Villa Del Rio
Jacksonville, FL 636,634 10,072,157 (6,661,746) 4,047,045
The Village
Gresham, OR 474,102 4,543,483 (3,529,499) 1,488,086
------------- ------------- ------------- -------------
$ 4,407,325 $ 48,327,237 $ (33,063,795) $ 19,670,767
============= ============= ============= =============
Buildings and Accumulated Net Book
1997 Land Improvements Depreciation Value
---- -------------- ------------ ------------ ---------------
Acacia Lakes $ 1,953,090 $ 13,280,033 $ (9,302,116) $ 5,931,007
Gentle Gale 450,155 3,768,457 (2,533,853) 1,684,759
Knollwood 330,547 7,257,557 (4,638,122) 2,949,982
Sun Valley 562,797 8,654,858 (4,963,089) 4,254,566
Villa Del Rio 636,634 9,760,851 (6,264,146) 4,133,339
The Village 474,102 4,489,771 (3,240,339) 1,723,534
------------- ------------- ------------- -------------
$ 4,407,325 $ 47,211,527 $ (30,941,665) $ 20,677,187
============= ============= ============= =============
</TABLE>
<PAGE>
On August 1, 1997, the General Partner placed The Park Apartments, located in
Joplin, Missouri, on the market for sale. The property was classified as an
asset held for sale at December 31, 1997. The net book value of the property was
$1,341,317 at December 31, 1997. On April 30, 1998, the Partnership sold The
Park Apartments. See Note 7.
On October 1, 1996, the General Partner placed Rock Creek Apartments, located in
Portland, Oregon, on the market for sale. The property was classified as an
asset held for sale at December 31, 1998 and 1997. The net book value of the
property was $4,765,942 and $4,569,548 at December 31, 1998 and 1997,
respectively.
The results of operations for the assets held for sale at December 31, 1998 were
$600,215, $671,919 and $263,104 for 1998, 1997 and 1996, respectively. Results
of operations are operating revenues less operating expenses including interest
expense and depreciation expense.
The Partnership's real estate properties are encumbered by mortgage indebtedness
as discussed in Notes 5 and 6.
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 are secured by real estate
investments or the assets held for sale.
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date (g) 1998 1997
- -------- --------------- ------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Acacia Lakes First 8.700 $ 71,069 01/01 $ 8,680,219 $ 8,773,421
------------- --------------
Gentle Gale (f) First 8.150 22,327 07/03 2,530,638 2,589,676
Discount (b) (41,502) (50,020)
------------- --------------
2,489,136 2,539,656
------------- --------------
Knollwood First 7.750 32,506 05/24 4,326,728 4,379,253
------------- --------------
Rock Creek First (c) Variable Variable 10/01 6,225,000 -
First 11.875 67,860 02/01 - 6,049,641
------------- --------------
6,225,000 6,049,641
------------- --------------
Sun Valley First 7.875 48,384 06/24 6,376,663 6,451,832
------------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Mortgage Annual Monthly
Lien Interest Payments/ December 31,
Property Position (a) Rates % Maturity Date (g) 1998 1997
- -------- --------------- ------- ----------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
The Park First (d) 10.500 24,021 05/24 - 2,571,755
------------- --------------
The Village First (e) Variable Variable 05/01 2,635,000 -
------------- --------------
Villa Del Rio (f) First 8.150 47,843 07/03 5,422,798 5,549,306
Discount (b) (90,954) (107,186)
------------- ---------------
5,331,844 5,442,120
------------- --------------
$ 36,064,590 $ 36,207,678
============= ==============
</TABLE>
(a) The debt is non-recourse to the Partnership.
(b) Discounts are based on an effective interest rate of 8.62%.
(c) On September 28, 1998, the Partnership refinanced the mortgage note payable
on Rock Creek. The new mortgage note bears interest at a variable rate
equal to 1.75% plus the London Interbank Offered Rate ("LIBOR"). The
interest rate is adjusted every three months. Terms of the 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 7.06%. See Note 8.
(d) On April 30, 1998, The Park was sold. See Note 7.
