FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from.........to.........
Commission file number 0-13418
CENTURY PROPERTIES GROWTH FUND XXII
(Exact name of small business issuer as specified in its charter)
California 94-2939418
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 1998
Assets
Cash and cash equivalents $ 4,645
Restricted cash 500
Receivables and deposits 1,419
Restricted escrows 826
Other assets 1,598
Investment properties:
Land $ 14,396
Buildings and related personal property 116,797
131,193
Less accumulated depreciation (53,087) 78,106
$ 87,094
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 174
Tenant security deposits payable 368
Accrued property taxes 925
Other liabilities 644
Mortgage notes payable 72,456
Partners' (Deficit) Capital
General partner's $ (7,302)
Limited partners' (82,848 units issued and
outstanding) 19,829 12,527
$ 87,094
See Accompanying Notes to Consolidated Financial Statements
b)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $ 5,066 $ 4,801
Other income 275 275
Total revenues 5,341 5,076
Expenses:
Operating 1,802 1,900
General and administrative 110 72
Depreciation 997 971
Interest 1,486 1,489
Property taxes 442 387
Total expenses 4,837 4,819
$ 504 $ 257
Net income allocated to general partner $ 59 $ 30
Net income allocated to limited partners 445 227
$ 504 $ 257
Net income per limited partnership unit $ 5.37 $ 2.74
See Accompanying Notes to Consolidated Financial Statements
c)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original Capital Contributions 82,848 $ -- $82,848 $82,848
Partners' (deficit) capital at
December 31, 1997 82,848 $(7,361) $19,384 $12,023
Net income for the three months
ended March 31, 1998 -- 59 445 504
Partners' (deficit) capital
at March 31, 1998 82,848 $(7,302) $19,829 $12,527
See Accompanying Notes to Consolidated Financial Statements
d)
CENTURY PROPERTIES GROWTH FUND XXII
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 504 $ 257
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 997 971
Amortization of loan costs 52 52
Loss on disposal of property -- 78
Change in accounts:
Receivables and deposits -- 341
Other assets 55 (8)
Accounts payable (20) (154)
Tenant security deposits payable 6 11
Accrued property taxes (3) (268)
Other liabilities (55) (31)
Net cash provided by operating activities 1,536 1,249
Cash flows from investing activities:
Net withdrawals from (deposits to) restricted escrows 124 (104)
Property improvements and replacements (213) (276)
Net cash used in investing activities (89) (380)
Cash flows from financing activities:
Mortgage principal payments (147) (136)
Loan costs paid -- (17)
Net cash used in financing activities (147) (153)
Net increase in unrestricted cash and
cash equivalents 1,300 716
Unrestricted cash and cash equivalents at beginning of period 3,345 1,111
Unrestricted cash and cash equivalents at end of period $ 4,645 $ 1,827
Supplemental information:
Cash paid for interest $ 1,433 $ 1,442
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
e)
CENTURY PROPERTIES GROWTH FUND XXII
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Century
Properties Growth Fund XXII (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of Fox Capital Management Corporation ("FCMC" or the "Managing
General Partner"), a California corporation, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1998, are not necessarily indicative of the results that may be expected for the
fiscal year ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto included in the annual
report of the Partnership on Form 10-KSB for the year ended December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
Fox Partners IV, a California general partnership, is the general partner of the
Partnership. The general partners of Fox Partners IV are: FCMC, Fox Realty
Investors ("FRI"), a California general partnership, and Fox Associates 84, a
California general partnership. NPI Equity Investments II, Inc. ("NPI Equity"),
a Florida corporation, is the managing general partner of FRI.
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Managing General Partner and NPI Equity are wholly-
owned by Insignia Properties Trust ("IPT"), an affiliate of Insignia Financial
Group, Inc. ("Insignia"). The Partnership Agreement provides for certain
payments to affiliates for services and as reimbursement of certain expenses
incurred by affiliates on behalf of the Partnership.
The following transactions with affiliates of Insignia were incurred during the
three month periods ended March 31, 1998 and 1997 (in thousands):
1998 1997
Property management fees (included in operating
expenses) $266 $256
Reimbursement for services of affiliates, including
approximately $5,000 and $23,000 of construction
services reimbursements in 1998 and 1997, respectively
(included in investment properties, general and
administrative expenses and operating expenses) 51 61
For the period from January 1, 1997, to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
Managing General Partner with an insurer unaffiliated with the Managing General
Partner. An affiliate of the Managing General Partner acquired, in the
acquisition of a business, certain financial obligations from an insurance
agency which was later acquired by the agent who placed the master policy. The
agent assumed the financial obligations to the affiliate of the Managing General
Partner which received payments on these obligations from the agent. The amount
of the Partnership's insurance premiums that accrued to the benefit of the
affiliate of the Managing General Partner by virtue of the agent's obligations
was not significant.
