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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 3, 1998
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S/M REAL ESTATE FUND VII, LTD.
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(formerly Shearson-Murray Real Estate Fund VII, Ltd.)
Exact Name of Registrant as Specified in its Charter
Texas 0-11779 75-1845682
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State or Other Jurisdiction Commission I.R.S. Employer
of Incorporation or Organization File Number Identification No.
5520 LBJ Freeway, Suite 500, Dallas, Texas 75240
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code: (972) 404-7100
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Not applicable
(Former name or former address, if changed since last report)
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Item 5. Other Events.
On December 3, 1998, S/M Real Estate Fund VII, Ltd., a Texas limited
partnership (the "Partnership"), refinanced the mortgage note payable with
General Electric Capital Corporation on the Partnership's remaining property,
Fifth Avenue Apartments in San Antonio, Texas. In accordance with the terms of
the Loan Agreement (the "Agreement"), the principal balance of the original
mortgage totaling $6,400,000 is due in ten years and will bear interest at an
interest rate of 7.16%. The previous first and second mortgages with Federal
National Mortgage Association (the "Previous Lender") had a combined balance of
$6,259,810 at an average interest rate of 8.97%. As part of the refinancing, the
Previous Lender forgave $181,142 of debt but required a $139,223 prepayment
penalty.
A copy of the Agreement is filed as an exhibit to this Form 8-K.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(c) Exhibits
(10.1) Loan Agreement between S/M Real Estate Fund VII, Ltd. and
General Electric Capital Corporation, dated December 3,
1998.
(99.1) $6,400,000 Promissory Note, dated December 3, 1998.
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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 hereunto duly authorized.
Date: December 16, 1998 S/M REAL ESTATE FUND VII, LTD.
By: SM7 APARTMENT INVESTORS, INC.
A General Partner
By: /s/ Richard E. Hoffmann
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Richard E. Hoffmann
President, Treasurer and Director
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EXHIBIT LIST
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10.1 Loan Agreement between S/M Real Estate Fund VII, Ltd. And General
Electric Capital Corporation, dated December 3, 1998.
99.1 $6,400,000 Promissory Note, dated December 3, 1998
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EXHIBIT 10.1
Loan No. 76-0000664
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GENERAL ELECTRIC CAPITAL CORPORATION
(Lender)
to
S/M REAL ESTATE FUND VII, LTD.
(Borrower)
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LOAN AGREEMENT
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Dated as of: December 3 , 1998
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Property Location: San Antonio, Texas
DOCUMENT PREPARED BY:
Andrews & Kurth, L.L.P.
1717 Main Street, Suite 3700
Dallas, Texas 75201
Attention: Charles T. Marshall, Esq.
THIS INSTRUMENT CONTAINS INDEMNIFICATION PROVISIONS AND
PROVISIONS LIMITING THE LENDER'S LIABILITY FOR NEGLIGENCE
===============================================================================
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TABLE OF CONTENTS
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ARTICLE 1 - CERTAIN DEFINITIONS............................................................................ 1
Section 1.1 Certain Definitions................................................................... 1
ARTICLE 2 - LOAN TERMS..................................................................................... 4
Section 2.1 The Loan.............................................................................. 4
Section 2.2 Interest Rate; Late Charge............................................................ 4
Section 2.3 Terms of Payment...................................................................... 4
Section 2.4 Security; Establishment of Funds...................................................... 5
ARTICLE 3 - INSURANCE, CONDEMNATION, AND IMPOUNDS ......................................................... 6
Section 3.1 Insurance............................................................................. 6
Section 3.2 Use and Application of Insurance Proceeds............................................. 7
Section 3.3 Condemnation Awards................................................................... 7
Section 3.4 Impounds.............................................................................. 8
ARTICLE 4 - ENVIRONMENTAL MATTERS ......................................................................... 8
Section 4.1 Certain Definitions................................................................... 8
Section 4.2 Representations and Warranties on Environmental Matters............................... 9
Section 4.3 Covenants on Environmental Matters.................................................... 9
Section 4.4 Allocation of Risks and Indemnity..................................................... 10
Section 4.5 No Waiver............................................................................. 10
ARTICLE 5 - LEASING MATTERS ............................................................................... 10
Section 5.1 Representations and Warranties on Leases.............................................. 10
Section 5.2 Standard Lease Form; Approval Rights.................................................. 11
Section 5.3 Covenants............................................................................. 11
Section 5.4 Tenant Estoppels...................................................................... 11
ARTICLE 6 - REPRESENTATIONS AND WARRANTIES ................................................................ 11
Section 6.1 Organization, Power and Authority..................................................... 11
Section 6.2 Validity of Loan Documents........................................................... 12
Section 6.3 Liabilities; Litigation............................................................... 12
Section 6.4 Taxes and Assessments................................................................. 12
Section 6.5 Other Agreements; Defaults............................................................ 12
Section 6.6 Compliance with Law................................................................... 12
Section 6.7 Location of Borrower................................................................. 13
Section 6.8 ERISA................................................................................. 13
Section 6.9 Forfeiture............................................................................ 13
Section 6.10 Tax Filings........................................................................... 13
Section 6.11 Solvency.............................................................................. 13
Section 6.12 Full and Accurate Disclosure.......................................................... 14
Section 6.13 Flood Zone............................................................................ 14
Section 6.14 Single Purpose Entity/Separateness.................................................... 14
ARTICLE 7 - FINANCIAL REPORTING ........................................................................... 15
Section 7.1 Financial Statements.................................................................. 15
Section 7.2 Accounting Principles................................................................. 16
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Fifth Avenue Apts./78416
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Section 7.3 Other Information; Access............................................................. 16
Section 7.4 Annual Budget......................................................................... 16
ARTICLE 8 - COVENANTS......................................................................................... 16
Section 8.1 Due On Sale and Encumbrance; Transfers of Interests................................... 16
Section 8.2 Taxes; Utility Charges................................................................ 16
Section 8.3 Control; Management................................................................... 16
Section 8.4 Operation; Maintenance; Inspection.................................................... 16
Section 8.5 Taxes on Security..................................................................... 17
Section 8.6 Legal Existence; Name, Etc............................................................ 17
Section 8.7 Further Assurances................................................................... 17
Section 8.8 Estoppel Certificates................................................................. 17
Section 8.9 Notice of Certain Events.............................................................. 17
Section 8.10 Indemnification....................................................................... 17
Section 8.11 Cooperation........................................................................... 18
Section 8.12 Payment For Labor and Materials....................................................... 18
ARTICLE 9 - EVENTS OF DEFAULT ................................................................................ 19
Section 9.1 Payments.............................................................................. 19
Section 9.2 Insurance............................................................................. 19
Section 9.3 Sale, Encumbrance, Etc................................................................ 19
Section 9.4 Covenants............................................................................. 19
Section 9.5 Representations and Warranties........................................................ 19
Section 9.6 Other Encumbrances.................................................................... 19
Section 9.7 Involuntary Bankruptcy or Other Proceeding............................................ 19
Section 9.8 Voluntary Petitions, etc.............................................................. 19
ARTICLE 10 - REMEDIES......................................................................................... 20
Section 10.1 Remedies - Insolvency Events.......................................................... 20
Section 10.2 Remedies - Other Events............................................................... 20
Section 10.3 Lender's Right to Perform the Obligations............................................. 20
ARTICLE 11 - MISCELLANEOUS ................................................................................... 20
Section 11.1 Notices............................................................................... 20
Section 11.2 Amendments and Waivers................................................................ 21
Section 11.3 Limitation on Interest................................................................ 21
Section 11.4 Invalid Provisions.................................................................... 22
Section 11.5 Reimbursement of Expenses............................................................. 22
Section 11.6 Approvals; Third Parties; Conditions.................................................. 22
Section 11.7 Lender Not in Control; No Partnership................................................. 22
Section 11.8 Contest of Certain Claims............................................................. 23
Section 11.9 Time of the Essence................................................................... 23
Section 11.10 Successors and Assigns................................................................ 23
Section 11.11 Renewal, Extension or Rearrangement................................................... 23
Section 11.12 Waivers............................................................................... 23
Section 11.13 Cumulative Rights; Joint and Several Liability........................................ 23
Section 11.14 Singular and Plural................................................................... 23
Section 11.15 Phrases............................................................................... 24
Section 11.16 Exhibits and Schedules................................................................ 24
Section 11.17 Titles of Articles, Sections and Subsections.......................................... 24
Section 11.18 Promotional Material.................................................................. 24
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Section 11.19 Survival.............................................................................. 24
Section 11.20 Waiver of Jury Trial.................................................................. 24
Section 11.21 Waiver of Punitive or Consequential Damages........................................... 24
Section 11.22 Governing Law......................................................................... 24
Section 11.23 Entire Agreement...................................................................... 24
Section 11.24 Counterparts.......................................................................... 25
ARTICLE 12 - LIMITATIONS ON LIABILITY......................................................................... 25
Section 12.1 Limitation on Liability............................................................... 25
Section 12.2 Limitation on Liability of Lender's Officers, Employees, etc.......................... 25
</TABLE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBIT A LEGAL DESCRIPTION OF PROJECT
SCHEDULE I DEFEASANCE
SCHEDULE II REQUIRED REPAIRS
LOAN AGREEMENT - Page iii
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LOAN AGREEMENT
This Loan Agreement (this "AGREEMENT") is entered into as of December 3,
1998 between GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("LENDER"), and S/M REAL ESTATE FUND VII, LTD., a Texas limited partnership
("BORROWER").
ARTICLE 1
CERTAIN DEFINITIONS
SECTION 1.1 CERTAIN DEFINITIONS. As used herein, the following terms have
the meanings indicated:
"AFFILIATE" means (a) any corporation in which Borrower or any general
partner, shareholder, director, officer, member, or manager of Borrower directly
or indirectly owns or controls more than ten percent (10%) of the beneficial
interest, (b) any partnership, joint venture or limited liability company in
which Borrower or any general partner, shareholder, director, officer, member,
or manager of Borrower is a general partner, joint venturer or member, (c) any
trust in which Borrower or any general partner, shareholder, director, officer,
member or manager of Borrower is a trustee or beneficiary, (d) any entity of any
type which is directly or indirectly owned or controlled by Borrower or any
general partner, shareholder, director, officer, member or manager of Borrower,
(e) any general partner, shareholder, director, officer, member, manager or
employee of Borrower, (f) any Person related by birth, adoption or marriage to
any general partner, shareholder, director, officer, member, manager, or
employee of Borrower, or (g) any Borrower Party.
"AGREEMENT" means this Loan Agreement, as amended from time to time.
"ASSIGNMENT OF LEASES AND RENTS" means the Assignment of Leases and Rents,
executed by Borrower for the benefit of Lender, and pertaining to leases of
space in the Project.
"AWARD" has the meaning assigned in Section 3.3.
"BANKRUPTCY PARTY" has the meaning assigned in Section 9.7.
"BORROWER PARTY" means any Joinder Party, any general partner of Borrower,
and any general partner in any partnership that is a general partner of
Borrower, at any level.
"BUSINESS DAY" means a day other than a Saturday, a Sunday, or a legal
holiday on which national banks located in the State of New York are not open
for general banking business.
"CASUALTY" has the meaning assigned in Section 3.2.
"CLOSING DATE" means the date the Loan is funded by Lender.
"COMMITMENT" means the commitment letter, dated October 19, 1998, issued by
Lender and accepted by Borrower on October 28, 1998.
"CONDEMNATION" has the meaning assigned in Section 3.3.
"CONTRACT RATE" has the meaning assigned in Section 2.2.
LOAN AGREEMENT - Page 1
Fifth Avenue Apts./78416
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"DEBT" means, for any Person, without duplication: (a) all indebtedness of
such Person for borrowed money, for amounts drawn under a letter of credit, or
for the deferred purchase price of property for which such Person or its assets
is liable, (b) all unfunded amounts under a loan agreement, letter of credit, or
other credit facility for which such Person would be liable, if such amounts
were advanced under the credit facility, (c) all amounts required to be paid by
such Person as a guaranteed payment to partners or a preferred or special
dividend, including any mandatory redemption of shares or interests, (d) all
indebtedness guaranteed by such Person, directly or indirectly, (e) all
obligations under leases that constitute capital leases for which such Person is
liable, and (f) all obligations of such Person under interest rate swaps, caps,
floors, collars and other interest hedge agreements, in each case whether such
Person is liable contingently or otherwise, as obligor, guarantor or otherwise,
or in respect of which obligations such Person otherwise assures a creditor
against loss.
"DEBT SERVICE" means the aggregate interest, fixed principal, and other
payments due under the Loan, and on any other outstanding permitted Debt
relating to the Project approved by Lender for the period of time for which
calculated.
"DEFAULT RATE" means the lesser of (a) the maximum rate of interest allowed
by applicable law, and (b) five percent (5%) per annum in excess of the Contract
Rate.
"DEFEASANCE OPTION" has the meaning assigned in Section 2.3(c).
"ENVIRONMENTAL LAWS" has the meaning assigned in Section 4.1(a).
"ERISA" has the meaning assigned in Section 6.8.
"EVENT OF DEFAULT" has the meaning assigned in Article 9.
"FUNDS" means the Required Repair Fund and the Replacement Escrow Fund.
"HAZARDOUS MATERIALS" has the meaning assigned in Section 4.1(b).
"INSURANCE PREMIUMS" has the meaning assigned in Section 3.1(c).
"JOINDER PARTY" means the Persons, if any, executing the Joinder hereto.
"LIEN" means any interest, or claim thereof, in the Project securing an
obligation owed to, or a claim by, any Person other than the owner of the
Project, whether such interest is based on common law, statute or contract,
including the lien or security interest arising from a deed of trust, mortgage,
assignment, encumbrance, pledge, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes. The term
"Lien" shall include reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and other title exceptions
and encumbrances affecting the Project.
"LOAN" means the loan made by Lender to Borrower under this Agreement and
all other amounts secured by the Loan Documents.