(e) On April 27, 1998, the Partnership refinanced the mortgage note payable on
The Village. The new mortgage note bears interest at a variable rate equal
to 1.75% plus the London Interbank Offered Rate ("LIBOR"). The interest
rate is adjusted every three months. Terms of the 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 7.37%. See Note 6 and 8.
(f) Financing was obtained under the terms of a Real Estate Mortgage Investment
Conduit financing. The mortgage notes payable 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 mortgage notes in the collateral pool.
<PAGE>
(g) Balloon payments on the mortgage notes are due as follows:
Property Balloon Payment Date
-------- --------------- ----
Acacia Lakes $ 8,468,000 01/01
Rock Creek 5,766,000 10/01
The Village 2,380,000 05/01
Gentle Gale 2,197,000 07/03
Villa Del Rio 4,707,000 07/03
Scheduled principal maturities of the mortgage notes, before consideration of
discounts of $132,456, are as follows:
Real Estate Asset Held
Investments For Sale
------------ ------------
1999.................................... $ 570,214 $ 155,000
2000.................................... 603,912 303,500
2001.................................... 11,246,139 5,766,500
2002.................................... 431,266 -
2003.................................... 5,032,325 -
Thereafter.............................. 12,088,190 -
----------- -----------
Total................................. $ 29,972,046 $ 6,225,000
=========== ===========
Based on borrowing rates currently available to the Partnership for mortgage
loans with similar terms and average maturities, the fair value of notes payable
was approximately $36,137,000 as of December 31, 1998 and $38,601,000 as of
December 31, 1997.
NOTE 6 - MORTGAGE NOTE PAYABLE - AFFILIATE
- ------------------------------------------
The following sets forth the mortgage note payable - affiliate of the
Partnership at December 31, 1998 and 1997. The mortgage note was secured by the
real estate investment.
<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>
The Village (b) First (c) Variable 11/99 $ - $ 2,588,971
=============== ==========
</TABLE>
(a) The debt is non-recourse to the Partnership.
<PAGE>
(b) In October 1996, the Partnership obtained a mortgage note commitment from
an affiliate of the General Partner for an amount up to $2,588,971. On
November 25, 1996, $2,588,971 was funded to the Partnership to pay off the
mortgage note on The Village. The Partnership incurred deferred borrowing
costs of $13,157 for the new mortgage note payable, and the deferred
borrowing costs for the old mortgage note payable were written off. On
April 27, 1998, the mortgage note was paid in full.
(c) The note required monthly payments of interest only equal to the prime
lending rate plus 1%. At December 31, 1997, the prime rate was 8.50%.
Under the terms of the Amended Partnership Agreement, borrowings from affiliates
approximate fair market value.
NOTE 7 - DISPOSITION OF PROPERTY
- ---------------------------------
On April 30,1998, the Partnership sold to an unaffiliated buyer, The Park, a 192
unit apartment complex in Joplin, Missouri, for a cash purchase price of
$4,900,000. Cash proceeds from this transaction, as well as the gain on
disposition are detailed below.
<TABLE>
<CAPTION>
Gain on
Disposition Cash Proceeds
---------------- -------------
<S> <C> <C>
Cash sales price..................................... $ 4,900,000 $ 4,900,000
Selling costs........................................ (112,611) (112,611)
Basis of real estate sold............................ (1,349,329)
Deferred revenue written-off......................... 11,875
Deferred borrowing costs written off............... (130,798)
--------------- -----------
Gain on sale of real estate.......................... $ 3,319,137
==============
Proceeds from sale of real estate.................... 4,787,389
Retirement of mortgage note payable.................. (2,565,604)
-----------
Net cash proceeds.................................... $ 2,221,785
===========
</TABLE>
NOTE 8 - REFINANCING OF MORTGAGE NOTES PAYABLE
- ----------------------------------------------
On September 28, 1998, the Partnership refinanced the Rock Creek mortgage note.
