United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
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: 0-11779
S/M REAL ESTATE FUND VII, LTD.
Exact Name of Registrant as Specified in its Charter
Texas 75-1845682
State or Other Jurisdiction I.R.S. Employer
of Incorporation or Organization Identification No.
5520 LBJ Freeway, Suite 500, Dallas, Texas 75240
Address of Principal Executive Offices Zip Code
(214) 404-7100
Registrant's Telephone Number, Including Area Code
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 (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Balance Sheets At June 30, At December 31,
1996 1995
Assets
Real estate, at cost:
Land $ 962,216 $ 962,216
Building and improvements 7,641,408 7,650,943
8,603,624 8,613,159
Less accumulated depreciation (4,641,599) (4,464,838)
3,962,025 4,148,321
Cash and cash equivalents 417,501 935,994
Cash held in escrow 183,057 105,901
Accounts receivable 1,449 801
Other assets 30,429 22,160
Total Assets $4,594,461 $5,213,177
Liabilities and Partners' Deficit
Liabilities:
Notes payable (less unamortized discount based
on imputed interest rate of 10.5% - $233,000) $6,273,654 $6,380,912
Accounts payable:
Trade 4,798 25,139
Affiliates 40,664 40,664
Accrued interest payable --- 663,178
Accrued expenses and other liabilities 138,300 59,261
Total Liabilities 6,457,416 7,169,154
Partners' Deficit:
General Partners (105,242) (106,172)
Limited Partners (11,080 units outstanding) (1,757,713) (1,849,805)
Total Partners' Deficit (1,862,955) (1,955,977)
Total Liabilities and Partners' Deficit $4,594,461 $5,213,177
Statement of Partners' Deficit
For the six months ended June 30, 1996
General Limited
Partners Partners Total
Balance at December 31, 1995 $(106,172) $(1,849,805) $(1,955,977)
Net income 930 92,092 93,022
Balance at June 30, 1996 $(105,242) $(1,757,713) $(1,862,955)
Statements of Operations
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
Income
Rental $333,216 $332,578 $652,973 $652,298
Interest 8,767 12,893 20,490 26,199
Total income 341,983 345,471 673,463 678,497
Expenses
Property operating 167,110 174,993 332,188 340,815
Interest 201,766 121,117 322,340 242,667
Depreciation 93,614 93,647 186,296 186,627
General and administrative 13,342 10,431 24,578 22,771
Total expenses 475,832 400,188 865,402 792,880
Loss before extraordinary item (133,849) (54,717) (191,939) (114,383)
Extraordinary Item
Gain on debt restructuring 284,961 --- 284,961 ---
Total gain 284,961 --- 284,961 ---
Net Income (Loss) $151,112 $(54,717) $ 93,022 $(114,383)
Net Income (Loss) Allocated:
To the General Partners $ 1,511 $ (547) $ 930 $ (1,144)
To the Limited Partners 149,601 (54,170) 92,092 (113,239)
$151,112 $(54,717) $ 93,022 $(114,383)
Per limited partnership unit
(11,080 outstanding) $13.50 $(4.89) $8.31 $(10.22)
Statements of Cash Flows
For the six months ended June 30, 1996 1995
Cash Flows From Operating Activities
Net income (loss) $ 93,022 $(114,383)
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation 186,296 186,627
Gain on debt restructuring (284,961) ---
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Cash held in escrow 36,435 (101,000)
Accounts receivable (648) (106)
Other assets (18,269) (10,558)
Accounts payable (20,341) 10,555
Accrued interest payable (44,933) (49,451)
Accrued expenses and other liabilities 79,039 46,817
Net cash provided by (used for) operating activities 25,640 (31,499)
Cash Flows From Investing Activities
Additions to investment property --- (47,897)
Net cash used for investing activities --- (47,897)
Cash Flows From Financing Activities
Payments of principal on notes payable (4,488) ---
Additions to notes payable 583 ---
Funding of loan reserves (113,591) ---
Refinancing costs (126,637) ---
Payment of interest payable (300,000) ---
Net cash used for financing activities (544,133) ---
Net decrease in cash and cash equivalents (518,493) (79,396)
Cash and cash equivalents, beginning of period 935,994 933,424
Cash and cash equivalents, end of period $417,501 $854,028
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $366,690 $292,118
Supplemental Disclosure of Non-Cash Investing Activities
Write-off of fully depreciated building improvements $ 9,535 $ ---
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with S/M Real
Estate Fund VII, Ltd.'s (the "Partnership") annual 1995 audited financial
statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of June 30, 1996 and the results of operations for the three
and six months ended June 30, 1996 and 1995, cash flows for the six months
ended June 30, 1996 and 1995, and the statement of changes in partners'
deficit for the six months ended June 30, 1996. Results of operations for
the period are not necessarily indicative of the results to be expected for
the full year.
The following significant events have occurred subsequent to fiscal year 1995,
or the following material contingencies exist and require disclosure in this
interim report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Mortgage Note Payable
The Partnership refinanced and amended the mortgage note payable as of May 30,
1996. In accordance with the terms of the modification and extension agreement
(the "Agreement"), the principal balance of the original mortgage totaling
$5,830,000 will bear interest at a reduced interest rate of 9.875%, in
comparison to the prior rate of 10.125% (the "New First Mortgage"). The
remaining balance of the loan, representing accrued interest in the amount of
$1,281,142, has been converted into a second mortgage which does not bear
interest. Upon the execution of the Agreement, the Partnership made a $300,000
payment to the lender, at which time the lender reduced the second mortgage
indebtedness by $600,000, leaving a second mortgage balance of $681,142 (the
"New Second Mortgage"). The aggregate principal balances of the two mortgage
notes are reflected net of note discount amortization.
Under the terms of the New First Mortgage with the Federal National Mortgage
Association (the "Lender"), the Partnership is required to make fixed monthly
payments of principal and interest in the amount of $52,464.40, commencing on
July 1, 1996 until maturity on June 1, 2001, at which time the entire
outstanding principal balance is due.
Under the terms of the New Second Mortgage with the Lender, the Principal shall
be payable in consecutive monthly installments of $3,333.33 each, on or before
the first day of every month, beginning July 1, 1996, and continuing through
June 1, 1998. After that date, principal is payable in monthly installments of
$5,000 each, on or before the first day of every month, beginning July 1, 1998
and continuing through June 1, 2000. After that date, principal is payable in
monthly installments of $8,333.33 each, on or before the first day of every
month, beginning July 1, 2000 and continuing regularly until maturity on June
1, 2001. Per the New Second Mortgage, if $500,000 in principal payments have
been received unconditionally and irrevocably by the Lender, the balance of
$181,142.50 of unpaid principal of the New Second Mortgage shall be waived and
forgiven by the Lender.
Replacement Reserve and Security Agreement
As a condition of the New First Mortgage, the Partnership entered into a
Replacement Reserve and Security Agreement (the "Replacement Agreement") with
the Lender providing that, concurrently with the execution of the Replacement
Agreement, the Partnership was required to deposit with the Lender the sum of
$49,500. Per the terms of the Replacement Agreement, on each date that a
regularly scheduled payment of principal or interest is due under the New First
Mortgage, the Partnership shall deposit with the Lender the applicable Monthly
Deposit of $4,125. On a quarterly basis, provided that no default exists under
the Replacement Agreement, upon written request from the Partnership, the
Lender shall disburse amounts from the replacement reserve necessary to
reimburse the Partnership for the actual approved costs of replacements as
determined by the Lender.
Escrow Agreement - Tax and Insurance
Per the terms of the New First Mortgage, the Partnership shall pay to the
Lender on the day monthly installments of principal or interest are payable,
until the New First Mortgage is paid in full, a sum equal to one-twelfth of the
yearly real estate taxes and insurance premiums (the "Funds"). The Lender
shall apply the Funds to pay the said taxes and insurance premiums so long as
the Partnership is not in breach of any covenant or agreement of Borrower
contained in the New First Mortgage.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The General Partners of the Partnership executed a modification and extension
agreement (the "Agreement") on May 30, 1996 with the lender of the mortgage
secured by the Partnership's remaining property, Fifth Avenue Apartments
located in San Antonio, Texas (the "Property"), to modify the mortgage and
extend its maturity for five years. The mortgage loan had previously matured
on December 31, 1995 and went into default. The General Partners immediately
entered into a forbearance agreement with the lender in order to avoid a
foreclosure sale of the Property. Furthermore, the General Partners continued
to negotiate with the lender with the goal of extending the term of the
mortgage, while reducing both the interest rate and the total amount of
indebtedness.
In accordance with the terms of the Agreement, the principal balance of the
original mortgage totalling $5,830,000 will bear interest at a reduced interest
rate of 9.875%, in comparison to the prior rate of 10.125%, and the loan will
now mature on June 1, 2001 (the "New First Mortgage"). Under the terms of the
New First Mortgage with the Federal National Mortgage Association (the
"Lender"), the Partnership is required to make fixed monthly payments of
principal and interest in the amount of $52,464.40, commencing on July 1, 1996
until maturity on June 1, 2001, at which time the entire outstanding principal
balance is due.
The remaining balance of the loan, representing accrued interest in the amount
of $1,281,000, has been converted into a second mortgage which does not bear
interest (the "New Second Mortgage"). Upon execution of the Agreement, the
Partnership made a $300,000 payment to the lender, at which time the lender
reduced the second mortgage indebtedness by $600,000, leaving a second mortgage
balance of $681,000. The second mortgage loan is non-interest bearing and is
scheduled to be fully amortized over the five-year term and is prepayable at
any time. Under the terms of the New Second Mortgage with the Lender, the
payments of principal shall be made in consecutive monthly installments of
$3,333.33 each, on or before the first day of every month, beginning July 1,
1996, and continuing through June 1, 1998. After that date, principal is
payable in monthly installments of $5,000 each, on or before the first day of
every month, beginning July 1, 1998 and continuing through June 1, 2000. After
that date, principal is payable in monthly installments of $8,333.33 each, on
or before the first day of every month, beginning July 1, 2000 and continuing
regularly until maturity on June 1, 2001. Per the loan agreement, if $500,000
in principal payments have been received unconditionally and irrevocably by the
Lender, the balance of $181,142.50 of unpaid principal of the New Second
Mortgage shall be waived and forgiven by the Lender.
The General Partners believe that the modification, extension and reduction of
the original mortgage balance represents a significant positive development
which will enable the Partnership to maintain ownership of the Property and
benefit from a possible upturn in the San Antonio real estate market through a
potential sale. The General Partners will continue to assess market conditions
to determine an appropriate time to begin marketing the Property for sale.
Although it is anticipated that the Property will generate cash flow to meet
operating needs and required debt service payments in the future, there can be
no assurances that such payments will be made.
Cash and cash equivalents totalled $417,501 at June 30, 1996, compared to
$935,994 at December 31, 1995. The $518,493 decrease is primarily attributable
to cash used for financing activities in excess of cash provided by operations.