"LOAN DOCUMENTS" means: (a) this Agreement, (b) the Note, (c) the Mortgage,
(d) the Assignment of Leases and Rents, (e) Uniform Commercial Code financing
statements, (f) such assignments of management agreements, contracts and other
rights as may be required under the Commitment or otherwise requested by Lender,
(g) all other documents evidencing, securing, governing or otherwise pertaining
to the Loan, and (h) all amendments, modifications, renewals, substitutions and
replacements of any of the foregoing; provided however, in no event shall the
term "Loan Documents" include that certain Hazardous Materials Indemnity
Agreement (the "ENVIRONMENTAL INDEMNITY AGREEMENT") dated the date hereof in
favor of Lender.
LOAN AGREEMENT - Page 2
Fifth Avenue Apts./78416
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"LOAN YEAR" means (a) for the first Loan Year, the period between the date
hereof and one calendar year from the last day of the month in which the Closing
Date occurs (unless the Closing Date is on the first day of a month, in which
case the first Loan Year shall commence on such Closing Date and end one
calendar year from the last day of the month immediately preceding the Closing
Date) and (b) each consecutive twelve month calendar period after the first Loan
Year until the Maturity Date.
"MATURITY DATE" means, as applicable, the earlier of (a) January 1, 2009,
or (b) any earlier date on which the entire Loan is required to be paid in full,
by acceleration or otherwise, under this Agreement or any of the other Loan
Documents.
"MORTGAGE" means the Deed of Trust, Assignment of Leases and Rents,
Security Agreement and Fixture Filing, executed by Borrower in favor of Lender,
covering the Project.
"NOTE" means the Promissory Note of even date, in the stated principal
amount of $6,400,000.00, executed by Borrower, and payable to the order of
Lender in evidence of the Loan.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, trustee, estate, limited liability
company, unincorporated organization, real estate investment trust, government
or any agency or political subdivision thereof, or any other form of entity.
"POTENTIAL DEFAULT" means the occurrence of any event or condition which,
with the giving of notice, the passage of time, or both, would constitute an
Event of Default.
"PROJECT" means Fifth Avenue Apartments, San Antonio, Texas, and all
related facilities, amenities, fixtures, and personal property owned by Borrower
and any improvements now or hereafter located on the real property described in
EXHIBIT A.
"RATING AGENCIES" means each of Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps Credit
Rating Co. and Fitch IBCA, Inc., or any other nationally-recognized statistical
rating agency which has been approved by Lender;
"REPLACEMENT ESCROW FUND" has the meaning assigned in Section 2.4.
"REQUIRED REPAIR FUND" has the meaning assigned in Section 2.4.
"SECONDARY MARKET TRANSACTION" has the meaning assigned in Section 8.11.
"SINGLE PURPOSE ENTITY" shall mean a Person (other than an individual, a
government or any agency or political subdivision thereof), which exists solely
for the purpose of owning the Project, observes corporate, company or
partnership formalities, as applicable, independent of any other entity, and
which otherwise complies with the covenants set forth in Section 6.14 hereof.
"SITE ASSESSMENT" means an environmental engineering report for the Project
prepared at Borrower's expense by an engineer engaged by Borrower, or Lender on
behalf of Borrower, and approved by Lender, and in a manner reasonably
satisfactory to Lender, based upon an investigation relating to and making
appropriate inquiries concerning the existence of Hazardous Materials on or
about the Project, and the past or present discharge, disposal, release or
escape of any such substances, all consistent with ASTM Standard E1527-93 (or
any successor thereto published by ASTM) and good customary and commercial
practice.
"STATE" means the State of Texas.
LOAN AGREEMENT - Page 3
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"TAX AND INSURANCE ESCROW FUND" has the meaning assigned in Section 3.4.
"TAXES" has the meaning assigned in Section 8.2.
"YIELD MAINTENANCE AMOUNT" has the meaning assigned in SCHEDULE 1.
ARTICLE 2
LOAN TERMS
SECTION 2.1 THE LOAN. Upon satisfaction of all the terms and conditions set
forth in the Commitment, Lender agrees to make a Loan of SIX MILLION FOUR
HUNDRED THOUSAND AND NO/100 DOLLARS ($6,400,000.00) to the Borrower, which shall
be funded in one advance and repaid in accordance with the terms of this
Agreement and the Note. Borrower hereby agrees to accept the Loan on the Closing
Date, subject to and upon the terms and conditions set forth herein.
SECTION 2.2 INTEREST RATE; LATE CHARGE. The outstanding principal balance
of the Loan shall bear interest at a rate of interest equal to seven and sixteen
hundredths percent (7.16%) per annum (the "CONTRACT RATE"). Interest at the
Contract Rate shall be computed on the basis of a fraction, the denominator of
which is three hundred sixty (360) days and the numerator of which is the actual
number of days elapsed from the date of the initial disbursement under the Loan
or the date of the preceding interest installment due date, as the case may be,
to the date of the next interest installment due date or the Maturity Date. If
Borrower fails to pay any installment of interest or principal within five (5)
days of (and including) the date on which the same is due, Borrower shall pay to
Lender a late charge on such past-due amount, as liquidated damages and not as a
penalty, equal to five percent (5%) of such amount, but not in excess of the
maximum amount of interest allowed by applicable law. While any Event of Default
exists, the Loan shall bear interest at the Default Rate.
SECTION 2.3 TERMS OF PAYMENT. The Loan shall be payable as follows:
(a) INTEREST AND PRINCIPAL. A payment of interest only on the date hereof
for the period from the date hereof through the last day of the current month
(unless the Closing Date is the first day of a calendar month, in which case no
such interest is due). Thereafter, a constant payment of $43,269.28, on the
first day of February 1, 1999 and on the first day of each calendar month
thereafter; each of such payments, to be applied (i) to the payment of interest
computed at the Contract Rate and (ii) the balance applied toward reduction of
the principal sum. The constant payment required hereunder is based on a thirty
(30)-year amortization schedule.
(b) MATURITY. On the Maturity Date, Borrower shall pay to Lender all
outstanding principal, accrued and unpaid interest, default interest, late
charges and any and all other amounts due under the Loan Documents.
(c) PREPAYMENT. Except as set forth herein, the Loan is closed to
prepayment in whole or in part, until the one hundred eighty (180) day period
prior to the Maturity Date and after such time no penalty or premium will be due
to Lender. Notwithstanding the foregoing, from the earlier to occur of (i) two
(2) years after the sale of the Loan in a Secondary Market Transaction or (ii)
the fourth (4th) anniversary of the Closing Date, provided no Event of Default
exists, Borrower may obtain the release of the Project from the lien of the
Mortgage in accordance with the terms and provisions of SCHEDULE I attached
hereto (the "DEFEASANCE OPTION").
If the Loan is accelerated for any reason other than casualty or
condemnation, and the Loan is otherwise closed to prepayment, Borrower shall
pay, in addition to all other amounts outstanding under the Loan Documents, a
prepayment premium equal to the sum of 1) the Yield Maintenance Amount, if any,
that would be required under the Defeasance Option and 2) five percent (5%) of
the outstanding balance of the Loan. If for any reason the Loan is prepaid on a
day other than a scheduled monthly payment date, the Borrower shall pay, in
addition to the principal,
LOAN AGREEMENT - Page 4
Fifth Avenue Apts./78416
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interest and premium, if any, required under this Section, an amount equal to
the interest that would have accrued on the Loan from the date of prepayment to
the next scheduled monthly payment date. In the event of a prepayment resulting
from Lender's application of insurance or condemnation proceeds pursuant to
Article 3 hereof, no prepayment penalty or premium shall be imposed.
SECTION 2.4 SECURITY; ESTABLISHMENT OF FUNDS. (a) The Loan shall be secured
by the Mortgage creating a first lien on the Project, the Assignment of Leases
and Rents and the other Loan Documents. Borrower agrees to establish the
following reserves with Lender, to be held by Lender as further security for the
Loan: (i) on the Closing Date, Borrower shall deposit with Lender the amount of
$114,375.00 (the "REQUIRED REPAIR FUND") which shall be held by Lender for the
completion of the required repairs set forth on SCHEDULE II annexed hereto on or
before six (6) months from the date hereof; and (ii) Borrower shall deposit with
Lender on the day of each calendar month a scheduled payment is due the amount
of $3,905.00 which shall be held by Lender for replacements and repairs required
to be made to the Project during the calendar year (the "REPLACEMENT ESCROW
FUND").
(b) PLEDGE AND DISBURSEMENT OF FUNDS. Borrower hereby pledges to Lender,
and grants a security interest in, any and all monies now or hereafter deposited
in the Funds as additional security for the payment of the Loan. Lender may
reasonably reassess its estimate of the amount necessary for the Funds from time
to time and may adjust the monthly amounts required to be deposited into the
Funds upon thirty (30) days notice to Borrower. Lender shall make disbursements
from the Funds as requested by Borrower, and approved by Lender in its
reasonable discretion, on a quarterly basis in increments of no less than
$5,000.00 upon delivery by Borrower of Lender's standard form of draw request
accompanied by copies of paid invoices for the amounts requested and, if
required by Lender, lien waivers and releases from all parties furnishing
materials and/or services in connection with the requested payment. Lender may
require an inspection of the Project at Borrower's expense prior to making a
quarterly disbursement in order to verify completion of replacements and repairs
for which reimbursement is sought. The Funds shall be held in Lender's name and
may be commingled with Lender's own funds at financial institutions selected by
Lender in its reasonable discretion. Upon the occurrence of an Event of Default,
Lender may apply any sums then present in the Funds to the payment of the Loan
in any order in its reasonable discretion. Until expended or applied as above
provided, the Funds shall constitute additional security for the Loan. Lender
shall have no obligation to release any of the Funds while any Event of Default
or Potential Default exists or any material adverse change has occurred in
Borrower or any Joinder Party, the Project, or any major or anchor tenant. All
reasonable costs and expenses incurred by Lender in the disbursement of any of
the Funds shall be paid by Borrower promptly upon demand or, at Lender's sole
discretion, deducted from the Funds.
(c) INTEREST PAYABLE BY LENDER. Lender shall cause all monies on deposit in
the Funds to be deposited into interest bearing accounts of the type customarily
maintained by Lender or its servicing agent for the investment of (and may be
commingled with) similar reserves, which accounts may not yield the highest
interest rate then available. The Funds shall be held in an account in Lender's
name (or such other account name as Lender may elect) at a financial institution
or other depository selected by Lender (or its servicer) in its sole discretion
(collectively, the "DEPOSITORY INSTITUTION"). Borrower shall earn no more than
an amount of interest on the Funds equal to an amount determined by applying to
the average monthly balance of such Funds the quoted interest rate for the
Depository Institution's money market savings account, as such rate is
determined from time to time (such allocated amount being referred to as
"BORROWER'S INTEREST"). Lender or its Depository Institution shall be entitled
to report under Borrower's Federal tax identification number the Borrower's
Interest on the Funds. If the Depository Institution does not have an
established money market savings account (or if an interest rate for such
account cannot otherwise be determined in connection with the deposit of such
Funds), a comparable interest rate quoted by the Depository Institution and
acceptable to Lender (or its servicer) in its reasonable discretion shall be
used. The amount of Borrower's Interest allocated to Funds shall be added to the
balance in the applicable Fund, and shall be disbursed for payment of the items
for which the applicable Fund is to be disbursed. Any interest earned above the
Borrower's Interest shall be retained by Lender as compensation for its
administration and investment of such Funds.
LOAN AGREEMENT - Page 5
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ARTICLE 3
INSURANCE, CONDEMNATION, AND IMPOUNDS
SECTION 3.1 INSURANCE. Borrower shall maintain insurance as follows:
(a) CASUALTY; BUSINESS INTERRUPTION. Borrower shall keep the Project
insured against damage by fire and the other hazards covered by a standard
extended coverage and all-risk insurance policy for the full insurable value
thereof on a replacement cost claim recovery basis (without reduction for
depreciation or co-insurance), and shall maintain such other casualty insurance
as reasonably required by Lender. Lender reserves the right to require from time
to time the following additional insurance: boiler and machinery; flood;
earthquake/sinkhole; worker's compensation and/or building law or ordinance.
Borrower shall keep the Project insured against loss by flood if the Project is
located currently or at any time in the future in an area identified by the
Federal Emergency Management Agency as an area having special flood hazards and
in which flood insurance has been made available under the National Flood
Insurance Act of 1968, the Flood Disaster Protection Act of 1973 or the National
Flood Insurance Reform Act of 1994 (as such acts may from time to time be
amended) in an amount at least equal to the lesser of (i) the maximum amount of
the Loan or (ii) the maximum limit of coverage available under said acts. Any
such flood insurance policy shall be issued in accordance with the requirements
and current guidelines of the Federal Insurance Administration. Borrower shall
maintain use and occupancy insurance covering, as applicable, rental income or
business interruption, with coverage in an amount not less than twelve (12)
months anticipated gross rental income or gross business earnings, as applicable
in each case, attributable to the Project. Borrower shall not maintain any
separate or additional insurance which is contributing in the event of loss
unless it is properly endorsed and otherwise reasonably satisfactory to Lender
in all respects. The proceeds of insurance paid on account of any damage or
destruction to the Project shall be paid to Lender to be applied as provided in
Section 3.2.
(b) LIABILITY. Borrower shall maintain (i) commercial general liability
insurance with respect to the Project providing for limits of liability of not
less than $5,000,000 for both injury to or death of a person and for property
damage per occurrence, and (ii) other liability insurance as reasonably required
by Lender.
(c) FORM AND QUALITY. All insurance policies shall be endorsed in form and
substance acceptable to Lender to name Lender as an additional insured, loss
payee or mortgagee thereunder, as its interest may appear, with loss payable to
Lender, without contribution, under a standard New York (or local equivalent)
mortgagee clause. All such insurance policies and endorsements shall be fully
paid for and contain such provisions and expiration dates and be in such form
and issued by such insurance companies licensed to do business in the State,
with a general company and financial size rating of "A-IX" or better as
established by Best's Rating Guide and "AA" or better by Standard & Poor's
Ratings Group. Each policy shall provide that such policy may not be canceled or
materially changed except upon fifteen (15) days' prior written notice of
intention of non-renewal, cancellation or material change to Lender and that no
act or thing done by Borrower shall invalidate any policy as against Lender.