The new mortgage note, in the amount of $6,225,000 bears interest at a variable
rate equal to 1.75% plus the London Interbank Offered Rate per annum (7.06% at
December 31, 1998). The new mortgage note requires monthly interest-only
payments and annual principal payments equal to 5% of the outstanding principal
balance of the mortgage note. Terms of the new note require the Partnership to
<PAGE>
deposit funds into a restricted cash account on a quarterly basis. The
restricted funds will be used to pay the annual principal payment and are
included in cash restricted for mortgage payments on the Balance Sheet. The
maturity date of the new mortgage note is October 1, 2001. Cash proceeds from
the refinancing transaction are as follows:
New mortgage note proceeds........................... $ 6,225,000
Amount required to payoff existing debt.............. 5,974,783
----------
Cash proceeds from refinancing....................... $ 250,217
==========
The Partnership incurred $82,273 of deferred borrowing costs related to the
refinancing of the Rock Creek mortgage note.
On April 27, 1998, the Partnership refinanced The Village mortgage note. The new
mortgage note, in the amount of $2,635,000 bears interest at a variable rate
equal to 1.75% plus the London Interbank Offered Rate per annum (7.37% at
December 31, 1998). The new mortgage note requires monthly interest-only
payments and annual principal payments equal to 5% of the outstanding principal
balance of the mortgage note. Terms of the new note require the Partnership to
deposit funds into a restricted cash account on a quarterly basis. The
restricted funds will be used to pay the annual principal payment and are
included in cash restricted for mortgage payments on the Balance Sheet. The
maturity date of the new mortgage note is May 1, 2001. Cash proceeds from the
refinancing transaction are as follows:
New mortgage note proceeds........................... $ 2,635,000
Amount required to payoff existing debt.............. 2,588,971
-----------
Cash proceeds from refinancing....................... $ 46,029
===========
The Partnership incurred $57,134 of deferred borrowing costs related to the
refinancing of The Village mortgage note.
NOTE 9 - GAIN ON INVOLUNTARY CONVERSION
- ---------------------------------------
On November 5, 1998, a fire destroyed two units and damaged four units at Gentle
Gale Apartments. The Partnership expects to receive $34,295 in insurance
reimbursements to cover the cost of repairs which is included in accounts
receivable as of December 31, 1998. A deferred gain of $25,037 was recorded by
the Partnership as of December 31, 1998. The deferred gain represents the amount
of insurance reimbursements to be received in excess of the basis of the
property destroyed. The deferred gain will be recognized when the insurance
proceeds are received.
On January 25, 1997, a fire destroyed two units at The Park. The Partnership
received $37,624 in insurance reimbursements to cover the cost of repairs.
Insurance reimbursements received in excess of the basis of the property damage
were recorded as a $22,630 gain on involuntary conversion.
<PAGE>
On January 20, 1997, a fire destroyed three units at The Village. The
Partnership received $49,552 in insurance reimbursements to cover the cost of
repairs. Insurance reimbursements received in excess of the basis of the
property damage were recorded as a $24,010 gain on involuntary conversion.
On January 8, 1996, 23,347 square feet of Knollwood Apartments were destroyed by
fire causing approximately $857,000 in damages. The Partnership received
$681,998 in insurance reimbursements as of December 31, 1996, to cover the cost
to repair Knollwood. Insurance reimbursements received in excess of the basis of
the property damaged were recorded as a $531,843 gain on involuntary conversion
during 1996. In 1997, the Partnership received an additional $172,988 in
insurance reimbursements, all of which was recorded as a gain on involuntary
conversion.
In 1994, the Partnership received $67,016 in insurance proceeds to cover the
cost of repairs caused by a hail storm in August 1994 at Knollwood Apartments.
The insurance proceeds were placed in escrow until completion of repairs. During
1996, the Partnership completed the repairs, received the proceeds that had been
held in escrow, and recorded a $67,016 gain on the involuntary conversion.
NOTE 10 - 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.
<PAGE>
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.
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 11 - 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.