Cash held in escrow increased from $105,901 at December 31, 1995 to $183,057 at
June 30, 1996. The $77,156 increase is primarily attributable to escrow
contributions for insurance and real estate taxes and to the funding of a
replacement reserve in connection with the modification of the mortgage. The
increase in cash held in escrow was partially offset by a decrease in the
amount funded to operating reserves. Pursuant to the terms of the mortgage
modification, the Partnership is no longer required to fund an operating
reserve.
Other assets increased from $22,160 at December 31, 1995 to $30,429 at June 30,
1996. The increase was primarily attributable to the prepayment of insurance
premiums for 1996 and 1997. The increase in other assets was partially offset
by the depletion of funds previously reserved to fund legal fees and other
closing costs incurred by the Partnership in connection with the remodification
of Fifth Avenue's mortgage obligations.
Accounts payable totalled $45,462 at June 30, 1996, compared to $65,803 at
December 31, 1995. The decrease is primarily attributable to the payment of
previously outstanding repair and maintenance costs and general and
administrative expenses.
Accrued interest payable totalled $0 at June 30, 1996, compared to $663,178 at
December 31, 1995. The decrease is a result of the $300,000 payment made to
the lender in connection with the modification and the subsequent forgiveness
of an additional $300,000 of outstanding interest payable, with the remaining
balance accounted for within the New Second Mortgage.
Accrued expenses and other liabilities totalled $138,300 at June 30, 1996,
compared to $59,261 at December 31, 1995. The increase is primarily
attributable to an accrual for real estate taxes during the first and second
quarters of 1996.
Results of Operations
For the three and six months ended June 30, 1996, Partnership operations
resulted in net income of $151,112 and $93,022, respectively, compared to a net
loss of $54,717 and $114,383 for the corresponding periods in 1995. The change
from net loss to net income is primarily attributable to a gain realized by the
Partnership as a result of the debt restructuring with the lender which was
completed in the second quarter of 1996.
Rental income at Fifth Avenue totalled $333,216 and $652,973 for the three and
six months ended June 30, 1996, respectively, largely unchanged from $332,578
and $652,298 for the corresponding periods in 1995. Occupancy at Fifth Avenue
averaged approximately 96% and 94% for the three and six months ended June 30,
1996, respectively, compared to approximately 96% and 95% for the corresponding
periods in 1995. The average rental income per occupied square foot at the
property was $8.24 and $8.21 for the three and six months ended June 30, 1996,
respectively, compared to $8.22 and $8.15 for the corresponding periods in
1995.
Interest income totalled $8,767 and $20,490 for the three and six months ended
June 30, 1996, respectively, compared to $12,893 and $26,199 for the
corresponding periods in 1995. The decrease for both periods is primarily
attributable to a lower invested cash balance during the second quarter of 1996
as a result of payments made in connection with the remodification of the
mortgage secured by Fifth Avenue.
Interest expense totalled $201,766 and $322,340 for the three and six months
ended June 30, 1996, respectively, compared to $121,117 and $242,667 for the
corresponding periods in 1995. The increase for both periods is primarily
attributable to interest expense incurred during 1996 in connection with the
remodification of the mortgage secured by Fifth Avenue.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(99.1) Compromise Settlement Agreement between S/M Real
Estate Fund VII, Ltd. and Federal National Mortgage
Association, dated May 6, 1996.
(99.2) $5,830,000 Multifamily Note and Addendum, dated
May 30, 1996.
(99.3) $681,142 Subordinate Multifamily Note and Addendum,
dated May 30, 1996.
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements 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.
S/M REAL ESTATE FUND VII, LTD.
BY: SM7 APARTMENT INVESTORS INC.
General Partner
Date: August 14, 1996 BY: /s/ Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Date: August 14, 1996 BY: /s/ Daniel M. Palmier
Name: Daniel M. Palmier
Title: Vice President and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> June-30-1996
<CASH> 417,501
<SECURITIES> 000
<RECEIVABLES> 1,449
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 8,603,624
<DEPRECIATION> 4,641,599
<TOTAL-ASSETS> 4,594,461
<CURRENT-LIABILITIES> 000
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> (1,862,955)
<TOTAL-LIABILITY-AND-EQUITY> 4,594,461
<SALES> 652,973
<TOTAL-REVENUES> 673,463
<CGS> 000
<TOTAL-COSTS> 332,188
<OTHER-EXPENSES> 210,874
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 322,340
<INCOME-PRETAX> 93,022
<INCOME-TAX> 000
<INCOME-CONTINUING> 93,022
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> 93,022
<EPS-PRIMARY> 8.31
<EPS-DILUTED> 8.31
</TABLE>
COMPROMISE SETTLEMENT AGREEMENT
This Compromise Settlement Agreement (the "Agreement") is made and
entered into on the 6th day of May, 1996, effective as of the Effective
Date, by and between S/M REAL ESTATE FUND VII, LTD., a Texas limited
partnership (the "Borrower"), and FEDERAL NATIONAL MORTGAGE ASSOCIATION,
a corporation organized and existing under the laws of the United States
of America ("Fannie Mae").
RECITALS
A. BH Mortgage Corporation ("Servicer") has made the Loan to Borrower,
and in connection therewith, Borrower executed the Note, the Deed of
Trust and the other Loan Documents.
B. Servicer assigned, negotiated and transferred its interest in the
Note, Deed of Trust and Loan Documents to Beverly Hills Savings & Loan
Association ("Assignor") pursuant to that certain Assignment of Note
and Liens recorded under Volume 3107, Page 0045, Real Property Records,
Bexar County, Texas.
C. Assignor assigned, negotiated and transferred its interest in the
Note, Deed of Trust and Loan Documents to Fannie Mae, as more fully set
out in the Assignment of Lien. Fannie Mae is now the owner and holder
of the Note, Deed of Trust and Loan Documents.
D. The Loan has matured and is in default and a dispute has arisen
among the undersigned and the undersigned, to avoid the uncertainty,
time, trouble and extraordinary expense of litigation, wish to
compromise, resolve and settle forever such dispute, and all
differences and matters in controversy presently between them, and have
reached an agreement to that effect as follows:
ARTICLE I
DEFINITIONS
1.1 Assignment of Lien. The term "Assignment of Lien" shall mean those
certain Corporation Assignments from Assignor to Fannie Mae, recorded
in Volume 3384, Page 0510 and Volume 3570, Page 1488, Real Property
Records, Bexar County, Texas executed by Assignor to Fannie Mae,
pursuant to which Assignor assigned, negotiated and transferred its
interest in the Loan to Fannie Mae.
1.2 Deed of Trust. The term "Deed of Trust" shall mean that certain
Deed of Trust and Security Agreement dated July 29, 1983, executed by
Borrower, to Ron Harpole, Trustee recorded in Volume 2886, Page 0010,
Real Property Records, Bexar County, Texas securing payment of the Note
and performance of the Loan Documents.
1.3 Effective Date. The term "Effective Date" shall mean May 1, 1996.
1.4 Effective Date Note Balance. The term "Effective Date Note Balance"
shall mean unpaid principal and accrued, unpaid interest due on the
Note as of the Effective Date, which totals $7,111,142.50 [assuming
receipt of the payment required in Section 2.10 of this Agreement].
1.5 Environmental Assessment. That certain environmental assessment
dated March 26, 1996, prepared by Maxim Technologies, Inc. covering the
Property.
1.6 Escrow Agent. Commonwealth Land Title Company of Dallas.
1.7 Event of Default. The term "Event of Default" shall mean a breach
of or default or Event of Default under the Note, the Deed of Trust,
the Loan Documents or this Agreement.
1.8 Extension Agreement. The term "Extension Agreement" shall mean that
certain Extension Agreement dated February 5, 1996, effective December
31, 1995, by and between Borrower and Fannie Mae.
1.9 Foreclosure Agreement. The term "Foreclosure Agreement" shall mean
the Foreclosure Agreement of even date with this Agreement, executed by
Borrower and Fannie Mae.
1.10 Gross Income. The term "Gross Income" shall have the meaning
assigned to it in the Injunction.
1.11 Injunction. The term "Injunction" shall mean that certain Agreed
Temporary Injunction issued in connection with Federal National
Mortgage Association v. S/M Real Estate Fund VII, Ltd., f/k/a
Shearson-Murray Fund VII, Ltd., Cause No. 96-CI-01460, in the 285th
Judicial District Court of Bexar County, Texas, as extended or
modified.
1.12 Loan. The term "Loan" shall mean the loan evidenced by the Note
and secured by the Loan Documents.
1.13 Loan Documents. The term "Loan Documents" shall mean the Note, the
Deed of Trust, the Financing Statements, Extension Agreement and all
other documents and instruments executed and delivered in connection
with the Loan.
1.14 Net Operating Income. The term "Net Operating Income" shall have
the meaning assigned to it in the Injunction.
1.15 New Loan. The term "New Loan" shall mean the loans described in
the New Loan Documents.
1.16 New Loan Documents. The term "New Loan Documents" shall mean the
loan documents described in this Agreement and attached hereto in
unexecuted form as Exhibit "A" [NOT INCLUDED IN THIS 10-Q FILING].
1.17 Note. The term "Note" shall mean that certain Promissory Note,
dated July 29, 1983, executed by Borrower, payable to the order of
Servicer, in the original principal amount of $5,830,000.00.
1.18 Option A. The term "Option A" shall mean a Fannie Mae Prior
Approval (Tier 1) 30-day delivery loan, with a 25-year amortization and
a five-year term with a three-year yield maintenance period. The annual
interest rate under the foregoing shall be set by Fannie Mae on the day
of closing and shall be grossed-up to include a .125 percent servicing
fee. Fannie Mae does not guarantee the amount that such rate will be on
the day of closing.
1.18 Option B. The term "Option B" shall mean a Fannie Mae Prior
Approval (Tier 1) 30-day delivery loan, with a 25-year amortization and
a seven-year term with a three-year yield maintenance period. The
annual interest rate under the foregoing shall be set by Fannie Mae on
the day of closing and shall be grossed-up to include a .125 percent
servicing fee. Fannie Mae does not guarantee the amount that such rate
will be on the day of closing.
1.20 Permitted Expenses. The term "Permitted Expenses" shall have the
meaning assigned to it in the Injunction.
1.21 Property. The term "Property" shall mean the real property,
improvements and all other property defined as the Property in the Deed
of Trust and any collateral described in any other Loan Documents.
1.22 Survey. The term "Survey" shall mean that certain survey of the
Property dated March 22, 1996, prepared by Maverick Land Surveying
Company.
1.23 Incorporation of Other Definitions. Terms which are defined in the
Note, Deed of Trust, the Loan Documents, and the Injunction shall have
the same meanings when used in this Agreement, unless a different
definition is given herein or unless the context requires otherwise. In
cases of multiple definitions or conflicts, the definitions set forth
in this Agreement shall control.
ARTICLE II
RESOLUTION OF DISPUTE, NEW LOAN, FORECLOSURE
2.1 Alternative Resolution of Dispute. Borrower may resolve this
dispute by, at the option of Borrower, either:
A. executing and delivering the New Loan Documents in accordance with
the terms and conditions of this Agreement, or
B. unconditionally and fully cooperating in the foreclosure of title to
the Property in accordance with the Foreclosure Agreement.