Blanket policies shall be permitted only if Lender receives appropriate
endorsements and/or duplicate policies containing Lender's right to continue
coverage on a pro rata pass-through basis and that coverage will not be affected
by any loss on other properties covered by the policies. Borrower authorizes
Lender to pay the premiums for such policies (the "INSURANCE PREMIUMS") from the
Tax and Insurance Escrow Fund as the same become due and payable annually in
advance. If Borrower fails to deposit funds into the Tax and Insurance Escrow
Fund sufficient to permit Lender to pay the premiums when due, Lender may obtain
such insurance and pay the premium therefor and Borrower shall, on demand,
reimburse Lender for all expenses incurred in connection therewith. Borrower
shall assign the policies or proofs of insurance to Lender, in such manner and
form that Lender and its successors and assigns shall at all times have and hold
the same as security for the payment of the Loan. Borrower shall deliver copies
of all original policies certified to Lender by the insurance company or
authorized agent as being true copies, together with the endorsements required
hereunder. The proceeds of insurance policies coming into the possession of
Lender shall not be deemed trust funds, and Lender shall be entitled to apply
such proceeds as herein provided.
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<PAGE> 11
(d) ADJUSTMENTS. Borrower shall give immediate written notice of any loss
to the insurance carrier and to Lender. Borrower hereby irrevocably authorizes
and empowers Lender, as attorney-in-fact for Borrower coupled with an interest,
to make proof of loss, to adjust and compromise any claim under insurance
policies, to appear in and prosecute any action arising from such insurance
policies, to collect and receive insurance proceeds, and to deduct therefrom
Lender's reasonable expenses incurred in the collection of such proceeds.
Nothing contained in this Section 3.1(d), however, shall require Lender to incur
any expense or take any action hereunder.
SECTION 3.2 USE AND APPLICATION OF INSURANCE PROCEEDS.
(a) If the Project shall be damaged or destroyed, in whole or in part, by
fire or other casualty (a "CASUALTY"), Borrower shall give prompt notice thereof
to Lender. Following the occurrence of a Casualty, Borrower, regardless of
whether insurance proceeds are available, shall promptly proceed to restore,
repair, replace or rebuild the same to be of at least equal value and of
substantially the same character as prior to such damage or destruction, all to
be effected in accordance with applicable law.
(b) Lender shall apply insurance proceeds to costs of restoring the Project
or to the payment of the Loan as follows:
(i) if the loss is less than or equal to $100,000, Lender shall apply
the insurance proceeds to restoration provided (A) no Event of Default or
Potential Default exists, and (B) Borrower promptly commences and is
diligently pursuing restoration of the Project;
(ii) if the loss exceeds $100,000 but is not more than 25% of the
replacement value of the improvements, Lender shall apply the insurance
proceeds to restoration provided that (A) at all times during such
restoration no Event of Default or Potential Default exists; (B) Lender
determines throughout the restoration that there are sufficient funds
available to restore and repair the Project to a condition approved by
Lender; (C) Lender determines that the net operating income of the Project
during restoration, taking into account rent loss or business interruption
insurance, will be sufficient to pay Debt Service; (D) Lender determines
(based on leases which will remain in effect after restoration is complete
if the Project is not a multi-family project) that after restoration the
ratio of net operating income to Debt Service will equal at least the ratio
that existed on the Closing Date; (E) Lender determines that the ratio of
the outstanding principal balance of the Loan to appraised value of the
project after restoration will not exceed the loan-to-value ratio that
existed on the Closing Date; (F) Lender determines that restoration and
repair of the Project to a condition approved by Lender will be completed
within six months after the date of loss or casualty and in any event
ninety (90) days prior to the Maturity Date; (G) Borrower promptly
commences and is diligently pursuing restoration of the Project; and (H)
the Project after the restoration will be in compliance with and permitted
under all applicable zoning, building and land use laws, rules, regulations
and ordinances; and
(iii) if the conditions set forth in (i) and (ii) above are not
satisfied in Lender's reasonable discretion, Lender may apply any insurance
proceeds it may receive to the payment of the Loan or allow all or a
portion of such proceeds to be used for the restoration of the Project.
(c) Insurance proceeds applied to restoration will be disbursed on receipt
of reasonably satisfactory plans and specifications, contracts and subcontracts,
schedules, budgets, lien waivers and architects' certificates, and otherwise in
accordance with prudent commercial construction lending practices for
construction loan advances (including appropriate retainages to ensure that all
work is completed in a workmanlike manner).
SECTION 3.3 CONDEMNATION AWARDS. Borrower shall promptly give Lender
written notice of the actual or threatened commencement of any condemnation or
eminent domain proceeding (a "CONDEMNATION") and shall deliver to Lender copies
of any and all papers served in connection with such Condemnation. Following the
occurrence of a Condemnation which affects any material improvements constructed
on the Project, Borrower, regardless of
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<PAGE> 12
whether any award or compensation (an "AWARD") is available, shall promptly
proceed to restore, repair, replace or rebuild the same to the extent
practicable to be of at least equal value and of substantially the same
character as prior to such Condemnation, all to be effected in accordance with
applicable law. Lender may participate in any such proceeding and Borrower will
deliver to Lender all instruments necessary or required by Lender to permit such
participation. Without Lender's prior consent, Borrower (a) shall not agree to
any Award, and (b) shall not take any action or fail to take any action which
would cause the Award to be determined. All Awards for the taking or purchase in
lieu of condemnation of the Project or any part thereof are hereby assigned to
and shall be paid to Lender. Borrower authorizes Lender to collect and receive
such Awards, to give proper receipts and acquittances therefor, and in Lender's
sole discretion to apply the same toward the payment of the Loan,
notwithstanding that the Loan may not then be due and payable, or to the
restoration of the Project; provided, however, if the Award is less than or
equal to $100,000 and Borrower requests that such proceeds be used for
non-structural site improvements (such as landscape, driveway, walkway and
parking area repairs) required to be made as a result of such condemnation,
Lender will apply the Award to such restoration in accordance with disbursement
procedures applicable to insurance proceeds provided there exists no Potential
Default or Event of Default. Borrower, upon request by Lender, shall execute all
instruments requested to confirm the assignment of the Awards to Lender, free
and clear of all liens, charges or encumbrances.
SECTION 3.4 IMPOUNDS. Borrower shall deposit with Lender, monthly, (a)
one-twelfth (1/12th) of the Taxes that Lender estimates will be payable during
the next ensuing twelve (12) months in order to accumulate with Lender
sufficient funds to pay all such Taxes at least thirty (30) days prior to their
respective due dates, and (b) one-twelfth (1/12th) of the Insurance Premiums
that Lender estimates will be payable for the renewal of the coverage afforded
by the insurance policies required by Lender upon the expiration thereof in
order to accumulate with Lender sufficient funds to pay all such Insurance
Premiums at least thirty (30) days prior to expiration (said amounts in (a) and
(b) above hereinafter called the "TAX AND INSURANCE ESCROW FUND"). At or before
the advance of the Loan, Borrower shall deposit with Lender a sum of money which
together with the monthly installments will be sufficient to make each of such
payments thirty (30) days prior to the date any delinquency or penalty becomes
due with respect to such payments. Deposits shall be made on the basis of
Lender's estimate from time to time of the charges for the current year (after
giving effect to any reassessment or, at Lender's election, on the basis of the
charges for the prior year, with adjustments when the charges are fixed for the
then current year). All funds so deposited shall be held by Lender, with
interest in the manner set forth in Section 2.4(c) hereof, and may be commingled
with Lender's general funds. Borrower hereby grants to Lender a security
interest in all funds so deposited with Lender for the purpose of securing the
Loan. While an Event of Default exists, the funds deposited may be applied in
payment of the charges for which such funds have been deposited, or to the
payment of the Loan or any other charges affecting the security of Lender, as
Lender may elect, but no such application shall be deemed to have been made by
operation of law or otherwise until actually made by Lender. Borrower shall
furnish Lender with bills for the charges for which such deposits are required
at least thirty (30) days prior to the date on which the charges first become
payable. If at any time the amount on deposit with Lender, together with amounts
to be deposited by Borrower before such charges are payable, is insufficient to
pay such charges, Borrower shall deposit any deficiency with Lender immediately
upon demand. Lender shall pay such charges when the amount on deposit with
Lender is sufficient to pay such charges and Lender has received a bill for such
charges.
ARTICLE 4
ENVIRONMENTAL MATTERS
SECTION 4.1 CERTAIN DEFINITIONS. As used herein, the following terms have
the meanings indicated:
(a) "ENVIRONMENTAL LAWS" means any federal, state or local law (whether
imposed by statute, ordinance, rule, regulation, administrative or judicial
order, or common law), now or hereafter enacted, governing health, safety,
industrial hygiene, the environment or natural resources, or Hazardous
Materials, including, without limitation, such laws governing or regulating (i)
the use, generation, storage, removal, recovery, treatment, handling, transport,
disposal, control, release, discharge of, or exposure to, Hazardous Materials,
(ii) the transfer of property upon a negative declaration or other approval of a
governmental authority of the environmental condition of such property, or
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<PAGE> 13
(iii) requiring notification or disclosure of releases of Hazardous Materials or
other environmental conditions whether or not in connection with a transfer of
title to or interest in property.
(b) "HAZARDOUS MATERIALS" means (i) petroleum or chemical products, whether
in liquid, solid, or gaseous form, or any fraction or by-product thereof, (ii)
asbestos or asbestos-containing materials, (iii) polychlorinated biphenyls
(pcbs), (iv) radon gas, (v) underground storage tanks, (vi) any explosive or
radioactive substances, (vii) lead or lead-based paint, or (viii) any other
substance, material, waste or mixture which is or shall be listed, defined, or
otherwise determined by any governmental authority to be hazardous, toxic,
dangerous or otherwise regulated, controlled or giving rise to liability under
any Environmental Laws.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES ON ENVIRONMENTAL MATTERS. To
Borrower's knowledge, except as set forth in the Site Assessment, (a) no
Hazardous Material is now or was formerly used, stored, generated, manufactured,
installed, treated, discharged, disposed of or otherwise present at or about the
Project or any property adjacent to the Project (except for cleaning and other
products currently used in connection with the routine maintenance or repair of
the Project in full compliance with Environmental Laws) and no Hazardous
Material was removed or transported from the Project, (b) all permits, licenses,
approvals and filings required by Environmental Laws have been obtained, and the
use, operation and condition of the Project does not, and did not previously,
violate any Environmental Laws, (c) no civil, criminal or administrative action,
suit, claim, hearing, investigation or proceeding has been brought or been
threatened, nor have any settlements been reached by or with any parties or any
liens imposed in connection with the Project concerning Hazardous Materials or
Environmental Laws; and (d) no underground storage tanks exist on any part of
the Project.
SECTION 4.3 COVENANTS ON ENVIRONMENTAL MATTERS.
(a) Borrower shall (i) comply strictly and in all respects with applicable
Environmental Laws; (ii) notify Lender immediately upon Borrower's discovery of
any spill, discharge, release or presence of any Hazardous Material at, upon,
under, within, contiguous to or otherwise affecting the Project; (iii) promptly
remove such Hazardous Materials and remediate the Project in full compliance
with Environmental Laws or as reasonably required by Lender based upon the
recommendations and specifications of an independent environmental consultant
approved by Lender; and (iv) promptly forward to Lender copies of all orders,
notices, permits, applications or other communications and reports in connection
with any spill, discharge, release or the presence of any Hazardous Material or
any other matters relating to the Environmental Laws or any similar laws or
regulations, as they may affect the Project or Borrower.
(b) Borrower shall not cause, shall prohibit any other Person within the
control of Borrower from causing, and shall use prudent, commercially reasonable
efforts to prohibit other Persons (including tenants) from (i) causing any
spill, discharge or release, or the use, storage, generation, manufacture,
installation, or disposal, of any Hazardous Materials at, upon, under, within or
about the Project or the transportation of any Hazardous Materials to or from
the Project (except for cleaning and other products used in connection with
routine maintenance or repair of the Project in full compliance with
Environmental Laws), (ii) installing any underground storage tanks at the
Project, or (iii) conducting any activity that requires a permit or other
authorization under Environmental Laws.
(c) Borrower shall provide to Lender, at Borrower's expense promptly upon
the written request of Lender from time to time, a Site Assessment or, if
required by Lender, an update to any existing Site Assessment, to assess the
presence or absence of any Hazardous Materials and the potential costs in
connection with abatement, cleanup or removal of any Hazardous Materials found
on, under, at or within the Project. Borrower shall pay the cost of no more than
one such Site Assessment or update in any twelve (12)-month period, unless
Lender's request for a Site Assessment is based on information provided under
Section 4.3(a), a reasonable suspicion of Hazardous Materials at or near the
Project, a breach of representations under Section 4.2, or an Event of Default,
in which case any such Site Assessment or update shall be at Borrower's expense.
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<PAGE> 14
SECTION 4.4 ALLOCATION OF RISKS AND INDEMNITY. As between Borrower and
Lender, all risk of loss associated with non-compliance with Environmental Laws,
or with the presence of any Hazardous Material at, upon, within, contiguous to
or otherwise affecting the Project, shall lie solely with Borrower. Accordingly,
Borrower shall bear all risks and costs associated with any loss (including any
loss in value attributable to Hazardous Materials), damage or liability
therefrom, including all costs of removal of Hazardous Materials or other
remediation required by Lender or by law. Borrower shall indemnify, defend and
hold Lender and its shareholders, directors, officers, employees and agents
harmless from and against all loss, liabilities, damages, claims, costs and
expenses (including reasonable costs of defense and consultant fees,
investigation and laboratory fees, court costs, and other litigation expenses)
arising out of or associated, in any way, with (a) the non-compliance with
Environmental Laws, or (b) the existence of Hazardous Materials in, on, or about
the Project, (c) any personal injury (including wrongful death) or property
damage (real or personal) arising out of or related to Hazardous Materials; (d)
any lawsuit brought or threatened, settlement reached, or government order
relating to such Hazardous Materials, (e) a breach of any representation,
warranty or covenant contained in this Article 4, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute
or common law, or (f) the imposition of any environmental lien encumbering the
Project; provided, however, Borrower shall not be liable under such
indemnification to the extent such loss, liability, damage, claim, cost or
expense results solely from Lender's gross negligence or willful misconduct.