On August 28, 1997, an Insignia affiliate (the "Purchaser") commenced tender
offers for limited partnership interests in six real estate limited partnerships
(including the Partnership) in which various Insignia affiliates act as general
partner. The Purchaser offered to purchase up to 25,000 of the outstanding
units of limited partnership interest in the Partnership, at $275.00 per Unit,
net to the seller in cash, upon the terms and subject to the conditions set
forth in the Offer to Purchase dated August 28, 1997 (the "Offer to Purchase")
and the related Assignment of Partnership Interest attached as Exhibits (a)(1)
and (a)(2), respectively, to the Tender Offer Statement on Schedule 14D-1
originally filed with the Securities and Exchange Commission on August 28, 1997.
Because of the existing and potential future conflicts of interest (described in
the Partnership's Statements on Schedule 14D-9 filed with the Securities and
Exchange Commission), neither the Partnership nor the Managing General Partner
expressed any opinion as to the Offer to Purchase and made no recommendation as
to whether unit holders should tender their units in response to the Offer to
Purchase. In addition, because of these conflicts of interest, including as a
result of the Purchaser's affiliation with various Insignia affiliates, the
manner in which the Purchaser votes its limited partner interests in the
Partnership may not always be consistent with the best interests of the other
limited partners. The tender offer closed on October 6, 1997. As a result of
the tender offer, such Insignia affiliate purchased 5,504 of the outstanding
limited partnership units of the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Managing General Partner of the
Partnership.
NOTE C - SUBSEQUENT EVENT
On April 3, 1998, the Partnership completed the refinancing of the mortgage
encumbering Promontory Point which had been contemplated for March 31, 1998.
The refinancing replaced indebtedness of $2,840,000 with a new mortgage in the
amount of $4,000,000. The new mortgage carries a stated interest rate of 7.04%,
which replaced a rate equal to LIBOR plus 3.75%. The new mortgage matures
May 1, 2008. For financial statement purposes, the Partnership will recognize
an extraordinary loss on the early extinguishment of debt in the second quarter
of 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of nine apartment complexes.
The following table sets forth the average occupancy of the properties for the
three month periods ended March 31, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Cooper's Pointe Apartments
North Charleston, South Carolina 96% 95%
Copper Mill Apartments (1)
Richmond, Virginia 86% 93%
Four Winds Apartments (2)
Overland Park, Kansas 98% 91%
Autumn Run Apartments
Naperville, Illinois 96% 93%
Plantation Creek Apartments (3)
Atlanta, Georgia 96% 90%
Wood Creek Apartments
Mesa, Arizona 96% 96%
Promontory Point Apartments
Austin, Texas 93% 90%
Hampton Greens Apartments
Dallas, Texas 91% 94%
Stoney Creek Apartments
Dallas, Texas 90% 93%
(1)The decrease in occupancy at Copper Mill Apartments is primarily due to the
absence of short term corporate unit rentals in 1998 compared to 1997.
(2)The increase in occupancy at Four Winds Apartments is attributed to a
stronger economy.
(3)The increase in occupancy at Plantation Creek Apartments is primarily due to
the property offering one month free rent.
The Partnership's net income for the three months ended March 31, 1998, was
approximately $504,000, versus approximately $257,000 for the corresponding
period in 1997. The increase in net income is primarily attributable to an
increase in rental revenue. Total expenses increased slightly due to increases
in property tax and general and administrative expenses which were partially
offset by a decrease in operating expenses.
The increase in rental revenue is due to increases in rental rates at all of the
Partnership's rental properties as well as increases in occupancy at all of the
Partnership's rental properties with the exception of Copper Mill, Hampton
Greens and Stoney Creek. In addition to the changes in rental rates and
occupancy at the Partnership's rental properties, a decrease in bad debt expense
at Wood Creek and Hampton Greens contributed to the increase in rental revenue.
Operating expenses decreased for the three month period ended March 31, 1998,
compared to 1997 primarily as a result of a loss resulting from the write off of
roofs at Autumn Run in the first quarter of 1997. Also contributing to the
decrease in operating expenses was a decrease in maintenance expenses at Four
Winds, Autumn Run, Stoney Creek and Promontory Point which was partially offset
by slight increases in property management fees at Wood Creek, Plantation Creek,
Four Winds, Coopers Point and Autumn Run. The increase in general and
administrative expenses for the three month period ended March 31, 1998, is
primarily attributable to the increase in professional fees including legal,
audit and tax and accounting expenses. Property taxes increased for the three
month period ended March 31, 1998, compared to the same period in 1997 as a
result of tax refunds received in 1997 relating to prior year's overpayment at
Plantation Creek and Coopers Pointe.