2.2 New Loan. Borrower may exercise the option to close the New Loan by
giving three banking days prior written notice to Fannie Mae (a)
indicating that it unconditionally elects to choose either Option A or
Option B to apply to the New Loan Documents, unconditionally and fully
cooperating with Fannie Mae to complete all blanks and attach all
exhibits required to complete the New Loan Documents to the extent not
yet completed, (b) executing and delivering the New Loan Documents, (c)
delivering or causing to be delivered to Fannie Mae all of the
documents, evidence or other information described in Exhibit "B " [NOT
INCLUDED IN THIS 10-Q FILING], without limiting the foregoing, Borrower
shall cause to be delivered to Fannie Mae a mortgagee policy of title
insurance in the form required by that certain letter dated April 25,
1996 from Edward F. Walker on behalf of Fannie Mae to Kelvin Bryant,
attorney for Borrower and Ms. Sharon Cole of the Escrow Agent, a copy
of which is attached hereto as Exhibit "C" [NOT INCLUDED IN THIS 10-Q
FILING], an opinion of counsel to Fannie Mae in the form contained in
Exhibit " D" [NOT INCLUDED IN THIS 10-Q FILING], and insurance covering
the Property as required by the Fannie Mae DUS Guide. The proceeds of
the New Loan shall be used to pay the Loan and the Loan Documents shall
be superceded by the New Loan Documents. In addition, Borrower shall
pay interest on the Loan at 10.125 per cent per annum from the
Effective Date through and including the date of closing the New Loan.
The New Loan must be closed, if at all, not later than 11 :30 a.m.
(Dallas time) May 31, 1996, in the offices of Jenkens & Gilchrist, 1445
Ross Avenue, Suite 3200, Dallas, Texas. If Borrower shall fail or
refuse to close by such date and time, Borrower shall be deemed to have
waived all rights in connection with the New Loan.
2.3 Foreclosure Scheduled on May 7, 1996: Foreclosure Agreement. Fannie
Mae has caused the Property to be posted for foreclosure on May 7,
1996. Subject to the rights granted or reserved by Fannie Mae under
this Agreement, Fannie Mae hereby agrees to pass the foreclosure
scheduled for May 7, 1996. Subject to the condition that Borrower shall
fail or refuse to take or perform all of the actions required under
this Agreement to close the New Loan, then Borrower shall be deemed to
have elected to direct Fannie Mae to take the action required or
permitted under the Foreclosure Agreement. Borrower hereby agrees that
Fannie Mae shall have the right to repost the Property at any time
after the Effective Date for foreclosure as contemplated by the
Foreclosure Agreement. Borrower hereby unconditionally waives any and
all rights to any and all notices under the Loan Documents or
applicable law (including without limitation, the Texas UCC and Texas
Property Code) to the extent permitted by law, any and all rights to
object to the procedure followed in connection with any foreclosure of
the Property pursuant to the Foreclosure Agreement, and any and all
other right to object to any foreclosure conducted pursuant to the
Foreclosure Agreement.
2.4 Survey; Environmental Assessment. If Borrower consummates the
closing of the New Loan, Borrower shall pay for the cost of the Survey
and the Environmental Assessment. If Borrower fails or refuses to
consummate the New Loan, Fannie Mae shall pay the cost of the Survey
and Environmental Assessment.
2.5 Escrow Agent. In any event, Borrower shall pay all title insurance
premiums, expenses, escrow fees, and other costs charged by the Escrow
Agent.
2.6 Legal Fees. If Borrower consummates the New Loan, Borrower shall
reimburse Fannie Mae for all reasonable fees and expenses of legal
counsel to Fannie Mae since February 5, 1996 in connection with the
Loan Documents (including, without limitation, enforcement of remedies
under the Loan Documents, litigation expenses in connection with the
Injunction, preparation for foreclosure, and settlement negotiations)
and the New Loan, all title insurance and related charges, all fees for
filing and recording the New Loan Documents, and other reasonable costs
and expenses paid by Fannie Mae to third parties in connection with the
consummation of the New Loan Documents (such other costs and expenses
are referred to as "Other Closing Costs"). If Borrower fails or refuses
to consummate the transactions contemplated by the New Loan Documents,
each party shall pay its own legal fees and Other Closing Costs.
2.7 Letter of Intent. Fannie Mae and Borrower hereby terminate all
rights, duties and obligations under that certain letter dated February
5, 1996 executed by Fannie Mae and Borrower and neither party shall
have any further rights or obligations under such letter. Without
limiting the foregoing, Borrower hereby unconditionally releases Fannie
Mae from all possible claims, demands, actions, causes of action,
costs, expenses, damages and liabilities whatsoever arising out of or
in connection with such letter. Borrower acknowledges that the
$10,000.00 deposited against expenses pursuant to such letter have been
applied to reimburse Fannie Mae for reasonable expenses of legal
counsel incurred prior to the date of this Agreement.
2.8 Injunction. Borrower shall comply with the Injunction. Borrower and
Fannie Mae hereby agree to extend the Injunction to June 15, 1996. If
Borrower consummates the closing of the New Loan, the Injunction shall
be dissolved and the associated lawsuit dismissed at the cost of the
Borrower.
2.9 June 1996 Rents. Borrower shall comply with the Injunction in
connection with the Gross Income from the Property for the month of
June, 1996. Without limiting the foregoing, Borrower hereby guarantees
Fannie Mae that out of the Gross Income it will first pay the cost of
all utilities (unless paid by tenants of the Property) in connection
with the Property through the date of any foreclosure sale of the
Property if Borrower fails or refuses to close the New Loan. In such
event, Borrower hereby unconditionally assigns to Fannie Mae all
utility deposits owned by Borrower in connection with the Property.
2.10 March/April 1996 Interest Payment. As a condition to the execution
of this Agreement, Borrower shall pay to Fannie Mae via federal wire
transfer of good funds an amount equal to $98,381.26 not later than
10:00 a. m. Monday, May 6, 1996.
2.11 Waiver of Certain Interest. Subject to the consummation of the
closing of the New Loan and receipt of $300,000.00 in good funds via
wire transfer on the date of such closing, Fannie Mae agrees to waive
and forever forgive the additional sum of $300,000.00 of interest
accrued on the Loan, all penalty interest on the Loan accrued through
the date of such closing, all yield recapture, being the sums referred
to in paragraph 11 of the letter dated November 15, 1989, incorporated
into that certain Order Approving Agreement Between Debtor and Federal
National Mortgage Association filed January 29, 1990, by the United
States Bankruptcy Court for the Western District of Texas, Austin
Division, in Case No. 89-11662-LC.
ARTICLE III
3.1 Continuing Validity. The Note, Deed of Trust and other Loan
Documents shall remain in full force and effect as matured. The
validity, binding effect, enforceability or perfection of the Note, the
Deed of Trust or any of the Loan Documents shall not be diminished in
any way by this Agreement. Borrower further acknowledges and agrees
that the Deed of Trust is a first and superior lien on the Property.
Borrower hereby acknowledges that the liens and security interests
created and evidenced by the Deed of Trust are valid and subsisting and
further acknowledges and agrees that there are no offsets, claims or
defenses to the Note or the Deed of Trust or any other documents
evidencing or securing the Loan. Borrower covenants and agrees that
Fannie Mae owes no fiduciary or similar obligations to Borrower.
3.2 Binding Effect. This Agreement and the terms, covenants,
conditions, provisions, obligations, undertakings, rights and benefits
hereof shall be binding upon, and, except as limited herein, shall
inure to the benefit of, the undersigned parties and their respective
heirs, executors, administrators, representatives, successors and
assigns, including, without limitation, successor Borrower of the
Property.
3.3 Denial of Liability. The undersigned further understand and agree
that, as between the undersigned parties, and those claiming by, under
or through them, this is a compromise, resolution and settlement of
disputed claims primarily to avoid the uncertainty, time, trouble and
extraordinary expense of litigation, and that such compromise,
resolution and settlement shall not be taken as an admission of
liability on the part of Fannie Mae or, except with respect to the
Loan, Borrower, but rather, either such liability has been and is
expressly denied.
3.4 Attorneys' Fees. In the event a dispute arises between the
undersigned parties, or any of them, in connection with this Agreement,
the party awarded relief or dismissed with an award of costs by the
court in any such litigation (including any suit to compel arbitration)
shall also recover, in addition to actual damages, equitable relief and
costs, from the party breaching the Agreement, or from the party
failing to establish an alleged breach, all reasonable court costs and
expenses, including without limitation reasonable attorneys' fees,
reasonably incurred in connection with such dispute and litigation.
3.5 Free Will. The undersigned hereby represent and warrant that they
have entered into this Agreement of their own free will and accord and
in accordance with their own judgment after advice of their own legal
counsel, and state that they have not been induced to enter into this
Agreement by any statement, act or representation of any kind or
character on the part of anyone except as expressly set forth in this
Agreement.
3.6 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed
the same document. All such counterparts shall be construed together
and shall constitute one instrument, but in making proof hereof it
shall only be necessary to produce one such counterpart.