Borrower's obligations under this Section 4.4 shall arise whether or not any
governmental authority has taken or threatened any action in connection with the
presence of any Hazardous Material, and whether or not the existence of any such
Hazardous Material or potential liability on account thereof is disclosed in the
Site Assessment and shall continue notwithstanding the repayment of the Loan or
any transfer or sale of any right, title and interest in the Project (by
foreclosure, deed in lieu of foreclosure or otherwise). Additionally, if any
Hazardous Materials affect or threaten to affect the Project, Lender may (but
shall not be obligated to) give such notices and take such actions as it deems
necessary or advisable at the expense of the Borrower in order to abate the
discharge of any Hazardous Materials or remove the Hazardous Materials. Any
amounts payable to Lender by reason of the application of this Section 4.4 shall
become immediately due and payable and shall bear interest at the Default Rate
from the date loss or damage is sustained by Lender until paid. The obligations
and liabilities of Borrower under this Section 4.4 shall survive any
termination, satisfaction, assignment, entry of a judgment of foreclosure or
delivery of a deed in lieu of foreclosure. Notwithstanding the foregoing,
provided that Borrower delivers to Lender a current Site Assessment evidencing
the presence of no Hazardous Materials on the Project and no violations of any
Environmental Laws with respect to the Project not more than ninety (90) days
and not less than thirty (30) days prior thereto, Borrower shall not be liable
under this Section 4.4 for such indemnified matters created or arising solely
from events or conditions first existing after Lender's succession to title of
the Project by foreclosure or acceptance of a deed in lieu of foreclosure,
provided that such loss, liability, damage, claim, cost or expense does not
directly or indirectly arise from or relate to any release of or exposure to any
Hazardous Material (including personal injury or damage to property),
noncompliance with any Environmental Laws, or remediation existing prior to
Lender's succession to title of the Project.
SECTION 4.5 NO WAIVER. Notwithstanding any provision in this Article 4 or
elsewhere in the Loan Documents, or any rights or remedies granted by the
Environmental Indemnity Agreement or the Loan Documents, Lender does not waive
and expressly reserves all rights and benefits now or hereafter accruing to
Lender under the "security interest" or "secured creditor" exception under
applicable Environmental Laws, as the same may be amended. No action taken by
Lender pursuant to the Environmental Indemnity Agreement or the Loan Documents
shall be deemed or construed to be a waiver or relinquishment of any such rights
or benefits under the "security interest exception."
ARTICLE 5
LEASING MATTERS
SECTION 5.1 REPRESENTATIONS AND WARRANTIES ON LEASES. Borrower represents
and warrants to Lender with respect to leases of the Project that: (a) the rent
roll delivered to Lender is true and correct in all material respects, and the
leases are valid and in and full force and effect; (b) the leases (including
amendments) are in writing, and to
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Fifth Avenue Apts./78416
<PAGE> 15
Borrower's knowledge there are no oral agreements with respect thereto; (c)
except for delinquencies shown on the rent roll delivered to Lender, neither the
landlord nor any tenant is in default under any of the leases; (d) except in the
normal course of business of an apartment complex, Borrower has no knowledge of
any notice of termination or default with respect to any lease; (e) Borrower has
not assigned or pledged any of the leases, the rents or any interests therein
except to Lender; (f) no tenant or other party has an option to purchase all or
any portion of the Project; (g) no tenant has the right to terminate its lease
prior to expiration of the stated term of such lease; (h) no tenant has prepaid
more than one month's rent in advance (except for bona fide security deposits
not in excess of an amount equal to two month's rent); and (i) all existing
leases are subordinate to the Mortgage either pursuant to their terms or a
recorded subordination agreement.
SECTION 5.2 STANDARD LEASE FORM; APPROVAL RIGHTS. All leases and other
rental arrangements shall in all respects be approved by Lender and shall be on
a standard lease form approved by Lender with no modifications (except for such
modifications or extensions customarily employed in a residential apartment
context or otherwise in the ordinary course of business of prudent property
management as approved by Lender, which approval will not be unreasonably
withheld or delayed). Such lease form shall provide that (a) the lease is
subordinate to the Mortgage, and (b) the tenant shall attorn to Lender. Borrower
shall hold, in trust, all tenant security deposits in a segregated account, and,
to the extent required by applicable law, shall not commingle any such funds
with any other funds of Borrower. Upon Lender's request, Borrower shall furnish
Lender with certified copies of all leases and a statement of all tenant
security deposits. Notwithstanding anything contained in the Loan Documents,
Lender's approval shall not be required for future leases or lease extensions if
the following conditions are satisfied: (i) there exists no Potential Default or
Event of Default; (ii) the lease is on the standard lease form approved by
Lender with no modifications; (iii) the lease does not conflict with any
restrictive covenant affecting the Project or any other lease for space in the
Project; and (iv) the effective rental rate of the lease is a market rate
(except for a discount not to exceed 20% for management company employees).
SECTION 5.3 COVENANTS. Borrower (a) shall perform the obligations which
Borrower is required to perform under the leases; (b) shall enforce the
obligations to be performed by the tenants; (c) shall promptly furnish to Lender
any notice of default or termination received by Borrower from any tenant; (d)
shall not collect any rents for more than thirty (30) days in advance of the
time when the same shall become due, except for bona fide security deposits not
in excess of an amount equal to two month's rent (provided that Borrower may
collect advance rentals for up to two percent (2%) of the units in the Project
in the ordinary course of business of prudent property management); (e) shall
not enter into any ground lease or master lease of any part of the Project; (f)
shall not further assign or encumber any lease; (g) shall not, except in the
ordinary course of business of prudent property management practices or
otherwise with Lender's prior written consent, cancel or accept surrender or
termination of any lease; and (h) shall not, except with Lender's prior written
consent, modify or amend any lease (except for minor modifications and
amendments entered into in the ordinary course of business, consistent with
prudent property management practices, not affecting the economic terms of the
lease). Any action in violation of clauses (e), (f), (g), and (h) of this
Section 5.3 shall be void at the election of Lender.
SECTION 5.4 TENANT ESTOPPELS. At Lender's request, Borrower shall obtain
and furnish to Lender, written estoppels in form and substance reasonably
satisfactory to Lender, executed by tenants under "corporate" or master leases
of any part of the Project and confirming the term, rent, and other provisions
and matters relating to the leases.
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<PAGE> 16
ARTICLE 6
REPRESENTATIONS AND WARRANTIES
Borrower represents, warrants and covenants to Lender that:
SECTION 6.1 ORGANIZATION, POWER AND AUTHORITY.. Borrower and each Borrower
Party (a) is duly organized, validly existing and in good standing under the
laws of the state of its formation or existence, (b) is in compliance with all
legal requirements applicable to doing business in the State, and (c) has the
necessary governmental approvals to own and operate the Project and conduct the
business now conducted or to be conducted thereon. Borrower has the full power,
authority and right to execute, deliver and perform its obligations pursuant to
this Loan Agreement and the other Loan Documents, and to mortgage the Project
pursuant to the terms of the Mortgage and to keep and observe all of the terms
of this Loan Agreement and the other Loan Documents on Borrower's part to be
performed. Borrower is not a "foreign person" within the meaning of ss.
1445(f)(3) of the Internal Revenue Code.
SECTION 6.2 VALIDITY OF LOAN DOCUMENTS. The execution, delivery and
performance by Borrower and each Borrower Party of the Loan Documents: (a) are
duly authorized and do not require the consent or approval of any other party or
governmental authority which has not been obtained; and (b) will not violate any
law or result in the imposition of any lien, charge or encumbrance upon the
assets of any such party, except as contemplated by the Loan Documents. The Loan
Documents constitute the legal, valid and binding obligations of Borrower and
each Borrower Party, enforceable in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, or similar laws generally
affecting the enforcement of creditors' rights.
SECTION 6.3 LIABILITIES; LITIGATION.
(a) To Borrower's knowledge, the financial statements delivered by Borrower
and each Borrower Party are true and correct in all material respects with no
significant change since the date of preparation. Except as disclosed in such
financial statements, there are no liabilities (fixed or contingent) affecting
the Project, Borrower or any Borrower Party. Except as disclosed in such
financial statements or otherwise disclosed in writing to Lender, there is no
litigation, administrative proceeding, investigation or other legal action
(including any proceeding under any state or federal bankruptcy or insolvency
law) pending or, to the knowledge of Borrower, threatened, against the Project,
Borrower or any Borrower Party which if adversely determined could have a
material adverse effect on such party, the Project or the Loan.
(b) Neither Borrower nor any Borrower Party is contemplating either the
filing of a petition by it under state or federal bankruptcy or insolvency laws
or the liquidation of all or a major portion of its assets or property, and
neither Borrower nor any Borrower Party has knowledge of any Person
contemplating the filing of any such petition against it.
SECTION 6.4 TAXES AND ASSESSMENTS. The Project is comprised of one or more
parcels, each of which constitutes a separate tax lot and none of which
constitutes a portion of any other tax lot. There are no pending or, to
Borrower's best knowledge, proposed, special or other assessments for public
improvements or otherwise affecting the Project, nor are there any contemplated
improvements to the Project that may result in such special or other
assessments.
SECTION 6.5 OTHER AGREEMENTS; DEFAULTS. Neither Borrower nor any Borrower
Party is a party to any agreement or instrument or subject to any court order,
injunction, permit, or restriction which might adversely affect the Project or
the business, operations, or condition (financial or otherwise) of Borrower or
any Borrower Party. Neither Borrower nor any Borrower Party is in violation of
any agreement which violation would have an adverse effect on the Project,
Borrower, or any Borrower Party or Borrower's or any Borrower Party's business,
properties, or assets, operations or condition, financial or otherwise.
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Fifth Avenue Apts./78416
<PAGE> 17
SECTION 6.6 COMPLIANCE WITH LAW.
(a) Borrower and each Borrower Party have all requisite licenses, permits,
franchises, qualifications, certificates of occupancy or other governmental
authorizations to own, lease and operate the Project and carry on its business,
and the Project is in compliance with all applicable legal requirements and is
free of structural defects, and all building systems contained therein are in
good working order, subject to ordinary wear and tear. The Project does not
constitute, in whole or in part, a legally non-conforming use under applicable
legal requirements;
(b) No condemnation has been commenced or, to Borrower's knowledge, is
contemplated with respect to all or any portion of the Project or for the
relocation of roadways providing access to the Project; and
(c) The Project has adequate rights of access to public ways and is served
by adequate water, sewer, sanitary sewer and storm drain facilities. Except as
otherwise disclosed to Lender, all public utilities necessary or convenient to
the full use and enjoyment of the Project are located in the public right-of-way
abutting the Project, and all such utilities are connected so as to serve the
Project without passing over other property, except to the extent such other
property is subject to a perpetual easement for such utility benefiting the
Project. Except as otherwise disclosed to Lender, all roads necessary for the
full utilization of the Project for its current purpose have been completed and
dedicated to public use and accepted by all governmental authorities.
SECTION 6.7 LOCATION OF BORROWER. Borrower's principal place of business
and chief executive offices are located at the address stated in Section 11.1.
SECTION 6.8 ERISA.
(a) As of the date hereof and throughout the term of the Loan, (i) Borrower
is not and will not be an "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), which
is subject to Title I of ERISA, and (ii) the assets of Borrower do not and will
not constitute "plan assets" of one or more such plans for purposes of Title I
of ERISA; and
(b) As of the date hereof and throughout the term of the Loan (i) Borrower
is not and will not be a "governmental plan" within the meaning of Section 3(3)
of ERISA and (ii) transactions by or with Borrower are not and will not be
subject to state statutes applicable to Borrower regulating investments of and
fiduciary obligations with respect to governmental plans.
SECTION 6.9 FORFEITURE. There has not been and shall never be committed by
Borrower or any other person in occupancy of or involved with the operation or
use of the Project any act or omission affording the federal government or any
state or local government the right of forfeiture as against the Project or any
part thereof or any monies paid in performance of Borrower's obligations under
any of the Loan Documents. Borrower hereby covenants and agrees not to commit,
permit or suffer to exist any act or omission affording such right of
forfeiture.
SECTION 6.10 TAX FILINGS. Borrower and each Borrower Party have filed (or
have obtained effective extensions for filing) all federal, state and local tax
returns required to be filed and have paid or made adequate provision for the
payment of all federal, state and local taxes, charges and assessments payable
by Borrower and each Borrower Party, respectively. Borrower and each Borrower
Party believe that their respective tax returns properly reflect the income and
taxes of Borrower and each Borrower Party, respectively, for the periods covered
thereby, subject only to reasonable adjustments required by the Internal Revenue
Service or other applicable tax authority upon audit.
SECTION 6.11 SOLVENCY. Giving effect to the Loan, the fair saleable value
of Borrower's assets exceeds and will, immediately following the making of the
Loan, exceed Borrower's total liabilities, including, without limitation,
subordinated, unliquidated, disputed and contingent liabilities. The fair
saleable value of Borrower's assets is and will, immediately following the
making of the Loan, be greater than Borrower's probable liabilities, including
the maximum amount of its contingent liabilities on its Debts as such Debts
become absolute and matured, Borrower's assets do not and, immediately following
the making of the Loan will not, constitute unreasonably small capital to carry
LOAN AGREEMENT - Page 13
Fifth Avenue Apts./78416
<PAGE> 18
out its business as conducted or as proposed to be conducted. Borrower does not
intend to, and does not believe that it will, incur Debts and liabilities
(including contingent liabilities and other commitments) beyond its ability to
pay such Debts as they mature (taking into account the timing and amounts of
cash to be received by Borrower and the amounts to be payable on or in respect
of obligations of Borrower). Except as expressly disclosed to Lender in writing,
no petition in bankruptcy has been filed against Borrower or any Borrower Party
in the last seven (7) years, and neither Borrower or any Borrower Party in the
last seven (7) years has ever made an assignment for the benefit of creditors or
taken advantage of any insolvency act for the benefit of debtors.