<PAGE>
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 XI, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Costs
Initial Cost (b) Cumulative Capitalized
Related (b) Buildings and Write-down for Subsequent
Description Encumbrances Land Improvements Impairment (d) To Acquisition
- ----------- ------------- ----- -------------- -------------- --------------
APARTMENTS:
Acacia Lakes
<S> <C> <C> <C> <C> <C>
Mesa, AZ $ 8,680,219 $ 1,953,090 $ 10,784,729 $ - $ 2,720,538
Gentle Gale
Galveston, TX 2,489,136 450,155 2,925,081 (21,141) 933,260
Knollwood
Kansas City, MO 4,326,728 330,547 5,122,225 - 2,359,728
Sun Valley
Charlotte, NC 6,376,663 562,797 7,056,988 - 1,830,189
Villa Del Rio
Jacksonville, FL 5,331,844 636,634 7,685,383 - 2,386,774
The Village
Gresham, OR 2,635,000 474,102 3,372,567 - 1,170,916
-------------- -------------- -------------- ------------ -------------
$ 29,839,590 $ 4,407,325 $ 36,946,973 $ (21,141) $ 11,401,405
============== ============== ============== ============ ============
Asset Held for Sale:
Rock Creek (c)
Portland, OR $ 6,225,000
==============
</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) Asset held for sale is stated at the lower of depreciated cost or fair
value less costs to sell. Historical cost net of accumulated depreciation
and write-downs becomes the new cost basis when the asset is classified as
"Held for sale." Depreciation ceases at the time they are placed on the
market for sale.
(d) The carrying value of Gentle Gale Apartments was reduced by $21,141 in
1990.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Gross Amount at
Which Carried at Close of Period
Buildings and Accumulated
Description Land Improvements Total (a) Depreciation
- ----------- ---- -------------- --------- ------------
APARTMENTS:
Acacia Lakes
<S> <C> <C> <C> <C>
Mesa, AZ $ 1,953,090 $ 13,505,267 $ 15,458,357 $ (9,844,141)
Gentle Gale
Galveston, TX 450,155 3,837,200 4,287,355 (2,700,717)
Knollwood
Kansas City, MO 330,547 7,481,953 7,812,500 (4,997,953)
Sun Valley
Charlotte, NC 562,797 8,887,177 9,449,974 (5,329,739)
Villa Del Rio
Jacksonville, FL 636,634 10,072,157 10,708,791 (6,661,746)
The Village
Gresham, OR 474,102 4,543,483 5,017,585 (3,529,499)
-------------- ------------- -------------- ------------
$ 4,407,325 $ 48,327,327 $ 52,734,562 $ (33,063,795)
============== ============= ============== ============
Asset Held for Sale:
Rock Creek (c)
Portland, OR $ 4,765,942
==============
</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 $71,002,898
and accumulated depreciation was $56,512,227 at December 31, 1998.
(c) Asset held for sale is stated at the lower of depreciated cost or fair
value less costs to sell. Historical cost net of accumulated depreciation
and write-downs becomes the new cost basis when the asset is classified as
"Held for sale." Depreciation ceases at the time they are placed on the
market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
SCHEDULE III
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Date of Date Depreciable
Description Construction Acquired lives (years)
- ----------- ------------ -------- -------------
APARTMENTS:
Acacia Lakes
<S> <C> <C> <C>
Mesa, AZ 1980 05/81 3-33
Gentle Gale
Galveston, TX 1980 05/81 3-21
Knollwood
Kansas City, MO 1970 05/81 3-29
Sun Valley
Charlotte, NC 1980 08/81 3-40
Villa Del Rio
Jacksonville, FL 1976 05/81 3-40
The Village
Gresham, OR 1974 05/81 3-30
Asset Held for Sale:
Rock Creek (c)
Portland, OR 1975 02/81
</TABLE>
(c) Asset held for sale is stated at the lower of depreciated cost or fair
value less costs to sell. Historical cost net of accumulated depreciation
and write-downs becomes the new cost basis when the asset is classified as
"Held for sale." Depreciation ceases at the time they are placed on the
market for sale.
See accompanying notes to Schedule III.
<PAGE>
McNEIL REAL ESTATE FUND XI, LTD.