3.7 COMPLETE RELEASE. BORROWER AND ITS PARTNERS HEREBY JOINTLY AND
SEVERALLY RELEASE AND FOREVER DISCHARGE FANNIE MAE, AND ITS SUCCESSORS,
ASSIGNS, AGENTS, DIRECTORS, OFFICERS, EMPLOYEES, AND ATTORNEYS, AND
EACH CURRENT OR SUBSTITUTE TRUSTEE UNDER THE DEED OF TRUST
(COLLECTIVELY, THE "INDEMNITEES") FROM ALL CLAIMS, AS DEFINED BELOW,
AND JOINTLY AND SEVERALLY AGREE TO INDEMNIFY INDEMNITEES, AND HOLD THEM
HARMLESS FROM ANY AND ALL CLAIMS, LOSSES, CAUSES OF ACTION, COSTS AND
EXPENSES OF EVERY KIND OR CHARACTER IN CONNECTION WITH THE CLAIMS OR
THE BREACH OF THIS AGREEMENT OR THE LOAN DOCUMENTS. AS USED IN THIS
AGREEMENT, THE TERM "CLAIMS" SHALL MEAN ANY AND ALL POSSIBLE CLAIMS,
DEMANDS, ACTIONS, CAUSES OF ACTIONS, COSTS, EXPENSES AND LIABILITIES
WHATSOEVER, KNOWN OR UNKNOWN, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE
OR IN PART, ON OR BEFORE THE DATE OF THIS AGREEMENT, WHICH THE
BORROWER, OR ANY OF ITS PARTNERS, AGENTS OR EMPLOYEES, MAY NOW OR
HEREAFTER HAVE AGAINST THE INDEMNITEES, IF ANY AND IRRESPECTIVE OF
WHETHER ANY SUCH CLAIMS ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAWS,
OR REGULATIONS, OR OTHERWISE IN CONNECTION WITH ANY OF THE LOAN
DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY CONTRACTING FOR,
CHARGING, TAKING, RESERVING, COLLECTING OR RECEIVING INTEREST IN EXCESS
OF THE HIGHEST LAWFUL RATE APPLICABLE THERETO AND ANY LOSS, COST OR
DAMAGE, OF ANY KIND OR CHARACTER, ARISING OUT OF OR IN ANY WAY
CONNECTED WITH OR IN ANY WAY RESULTING FROM THE ACTS, ACTIONS OR
OMISSIONS OF INDEMNITEES, INCLUDING ANY BREACH OF FIDUCIARY DUTY,
BREACH OF ANY DUTY OF FAIR DEALING, BREACH OF CONFIDENCE, BREACH OF
FUNDING COMMITMENT, UNDUE INFLUENCE, DURESS, ECONOMIC COERCION,
CONFLICT OF INTEREST, NEGLIGENCE, BAD FAITH, MALPRACTICE, VIOLATIONS OF
THE RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT, INTENTIONAL OR
NEGLIGENT INFLICTION OF MENTAL DISTRESS, TORTIOUS INTERFERENCE WITH
CONTRACTUAL RELATIONS, TORTIOUS INTERFERENCE WIT H CORPORATE GOVERNANCE
OR PROSPECTIVE BUSINESS ADVANTAGE BREACH OF CONTRACT, DECEPTIVE TRADE
PRACTICES, LIBEL, SLANDER, CONSPIRACY OR ANY CLAIM FOR WRONGFULLY
ACCELERATING THE NOTE OR WRONGFULLY ATTEMPTING TO FORECLOSE ON ANY
COLLATERAL RELATING TO THE NOTE, BUT IN EACH CASE ONLY TO THE EXTENT
PERMITTED BY APPLICABLE LAW. THIS RELEASE IS ACCEPTED BY FANNIE MAE
PURSUANT TO THIS AGREEMENT AND SHALL NOT BE CONSTRUED AS AN ADMISSION
OF LIABILITY ON THE PART OF FANNIE MAE. BORROWER HEREBY REPRESENTS AND
WARRANTS THAT BORROWER IS THE CURRENT LEGAL AND BENEFICIAL OWNER OF ALL
CLAIMS, IF ANY, RELEASED HEREBY AND HAS NOT ASSIGNED, PLEDGED OR
CONTRACTED TO ASSIGN OR PLEDGE ANY SUCH CLAIM TO ANY OTHER PERSON.
3.8 Usury. It is expressly stipulated and agreed to be the intent of
Borrower and Fannie Mae at all times to comply with the applicable
Texas law governing the maximum rate or amount of interest payable on
or in connection with the Note and the Loan contemplated by the Note
and the New Loan contemplated by the New Loan Documents (or applicable
United States federal law to the extent that it permits Fannie Mae 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 called for
under the Note or under the Deed of Trust, this Agreement or any other
Loan Documents or the New Loan Documents evidencing, securing or
executed in connection with the Loan, or contracted for, charged,
taken, reserved or received with respect to the Loan, or if
acceleration of the maturity of the Note or the New Loan Documents or
if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by law, then it is Borrower's and
Fannie Mae's express intent that all excess amounts theretofore
collected by Fannie Mae be credited on the principal balance of the
Note (or, if the Note has been or would thereby be paid in full,
refunded to Borrower), and the provisions of the Note, this Agreement,
Deed of Trust and the other Loan Documents or the New Loan Documents
immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the
execution of any new documents, 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. The right to accelerate maturity
of the Note or the New Loan Documents does not include the right to
accelerate any interest which has not otherwise accrued on the date of
such acceleration, and Fannie Mae doe tend to collect any unearned
interest in the event of acceleration. All sums paid or agreed to be
paid to Fannie Mae for the use, forbearance or detention of the
indebtedness evidenced by the Note or other Loan Document shall, to the
extent permitted by applicable law, be amortized, prorated, allocated
and spread throughout the full term of such indebtedness until payment
in full so that the rate or amount of interest on account of such
indebtedness does not exceed the applicable usury ceiling.
Notwithstanding any provision contained in the Note, the Deed of Trust,
this Agreement, in any of the other Loan Documents or the New Loan
Documents that permits the compounding of interest, including, without
limitation, any provision by which any of the accrued interest is added
to the principal amount of the Note, the total amount of interest that
Borrower is obligated to pay and Fannie Mae is entitled to receive with
respect to the Loan or the New Loan shall not exceed the amount
calculated on a simple (i.e., n on-compounded) interest basis at the
maximum rate allowed by applicable law on principal amounts actually
advanced to or for the account of Borrower, including all current and
prior advances and any advances made pursuant to the Deed of Trust,
this Agreement, other Loan Documents or the New Loan Documents (such as
for the payment of taxes, insurance premiums and the like). The
provisions of the Note and the Deed of Trust limiting the amount of
interest which may be contracted for, charged or received on the
indebtedness evidenced thereby and dealing with the rights and duties
of the parties with respect to the charging or receiving of interest in
excess of the maximum rate, are hereby incorporated in this Agreement
by reference as though fully set forth herein. To the extent permitted
by law, Borrower hereby waives and releases all claims and defenses
based upon usury in connection with the execution of the Note, the
borrowing of the Loan evidenc d thereby and the execution of the Deed
of Trust and the borrowing of the New Loan as contemplated by the New
Loan Documents.
3.9 Notices. Any notices required or permitted hereby shall be given in
the manner required by the Loan Documents. The respective addresses of
the parties are as follows:
BORROWER AND ALL OF ITS PARTNERS:
S/M Real Estate Fund VII, Ltd.
5520 LBJ Freeway, Suite 500
Dallas, Texas 75240
FANNIE MAE:
Federal National Mortgage Association
Two Galleria Tower, Suite 600
13455 Noel Road
Dallas, Texas 75240-5003
Mailing Address: P.O. Box 650043
Dallas, Texas 75265-0043
Attn: VP-Multifamily
Fannie Mae Loan No. 1613000007
3.10 Conflicting Terms. In the event of any conflict between the terms
hereof, the Note, the Deed of Trust or any other Loan Document or the
Injunction (to the extent permitted by law), the terms of this
Agreement shall control.
3.11 Time is of the Essence. Time is of the essence of this Agreement.
3.12 Entire Agreement, Modification. This Agreement embodies and
constitutes the entire understanding among the parties with respect to
the transactions contemplated herein, and all prior or contemporaneous
agreements, understandings, representations, and statements, oral or
written, are merged into this Agreement. Neither this Agreement nor any
provision hereof may be waived, modified, amended, discharged, or
terminated except by an instrument in writing signed by the party
against which the enforcement of such waiver, modification, amendment,
discharge, or termination is sought, and then only to the extent set
forth in such instrument.
3.13 Applicable Law and Uniform Commercial Code. THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF
TEXAS (WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICT OF LAW OF
SUCH STATE). All undefined terms used herein which are defined in the
Texas Uniform Commercial Code shall be used with the definition
therefor in said Uniform Commercial Code. AS A MATERIAL INDUCEMENT TO
FANNIE MAE TO ENTER INTO AND PERFORM THIS AGREEMENT, BORROWER HEREBY
UNCONDITIONALLY AND IRREVOCABLY COVENANTS AND AGREES THAT IN THE EVENT
ANY ACTION IS EVER BROUGHT BY OR AGAINST BORROWER IN CONNECTION WITH
THE SUBJECT MATTER OF THIS AGREEMENT OR BORROWER SHALL EVER SEEK
PROTECTION AS A DEBTOR UNDER THE UNITED STATES CODE OR ANY SIMILAR
STATUTE, EXCLUSIVE VENUE FOR ANY SUCH ACTION SHALL BE IN THE UNITED
STATES DISTRICT COURT, NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION. IF
BORROWER FAILS TO HONOR THE VENUE STIPULATIONS CONTAINED IN THIS
PARAGRAPH, FANNIE MAE SHALL HAVE THE RIGHT TO REQUIRE REMOVAL OF ALL
PROCEEDINGS TO THE UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF
TEXAS, DALLAS DIVISION. BORROWER SHALL NOT OPPOSE ANY SUCH CHANGE OF
VENUE. BORROWER HEREBY SUBMITS TO THE IN PERSONAM JURISDICTION IN ANY
MATTER INVOLVING THE PROPERTY, LOAN DOCUMENTS OR FANNIE MAE. BORROWER
HEREBY ACKNOWLEDGES THAT IT IS NOT IN A DISPARATE BARGAINING POSITION,
IS A LIMITED PARTNERSHIP WITH SOPHISTICATED FINANCIAL, ECONOMIC
EXPERIENCE, THAT THE VENUE SELECTION CONTAINED HEREIN IS NOT
UNREASONABLE, UNJUST, INCONVENIENT OR OVERREACHING, AND THAT BORROWER
IS REPRESENTED BY COMPETENT LEGAL COUNSEL. THE FOREGOING SHALL NOT
IMPLY ANY CONSENT BY FANNIE MAE TO THE FILING OF ANY SUCH BANKRUPTCY OR
OTHER PROCEEDING. IN THE EVENT BORROWER SHALL SEEK OR RECEIVE RELIEF AS
A DEBTOR UNDER THE UNITED STATES CODE, BORROWER AGREES:
A. THE RIGHT TO ANY AUTOMATIC STAY PREVENTING EXERCISE OF ANY REMEDIES
BY FANNIE MAE IS HEREBY WAIVED;
B. THE RIGHT TO EMPLOY THE "NEW VALUE" EXCEPTION TO THE ABSOLUTE
PRIORITY RULE IS HEREBY WAIVED;
C. THE RIGHT TO THE EXCLUSIVITY PERIOD OR THE RIGHT TO EXTEND SUCH
PERIOD WITH RESPECT TO ANY BANKRUPTCY REORGANIZATION PLAN IN CONNECTION
WITH THE PROPERTY IS HEREBY WAIVED:
D. BORROWER BELIEVES THAT THE FAIR MARKET VALUE OF THE PROPERTY, AS OF
THE DATE OF THIS AGREEMENT, IS LESS THAN THE OUTSTANDING BALANCE OWED
WITH RESPECT TO THE LOAN AND THE PROPERTY IS NOT NOW, AND WILL NEVER BE
NECESSARY TO ANY PLAN OF REORGANIZATION:
E. BORROWER HEREBY GRANTS TO FANNIE MAE THE EXCLUSIVE RIGHT TO EXERCISE
ALL VOTES OR INTERESTS OF BORROWER IN CONNECTION WITH SUCH PROCEEDING.
F. BORROWER SHALL NOT USE GROSS INCOME TO PAY ANY COSTS IN CONNECTION
WITH ANY BANKRUPTCY OR SIMILAR ACTION INVOLVING BORROWER OR ANY
SUBSEQUENT OWNER OF THE PROPERTY.
IN WITNESS WHEREOF, the undersigned have executed this Agreement in
duplicate copies, each of which shall be deemed an original, on the
dates hereinafter subscribed, to be effective as of the date set forth
in this Agreement.