SECTION 6.12 FULL AND ACCURATE DISCLOSURE. No statement of fact made by or
on behalf of Borrower or any Borrower Party in this Agreement or in any of the
other Loan Documents contains any untrue statement of a material fact or omits
to state any material fact necessary to make statements contained herein or
therein not misleading. There is no fact presently known to Borrower which has
not been disclosed to Lender which adversely affects, nor as far as Borrower can
foresee, might adversely affect, the Project or the business, operations or
condition (financial or otherwise) of Borrower or any Borrower Party.
SECTION 6.13 FLOOD ZONE. No portion of the improvements comprising the
Project is located in an area identified by the Secretary of Housing and Urban
Development or any successor thereto as an area having special flood hazards
pursuant to the National Flood Insurance Act of 1968, the Flood Disaster
Protection Act of 1973 or the National Flood Insurance Act of 1994, as amended,
or any successor law, or, if located within any such area, Borrower has obtained
and will maintain the insurance prescribed in Section 3.1 hereof.
SECTION 6.14 SINGLE PURPOSE ENTITY/SEPARATENESS. Borrower represents,
warrants and covenants as follows:
(a) Borrower does not own and will not own any asset or property other than
(i) the Project, and (ii) incidental personal property necessary for the
ownership or operation of the Project.
(b) Borrower will not engage in any business other than the ownership,
management and operation of the Project and Borrower will conduct and operate
its business as presently conducted and operated.
(c) Borrower will not enter into any contract or agreement with any
Affiliate of the Borrower, any constituent party of Borrower, or any Affiliate
of any constituent party, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arms-length basis with third parties other than any such party.
(d) Borrower has not incurred and will not incur any Debt other than (i)
the Loan, (ii) trade and operational debt incurred in the ordinary course of
business with trade creditors and in amounts as are normal and reasonable under
the circumstances, provided such debt is not evidenced by a note and is paid
when due, and (iii) Debt incurred in the financing of equipment and other
personal property used on the Project. No indebtedness other than the Loan may
be secured (subordinate or pari passu) by the Project.
(e) Borrower has not made and will not make any loans or advances to any
third party (including any affiliate or constituent party or any affiliate of
any constituent party), and shall not acquire obligations or securities of its
affiliates or any constituent party.
(f) Borrower is and will remain solvent and Borrower will pay its debts and
liabilities (including, as applicable, shared personnel and overhead expenses)
from its own funds and assets as the same shall become due.
(g) Borrower has done or caused to be done and will do all things necessary
to observe organizational formalities and preserve its existence, and Borrower
will not, nor will Borrower permit any constituent party to amend, modify or
otherwise change the partnership certificate, partnership agreement, articles of
incorporation and bylaws,
LOAN AGREEMENT - Page 14
Fifth Avenue Apts./78416
<PAGE> 19
operating agreement, trust or other organizational documents of Borrower or such
constituent party without the prior written consent of Lender.
(h) Borrower will maintain all of its books, records, financial statements
and bank accounts separate from those of its Affiliates and any constituent
party and Borrower will file its own tax returns. Borrower shall maintain its
books, records, resolutions and agreements as official records.
(i) Borrower will be, and at all times will hold itself out to the public
as, a legal entity separate and distinct from any other entity (including any
Affiliate of Borrower, any constituent party of Borrower, or any Affiliate of
any constituent party), shall correct any known misunderstanding regarding its
status as a separate entity, shall conduct business in its own name, shall not
identify itself or any of its Affiliates as a division or part of the other and
shall maintain and utilize a separate telephone number, if any, and separate
stationery, invoices and checks.
(j) Borrower will maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character and in light of
its contemplated business operations.
(k) Neither Borrower nor any constituent party will seek the dissolution,
winding up, liquidation, consolidation or merger in whole or in part, of the
Borrower.
(l) Borrower will not commingle the funds and other assets of Borrower with
those of any Affiliate or constituent party, or any Affiliate of any constituent
party, or any other person.
(m) Borrower has and will maintain its assets in such a manner that it will
not be costly or difficult to segregate, ascertain or identify its individual
assets from those of any Affiliate or constituent party, or any Affiliate of any
constituent party, or any other person.
(n) Borrower does not and will not hold itself out to be responsible for
the debts or obligations of any other person.
ARTICLE 7
FINANCIAL REPORTING
SECTION 7.1 FINANCIAL STATEMENTS.
(a) MONTHLY REPORTS. During the first twelve (12) months of the term of the
Loan, Borrower shall furnish to Lender within fifteen (15) days after the end of
each calendar month, a detailed operating statement (showing monthly activity
and year-to-date) stating operating revenues, operating expenses, operating
income and net cash flow for the calendar month just ended.
(b) QUARTERLY REPORTS. Within forty-five (45) days after the end of each
calendar quarter, Borrower shall furnish to Lender a detailed operating
statement (showing quarterly activity and year-to-date) stating operating
revenues, operating expenses, operating income and net cash flow for the
calendar quarter just ended.
(c) ANNUAL REPORTS. Within ninety (90) days after the end of each fiscal
year of Borrower's operation of the Project, Borrower shall furnish to Lender a
current (as of the end of such fiscal year) balance sheet, a detailed operating
statement stating operating revenues, operating expenses, operating income and
net cash flow for each of Borrower and the Project, and, if required by Lender,
prepared on a review basis and certified by an independent public accountant
reasonably satisfactory to Lender.
LOAN AGREEMENT - Page 15
Fifth Avenue Apts./78416
<PAGE> 20
(d) CERTIFICATION; SUPPORTING DOCUMENTATION. Each such financial statement
shall be in scope and detail reasonably satisfactory to Lender and certified by
the chief financial representative of Borrower.
SECTION 7.2 ACCOUNTING PRINCIPLES. All financial statements shall be
prepared in accordance with generally accepted accounting principles in the
United States of America in effect on the date so indicated and consistently
applied (or such other accounting basis reasonably acceptable for Lender).
SECTION 7.3 OTHER INFORMATION; ACCESS. Borrower shall deliver to Lender
such additional information regarding Borrower, its subsidiaries, its business,
any Borrower Party, and the Project within 30 days after Lender's request
therefor. Borrower shall permit Lender to examine such records, books and papers
of Borrower which reflect upon its financial condition and the income and
expenses of the Project.
SECTION 7.4 ANNUAL BUDGET. At least thirty (30) days prior to the
commencement of each fiscal year, Borrower will provide to Lender its proposed
annual operating and capital improvements budget for such fiscal year for review
and approval by Lender.
ARTICLE 8
COVENANTS
Borrower covenants and agrees with Lender as follows:
SECTION 8.1 DUE ON SALE AND ENCUMBRANCE; TRANSFERS OF INTERESTS. Without
the prior written consent of Lender which consent shall not be unreasonably
withheld, denied or conditioned, neither Borrower nor any other Person having an
ownership or beneficial interest in Borrower shall sell, transfer, convey,
mortgage, pledge, or assign any interest in the Project or any part thereof or
further encumber, alienate, grant a Lien or grant any other interest in the
Project or any part thereof, whether voluntarily or involuntarily, in violation
of the covenants and conditions set forth in the Mortgage.
SECTION 8.2 TAXES; UTILITY CHARGES. Except to the extent sums sufficient to
pay all Taxes (defined herein) have been previously deposited with Lender as
part of the Tax and Insurance Escrow Fund and subject to Borrower's right to
contest in accordance with Section 11.8 hereof, Borrower shall pay before any
fine, penalty, interest or cost may be added thereto, and shall not enter into
any agreement to defer, any real estate taxes and assessments, franchise taxes
and charges, and other governmental charges (the "TAXES") that may become a Lien
upon the Project or become payable during the term of the Loan. Borrower's
compliance with Section 3.4 of this Agreement relating to impounds for Taxes
shall, with respect to payment of such Taxes, be deemed compliance with this
Section 8.2. Borrower shall not suffer or permit the joint assessment of the
Project with any other real property constituting a separate tax lot or with any
other real or personal property. Borrower shall promptly pay for all utility
services provided to the Project.
SECTION 8.3 CONTROL; MANAGEMENT. There shall be no change in the day-to-day
control and management of Borrower or Borrower's general partner or managing
member without the prior written consent of Lender except for limited partners
right to replace a general partner as provided in the limited partnership
agreement of Borrower with a general partner reasonably approved by Lender.
Borrower shall not terminate, replace or appoint any manager or terminate or
amend the management agreement for the Project without Lender's prior written
approval, which approval shall not be unreasonably withheld. Any change in
ownership or control of the manager shall be cause for Lender to re-approve such
manager and management agreement. Each manager shall hold and maintain all
necessary licenses, certifications and permits required by law. Borrower shall
fully perform all of its covenants, agreements and obligations under the
management agreement. The management fee payable under the management agreement
shall not exceed five percent (5%) of rental collections.
LOAN AGREEMENT - Page 16
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<PAGE> 21
SECTION 8.4 OPERATION; MAINTENANCE; INSPECTION. Borrower shall observe and
comply with all legal requirements applicable to the ownership, use and
operation of the Project. Borrower shall maintain the Project in good condition
and promptly repair any damage or casualty. Borrower shall permit Lender and its
agents, representatives and employees, upon reasonable prior notice to Borrower,
to inspect the Project and conduct such environmental and engineering studies as
Lender may require, provided such inspections and studies do not materially
interfere with the use and operation of the Project.
SECTION 8.5 TAXES ON SECURITY. Borrower shall pay all taxes, charges,
filing, registration and recording fees, excises and levies payable with respect
to the Note or the Liens created or secured by the Loan Documents, other than
income, franchise and doing business taxes imposed on Lender. If there shall be
enacted any law (a) deducting the Loan from the value of the Project for the
purpose of taxation, (b) affecting any Lien on the Project, or (c) changing
existing laws of taxation of mortgages, deeds of trust, security deeds, or debts
secured by real property, or changing the manner of collecting any such taxes,
Borrower shall promptly pay to Lender, on demand, all taxes, costs and charges
for which Lender is or may be liable as a result thereof; however, if such
payment would be prohibited by law or would render the Loan usurious, then
instead of collecting such payment, Lender may declare all amounts owing under
the Loan Documents to be immediately due and payable.
SECTION 8.6 LEGAL EXISTENCE; NAME, ETC. Borrower shall preserve and keep in
full force and effect its entity status, franchises, rights and privileges under
the laws of the state of its formation, and all qualifications, licenses and
permits applicable to the ownership, use and operation of the Project. Neither
Borrower nor any general partner or managing member of Borrower shall wind up,
liquidate, dissolve, reorganize, merge, or consolidate with or into, or convey,
sell, assign, transfer, lease, or otherwise dispose of all or substantially all
of its assets, or acquire all or substantially all of the assets of the business
of any Person, or permit any subsidiary or Affiliate of Borrower to do so.
Borrower shall not change its name, identity, or organizational structure, or
the location of its chief executive office or principal place of business unless
Borrower (a) shall have obtained the prior written consent of Lender to such
change, and (b) shall have taken all actions necessary or requested by Lender to
file or amend any financing statement or continuation statement to assure
perfection and continuation of perfection of security interests under the Loan
Documents.
SECTION 8.7 FURTHER ASSURANCES. Borrower shall promptly (a) cure any
defects in the execution and delivery of the Loan Documents and the
Environmental Indemnity Agreement, and (b) execute and deliver, or cause to be
executed and delivered, all such other documents, agreements and instruments as
Lender may reasonably request to further evidence and more fully describe the
collateral for the Loan, to correct any omissions in the Loan Documents, to
perfect, protect or preserve any liens created under any of the Loan Documents
and the Environmental Indemnity Agreement, or to make any recordings, file any
notices, or obtain any consents, as may be necessary or appropriate in
connection therewith. Borrower grants Lender an irrevocable power of attorney
coupled with an interest for the purpose of exercising and perfecting any and
all rights and remedies available to Lender under the Loan Documents and the
Environmental Indemnity Agreement, at law and in equity, including without
limitation such rights and remedies available to Lender pursuant to this Section
8.7.
SECTION 8.8 ESTOPPEL CERTIFICATES. Borrower, within ten (10) days after
request, shall furnish to Lender a written statement, duly acknowledged, setting
forth the amount due on the Loan, the terms of payment of the Loan, the date to
which interest has been paid, whether any offsets or defenses exist against the
Loan and, if any are alleged to exist, the nature thereof in detail, and such
other matters as Lender reasonably may request.
SECTION 8.9 NOTICE OF CERTAIN EVENTS. Borrower shall promptly notify Lender
of (a) any Potential Default or Event of Default, together with a detailed
statement of the steps being taken to cure such Potential Default or Event of
Default; (b) any notice of default received by Borrower under other obligations
relating to the Project or otherwise material to Borrower's business; and (c)
any threatened or pending legal, judicial or regulatory proceedings, including
any dispute between Borrower and any governmental authority, affecting Borrower
or the Project.
LOAN AGREEMENT - Page 17
Fifth Avenue Apts./78416
<PAGE> 22
SECTION 8.10 INDEMNIFICATION. Borrower shall protect, defend, indemnify and
save harmless Lender its shareholders, directors, officers, employees and agents
from and against all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including without limitation reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender by reason of (a) ownership of the Mortgage, the Project or any interest
therein or receipt of any rents; (b) any accident, injury to or death of persons
or loss of or damage to property occurring in, on or about the Project or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (c) any use, nonuse or condition in, on or about
the Project or any part thereof or on the adjoining sidewalks, curbs, adjacent
property or adjacent parking areas, streets or ways; (d) performance of any
labor or services or the furnishing of any materials or other property in
respect of the Project or any part thereof; and (e) the failure of any Person to
file timely with the Internal Revenue Service an accurate Form 1099-B, Statement
for Recipients of Proceeds from Real Estate, Broker and Barter Exchange
Transactions, which may be required in connection with this Agreement, or to
supply a copy thereof in a timely fashion to the recipient of the proceeds of
the transaction in connection with which this Agreement is made. Any amounts
payable to Lender by reason of the application of this section shall become
immediately due and payable and shall bear interest at the Default Rate from the
date loss or damage is sustained by Lender until paid.