Notes to Schedule III
Real Estate Investments and
Accumulated Depreciation
A summary of activity for the real estate investments and accumulated
depreciation 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 .................. $ 51,618,852 $ 55,173,438 $ 64,347,015
Improvements .................................. 1,137,982 1,150,402 2,391,036
Reclassification to assets held for sale....... -- (4,561,586) (11,110,783)
Replacement of assets ......................... (22,272) (143,402) (453,830)
------------ ------------ ------------
Balance at end of year ........................ $ 52,734,562 $ 51,618,852 $ 55,173,438
============ ============ ============
Accumulated depreciation:
Balance at beginning of year .................. $ 30,941,665 $ 32,181,184 $ 37,095,184
Depreciation .................................. 2,135,144 2,083,616 2,372,870
Reclassification to assets held for sale ...... -- (3,220,269) (6,983,195)
Replacement of assets ......................... (13,014) (102,866) (303,675)
------------ ------------ ------------
Balance at end of year ........................ $ 33,063,795 $ 30,941,665 $ 32,181,184
============ ============ ============
Assets Held for Sale:
Balance at beginning of year .................. $ 5,910,865 $ 4,203,597 $ --
Reclassification to assets held for sale ...... -- 1,341,317 4,127,588
Sale of asset ................................. (1,349,329) -- --
Improvements .................................. 204,406 365,951 76,009
------------ ------------ ------------
Balance at end of year ........................ $ 4,765,942 $ 5,910,865 $ 4,203,597
============ ============ ============
</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 Units,
other than High River Limited Partnership, which owns 18,622 Units
(11.65% of the outstanding Units) as of February 1, 1999. The business
address for High River Limited Partnership is 100 South Bedford Road,
Mount Kisco, New York 10549.
(B) Security ownership of management.
The General Partner and the officers and directors of its general
partner, collectively, own 313 Units which represent less than 1% of
the outstanding Units.
(C) Change in control.
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
Under the 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% to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit for residential 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.
The MID will be paid to the extent of the lesser of the Partnership's excess
cash flow as defined, or net operating income, as defined (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. For the year ended December 31, 1998,
the Partnership paid or accrued for the General Partner MID in the amount of
$853,756.
<PAGE>
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 the gross rental
receipts of the Partnership's properties to McREMI for providing property
management and leasing services. Effective February 14, 1991, the Partnership
began reimbursing McREMI for its costs, including overhead, of administering the
Partnership's affairs. For the year ended December 31, 1998, the Partnership
paid or accrued for McREMI $1,148,093 in property management fees and
reimbursements.
See Item 1 - Business, Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Item 8 - Note 2 -
"Transactions with Affiliates."
In November 1996, the Partnership obtained a loan from McNeil Real Estate Fund
XXVII, L.P., an affiliate of the General Partner, totaling $2,588,971. The note
is secured by The Village and requires monthly interest-only payments equal to
the prime lending rate of Bank of America plus 1%. Total interest expense for
this loan was $106,497 for the year ended December 31, 1998. The mortgage note
was repaid on April 27, 1998.
<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 Data.
(A) 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 Amended and Restated Limited
Partnership Agreement, dated August
6, 1991 (Incorporated by reference
to the Quarterly Report on Form 10-Q
for the quarter ended June 30,
1991).
3.2 Amendment No. 1 to the Amended and
Restated Partnership Agreement of
McNeil Real Estate Fund XI, Ltd.,
dated March 28, 1994. (2)
3.3 Amendment No. 2 to the Amended and
Restated Partnership Agreement of
McNeil Real Estate Fund XI, Ltd.,
dated March 28, 1994. (2)
10.1 Deed of Trust Note, dated April 5,
1989, between Knollwood Fund XI
Associates and American Mortgages,
Inc. (1)
10.2 Deed of Trust Note, dated May 5,
1989, between Sun Valley Fund XI
Associates and American Mortgages,
Inc. (1)
10.4 Termination Agreement, dated as of
August 6, 1991 between Sun Valley
Fund XI Associates and McNeil Real
Estate Management, Inc. (1)
10.5 Termination Agreement, dated as of
August 6, 1991, between Knollwood
Fund XI Associates and McNeil Real
Estate Management, Inc. (1)
<PAGE>
Exhibit
Number Description
-------- -----------
10.6 Termination Agreement, dated as of
August 6, 1991 among Southmark
Management Corporation, Southmark
Commercial Management Company,
McNeil Real Estate Fund XI, Ltd. and
McNeil Real Estate Fund XI, Ltd. and
McNeil Real Estate Management, Inc.