S/M REAL ESTATE FUND VII, LTD.,
a Texas limited partnership
By: CROZIER PARTNERS VII, LTD.,
General Partner
By: Anterra Property Investors VII, Inc.,
General Partner
By: /s/Richard Hoffman
Name: Richard Hoffman
Its: President
FEDERAL NATIONAL MORTGAGE ASSOCIATION
By: /s/Harry D. Justice
Name: Harry D. Justice
Its: Vice President
MULTIFAMILY NOTE
U.S.: $5,830,000 Dallas, Texas
City
FOR VALUE RECEIVED, the undersigned promise to pay the Federal National
Mortgage Association, or order, the principal sum of FIVE MILLION EIGHT HUNDRED
THIRTY THOUSAND AND NO/100 DOLLARS, with interest on the unpaid principal
balance from the date of this note, until paid, at the rate of 9.8750 percent
per annum. The principal and interest shall be payable at c/o Standard
Mortgage Company, 300 Plaza, One Shell Square, New Orleans, Louisiana 70139 in
consecutive monthly installments of Fifty Two Thousand Four Hundred Sixty Four
Dollars And Forty Cents (U.S. $52,464.40) on the first day of each month
beginning July 1, 1996, (herein "amortization commencement date"), until the
entire indebtedness evidenced hereby is fully paid, except that any remaining
indebtedness, if not sooner paid, shall be due and payable on June 1, 2001.
If any installment under this Note is not paid when due, the entire principal
amount outstanding hereunder and accrued interest thereon shall at once become
due and payable, at the option of the holder hereof. The holder hereof may
exercise this option to accelerate during any default by the undersigned
regardless of any prior forbearance. In the event of any default in the payment
of this Note, and if the same is referred to an attorney at law for collection
or any action at law or in equity is brought with respect hereto, the
undersigned shall pay the holder hereof all expenses and costs including but
not limited to attorney's fees.
If any installment under this Note remains past due for ten calendar days or
more, the outstanding principal balance of this Note shall bear interest during
the period in which the undersigned is in default at a rate of 13.875 percent
per annum, or, if such increased rate of interest may not be collected from the
undersigned under applicable law, then at the maximum increased rate of
interest, if any, which may be collected from the undersigned under applicable
law.
From time to time, without affecting the obligation of the undersigned or the
successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein, without affecting the guaranty of any person, corporation, partnership
or other entity for payment of the outstanding principal balance of this Note,
without giving notice to or obtaining the consent of the undersigned, the
successors or assigns of the undersigned or guarantors, and without liability
on the part of the holder hereof, the holder hereof may, at the option of the
holder hereof, extend the time for payment of said outstanding principal
balance or any part thereof, reduce the payments thereon, release anyone liable
on any of said outstanding principal balance, accept a renewal of this Note,
modify the terms and time of payment of said outstanding principal balance,
join in any extension or subordination agreement, release any security given
herefor, take or release other or additional security, and agree in writing
with the undersigned to modify the rate of interest or period of amortization
of this Note or change the amount of the monthly installments payable
hereunder.
ADDENDUM TO MULTIFAMILY NOTE
THIS ADDENDUM TO MULTIFAMILY NOTE (the "Addendum") is made this 30th day of
May, 1996, and is incorporated into and shall be deemed to amend and supplement
the Multifamily Note (the "Multifamily Note") made by the undersigned (the
"Borrower" ) to the Federal National Mortgage Association and its successors,
assigns and transferees (the "Lender"), dated the same date as this Addendum
(the Multifamily Note as amended and supplemented by this Addendum, any other
addendum to the Multifamily Note, and any future amendments to the Multifamily
Note is referred to as the "Note"). The debt evidenced by the Note is secured
by a Multifamily Mortgage, Deed of Trust or Deed to Secure Debt of the same
date (the "Multifamily Instrument") covering the property described in the
Multifamily Instrument and defined therein as the "Property," located at:
11530 Vance Jackson Road,
San Antonio, Texas 78230
(Property Address)
This Property is located entirely within Texas (the "Property Jurisdiction").
The Multifamily Instrument is amended and supplemented by the Rider to
Multifamily Instrument (the "Rider") and any other rider to Multifamily
Instrument given by Borrower to Lender and dated the same date as the
Multifamily Instrument. (The Multifamily Instrument as amended and supplemented
by the Rider and any other rider to the Multifamily Instrument and any future
amendments to the Instrument is referred to as the "Instrument".)
The term "Loan Documents" when used in this Addendum shall mean, collectively,
the following documents: (i) the Instrument, (ii) the Note, and (iii) all other
documents or agreements including any Collateral Agreements (as defined in the
Rider) or O&M Agreement (as defined in the Rider) arising under, related to, or
made in connection with the loan evidenced by the Note, as such Loan Documents
may be amended.
The covenants and agreements of this Addendum, and the covenants and agreements
of any other addendum to the Multifamily Note, shall be incorporated into and
shall amend and supplement the covenants and agreements of the Multifamily Note
as if this Addendum and the other addenda were a part of the Multifamily Note,
and all references to the Note in the Loan Documents shall mean the Note as so
amended and supplemented. Any conflict between the provisions of the
Multifamily Note and this Addendum shall be resolved in favor of this Addendum.
ADDITIONAL COVENANTS. In addition to the covenants and agreements made in
the Multifamily Note Borrower and Lender further covenant and agree as follows:
A. Prepayments
I. Yield Maintenance Period
During the first three years of the Note term beginning with the date
of the Note (the "Yield Maintenance Period") and upon giving Lender 60 days
prior written notice, Borrower may prepay the entire unpaid principal
balance of the Note on the last Business Day before a scheduled monthly
payment date by paying, in addition to the entire unpaid principal balance,
accrued interest and any other sums due Lender at the time of prepayment, a
prepayment premium equal to the greater of:
(a) 1% of the entire unpaid principal balance of the Note, or
(b) The product obtained by multiplying (1) the entire unpaid principal
balance of the Note at the time of prepayment, times (2) the difference
obtained by subtracting from the interest rate on the Note the yield
rate (the "Yield Rate") on the 5% U.S. Treasury Security due February
1999 (the "Specified U.S. Treasury Security"), as the Yield Rate is
reported in the Wall Street Journal on the Fifth Business Day preceding
(x) the date notice of prepayment is given to Lender where prepayment
is voluntary, or (y) the date Lender accelerates the loan, times (3)
the present value factor calculated using the following formula:
-n
1-(1+r) / r
[r = Yield Rate
n = the number of years, and any fraction thereof, remaining between
the prepayment date and the expiration of the Yield Maintenance
Period]
In the event that no Yield Rate is published for the Specified U.S.
Treasury Security, then the nearest equivalent U.S. Treasury Security
shall be selected at Lender's sole discretion. If the publication of
such Yield Rates in the Wall Street Journal is discontinued, Lender
shall determine such Yield Rates from another source selected by
Lender.
Except as provided in paragraph A.3 of this Addendum, no partial
prepayments are permitted.
2. After Yield Maintenance Period
After the expiration of the Yield Maintenance Period and upon giving
Lender 60 days prior written notice, Borrower may prepay the entire
unpaid principal balance of the Note on the last Business Day before a
scheduled monthly payment date by paying, in addition to the entire
unpaid principal balance, accrued interest and any other sums due
Lender at the time of prepayment, a prepayment premium equal to 1% of
the entire unpaid principal balance of the Note. No prepayment premium
shall be due for any full prepayment made by Borrower in accordance
with the provisions of the preceding sentence within 90 days of the
maturity date of the Note.
Except as provided in paragraph A.3 of this Addendum, no partial
prepayments are permitted.
3. Partial Prepayments
Borrower shall have no right to make a partial prepayment of the
outstanding indebtedness during the Note term. However, in the event
that Lender shall require a partial prepayment of the outstanding
indebtedness after a default under the Note, the Instrument or any of
the other Loan Documents, by applying funds held by Lender pursuant to
any Collateral Agreement (as defined in Uniform Covenant 2B of the
Instrument) against the indebtedness secured by the Instrument, or, if
Lender shall for any other reason accept a partial prepayment by
Borrower of the outstanding indebtedness, except as otherwise provided
in paragraph A.4 of this Addendum, a prepayment premium shall be due
and payable to Lender as follows:
(a) After Yield Maintenance Period. If Lender shall require or accept
a partial prepayment after the expiration of the Yield Maintenance
Period, the partial prepayment shall be made on the last Business Day
before a scheduled monthly payment date and a prepayment premium equal
to 1% of the partial principal prepayment amount shall be due and
payable to Lender. No prepayment premium shall be due for any partial
prepayment made by Borrower in accordance with the provisions of the
preceding sentence within 90 days of the maturity date of the Note.
(b) During Yield Maintenance Period. If Lender shall require or accept
a partial prepayment during the Yield Maintenance Period, the partial
prepayment shall be made on the last Business Day before a scheduled
monthly payment date and a prepayment premium shall be due and payable
to Lender equal to the greater of:
(i) 1% of the amount of principal being prepaid, or
(ii) the product obtained by multiplying (A) the amount of the
principal which is being prepaid, times (B) the difference obtained by
subtracting from the interest rate on the Note the yield rate (the
"Partial Prepayment Yield Rate") on the Specified U.S. Treasury
Security, as the Partial Prepayment Yield Rate is reported in the Wall
Street Journal on the fifth Business Day preceding (1) the day Lender
accelerates the loan (in connection with any partial prepayment made in
connection with an acceleration of the loan), or (2) the day Lender
applies funds held under any Collateral Agreement (other than in
connection with an acceleration of the loan), times (C) the present
value factor calculated using the following formula:
-n
1-(1+y) / y
[y = Partial Prepayment Yield Rate
n = the number of years, and any fraction thereof, remaining between
the prepayment date and the expiration of the Yield Maintenance
Period]
When the total amount to be applied toward the unpaid principal
balance of the loan and the prepayment premium is known, but the
amounts to be allocated toward the unpaid principal balance of the
loan and the prepayment premium, respectively, are unknown, the Lender
shall determine the allocation between the prepaid principal amount
and the prepayment premium as follows:
Given: a = total amount to be applied
b = prepaid principal amount
c = prepayment premium
N = note rate
-n
F = present value factor = 1-(1+y) /y
["y" and "n" have the same meanings as set forth in
subparagraph (ii) above]
Then: a = b + c
b = a / F(N-y) + 1
c = a - b
Except as provided in the next sentence, any partial
prepayment of the outstanding indebtedness shall not extend the due
date of any subsequent monthly installments or change the amount of
such installments, unless Lender shall otherwise agree in writing.
Upon any partial prepayment. Lender shall have the option, in its
sole and absolute discretion, to recast the monthly installments due
under the Note so that the maturity date of the Note shall remain the
same.
4. Premium Due Whether Voluntary or Involuntary Prepayment; Insurance
and Condemnation Proceeds
Borrower shall pay the prepayment premium due under this paragraph A
whether the prepayment is voluntary or involuntary (in connection
with Lender's acceleration of the unpaid principal balance of the
Note) or the Instrument is satisfied or released by foreclosure
(whether by power of sale or judicial proceeding) deed in lieu of
foreclosure or by any other means. Notwithstanding any other
provision herein to the contrary, Borrower shall not be required to
pay any prepayment premium in connection with any prepayment
occurring as a result of the application of insurance proceeds or
condemnation awards under the Instrument.