SECTION 8.11 COOPERATION. Borrower acknowledges that Lender and its
successors and assigns may upon providing written notice to Borrower in
connection therewith (a) sell this Agreement, the Mortgage, the Note, the other
Loan Documents, and the Environmental Indemnity Agreement, and any and all
servicing rights thereto to one or more investors as a whole loan, (b)
participate the Loan to one or more investors, (c) deposit this Agreement, the
Note, other Loan Documents, and the Environmental Indemnity Agreement with a
trust, which trust may sell certificates to investors evidencing an ownership
interest in the trust assets, or (d) otherwise sell the Loan or interest therein
to investors (the transactions referred to in clauses (a) through (d) are
hereinafter each referred to as "SECONDARY MARKET TRANSACTION"). Borrower shall
cooperate with Lender in effecting any such Secondary Market Transaction and
shall cooperate to implement all requirements imposed by any Rating Agency
involved in any Secondary Market Transaction. Borrower shall provide such
information, legal opinions and documents relating to the Borrower, the Project
and any tenants of the Project as Lender may reasonably request in connection
with such Secondary Market Transaction at no third-party professional expense
unless otherwise required by the Loan Documents. In addition, Borrower shall
make available to Lender all information concerning its business and operations
that Lender may reasonably request. Lender shall be permitted to share all such
information with the investment banking firms, Rating Agencies, accounting
firms, law firms and other third-party advisory firms involved with the Loan and
the Loan Documents or the applicable Secondary Market Transaction. It is
understood that the information provided by Borrower to Lender may ultimately be
incorporated into the offering documents for the Secondary Market Transaction
and thus various investors may also see some or all of the information. Lender
and all of the aforesaid third-party advisors and professional firms shall be
entitled to rely on the information supplied by, or on behalf of, Borrower and
Borrower indemnifies Lender as to any losses, claims, damages or liabilities
that arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in such information or arise out of or
are based upon the omission or alleged omission to state therein a material fact
required to be stated in such information or necessary in order to make the
statements in such information, or in light of the circumstances under which
they were made, not misleading.
SECTION 8.12 PAYMENT FOR LABOR AND MATERIALS. Subject to Borrower's right
to contest in accordance with Section 11.8 hereof, Borrower will promptly pay
when due all bills and costs for labor, materials, and specifically fabricated
materials incurred in connection with the Project and never permit to exist
beyond the due date thereof in respect of the Project or any part thereof any
Lien, even though inferior to the Liens hereof, and in any event never permit to
be created or exist in respect of the Project or any part thereof any other or
additional Lien other than the Liens hereof, except for the Permitted
Encumbrances (defined in the Mortgage).
LOAN AGREEMENT - Page 18
Fifth Avenue Apts./78416
<PAGE> 23
ARTICLE 9
EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default under the Loan:
SECTION 9.1 PAYMENTS. Borrower's failure to pay any regularly scheduled
installment of principal, interest or other amount due under the Loan Documents
within five (5) days of (and including) the date when due, or Borrower's failure
to pay the Loan at the Maturity Date, whether by acceleration or otherwise.
SECTION 9.2 INSURANCE. Borrower's failure to maintain insurance as required
under Section 3.1 of this Agreement.
SECTION 9.3 SALE, ENCUMBRANCE, ETC. The sale, transfer, conveyance, pledge,
mortgage or assignment of any part or all of the Project, or any interest
therein, or of any interest in Borrower, in violation of the Mortgage.
SECTION 9.4 COVENANTS. Borrower's failure to perform or observe any of the
agreements and covenants contained in this Agreement or in any of the other Loan
Documents (other than payments under Section 9.1, insurance requirements under
Section 9.2, transfers and encumbrances under Section 9.3, and the Events of
Default described in Sections 9.7 and 9.8 below), and the continuance of such
failure for ten (10) days after notice by Lender to Borrower; however, subject
to any shorter period for curing any failure by Borrower as specified in any of
the other Loan Documents, Borrower shall have an additional sixty (60) days to
cure such failure if (a) such failure does not involve the failure to make
payments on a monetary obligation; (b) such failure cannot reasonably be cured
within ten (10) days; (c) Borrower is diligently undertaking to cure such
default; and (d) Borrower has provided Lender with security reasonably
satisfactory to Lender against any interruption of payment or impairment of
collateral as a result of such continuing failure.
SECTION 9.5 REPRESENTATIONS AND WARRANTIES. Any representation or warranty
made in any Loan Document proves to be untrue in any material respect when made
or deemed made.
SECTION 9.6 OTHER ENCUMBRANCES. Any default under any document or
instrument, other than the Loan Documents, evidencing or creating a Lien on the
Project or any part thereof, not cured within any applicable grace or cure
period therein.
SECTION 9.7 INVOLUNTARY BANKRUPTCY OR OTHER PROCEEDING. Commencement of an
involuntary case or other proceeding against Borrower, any Borrower Party or any
other Person having an ownership or security interest in the Project (each, a
"BANKRUPTCY PARTY") which seeks liquidation, reorganization or other relief with
respect to it or its debts or other liabilities under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeks the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
of its property, and such involuntary case or other proceeding shall remain
undismissed or unstayed for a period of 60 days; or an order for relief against
a Bankruptcy Party shall be entered in any such case under the Federal
Bankruptcy Code.
SECTION 9.8 VOLUNTARY PETITIONS, ETC. Commencement by a Bankruptcy Party of
a voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its Debts or other liabilities under any
bankruptcy, insolvency or other similar law or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official for it or any
of its property, or consent by a Bankruptcy Party to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or the making by a Bankruptcy Party of
a general assignment for the benefit of creditors, or the failure by a
Bankruptcy Party, or the admission by a Bankruptcy Party in writing of its
inability, to pay its debts generally as they become due, or any action by a
Bankruptcy Party to authorize or effect any of the foregoing.
LOAN AGREEMENT - Page 19
Fifth Avenue Apts./78416
<PAGE> 24
ARTICLE 10
REMEDIES
SECTION 10.1 REMEDIES - INSOLVENCY EVENTS. Upon the occurrence of any Event
of Default described in Section 9.7 or 9.8, all amounts due under the Loan
Documents immediately shall become due and payable, all without written notice
and without presentment, demand, protest, notice of protest or dishonor, notice
of intent to accelerate the maturity thereof, notice of acceleration of the
maturity thereof, or any other notice of default of any kind, all of which are
hereby expressly waived by Borrower; however, if the Bankruptcy Party under
Section 9.7 or 9.8 is other than Borrower, then all amounts due under the Loan
Documents shall become immediately due and payable at Lender's election, in
Lender's sole discretion.
SECTION 10.2 REMEDIES - OTHER EVENTS. Except as set forth in Section 10.1
above, while any Event of Default exists, Lender may (a) declare the entire Loan
to be immediately due and payable without presentment, demand, protest, notice
of protest or dishonor, notice of intent to accelerate the maturity thereof,
notice of acceleration of the maturity thereof, or other notice of default of
any kind, all of which are hereby expressly waived by Borrower, and (b) exercise
all rights and remedies therefor under the Loan Documents and at law or in
equity.
SECTION 10.3 LENDER'S RIGHT TO PERFORM THE OBLIGATIONS. If Borrower shall
fail, refuse or neglect to make any payment or perform any act required by the
Loan Documents, then while any Event of Default exists, and without notice to or
demand upon Borrower and without waiving or releasing any other right, remedy or
recourse Lender may have because of such Event of Default, Lender may (but shall
not be obligated to) make such payment or perform such act for the account of
and at the expense of Borrower, and shall have the right to enter upon the
Project for such purpose and to take all such action thereon and with respect to
the Project as it may deem necessary or appropriate. If Lender shall elect to
pay any sum due with reference to the Project, Lender may do so in reliance on
any bill, statement or assessment procured from the appropriate governmental
authority or other issuer thereof without inquiring into the accuracy or
validity thereof. Similarly, in making any payments to protect the security
intended to be created by the Loan Documents, Lender shall not be bound to
inquire into the validity of any apparent or threatened adverse title, lien,
encumbrance, claim or charge before making an advance for the purpose of
preventing or removing the same. Borrower shall indemnify Lender for all losses,
expenses, damages, claims and causes of action, including reasonable attorneys'
fees, incurred or accruing by reason of any acts performed by Lender pursuant to
the provisions of this Section 10.3. All sums paid by Lender pursuant to this
Section 10.3, and all other sums expended by Lender to which it shall be
entitled to be indemnified, together with interest thereon at the Default Rate
from the date of such payment or expenditure until paid, shall constitute
additions to the Loan, shall be secured by the Loan Documents and shall be paid
by Borrower to Lender upon demand.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 NOTICES. Any notice required or permitted to be given under
this Agreement shall be in writing and either shall be mailed by certified mail,
postage prepaid, return receipt requested, or sent by overnight air courier
service, or personally delivered to a representative of the receiving party, or
sent by telecopy (provided an identical notice is also sent simultaneously by
mail, overnight courier, or personal delivery as otherwise provided in this
Section 11.1). All such communications shall be mailed, sent or delivered,
addressed to the party for whom it is intended at its address set forth below.
If to Borrower: S/M Real Estate Fund VII, Ltd.
5520 LBJ Freeway, Suite 500
Dallas, Texas 75240
Attention: Richard E. Hoffmann
Telecopy: (972) 404-7154
LOAN AGREEMENT - Page 20
Fifth Avenue Apts./78416
<PAGE> 25
with a copy to: Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
2001 Ross Avenue, Suite 3000
Dallas, Texas 75201
Attention: Mark Sloan, Esq.
Telecopy: (214) 849-5599
If to Lender: General Electric Capital Corporation
c/o GE Capital Loan Services, Inc.
363 North Sam Houston Parkway East, Suite 1200
Houston, Texas 77060
Attention: Portfolio Manager/Access Program
Telecopy: (281) 405-7132
with a copy to: General Electric Capital Corporation
13355 Noel Road, Suite 2000
One Galleria Tower, LB54
Dallas, Texas 75240
Attention: David R. Martindale
Telecopy: (972) 960-1365
Any communication so addressed and mailed shall be deemed to be given on the
earliest of (a) when actually delivered, (b) on the first Business Day after
deposit with an overnight air courier service, or (c) on the third Business Day
after deposit in the United States mail, postage prepaid, in each case to the
address of the intended addressee, and any communication so delivered in person
shall be deemed to be given when receipted for by, or actually received by
Lender or Borrower, as the case may be. If given by telecopy, a notice shall be
deemed given and received when the telecopy is transmitted to the party's
telecopy number specified above and confirmation of complete receipt is received
by the transmitting party during normal business hours or on the next Business
Day if not confirmed during normal business hours. Either party may designate a
change of address by written notice to the other by giving at least ten (10)
days prior written notice of such change of address.
SECTION 11.2 AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of the Environmental Indemnity Agreement and the Loan Documents shall
be effective unless in writing and signed by the party against whom enforcement
is sought.
SECTION 11.3 LIMITATION ON INTEREST. It is the intention of the parties
hereto to conform strictly to applicable usury laws. Accordingly, all agreements
between Borrower and Lender with respect to the Loan are hereby expressly
limited so that in no event, whether by reason of acceleration of maturity or
otherwise, shall the amount paid or agreed to be paid to Lender or charged by
Lender for the use, forbearance or detention of the money to be lent hereunder
or otherwise, exceed the maximum amount allowed by law. If the Loan would be
usurious under applicable law (including the laws of the State and the laws of
the United States of America), then, notwithstanding anything to the contrary in
the Loan Documents: (a) the aggregate of all consideration which constitutes
interest under applicable law that is contracted for, taken, reserved, charged
or received under the Loan Documents shall under no circumstances exceed the
maximum amount of interest allowed by applicable law, and any excess shall be
credited on the Note by the holder thereof; and (b) if maturity is accelerated
by reason of an election by Lender, or in the event of any prepayment, then any
consideration which constitutes interest may never include more than the maximum
amount allowed by applicable law. In such case, excess interest, if any,
provided for in the Loan Documents or otherwise, to the extent permitted by
applicable law, shall be amortized, prorated, allocated and spread from the date
of advance until payment in full so that the actual rate of interest is uniform
through the term hereof. If such amortization, proration, allocation and
spreading is not permitted under applicable law, then such excess interest shall
be canceled automatically as of the date of such acceleration or prepayment and,
if theretofore paid, shall be credited on the Note. The terms and provisions of
this Section 11.3 shall control and supersede every other provision of the Loan
Documents. The Loan Documents
LOAN AGREEMENT - Page 21
Fifth Avenue Apts./78416
<PAGE> 26
are contracts made under and shall be construed in accordance with and governed
by the laws of the State, except that if at any time the laws of the United
States of America permit Lender to contract for, take, reserve, charge or
receive a higher rate of interest than is allowed by the laws of the State
(whether such federal laws directly so provide or refer to the law of any
state), then such federal laws shall to such extent govern as to the rate of
interest which Lender may contract for, take, reserve, charge or receive under
the Loan Documents.
SECTION 11.4 INVALID PROVISIONS. If any provision of any Loan Document or
the Environmental Indemnity Agreement is held to be illegal, invalid or
unenforceable, such provision shall be fully severable; the Environmental
Indemnity Agreement and the Loan Documents shall be construed and enforced as if
such illegal, invalid or unenforceable provision had never comprised a part
thereof; the remaining provisions thereof shall remain in full effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance therefrom; and in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of such Environmental
Indemnity Agreement and such Loan Document a provision as similar in terms to
such illegal, invalid or unenforceable provision as may be possible to be legal,
valid and enforceable.