(1)
10.7 Property Management Agreement,
dated as of August 6, 1991, between
McNeil Real Estate Fund XI, Ltd. and
McNeil Real Estate Management, Inc.
(1)
10.8 Property Management Agreement,
dated as of August 6, 1991, between
Knollwood Fund XI Associates and
McNeil Real Estate Management, Inc.
(1)
10.9 Property Management Agreement, dated
as of August 6, 1991, between Sun
Valley Fund XI Associates and McNeil
Real Estate Management, Inc.
(1)
10.12 Amendment of Property Management
Agreement, dated March 5, 1993,
between McNeil Real Estate Fund XI,
Ltd. and McNeil Real Estate
Management, Inc. (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, 1992)
10.13 Loan Agreement dated June 24,
1993, between Lexington Mortgage
Company and McNeil Real Estate Fund
XI, Ltd. (2)
10.14 Master Property Management
Agreement, dated as of June 24,
1993, between McNeil Real Estate
Management, Inc. and McNeil Real
Estate Fund XI, Ltd. (2)
10.15 Multifamily Note, dated November
1, 1993 between Value Line Mortgage
Corporation and Acacia Lakes Fund XI
Limited Partnership. (2)
<PAGE>
Exhibit
Number Description
-------- -----------
10.16 Modification of Deed of Trust Note,
dated December 15, 1993, between
American Mortgages, Inc. and
Knollwood Fund XI Associates. (2)
10.17 Modification of Deed of Trust Note,
dated December 20, 1993, between
American Mortgages, Inc. and Sun
Valley Fund XI Associates. (2)
10.18 Promissory Note, dated April 27,
1998, between Village Fund XI
Associates Limited and NationsBank
of Texas, N.A.
10.19 Promissory Note, dated September
28, 1998, between Rock Creek Fund XI
Limited and NationsBank, N.A.
11. Statement regarding computation of
Net Income 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
------------------ --------------- --------------
<S> <C> <C>
Acacia Lakes Fund XI Arizona None
Limited Partnership
Gentle Gale Fund XI Delaware None
Limited Partnership
Knollwood Fund XI Missouri None
Associates
Rock Creek Fund XI Ltd. Texas None
Sun Valley Fund XI North Carolina None
Associates
Villa Del Rio Fund XI Delaware None
Limited Partnership
Village Fund XI Associates Oregon None
Limited Partnership
</TABLE>
<PAGE>
(1) 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, 1991, as filed with the
Securities and Exchange Commission
on March 29, 1992.
(2) 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, 1995.
27. Financial Data Schedule for the year
ended December 31, 1998.
(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 XI, 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 XI, 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> 2,397,968
<SECURITIES> 0
<RECEIVABLES> 149,681
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 52,734,562
<DEPRECIATION> (33,063,795)
<TOTAL-ASSETS> 29,746,379
<CURRENT-LIABILITIES> 0
<BONDS> 36,064,590
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29,746,379
<SALES> 15,012,339
<TOTAL-REVENUES> 18,569,006
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 10,565,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,550,141
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,453,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,453,260
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
PROMISSORY NOTE
$6,225,000.00 Dallas, Texas Effective as of September 28, 1998
FOR VALUE RECEIVED, ROCK CREEK FUND XI, LTD., a Texas 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 SIX MILLION TWO HUNDRED
TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($6,225,000.00) (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 Rate" (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 Rate 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) "Election" means a Matching Funds Election.
(c) "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.
(d) "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).
(e) "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.
<PAGE>
(f) "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.
(g) "Matching Funds Election" means an election by Maker to
cause the principal balance 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.
(h) "Matching Funds Principal" means the then-outstanding
principal balance of the Loan at the time of an effective Election.
(i) "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.
(j) "Maturity Date" means the first to occur of (i) October 1,
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.
(k) "Maximum Lawful Rate" shall have the meaning
ascribed to such term in Section 13 hereof.
(l) "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.
(m) "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.
(n) "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.
<PAGE>
(o) "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.
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.
(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) 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.
<PAGE>
(b) Accrued but unpaid interest shall be due and payable (i)
in monthly installments beginning on November 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.