5. Notice; Business Day
Any notice to Lender provided for in this Addendum shall be given in
the manner provided in the Instrument. The term "Business Day"
means any day other than a Saturday a Sunday or any other day on
which Lender is not open for business.
B. Borrower's Exculpation
Subject to the provisions of paragraph C and notwithstanding any other
provision in the Note or Instrument, the personal liability of Borrower,
any general partner of Borrower (if the Borrower is a partnership), and
any "Key Principal" (collectively, the individual(s) whose name(s) is
(are) set forth at the foot of this Addendum) to pay the principal of and
interest on the debt evidenced by the Note and any other agreement
evidencing Borrower's obligations under the Note and the Instrument shall
be limited to (1) the real and personal property described as the
"Property" in the Instrument, (2) the personal property described in or
pledged under any Collateral Agreement (as defined in Uniform Covenant 2B
of the Instrument) executed in connection with the loan evidenced by the
Note, (3) the rents, profits, issues, products and income of the Property
received or collected by or on behalf of Borrower (the "Rents and
Profits") to the extent such receipts are necessary first, to pay the
reasonable expenses of operating, managing, maintaining and repairing the
Property, including but not limited to real estate taxes, utilities,
assessments, insurance premiums, repairs, replacements and ground rents.
if any (the "Operating Expenses") then due and payable as of the time of
receipt of such Rents and Profits, and then, to pay the principal and
interest due under the Note and any other sums due under the Instrument or
any other Loan Document (including but not limited to deposits or reserves
due under any Collateral Agreement) except to the extent that Borrower did
not have the legal right, because of a bankruptcy, receivership or similar
judicial proceeding to direct the disbursement of such sums.
Except as provided in paragraph C, Lender shall not seek (a) any judgment
for a deficiency against Borrower, any general partner of Borrower (if
Borrower is a partnership) or any Key Principal, or Borrower's or any
general partner's or Key Principal's heirs, legal representatives,
successors or assigns, in any action to enforce any right or remedy under
the Instrument, or (b) any judgment on the Note except as may be necessary
in any action brought under the Instrument to enforce the lien against the
Property or to exercise any remedies under any Collateral Agreement.
C. Exceptions to Non-Recourse Liability
If, without obtaining the Lender's prior written consent, (i) a Transfer
shall occur which, pursuant to Uniform Covenant 19 of the Instrument,
gives Lender the right at its option to declare all sums secured by the
Instrument immediately due and payable, (ii) Borrower shall encumber the
Property with the lien of any subordinate instrument in connection with
any financing by Borrower, or, (iii) Borrower shall violate the single
asset covenant of paragraph J of the Rider, any of such events shall
constitute a default by Borrower under the Note, the Instrument and the
other Loan Documents, and if such event shall continue for 30 days,
paragraph B shall not apply from and after the date which is 30 days after
such event and the Borrower, any general partner of Borrower (if Borrower
is a partnership) and Key Principal (each individually on a joint or
several basis if more than one) shall be personally liable on a joint and
several basis for full recourse liability under the Note and the other
Loan Documents.
Notwithstanding paragraph B, Borrower, any general partner of Borrower (if
Borrower is a partnership) and Key Principal (each individually on a joint
and several basis if more than one) shall be personally liable on a joint
and several basis in the amount of any loss, damage or cost (including but
not limited to attorneys fees) resulting from (A) fraud or intentional
misrepresentation by Borrower or Borrower's agents or employees or any Key
Principal or general partner of Borrower in connection with obtaining the
loan evidenced by the Note, or in complying with any of Borrower's
obligations under the Loan Documents, (B) insurance proceeds, condemnation
awards, security deposits from tenants or other sums or payments received
by or on behalf of the Borrower in its capacity as owner of the Property
and not applied in accordance with the provisions of the Instrument
(except to the extent that Borrower did not have the legal right because
of a bankruptcy receivership or similar judicial proceeding, to direct
disbursement of such sums or payments, (C) all Rents and Profits, (except
to the extent that Borrower did not have the legal right because of a
bankruptcy receivership or similar judicial proceeding to direct the
disbursement of such sums), and not applied, first, to the payment of the
reasonable Operating Expenses as such Operating Expenses become due and
payable, and then, to the payment of principal and interest then due and
payable under the Note and any other sums due under the Instrument and all
other Loan Document (including but not limited to deposits or reserves
payable under any Collateral Agreement), (D) Borrower's failure to pay
transfer fees and charges due Lender under paragraph 19(c) of the
Instrument, or (E) Borrower's failure following a default under any of the
Loan Documents to deliver to Lender on demand all Rents and Profits,
security deposits (except to the extent that Borrower did not hav e the
legal right because of a bankruptcy receivership or similar judicial
proceeding to direct the disbursement of such sums), books and records
relating to the Property.
No provision of paragraphs B or C shall (i) affect any guaranty or similar
agreement executed in connection with the debt evidenced by the Note, (ii)
release or reduce the debt evidenced by the Note, (iii) impair the right
of Lender to enforce the provisions of paragraph D of the Rider, (iv)
impair the lien of the Instrument, or (v) impair the right of Lender to
enforce the provisions of any Collateral Agreement.
D. Business, Commercial or Investment Purpose
Borrower represents that the Loan evidenced by the Note is being made
solely for business, commercial or investment purposes.
E. Governing Law
1. Choice of Law
The validity of the Note, and the other Loan Documents, each of their
terms and provisions and the rights and obligations of Borrower under
the Note, and the other Loan Documents shall be governed by,
interpreted, construed, and enforced pursuant to and in accordance with
the laws of the Property Jurisdiction.
2. Consent to Jurisdiction
Borrower irrevocably consents to the exclusive jurisdiction of any and
all state and federal courts with jurisdiction in the Property
Jurisdiction over Borrower and Borrower's assets. Borrower agrees that
such assets shall be used to first satisfy all claims of creditors
organized or domiciled in the United States of America ("USA") and that
no assets of the Borrower in the USA shall be considered part of any
foreign bankruptcy estate.
Borrower agrees that any controversy arising under or in relation to
the Note, the Instrument or any of the other Loan Documents shall be
litigated exclusively in the Property Jurisdiction. The state and
federal courts and authorities with jurisdiction in the Property
Jurisdiction shall have exclusive jurisdiction over all controversies
which may arise under or in relation to the Note, including without
limitation those controversies relating to the execution,
interpretation, breach, enforcement, or compliance with the Note, the
Instrument, or any other issue arising under, related to, or in
connection with any of the Loan Documents. Borrower irrevocably
consents to service, jurisdiction, and venue of such courts for any
litigation arising from the Note, the Instrument or any of the other
Loan Documents, and waives any other venue to which it might be
entitled by virtue of domicile, habitual residence, or otherwise.
F. Successors and Assigns
The provisions of the Note, the Instrument, and all other Loan Documents
shall be binding on the successors and assigns, including, but not limited
to, any receiver, trustee, representative or other person appointed under
foreign or domestic bankruptcy, receivership, or similar proceedings of
Borrower and any person having an interest in Borrower.
G. No Third Party Beneficiary
Borrower acknowledges and agrees that (i) any loss sharing arrangement or
arrangement for interim advancement of funds that originally is made by
the Lender named in the Note to Federal National Mortgage Association is
made pursuant to a contractual obligation of such Lender to Federal
National Mortgage Association that is independent of, and separate and
distinct from, the obligation of Borrower for the full and prompt payment
of the indebtedness evidenced by the Note, (ii) Borrower shall not be
deemed to be a third party beneficiary of such loss sharing arrangement or
arrangement for interim advancement of funds, and (iii) no such loss
sharing or interim advancement arrangement shall constitute any person or
entity making such payment as a guarantor or surety of the Borrower's
obligations, notwithstanding the fact that the obligations under any such
loss sharing or interim advancement arrangement may be calculated with
reference to amounts payable under the Note or other Loan Documents.
BY SIGNING BELOW, Borrower accepts and agrees to the covenants and
agreements contained in this Addendum.
S/M REAL ESTATE FUND VII, LTD.
a Texas limited partnership
By: CROZIER PARTNERS VII LTD.
General Partner
By: Anterra Property Investors VII, Inc.
General Partner
By: /s/Richard Hoffman
Name: Richard Hoffman
Its: President
This page is attached to and made a part of the Addendum to Multifamily
Note dated May 30, 1996, executed by S/M REAL ESTATE FUND VII, LTD. and
payable to the FEDERAL NATIONAL MORTGAGE ASSOCIATION.
H. Cross-Default. The following is added after the first paragraph on the
second page of the Note:
Any breach of or default ("Event of Default") under this Note, the
Multifamily Instrument, any other Loan Document, that certain Subordinate
Multifamily Note of even date herewith in the original principal amount
of $681,142.50 executed by Borrower and payable to the order of Lender
(the "Subordinate Note"), the Subordinate Multifamily Deed of Trust,
Assignment of Rents, and Security Agreement of even date therewith,
executed by Borrower for the benefit of Lender and being a second lien
against the Property (the "Subordinate Deed of Trust") shall be deemed an
Event of Default under the other Loan Documents and any Event of Default
under any other Loan Document, the Subordinate Note, the Subordinate Deed
of Trust, or any document executed or delivered by Borrower in connection
with the Subordinate Note or Subordinate Deed of Trust, shall be deemed
an Event of Default under this Note and the Multifamily Instrument. In
the event of any conflict between the Note, the Multifamily Instrument,
or the other Loan Documents and the Addendum to the Note or the Rider to
the Multifamily Instrument, the terms of the Addendum to the Note and the
Rider to the Multifamily Instrument shall control.
I. Waivers. The Note is hereby amended by inserting the following
provision after the first sentence on the second page of the Note:
The term "Maximum Rate" shall mean the highest lawful rate of interest
applicable to this Note. In determining the Maximum Rate, due regard
shall be given to all payments, fees, charges, deposits, balances and
agreements which may constitute interest or be deducted from principal
when calculating interest. For purposes of determining the Maximum
Rate, the Indicated Rate Ceiling specified in Texas Revised Civil
Statutes, Article 5069-1.04 shall be used; however, if permitted by
law, holder hereof may implement any ceiling under that law used to
compute the rate of interest hereunder by notice to the undersigned as
provided in such article. Notwithstanding the foregoing sentence, if
Section 501 of the Depository Institutions Deregulation and Monetary
Control Act of 1980 (as amended) permits a higher Maximum Rate than
article 5069-1.04, such higher Maximum Rate shall apply to this Note.
Interest on the unpaid principal balance of this Note at the rate
stated above in this Note (the "Stated Rate") shall be calculated at a
daily rate equal to 1/360 times the Stated Rate (but in no event
greater than the Maximum Rate). Notwithstanding the foregoing, at any
time when the interest contracted for, collected, or charged on the
unpaid balance of this Note shall exceed the Stated Rate, such interest
shall be calculated at a daily rate of 1/365 times such rate (but in no
event greater than the Maximum Rate).