SECTION 11.5 REIMBURSEMENT OF EXPENSES. Borrower shall pay all reasonable
and customary expenses incurred by Lender in connection with the Loan, including
reasonable fees and expenses of Lender's attorneys, environmental, engineering
and other consultants, and fees, charges or taxes for the recording or filing of
Loan Documents. Borrower shall pay all expenses of Lender in connection with the
administration of the Loan, including audit costs, inspection fees, settlement
of condemnation and casualty awards, and premiums for title insurance and
endorsements thereto. Borrower shall, upon request, promptly reimburse Lender
for all amounts expended, advanced or incurred by Lender to collect the Note, or
to enforce the rights of Lender under this Agreement, the Environmental
Indemnity Agreement, or any Loan Document, or to defend or assert the rights and
claims of Lender under the Environmental Indemnity Agreement or the Loan
Documents or with respect to the Project (by litigation or other proceedings),
which amounts will include all court costs, reasonable attorneys' fees and
expenses, fees of auditors and accountants, and investigation expenses as may be
incurred by Lender in connection with any such matters (whether or not
litigation is instituted), together with interest at the Default Rate on each
such amount from the date of disbursement until the date of reimbursement to
Lender, all of which shall constitute part of the Loan and shall be secured by
the Loan Documents.
SECTION 11.6 APPROVALS; THIRD PARTIES; CONDITIONS. All approval rights
retained or exercised by Lender with respect to leases, contracts, plans,
studies and other matters are solely to facilitate Lender's credit underwriting,
and shall not be deemed or construed as a determination that Lender has passed
on the adequacy thereof for any other purpose and may not be relied upon by
Borrower or any other Person. This Agreement is for the sole and exclusive use
of Lender and Borrower and may not be enforced, nor relied upon, by any Person
other than Lender and Borrower. All conditions of the obligations of Lender
hereunder, including the obligation to make advances, are imposed solely and
exclusively for the benefit of Lender, its successors and assigns, and no other
Person shall have standing to require satisfaction of such conditions or be
entitled to assume that Lender will refuse to make advances in the absence of
strict compliance with any or all of such conditions, and no other Person shall,
under any circumstances, be deemed to be a beneficiary of such conditions, any
and all of which may be freely waived in whole or in part by Lender at any time
in Lender's sole discretion.
SECTION 11.7 LENDER NOT IN CONTROL; NO PARTNERSHIP. None of the covenants
or other provisions contained in this Agreement shall, or shall be deemed to,
give Lender the right or power to exercise control over the affairs or
management of Borrower, the power of Lender being limited to the rights to
exercise the remedies referred to in the Environmental Indemnity Agreement or
the Loan Documents. The relationship between Borrower and Lender is, and at all
times shall remain, solely that of debtor and creditor. No covenant or provision
of the Environmental Indemnity Agreement or the Loan Documents is intended, nor
shall it be deemed or construed, to create a partnership, joint venture, agency
or common interest in profits or income between Lender and Borrower or to create
an equity in the Project in Lender. Lender neither undertakes nor assumes any
responsibility or duty to Borrower or to any other person with respect to the
Project or the Loan, except as expressly provided in the Environmental Indemnity
Agreement
LOAN AGREEMENT - Page 22
Fifth Avenue Apts./78416
<PAGE> 27
and the Loan Documents; and notwithstanding any other provision of the
Environmental Indemnity Agreement or the Loan Documents: (a) Lender is not, and
shall not be construed as, a partner, joint venturer, alter ego, manager,
controlling person or other business associate or participant of any kind of
Borrower or its stockholders, members, or partners and Lender does not intend to
ever assume such status; (b) Lender shall in no event be liable for any Debts,
expenses or losses incurred or sustained by Borrower; and (c) Lender shall not
be deemed responsible for or a participant in any acts, omissions or decisions
of Borrower or its stockholders, members, or partners. Lender and Borrower
disclaim any intention to create any partnership, joint venture, agency or
common interest in profits or income between Lender and Borrower, or to create
an equity in the Project in Lender, or any sharing of liabilities, losses, costs
or expenses.
SECTION 11.8 CONTEST OF CERTAIN CLAIMS. Borrower may contest the validity
of Taxes or any mechanic's or materialman's lien asserted against the Project so
long as (a) Borrower notifies Lender that it intends to contest such Taxes or
liens, as applicable, (b) Borrower provides Lender with an indemnity, bond or
other security reasonably satisfactory to Lender assuring the discharge of
Borrower's obligations for such Taxes or liens, as applicable, including
interest and penalties, (c) Borrower is diligently contesting the same by
appropriate legal proceedings in good faith and at its own expense and concludes
such contest prior to the tenth (10th) day preceding the earlier to occur of the
Maturity Date or the date on which the Project is scheduled to be sold for
non-payment, (d) Borrower promptly upon final determination thereof pays the
amount of any such Taxes or liens, as applicable, together with all costs,
interest and penalties which may be payable in connection therewith, and (e)
notwithstanding the foregoing, Borrower shall immediately upon request of Lender
pay any such Taxes or liens, as applicable, notwithstanding such contest if, in
the opinion of Lender, the Project or any part thereof or interest therein may
be in danger of being sold, forfeited, foreclosed, terminated, canceled or lost.
Lender may pay over any cash deposit or part thereof to the claimant entitled
thereto at any time when, in the reasonable judgment of Lender, the entitlement
of such claimant is established.
SECTION 11.9 TIME OF THE ESSENCE. Time is of the essence with respect to
this Agreement.
SECTION 11.10 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of Lender and Borrower and their respective successors
and assigns, provided that neither Borrower nor any other Borrower Party shall,
without the prior written consent of Lender, assign any rights, duties or
obligations hereunder.
SECTION 11.11 RENEWAL, EXTENSION OR REARRANGEMENT. All provisions of the
Environmental Indemnity Agreement and the Loan Documents shall apply with equal
effect to each and all promissory notes and amendments thereof hereinafter
executed which in whole or in part represent a renewal, extension, increase or
rearrangement of the Loan.
SECTION 11.12 WAIVERS. No course of dealing on the part of Lender, its
officers, employees, consultants or agents, nor any failure or delay by Lender
with respect to exercising any right, power or privilege of Lender under the
Environmental Indemnity Agreement and any of the Loan Documents, shall operate
as a waiver thereof.
SECTION 11.13 CUMULATIVE RIGHTS; JOINT AND SEVERAL LIABILITY. Rights and
remedies of Lender under the Environmental Indemnity Agreement and the Loan
Documents shall be cumulative, and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any other right or remedy. If
more than one person or entity has executed this Agreement as "Borrower," the
obligations of all such persons or entities hereunder shall be joint and
several.
SECTION 11.14 SINGULAR AND PLURAL. Words used in this Agreement, the other
Loan Documents, and the Environmental Indemnity Agreement in the singular, where
the context so permits, shall be deemed to include the plural and vice versa.
The definitions of words in the singular in this Agreement, the other Loan
Documents, and the Environmental Indemnity Agreement shall apply to such words
when used in the plural where the context so permits and vice versa.
LOAN AGREEMENT - Page 23
Fifth Avenue Apts./78416
<PAGE> 28
SECTION 11.15 PHRASES. Except as otherwise expressly provided herein, when
used in this Agreement, the other Loan Documents, and the Environmental
Indemnity Agreement, the phrase "including" shall mean "including, but not
limited to," the phrase "satisfactory to Lender" shall mean "in form and
substance satisfactory to Lender in all respects," the phrase "with Lender's
consent" or "with Lender's approval" shall mean such consent or approval at
Lender's sole discretion, and the phrase "acceptable to Lender" shall mean
"acceptable to Lender at Lender's sole discretion."
SECTION 11.16 EXHIBITS AND SCHEDULES. The exhibits and schedules attached
to this Agreement are incorporated herein and shall be considered a part of this
Agreement for the purposes stated herein.
SECTION 11.17 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles or
headings to articles, sections, subsections or other divisions of this
Agreement, the other Loan Documents, and the Environmental Indemnity Agreement
or the exhibits hereto and thereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the
other content of such articles, sections, subsections or other divisions, such
other content being controlling as to the agreement between the parties hereto.
SECTION 11.18 PROMOTIONAL MATERIAL. Borrower authorizes Lender to issue
press releases, advertisements and other promotional materials in connection
with Lender's own promotional and marketing activities, including in connection
with a Secondary Market Transaction, and such materials may describe the Loan in
general terms or in detail and Lender's participation therein in the Loan. All
references to Lender contained in any press release, advertisement or
promotional material issued by Borrower shall be approved in writing by Lender
in advance of issuance.
SECTION 11.19 SURVIVAL. All of the representations, warranties, covenants,
and indemnities hereunder (including environmental matters under Article 4),
under the indemnification provisions of the other Loan Documents and under the
Environmental Indemnity Agreement, shall survive the repayment in full of the
Loan and the release of the liens evidencing or securing the Loan, and shall
survive the transfer (by sale, foreclosure, conveyance in lieu of foreclosure or
otherwise) of any or all right, title and interest in and to the Project to any
party, whether or not an Affiliate of Borrower.
SECTION 11.20 WAIVER OF JURY TRIAL. To the maximum extent permitted by law,
Borrower and Lender hereby knowingly, voluntarily and intentionally waive the
right to a trial by jury in respect of any litigation based hereon, arising out
of, under or in connection with this Agreement, any other Loan Document, or the
Environmental Indemnity Agreement, or any course of conduct, course of dealing,
statement (whether verbal or written) or action of either party or any exercise
by any party of their respective rights under the Loan Documents and the
Environmental Indemnity Agreement or in any way relating to the Loan or the
Project (including, without limitation, any action to rescind or cancel this
Agreement, and any claim or defense asserting that this Agreement was
fraudulently induced or is otherwise void or voidable). This waiver is a
material inducement for Lender to enter this Agreement.
SECTION 11.21 WAIVER OF PUNITIVE OR CONSEQUENTIAL DAMAGES. Neither Lender
nor Borrower shall be responsible or liable to the other or to any other Person
for any punitive, exemplary or consequential damages which may be alleged as a
result of the Loan or the transaction contemplated hereby, including any breach
or other default by any party hereto.
SECTION 11.22 GOVERNING LAW. The Loan Documents and the Environmental
Indemnity Agreement shall be governed by and construed in accordance with the
laws of the State and the applicable laws of the United States of America.
SECTION 11.23 ENTIRE AGREEMENT. This Agreement, the other Loan Documents
and the Environmental Indemnity Agreement embody the entire agreement and
understanding between Lender and Borrower and supersede all prior agreements and
understandings between such parties relating to the subject matter hereof and
thereof. Accordingly, the Loan Documents and the Environmental Indemnity
Agreement may not be contradicted by evidence
LOAN AGREEMENT - Page 24
Fifth Avenue Apts./78416
<PAGE> 29
of prior, contemporaneous, or subsequent oral agreements of the parties. There
are no unwritten oral agreements between the parties. If any conflict or
inconsistency exists between the Commitment and this Agreement, any of the other
Loan Documents, or the Environmental Indemnity Agreement, the terms of this
Agreement, the other Loan Documents, and the Environmental Indemnity Agreement
shall control.
SECTION 11.24 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all of which shall
constitute one document.
ARTICLE 12
LIMITATIONS ON LIABILITY
SECTION 12.1 LIMITATION ON LIABILITY. Except as provided below, Borrower
shall not be personally liable for amounts due under the Loan Documents.
Borrower shall be personally liable to Lender for any deficiency, loss or damage
suffered by Lender because of: (a) Borrower's commission of a criminal act; (b)
the failure to comply with provisions of the Loan Documents prohibiting the
sale, transfer or encumbrance of the Project, any other collateral, or any
direct or indirect ownership interest in Borrower; (c) the misapplication by
Borrower or any Borrower Party of any funds derived from the Project, including
security deposits, insurance proceeds and condemnation awards in violation of
this Agreement or any of the other Loan Documents; (d) the fraud or
misrepresentation by Borrower or any Borrower Party made in or in connection
with the Loan Documents or the Loan; (e) Borrower's collection of rents more
than one month in advance or entering into or modifying leases, or receipt of
monies by Borrower or any Borrower Party in connection with the modification of
any leases, in violation of this Agreement or any of the other Loan Documents;
(f) Borrower's failure to apply proceeds of rents or any other payments in
respect of the leases and other income of the Project or any other collateral
when received to the costs of maintenance and operation of the Project and to
the payment of taxes, lien claims, insurance premiums, Debt Service, the Funds,
and other amounts due under the Loan Documents to the extent the Loan Documents
require such proceeds to be then so applied; (g) Borrower's interference with
Lender's exercise of rights under the Assignment of Leases and Rents; (h)
Borrower's failure to maintain insurance as required by this Agreement; (i)
damage or destruction to the Project caused by the acts or omissions of
Borrower, its agents, employees, or contractors; (j) Borrower's obligations with
respect to environmental matters under Article 4; (k) Borrower's failure to pay
for any loss, liability or expense (including attorneys' fees) incurred by
Lender arising out of any claim or allegation made by Borrower, its successors
or assigns, or any creditor of Borrower, that this Agreement or the transactions
contemplated by the Loan Documents and the Environmental Indemnity Agreement
establishes a joint venture, partnership or other similar arrangement between
Borrower and Lender; or (l) any brokerage commission or finder's fees claimed in
connection with the transactions contemplated by the Loan Documents. Nothing
herein shall be deemed to be a waiver of any right which Lender may have under
Sections 506(a), 506(b), 1111(b) or any other provision of the United States
Bankruptcy Code, to file a claim for the full amount due to Lender under the
Loan Documents or to require that all collateral shall continue to secure the
amounts due under the Loan Documents.
SECTION 12.2 LIMITATION ON LIABILITY OF LENDER'S OFFICERS, EMPLOYEES, ETC.
Any obligation or liability whatsoever of Lender which may arise at any time
under this Agreement, any other Loan Document, or the Environmental Indemnity
Agreement shall be satisfied, if at all, out of the Lender's assets only. No
such obligation or liability shall be personally binding upon, nor shall resort
for the enforcement thereof be had to, the property of any of Lender's
shareholders, directors, officers, employees or agents, regardless of whether
such obligation or liability is in the nature of contract, tort or otherwise.
LOAN AGREEMENT - Page 25
Fifth Avenue Apts./78416
<PAGE> 30
EXECUTED as of the date first written above.