(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
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.
<PAGE>
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 charges hereinafter described in
Section 7 hereof. All prepayments shall be applied first to accrued interest,
the balance to principal. Such prepayment charges are not a penalty but, rather,
are agreed to by Maker and Lender as representing reasonable charges for costs
incurred by Lender.
5 Mortgage. This Note has been issued in connection with and is
secured by, among other things, a certain Deed of Trust, Assignment of Rents and
Leases, Security Agreement and Fixture Filing of even date herewith executed by
Maker for the benefit of Lender, covering and affecting certain property (the
"Property") located in Portland, Oregon, 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.
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 the then-outstanding principal amount of the Loan 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 one Election may be in force at any time, and (iii)
such Election must include the entire outstanding principal of the
Loan. Upon the effective date of the Election, the Loan 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 desired
effective date of the election and (ii) 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
<PAGE>
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, (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 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 shall bear interest prior to an
Event of Default or maturity at the Stated Rate.
(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.
<PAGE>
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.
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 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) that amount equal to the product of the number of units
contained on the Mortgaged Property multiplied by $3,500.00 per unit,
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):
<PAGE>
(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;
(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
$300 per unit;
(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,
advertising 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;
<PAGE>
(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
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) 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;
(iii) any other fees or rents collected by, for
or on behalf of Owner with respect to the leasing and
operating the Mortgaged Property; and
<PAGE>
(iv) 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.
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-five (25) 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>
9 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 December 31, 1998, 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 two and one-half percent (2.50%) of the Outstanding
Principal Balance (the "Principal Reduction Payment"). On each of March
31, June 30, September 30 and December 31 1999, and March 31, June 30,
September 30, and December 31, 2000, and March 31, June 30, 2001 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 January 15, 1999,
January 15, 2000 and January 15, 2001, 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 2001 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,
<PAGE>
Lender shall refund to Maker any Collateral Account Payment then on
deposit in the Collateral Account. If during any subsequent quarter of
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.
10 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>
11 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.
12 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, which shall include the reasonable fees and costs
incurred in connection with the appeal of any judgment.
13 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 Lawful 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
<PAGE>
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
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 any
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.
(b) 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
the other Loan Documents, which are treated as interest under
<PAGE>
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.
(c) 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.
14 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.
15 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.
16 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>
17 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.
18 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.
19 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.
20 Time of Essence. Time shall be of the essence in this Note
with respect to all of Maker's obligations hereunder.
21 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.
22 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,
condemnation awards or other similar funds or payments
attributable to the Mortgaged Property which, under the terms
<PAGE>
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.
23 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:
ROCK CREEK FUND XI, LTD.,
a Texas limited partnership
By: McNeil Rock Creek Fund XI Corp.,
a Texas corporation,
its general partner
By: /s/ Ron K. Taylor
Name: Ron K. Taylor
Title: President
PROMISSORY NOTE
$2,635,000.00 Dallas, Texas May 13, 1998
FOR VALUE RECEIVED, VILLAGE FUND XI ASSOCIATES LIMITED PARTNERSHIP, an
Oregon limited partnership ("Maker"), hereby promises to pay to the order of
NATIONSBANK OF TEXAS, N.A., a national banking association ("Lender"), at its
banking house in the City of Dallas, Dallas County, Texas, the principal sum of
TWO MILLION SIX HUNDRED THIRTY-FIVE THOUSAND AND NO/100 DOLLARS ($2,635,000.00)
(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 Rate" (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 Rate 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) "Election" means a Matching Funds Election.
(c) "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.
(d) "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).
(e) "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.
<PAGE>
(f) "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.
(g) "Matching Funds Election" means an election by Maker to
cause the principal balance 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.
(h) "Matching Funds Principal" means the then-outstanding
principal balance of the Loan at the time of an effective Election.
(i) "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.
(j) "Maturity Date" means the first to occur of (i) May 1,
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.