It is expressly stipulated and agreed to be the intent of the
undersigned and holder hereof at all times to comply with the
applicable law governing the Maximum Rate or amount of interest payable
on or in connection with this Note and the loan (the "Loan") evidenced
thereby (or applicable United States federal law to the extent that it
permits holder hereof to contract for, charge, take, reserve or receive
a greater amount of interest than under law of the state in which the
Property is located). If the applicable law is ever judicially
interpreted so as to render usurious any amount called for under this
Note or under the Deed of Trust or any other document (collectively,
the "Security Documents") evidencing, securing or executed in
connection with Loan, or contracted for, charged, taken, reserved or
received with respect to the Loan, or if acceleration of the maturity
of this Note or if any prepayment by the undersigned results in the
undersigned having paid any interest in excess of that permitted by
law, then it is the undersigned's and the holder hereof's express
intent that all excess amounts theretofore collected by the holder
hereof be credited on the principal balance of this Note (or, if this
Note has been or would thereby be paid in full, refunded to the
undersigned), and the provisions of this Note, the Deed of Trust and
the other Security Documents immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new documents, 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. The
right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of
such acceleration, and holder hereof does not intend to collect any
unearned interest in the event of a cceleration. All sums paid or
agreed to be paid to holder hereof for the use, forbearance or
detention of the indebtedness evidenced hereby shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such indebtedness until payment in
full so that the rate or amount of interest on account of such
indebtedness does not exceed the applicable usury ceiling.
Notwithstanding any provision contained in this Note, the Deed of Trust
or in any of the other Security Documents that permits the compounding
of interest, including, without limitation, any provision by which any
accrued interest is added to the principal amount of this Note, the
total amount of interest that the undersigned is obligated to pay and
the holder hereof is entitled to receive with respect to this Note
shall not exceed the amount calculated on a simple (i.e.,
noncompounded) interest basis at the Maximum Rate on principal amounts
actually advanced to or for the account of the undersigned, including
all current and prior advances and any advances made pursuant to the
Deed of Trust or other Security Documents (such as for the payment of
taxes, insurance premiums and similar expenses or costs).
The undersigned and all other parties liable for this Note waive
certain otherwise applicable legal requirements relating to the
collection of notes, such as demand, notice of intent to demand,
presentment for payment, notice of nonpayment, protest, notice of
protest, grace, notice of dishonor, notice of intent to accelerate
maturity, notice of acceleration of maturity, and diligence in
collection.
INITIAL: RH
SUBORDINATE
MULTIFAMILY NOTE
U.S.: $681,142.50 Dallas, Texas
City
FOR VALUE RECEIVED, the undersigned promise to pay the Federal National
Mortgage Association, or order, the principal sum of SIX HUNDRED EIGHTY ONE
THOUSAND ONE HUNDRED FORTY TWO AND 50/100 DOLLARS, with interest on the unpaid
principal balance from the date of this note, until paid, at the rate of 0
percent per annum. The principal and interest shall be payable at c/o Standard
Mortgage Company, 300 Plaza, One Shell Square, New Orleans, Louisiana 70139 as
provided in Paragraph H of the Addendum to Multifamily not attached hereto.
If any installment under this Note is not paid when due, the entire principal
amount outstanding hereunder and accrued interest thereon shall at once become
due and payable, at the option of the holder hereof. The holder hereof may
exercise this option to accelerate during any default by the undersigned
regardless of any prior forbearance. In the event of any default in the
payment of this Note, and if the same is referred to an attorney at law for
collection or any action at law or in equity is brought with respect hereto,
the undersigned shall pay the holder hereof all expenses and costs, including,
but not limited to, attorney's fees.
If any installment under this Note remains past due for ten calendar days or
more, the outstanding principal balance of this Note shall bear interest during
the period in which the undersigned is in default at a rate of 13.875 percent
per annum, or, if such increased rate of interest may not be collected from the
undersigned under applicable law, then at the maximum increased rate of
interest, if any, which may be collected from the undersigned under applicable
law.
From time to time, without affecting the obligation of the undersigned or the
successors or assigns of the undersigned to pay the outstanding principal
balance of this Note and observe the covenants of the undersigned contained
herein, without affecting the guaranty of any person, corporation, partnership
or other entity for payment of the outstanding principal balance of this Note,
without giving notice to or obtaining the consent of the undersigned, the
successors or assigns of the undersigned or guarantors, and without liability
on the part of the holder hereof, the holder hereof may, at the option of the
holder hereof, extend the time for payment of said outstanding principal
balance or any part thereof, reduce the payments thereon, release anyone liable
on any of said outstanding principal balance, accept a renewal of this Note,
modify the terms and time of payment of said outstanding principal balance,
join in any extension or subordination agreement, release any security given
herefor, take or release other or additional security, and agree in writing
with the undersigned to modify the rate of interest or period of amortization
of this Note or change the amount of the monthly installments payable
hereunder.
SUBORDINATE
ADDENDUM TO MULTIFAMILY NOTE
THIS ADDENDUM TO MULTIFAMILY NOTE (the "Addendum") is made this 30th day of
May, 1996, and is incorporated into and shall be deemed to amend and supplement
the Multifamily Note (the "Multifamily Note") made by the undersigned (the
"Borrower" ) to the Federal National Mortgage Association and its successors,
assigns and transferees (the "Lender"), dated the same date as this Addendum
(the *Multifamily Note as amended and supplemented by this Addendum, any other
addendum to the Multifamily Note, and any future amendments to the Multifamily
Note is referred to as the "Note"). The debt evidenced by the Note is secured
by a Multifamily Mortgage, Deed of Trust or Deed to Secure Debt of the same
date (the *"Multifamily Instrument") covering the property described in the
Multifamily Instrument and defined therein as the "Property," located at:
* = Subordinate
11530 Vance Jackson Road,
San Antonio, Texas 78230
(Property Address)
This Property is located entirely within Texas (the "Property Jurisdiction").
The Multifamily Instrument is amended and supplemented by the Rider to
Multifamily Instrument (the "Rider") and any other rider to Multifamily
Instrument given by Borrower to Lender and dated the same date as the
Multifamily Instrument. (The Multifamily Instrument as amended and supplemented
by the Rider and any other rider to the Multifamily Instrument and any future
amendments to the Instrument is referred to as the "Instrument".)
The term "Loan Documents" when used in this Addendum shall mean, collectively,
the following documents: (i) the Instrument, (ii) the Note, and (iii) all other
documents or agreements including any Collateral Agreements (as defined in the
Rider) or O&M Agreement (as defined in the Rider) arising under, related to, or
made in connection with the loan evidenced by the Note, as such Loan Documents
may be amended.
The covenants and agreements of this Addendum, and the covenants and agreements
of any other addendum to the Multifamily Note, shall be incorporated into and
shall amend and supplement the covenants and agreements of the Multifamily Note
as if this Addendum and the other addenda were a part of the Multifamily Note,
and all references to the Note in the Loan Documents shall mean the Note as so
amended and supplemented. Any conflict between the provisions of the
Multifamily Note and this Addendum shall be resolved in favor of this Addendum.
ADDITIONAL COVENANTS. In addition to the covenants and agreements made in
the Multifamily Note Borrower and Lender further covenant and agree as follows:
5. Notice; Business Day
Any notice to Lender provided for in this Addendum shall be given in the
manner provided in the Instrument. The term "Business Day" means any day other
than a Saturday, a Sunday, or any other day on which Lender is not open for
business.
B. Borrower's Exculpation
Subject to the provisions of paragraph C and notwithstanding any other
provision in the Note or Instrument, the personal liability of Borrower, any
general partner of Borrower (if the Borrower is a partnership), and any "Key
Principal" (collectively, the individual(s) whose name(s) is (are) set forth at
the foot of this Addendum) to pay the principal of and interest on the debt
evidenced by the Note and any other agreement evidencing Borrower's obligations
under the Note and the Instrument shall be limited to (1) the real and personal
property described as the "Property" in the Instrument, (2) the personal
property described in or pledged under any Collateral Agreement (as defined in
Uniform Covenant 2B of the Instrument) executed in connection with the loan
evidenced by the Note, (3) the rents, profits, issues, products and income of
the Property received or collected by or on behalf of Borrower (the "Rents and
Profits") to the extent such receipts are necessary first, to pay the
reasonable expenses of operating, managing, maintaining and repairing the
Property, including but not limited to real estate taxes, utilities,
assessments, insurance premiums, repairs, replacements and ground rents. if any
(the "Operating Expenses") then due and payable as of the time of receipt of
such Rents and Profits, and then, to pay the principal and interest due under
the Note and any other sums due under the Instrument or any other Loan Document
(including but not limited to deposits or reserves due under any Collateral
Agreement) except to the extent that Borrower did not have the legal right,
because of a bankruptcy, receivership or similar judicial proceeding to direct
the disbursement of such sums.
Except as provided in paragraph C, Lender shall not seek (a) any judgment
for a deficiency against Borrower, any general partner of Borrower (if Borrower
is a partnership) or any Key Principal, or Borrower's or any general partner's
or Key Principal's heirs, legal representatives, successors or assigns, in any
action to enforce any right or remedy under the Instrument, or (b) any judgment
on the Note except as may be necessary in any action brought under the
Instrument to enforce the lien against the Property or to exercise any remedies
under any Collateral Agreement.
C. Exceptions to Non-Recourse Liability
If, without obtaining the Lender's prior written consent, (i) a Transfer
shall occur which, pursuant to Uniform Covenant 19 of the Instrument, gives
Lender the right at its option to declare all sums secured by the Instrument
immediately due and payable, (ii) Borrower shall encumber the Property with the
lien of any subordinate instrument in connection with any financing by
Borrower, or, (iii) Borrower shall violate the single asset covenant of
paragraph J of the Rider, any of such events shall constitute a default by
Borrower under the Note, the Instrument and the other Loan Documents, and if
such event shall continue for 30 days, paragraph B shall not apply from and
after the date which is 30 days after such event and the Borrower, any general
partner of Borrower (if Borrower is a partnership) and Key Principal (each
individually on a joint or several basis if more than one) shall be personally
liable on a joint and several basis for full recourse liability under the Note
and other Loan Documents.
Notwithstanding paragraph B, Borrower, any general partner of Borrower (if
Borrower is a partnership) and Key Principal (each individually on a joint and
several basis if more than one) shall be personally liable on a joint and
several basis in the amount of any loss, damage or cost (including but not
limited to attorneys fees) resulting from (A) fraud or intentional
misrepresentation by Borrower or Borrower's agents or employees or any Key
Principal or general partner of Borrower in connection with obtaining the loan
evidenced by the Note, or in complying with any of Borrower's obligations under
the Loan Documents, (B) insurance proceeds, condemnation awards, security
deposits from tenants or other sums or payments received by or on behalf of the
Borrower in its capacity as owner of the Property and not applied in accordance
with the provisions of the Instrument (except to the extent that Borrower did
not have the legal right because of a bankruptcy receivership or similar
judicial proceeding, to direct disbursement of such sums or payments, (C) all
Rents and Profits, (except to the extent that Borrower did not have the legal
right because of a bankruptcy receivership or similar judicial proceeding to
direct the disbursement of such sums), and not applied, first, to the payment
of the reasonable Operating Expenses as such Operating Expenses become due and
payable, and then, to the payment of principal and interest then due and
payable under the Note and any other sums due under the Instrument and all
other Loan Document (including but not limited to deposits or reserves payable
under any Collateral Agreement), (D) Borrower's failure to pay transfer fees
and charges due Lender under paragraph 19(c) of the Instrument, or (E)
Borrower's failure following a default under any of the Loan Documents to
deliver to Lender on demand all Rents and Profits, security deposits (except to
the extent that Borrower did not have the legal right because of a bankruptcy
rec ivership or similar judicial proceeding to direct the disbursement of such
sums), books and records relating to the Property.