LENDER: GENERAL ELECTRIC CAPITAL CORPORATION,
a New York corporation
By: /s/ DAVID R. MARTINDALE
------------------------------------------------
David R. Martindale, Authorized Signatory
BORROWER: S/M REAL ESTATE FUND VII, LTD.
a Texas limited partnership
By: SM7 APARTMENT INVESTORS INC.,
a Texas corporation, Authorized General Partner
By: /s/ RICHARD E. HOFFMANN
--------------------------------------------
Richard E. Hoffmann, President
LOAN AGREEMENT - Page 26
Fifth Avenue Apts./78416
<PAGE> 31
JOINDER
By executing this Joinder (the "JOINDER"), the undersigned ("JOINDER
PARTIES") jointly and severally guaranty the performance by Borrower of all
obligations and liabilities for which Borrower is personally liable under
Section 12.1 of this Agreement. This Joinder is a guaranty of full and complete
payment and performance and not of collectability.
1. WAIVERS. To the fullest extent permitted by applicable law, each
Joinder Party waives all rights and defenses of sureties, guarantors,
accommodation parties and/or co-makers and agrees that its obligations under
this Joinder shall be primary, absolute and unconditional, and that its
obligations under this Joinder shall be unaffected by any of such rights or
defenses, including:
(a) the unenforceability of any Loan Document against Borrower and/or
any other Joinder Party;
(b) any release or other action or inaction taken by Lender with
respect to the collateral, the Loan, Borrower and/or other Joinder Party,
whether or not the same may impair or destroy any subrogation rights of any
Joinder Party, or constitute a legal or equitable discharge of any surety or
indemnitor;
(c) the existence of any collateral or other security for the Loan,
and any requirement that Lender pursue any of such collateral or other security,
or pursue any remedies it may have against Borrower and/or any other Joinder
Party;
(d) any requirement that Lender provide notice to or obtain a Joinder
Party's consent to any modification, increase, extension or other amendment of
the Loan, including the guaranteed obligations;
(e) any right of subrogation (until payment in full of the Loan,
including the guaranteed obligations, and the expiration of any applicable
preference period and statute of limitations for fraudulent conveyance claims);
(f) any defense based on any statute of limitations;
(g) any payment by Borrower to Lender if such payment is held to be a
preference or fraudulent conveyance under bankruptcy laws or Lender is otherwise
required to refund such payment to Borrower or any other party; and
(h) any voluntary or involuntary bankruptcy, receivership,
insolvency, reorganization or similar proceeding affecting Borrower or any of
its assets.
2. AGREEMENTS. Each Joinder Party further represents, warrants and agrees
that:
(a) The obligations under this Joinder are enforceable against each
such party and are not subject to any defenses, offsets or counterclaims;
(b) The provisions of this Joinder are for the benefit of Lender and
its successors and assigns;
(c) Lender shall have the right to (i) renew, modify, extend or
accelerate the Loan, (ii) pursue some or all of its remedies against Borrower or
any Joinder Party, (iii) add, release or substitute any collateral for the Loan
or party obligated thereunder, and (iv) release Borrower or any Joinder Party
from liability, all without notice to or consent of any Joinder Party (or other
Joinder Party) and without affecting the obligations of any Joinder Party (or
other Joinder Party) hereunder;
JOINDER - Page 1
Fifth Avenue Apts./78416
<PAGE> 32
(d) Each Joinder Party covenants and agrees to furnish to Lender,
within ninety (90) days after the end of each fiscal year of such Joinder Party,
a current (as of the end of such fiscal year) balance sheet of such Joinder
Party, in scope and detail reasonably satisfactory to Lender, certified by the
chief financial representative of such Joinder Party and, if required by Lender,
prepared on a review basis and certified by an independent public accountant
reasonably satisfactory to Lender; and
(e) To the maximum extent permitted by law, each Joinder Party hereby
knowingly, voluntarily and intentionally waives the right to a trial by jury in
respect of any litigation based hereon. This waiver is a material inducement to
Lender to enter into this Agreement.
This Joinder shall be governed by the laws of the State.
Executed as of December 3, 1998.
JOINDER PARTIES: SM7 APARTMENT INVESTORS, INC.,
a Texas corporation
By: /s/ RICHARD E. HOFFMANN
-----------------------------------
Richard E. Hoffmann, President
CROZIER PARTNERS VII, LTD.,
a Texas limited partnership
By: ANTERRA PROPERTY INVESTORS
VII, INC., a Texas corporation,
General Partner
By: /s/ RICHARD E. HOFFMANN
-------------------------------
Richard E. Hoffmann, President
JOINDER - Page 2
Fifth Avenue Apts./78416
<PAGE> 33
EXHIBIT A
LEGAL DESCRIPTION
LOT 2, BLOCK 1, NEW CITY BLOCK 17151, LOS CEDROS SUBDIVISION, CITY OF SAN
ANTONIO, BEXAR COUNTY, TEXAS ACCORDING TO THE PLAT THEREOF RECORDED IN VOLUME
9300, PAGE 233, DEED AND PLAT RECORDS, BEXAR COUNTY, TEXAS.
<PAGE> 34
SCHEDULE I
DEFEASANCE
1. In accordance with Section 2.3 of the Loan Agreement, Borrower may
obtain the release of the Project from the lien of the Mortgage upon the
satisfaction of the following conditions precedent:
(a) not less than thirty (30) days prior written notice to Lender
specifying a regularly scheduled payment date (the "RELEASE DATE ") on
which the Defeasance Deposit (hereinafter defined) is to be made;
(b) the payment to Lender of interest accrued and unpaid on the
principal balance of the Note to and including the Release Date;
(c) the payment to Lender of all other sums, not including scheduled
interest or principal payments, due under the Note, the Mortgage, the
Assignment of Leases and Rents, and the other Loan Documents;
(d) the payment to Lender of the Defeasance Deposit;
(e) the delivery by Borrower to Lender of:
i) a security agreement in form and substance satisfactory to
Lender, creating a first priority lien on the Defeasance
Deposit and the U.S. Obligations (hereinafter defined)
purchased on behalf of Borrower with the Defeasance Deposit
in accordance with this provision of this Schedule I (the
"SECURITY AGREEMENT");
ii) a release of the Project from the lien of the Mortgage (for
execution by Lender) in a form appropriate for the jurisdiction
in which the Project is located;
iii) an officer's certificate of Borrower certifying that the
requirements set forth in this paragraph (e) have been
satisfied;
iv) an opinion of counsel for Borrower in form satisfactory to
Lender stating, among other things, that Lender has a perfected
first priority security interest in the Defeasance Deposit and
the U.S. Obligations purchased by Lender on behalf of Borrower;
v) evidence in writing from the applicable Rating Agencies to the
effect that such release will not result in a re-qualification,
reduction or withdrawal of any rating in effect immediately
prior to such defeasance for any securities issued in
connection with a Secondary Market Transaction; and
vi) such other certificates, documents or instruments as Lender may
reasonably request.
(f) if the Loan has been sold in a Secondary Market Transaction, Lender
shall have received an opinion of counsel acceptable to Lender in form
satisfactory to Lender stating, among other things, that the substitution
of collateral shall not cause the holder of the Loan to fail to maintain
its status as a real estate mortgage investment conduit; and
(g) Lender shall have received a certificate from an independent
certified public accountant acceptable to Lender, in form and substance
satisfactory to Lender, certifying that the U.S. Obligations purchased with
the Defeasance Deposit will generate sufficient sums to satisfy the
obligations of Borrower under the Note as and when such obligations become
due.
<PAGE> 35
In connection with the conditions set forth in paragraph 1(e) above, Borrower
hereby appoints Lender as its agent and attorney-in-fact for the purpose of
using the Defeasance Deposit to purchase U.S. Obligations which provide payments
on or prior to, but as close as possible to, all successive scheduled payment
dates after the Release Date upon which interest and principal payments are
required under the Note (including the amounts due on the Maturity Date) and in
amounts equal to the scheduled payments due on such dates under the Note (the
"SCHEDULED DEFEASANCE PAYMENTS"). Borrower, pursuant to the Security Agreement
or other appropriate document, shall authorize and direct that the payments
received from the U.S. Obligations may be made directly to Lender and applied to
satisfy the obligations of Borrower under the Note.
2. Upon compliance with the requirements of this Schedule I, the Project
shall be released from the lien of the Mortgage and the pledged U.S. Obligations
shall be the sole source of collateral securing the Note. Any portion of the
Defeasance Deposit in excess of the amount necessary to purchase the U.S.
Obligations required by the preceding paragraph and to otherwise satisfy the
Borrower's obligations under this Schedule I shall be remitted to Borrower with
the release of the Project from the lien of the Mortgage. In connection with
such release, Lender shall establish or designate a successor entity (the
"SUCCESSOR BORROWER") and Borrower shall transfer and assign all obligations,
rights and duties under and to the Note together with the pledged U.S.
Obligations to such Successor Borrower. The obligation of Lender to establish or
designate a Successor Borrower shall be retained by Lender notwithstanding the
sale or transfer of the Mortgage unless such obligation is specifically assumed
by the transferee. Such Successor Borrower shall assume the obligations under
the Note and the Security Agreement and Borrower shall be relieved of its
obligations thereunder. Borrower shall pay $1,000.00 to any such Successor
Borrower as consideration for assuming the obligations under the Note and the
Security Agreement. Notwithstanding anything in the Mortgage to the contrary, no
other assumption fee shall be payable upon a transfer of the Note in accordance
with this paragraph, but Borrower shall pay all costs and expenses incurred by
Lender, including Lender's reasonable attorneys' fees and expenses, incurred in
connection with this Schedule.
3. For purposes of this Schedule I, the following terms shall have the
following meanings:
(a) The term "DEFEASANCE DEPOSIT" shall mean an amount equal to the
remaining principal amount of the Note, the Yield Maintenance Amount, any
costs and expenses incurred or to be incurred in the purchase of U.S.
Obligations necessary to meet the Scheduled Defeasance Payments and any
revenue, documentary stamp or intangible taxes or any other tax or charge
due in connection with the transfer of the Note or otherwise required to
accomplish the agreements of this Schedule I.
(b) The term "YIELD MAINTENANCE AMOUNT" shall mean the amount (if any)
which, when added to the remaining principal amount of the Note, will be
sufficient to purchase U.S. Obligations providing the required Scheduled
Defeasance Payments; and
(c) The term "U.S. OBLIGATIONS" shall mean direct non-callable
obligations of the United States of America.
<PAGE> 36
SCHEDULE II
REQUIRED REPAIRS
1. Install a handicapped accessible ramp to the leasing office
2. Install an accessible walk to the leasing office
3. Repair sidewalk joints
4. Repair retaining walls
5. Repaint site fence
6. Brick facade repairs
7. Clean and replace damaged wood siding
8. Replace roof
9. Bring leasing office restrooms up to ADA standards
<PAGE> 1
EXHIBIT 99.1
ORIGINAL Loan No. 76-0000664
PROMISSORY NOTE
$6,400,000.00 December 3, 1998
For value received, S/M REAL ESTATE FUND VII, LTD., a Texas limited
partnership ("BORROWER"), promises and agrees to pay to the order of GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation ("LENDER"), in lawful
money of the United States of America, the principal sum of SIX MILLION FOUR
HUNDRED THOUSAND AND NO/100 DOLLARS ($6,400,000.00) or so much thereof as may be
outstanding under the Loan Agreement of even date herewith between Borrower and
Lender (the "LOAN AGREEMENT"), with interest on the unpaid principal sum owing
thereunder at the rate or rates or in the amounts computed in accordance with
the Loan Agreement, together with all other amounts due Lender under the Loan
Agreement, all payable in the manner and at the time or times provided in the
Loan Agreement. Capitalized terms used herein, but not defined, shall have the
meanings assigned to them in the Loan Agreement.
If not sooner due and payable in accordance with the Loan Agreement,
Borrower shall pay to Lender all amounts due and unpaid under the Loan
Agreement on January 1, 2009, or on any earlier Maturity Date as set forth in
the Loan Agreement. Unless otherwise specified in writing by Lender, all
payments hereunder shall be paid to Lender at c/o GE Capital Loan Services,
Inc., P.O. Box 420250, Houston, Texas 77042. Lender reserves the right to
require any payment on this Note, whether such payment is a regular installment,
prepayment or final payment, to be by wired federal funds or other immediately
available funds.
Borrower, co-makers, sureties, endorsers and guarantors, and each of them,
expressly waive demand and presentment for payment, notice of nonpayment,
protest, notice of protest, notice of dishonor, notice of intent to accelerate
the maturity hereof, notice of the acceleration of the maturity hereof,
bringing of suit and diligence in taking any action to collect amounts called
for hereunder and in the handling of securities at any time existing in
connection herewith; such parties are and shall be jointly, severally, directly
and primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder or in connection
with any right, lien, interest or property at any and all times had or existing
as security for any amount called for hereunder.
This Note evidences all advances made, interest due and all amounts
otherwise owed to Lender under the Loan Agreement. This Note is executed in
conjunction with the Loan Agreement and is secured by the liens and security
interests created under the Loan Documents (including those arising under the
Mortgage). Reference is made to the Loan Agreement for provisions relating to
repayment of the indebtedness evidenced by this Note, including mandatory
repayment, acceleration following default, late charges, default rate of
interest, limitations on interest, and restrictions on prepayment.
Borrower's liability hereunder is subject to the limitation on liability
provisions of Article 12 of the Loan Agreement. This Note has been executed and
delivered in and shall be construed in accordance with and governed by the laws
of the State of Texas and of the United States of America.
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Fifth Avenue Apts./78416
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EXECUTED as of the date first written above.
S/M REAL ESTATE FUND VII, LTD.
a Texas limited partnership
By: SM7 APARTMENT INVESTORS INC.,
a Texas corporation, Authorized General Partner
By: /s/ RICHARD E. HOFFMANN
--------------------------------------------
Richard E. Hoffmann, President
PROMISSORY NOTE - Page 2
Fifth Avenue Apts./78416