(k) "Maximum Rate" means the maximum nonusurious rate of
interest per annum permitted by whichever of applicable United States
federal law or Texas law permits the higher interest rate, including to
the extent permitted by applicable law, any amendments thereof
hereafter or any new law hereafter coming into effect to the extent a
higher Maximum Rate is permitted thereby. To the extent, if any, that
Chapter 1D of the Texas Credit Title (Articles 5069-1D.001 et seq.), as
the same may be amended (the "Texas Credit Code") establishes the
Maximum Rate, the Maximum Rate shall be the "weekly ceiling" (as
defined in the Texas Credit Code). The Maximum Rate shall be applied by
taking into account all amounts characterized by applicable law as
interest on the debt evidenced by this Note, so that the aggregate of
all interest does not exceed the maximum nonusurious amount permitted
by applicable law.
(l) "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.
<PAGE>
(m) "Past Due Rate" means, on any day, a rate per annum equal
to the lesser of (a) the Maximum 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.
(n) "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.
(o) "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 Rate in effect on that day, the Stated Rate shall be fixed at
the maximum permitted by application of the Maximum 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 Rate and the Stated Rate had not been so
fixed.
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 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 Rate, or (ii) the Matching Funds Rate applicable to
such Election.
(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 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 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 Rate.
<PAGE>
3 Payment of Principal and Interest.
(a) 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.
(b) Accrued but unpaid interest shall be due and payable (i)
in monthly installments beginning on June 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.
(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
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
<PAGE>
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 charges hereinafter described in Section 7
hereof. All prepayments shall be applied first to accrued interest, the balance
to principal. Such prepayment charges are not a penalty but, rather, are agreed
to by Maker and Lender as representing reasonable charges for costs incurred by
Lender.
5 Mortgage. This Note has been issued in connection with and is secured
by, among other things, a certain Deed of Trust, Assignment of Rents and Leases,
Security Agreement and Fixture Filing of even date herewith executed by Maker
for the benefit of Lender, covering and affecting certain property (the
"Property") located in Gresham, Oregon, 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.
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 the then-outstanding principal amount of the Loan 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 Rate, (ii)
no more than one Election may be in force at any time, and (iii) such
Election must include the entire outstanding principal of the Loan.
Upon the effective date of the Election, the Loan 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.
<PAGE>
(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 desired
effective date of the election and (ii) 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, (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 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 shall bear interest prior to an
Event of Default or maturity at the Stated Rate.
(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
<PAGE>
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.
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 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:
<PAGE>
(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;
(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
$300 per unit;
(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%);
<PAGE>
(ix) costs, including leasing commissions,
advertising 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
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;
<PAGE>
(ii) 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;
(iii) any other fees or rents collected by, for or
on behalf of Owner with respect to the leasing and operating
the Mortgaged Property; and
(iv) 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.
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,
<PAGE>
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.
9 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 30, 1998, 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 two and one-half percent (2.50%) 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 January 15, 1999
and January 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
<PAGE>
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
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.
10 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
<PAGE>
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.
11 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.
12 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, which shall include the reasonable fees and costs incurred in connection
with the appeal of any judgment.
13 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 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
<PAGE>
Lender's exercise of the option to accelerate the maturity of this
Note, or (iii) Maker will have paid or Lender will have received by
reason of any voluntary prepayment by Borrower of this Note, then it is
Maker's and Lender's express intent that all amounts charged in excess
of the Maximum Lawful Rate 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 (or, if this Note has 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 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 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 shall, to the extent permitted by applicable
law, be amortized or spread, using the actuarial method, throughout the
stated term of this Note (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 does not exceed the Maximum Lawful Rate from
time to time in effect and applicable to this Note 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.
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.
(b) 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
the other Loan Documents, which are treated as interest under
applicable law.
<PAGE>
(c) 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.
14 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.
15 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.
16 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.
17 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
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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.
18 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.
19 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.
20 Time of Essence. Time shall be of the essence in this Note with
respect to all of Maker's obligations hereunder.
21 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.
22 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,
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.
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(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.
23 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 as of the date
first above written.
MAKER:
VILLAGE FUND XI ASSOCIATES
LIMITED PARTNERSHIP,
an Oregon limited partnership
By: McNeil Village Apartments XI Corp.,
a Texas corporation,
its general partner
By: /s/ Ron Taylor
-------------------------------
Name: Ron Taylor
Title: President