No provision of paragraphs B or C shall (i) affect any guaranty or similar
agreement executed in connection with the debt evidenced by the Note, (ii)
release or reduce the debt evidenced by the Note, (iii) impair the right of
Lender to enforce the provisions of paragraph D of the Rider, (iv) impair the
lien of the Instrument, or (v) impair the right of Lender to enforce the
provisions of any Collateral Agreement.
D. Business, Commercial or Investment Purpose
Borrower represents that the Loan evidenced by the Note is being made solely
for business, commercial or investment purposes.
E. Governing Law
1. Choice of Law
The validity of the Note, and the other Loan Documents, each of their
terms and provisions and the rights and obligations of Borrower under the
Note, and the other Loan Documents shall be governed by, interpreted,
construed, and enforced pursuant to and in accordance with the laws of
the Property Jurisdiction.
2. Consent to Jurisdiction
Borrower irrevocably consents to the exclusive jurisdiction of any and
all state and federal courts with jurisdiction in the Property
Jurisdiction over Borrower and Borrower's assets. Borrower agrees that
such assets shall be used to first satisfy all claims of creditors
organized or domiciled in the United States of America ("USA") and that
no assets of the Borrower in the USA shall be considered part of any
foreign bankruptcy estate.
Borrower agrees that any controversy arising under or in relation to the
Note, the Instrument or any of the other Loan Documents shall be
litigated exclusively in the Property Jurisdiction. The state and
federal courts and authorities with jurisdiction in the Property
Jurisdiction shall have exclusive jurisdiction over all controversies
which may arise under or in relation to the Note, including without
limitation those controversies relating to the execution, interpretation,
breach, enforcement, or compliance with the Note, the Instrument, or any
other issue arising under, related to, or in connection with any of the
Loan Documents. Borrower irrevocably consents to service, jurisdiction,
and venue of such courts for any litigation arising from the Note, the
Instrument or any of the other Loan Documents, and waives any other venue
to which it might be entitled by virtue of domicile, habitual residence,
or otherwise.
F. Successors and Assigns
The provisions of the Note, the Instrument, and all other Loan Documents
shall be binding on the successors and assigns, including, but not limited to,
any receiver, trustee, representative or other person appointed under foreign
or domestic bankruptcy, receivership, or similar proceedings of Borrower and
any person having an interest in Borrower.
G. No Third Party Beneficiary
Borrower acknowledges and agrees that (i) any loss sharing arrangement or
arrangement for interim advancement of funds that originally is made by the
Lender named in the Note to Federal National Mortgage Association is made
pursuant to a contractual obligation of such Lender to Federal National
Mortgage Association that is independent of, and separate and distinct from,
the obligation of Borrower for the full and prompt payment of the indebtedness
evidenced by the Note, (ii) Borrower shall not be deemed to be a third party
beneficiary of such loss sharing arrangement or arrangement for interim
advancement of funds, and (iii) no such loss sharing or interim advancement
arrangement shall constitute any person or entity making such payment as a
guarantor or surety of the Borrower's obligations, notwithstanding the fact
that the obligations under any such loss sharing or interim advancement
arrangement may be calculated with reference to amounts payable under the Note
or other Loan Documents.
BY SIGNING BELOW, Borrower accepts and agrees to the covenants and
agreements contained in this Addendum.
S/M REAL ESTATE FUND VII, LTD.
a Texas limited partnership
By: CROZIER PARTNERS VII LTD.
General Partner
By: Anterra Property Investors VII, Inc.
General Partner
By: /s/Richard Hoffman
Name: Richard Hoffman
Its: President
This page is attached to and made a part of the Addendum to Subordinate
Multifamily Note dated May 30, 1996, executed by S/M REAL ESTATE FUND VII, LTD.
and payable to the FEDERAL NATIONAL MORTGAGE ASSOCIATION.
H. Payment and Maturity. The following is in continuation of the last
sentence of the first paragraph of the Note:
. . . . . . in consecutive monthly installments of $3333.33 each, on or before
the first day of every month beginning July 1, 1996, and continuing through
June 1, 1998. After that date, principal is payable in monthly installments of
$5,000.00 each, on or before the first day of every month, beginning July 1,
1998 and continuing through June 1, 2000. After that date principal is payable
in monthly installments of $8333.33 each, on or before the first day of every
month, beginning July 1, 2000 and continuing regularly until the earlier to
occur of (a) June 1, 2001, (b) any earlier maturity of the Note on account of
any right to accelerate the payment thereof, at the option of Lender, (c) any
sale, transfer or other disposition of the Property, (d) any refinancing or
encumbrance of the Property, or (e) any breach of or default ("Event of
Default") under this Note, the Multifamily Instrument, any other Loan Document,
the First Note (as defined below) or the First Deed of Trust (as defined
below), at which time the unpaid principal of this Note shall be due and
payable in full at the option of Lender. The events described in clauses (a)
through (e) of the preceding sentence are referred to collectively as "Maturity
Events". This Note may be prepaid in full or in part at any time without
premium or penalty. Any Event of Default in connection with that certain
Multifamily Note of even date herewith in the original principal amount of
$5,830,000.00 executed by Borrower and payable to the order of Lender (the
"First Note"), the Multifamily Deed of Trust, Assignment of Rents, and Security
Agreement of even date therewith, executed by Borrower for the benefit of
Lender and being a first lien against the Property (the "First Deed of Trust"),
this Note or the Multifamily Instrument shall be deemed a breach of and default
under the other Loan Documents and any Event of Default under any other Loan
Documen First Note, the First Deed of Trust, or any document executed or
delivered by Borrower in connection with the First Note or First Deed of Trust,
shall be deemed an Event of Default under this Note and the Multifamily
Instrument. In the event of any conflict between the Note, the Multifamily
Instrument, or the other Loan Documents and the Addendum to the Note or the
Rider to the Multifamily Instrument, the terms of the Addendum to the Note and
the Rider to the Multifamily Instrument shall control.
Subject to the conditions set forth in the following sentence, if
$500,000.00 in principal payments have been received unconditionally and
irrevocably by Lender in connection with this Note, the balance of $181,142.50
of unpaid principal of this Note shall be waived and forgiven by Lender. If
Borrower shall fail or refuse to cure any default in connection with the
occurrence of any Maturity Event on ten (10) days written notice from Lender,
the conditional waiver or forgiveness of such $181,142.50 of unpaid principal
of this Note shall be revoked automatically and without further notice to
Borrower. Failure to provide the notice described in this paragraph shall have
no effect on the exercise of any remedy or right by Lender, other than with
regard to the forgiveness of debt described above.
I. Waivers. The Note is hereby amended by inserting the following provision
after the first sentence on the second page of the Note:
The term "Maximum Rate" shall mean the highest lawful rate of interest
applicable to this Note. In determining the Maximum Rate, due regard shall be
given to all payments, fees, charges, deposits, balances and agreements which
may constitute interest or be deducted from principal when calculating
interest. For purposes of determining the Maximum Rate, the Indicated Rate
Ceiling specified in Texas Revised Civil Statutes, Article 5069-1.04 shall be
used; however, if permitted by law, holder hereof may implement any ceiling
under that law used to compute the rate of interest hereunder by notice to the
undersigned as provided in such article. Notwithstanding the foregoing
sentence, if Section 501 of the Depository Institutions Deregulation and
Monetary Control Act of 1980 (as amended) permits a higher Maximum Rate than
article 5069-1.04 or applicable state law, such higher Maximum Rate shall apply
to this Note.
Interest on the unpaid principal balance of this Note at the rate stated
above in this Note (the "Stated Rate") shall be calculated at a daily rate
equal to 1/360 times the Stated Rate (but in no event greater than the Maximum
Rate). Notwithstanding the foregoing, at any time when the interest contracted
for, collected, or charged on the unpaid balance of this Note shall exceed the
Stated Rate, such interest shall be calculated at a daily rate of 1/365 times
such rate (but in no event greater than the Maximum Rate).
It is expressly stipulated and agreed to be the intent of the undersigned
and holder hereof at all times to comply with the applicable law governing the
Maximum Rate or amount of interest payable on or in connection with this Note
and the loan (the "Loan") evidenced thereby (or applicable United States
federal law to the extent that it permits holder hereof to contract for,
charge, take, reserve or receive a greater amount of interest than under law of
the state in which the Property is located). If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under
this Note or under the Deed of Trust or any other document (collectively, the
"Security Documents") evidencing, securing or executed in connection with Loan,
or contracted for, charged, taken, reserved or received with respect to the
Loan, or if acceleration of the maturity of this Note or if any prepayment by
the undersigned results in the undersigned having paid any interest in excess
of that permitted by law, then it is the undersigned's and the holder hereof's
express intent that all excess amounts theretofore collected by the holder
hereof be credited on the principal balance of this Note (or, if this Note has
been or would thereby be paid in full, refunded to the undersigned), and the
provisions of this Note, the Deed of Trust and the other Security Documents
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
documents, 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.
The right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and holder hereof does not intend to collect any unearned int n
the event of acceleration. All sums paid or agreed to be paid to holder hereof
for the use, forbearance or detention of the indebtedness evidenced hereby
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full term of such indebtedness until
payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the applicable usury ceiling. Notwithstanding any
provision contained in this Note, the Deed of Trust or in any of the other
Security Documents that permits the compounding of interest, including, without
limitation, any provision by which any accrued interest is added to the
principal amount of this Note, the total amount of interest that the
undersigned is obligated to pay and the holder hereof is entitled to receive
with respect to this Note shall not exceed the amount calculated on a simple
(i.e., noncompounded) interest basis at the Maximum Rate on principal amounts
actually advanced to or for the account of the undersigned, including all
current and prior advances and any advances made pursuant to the Deed of Trust
or other Security Documents (such as for the payment of taxes, insurance
premiums and similar expenses or costs).
The undersigned and all other parties liable for this Note waive certain
otherwise applicable legal requirements relating to the collection of notes,
such as demand, notice of intent to demand, presentment for payment, notice of
nonpayment, protest, notice of protest, grace, notice of dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, and
diligence in collection.
BORROWER:
S/M REAL ESTATE FUND VII, LTD.
a Texas limited partnership
By: CROZIER PARTNERS VII LTD.
General Partner
By: Anterra Property Investors VII, Inc.
General Partner
By: /s/Richard Hoffman
Name: Richard Hoffman
Its: President