Included in operating expenses for the three months ended March 31, 1998, is
approximately $32,000 of major repairs and maintenance comprised primarily of
landscaping, window covering replacements and parking lot repairs. Included in
operating expenses for the three months ended March 31, 1997, is approximately
$66,000 of major repairs and maintenance comprised primarily of exterior
painting, exterior building repairs and parking lot repairs.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Managing General Partner attempts to protect the Partnership from
the burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Managing General Partner will be able to sustain such a plan.
On April 3, 1998, the Partnership refinanced the mortgage encumbering Promontory
Point. The refinancing replaced indebtedness of $2,840,000 with a new mortgage
in the amount of $4,000,000. The new mortgage carries a stated interest rate of
7.04%, which replaced a rate equal to LIBOR plus 3.75%. The new mortgage
matures May 1, 2008. For financial statement purposes, the Partnership will
recognize an extraordinary loss on the early extinguishment of debt in the
second quarter of 1998.
At March 31, 1998, the Partnership held unrestricted cash and cash equivalents
of approximately $4,645,000, compared to approximately $1,827,000 at March 31,
1997. Unrestricted cash and cash equivalents increased approximately $1,300,000
during the three month period ended March 31, 1998, compared to an increase of
approximately $716,000 during the corresponding period in 1997. Net cash
provided by operating activities increased primarily as a result of an increase
in net income, as discussed above. The decrease in cash used for accrued
property taxes and accounts payable was offset by the decrease in cash provided
by receivables and deposits, primarily due to the change in timing of payments
and receipts. Net cash used in investing activities decreased as a result of
fewer deposits made to restricted escrows versus withdrawals from restricted
escrows. Net cash used in financing activities decreased slightly due to the
absence of additional loan costs associated with obtaining new financing on four
properties during the third quarter of 1996.
An affiliate of the Managing General Partner has made available to the
Partnership a credit line of up to $150,000 per property owned by the
Partnership. The Partnership has no outstanding amounts due under this line of
credit. Based on present plans, the Managing General Partner does not
anticipate the need to borrow in the near future. Other than cash and cash
equivalents, the line of credit is the Partnership's only unused source of
liquidity.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
mortgage indebtedness of approximately $72,456,000 is amortized over varying
periods with balloon payments ranging from December 1999, to February 2006.
Future cash distributions will depend on the levels of cash generated from
operations, property sales, and the availability of cash reserves. No
distributions have been made in 1997 or 1998. The Managing General Partner
anticipates making a distribution during 1998.
Year 2000
The Partnership is dependent upon the Managing General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The Managing General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The three lawsuits previously described in the Partnership's 1997 Annual Report
on Form 10-KSB relating to the August 1997, tender offers made by an Insignia
affiliate (the Kline, City Partnerships and Heller complaints) have been
voluntarily discontinued by their respective plaintiffs, with no material affect
on the financial condition or operations of the Partnership.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates to acquire limited partnership units, the management of partnerships
by Insignia affiliates as well as a recently announced agreement between
Insignia and Apartment Investment and Management Company. The complaint seeks
monetary damages and equitable relief, including judicial dissolution of the
Partnership. The Managing General Partner was only recently served with the
complaint which it believes to be without merit, and intends to vigorously
defend the action.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The Managing General Partner believes that all such
pending or outstanding litigation will be resolved without a material adverse
effect upon the business, financial condition, or operations of the Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 10.3, Promissory Note between Century Stoney Greens, L.P. and
Lehman Brothers Holdings Inc., dated March 31, 1998, for Promontory Point,
is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K: None filed during the quarter ended March 31, 1998.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTURY PROPERTIES GROWTH FUND XXII
By: FOX PARTNERS IV
Its General Partner
By: FOX CAPITAL MANAGEMENT CORPORATION,
Managing General Partner, Fox Partners IV
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By: /s/Ronald Uretta
Ronald Uretta
Vice President and Treasurer
Date: May 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Century Properties Growth Fund XXII 1998 First Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000740156
<NAME> CENTURY PROPERTIES GROWTH FUND XXII
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,645
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 131,193
<DEPRECIATION> 53,087
<TOTAL-ASSETS> 87,094
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 72,456
0
0
<COMMON> 0
<OTHER-SE> 12,527
<TOTAL-LIABILITY-AND-EQUITY> 87,094
<SALES> 0
<TOTAL-REVENUES> 5,341
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,351
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,486
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 504
<EPS-PRIMARY> 5.37<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
PROMISSORY NOTE
$4,000,000.00 New York, New York
As of March 31, 1998
FOR VALUE RECEIVED CENTURY STONEY GREENS, L.P., a California limited
partnership, having an address at c/o Insignia Properties Trust, One Insignia
Financial Plaza, Greenville, South Carolina 29601 (hereinafter referred to as
"Borrower"), promises to pay to the order of LEHMAN BROTHERS HOLDINGS INC. D/B/A
LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware
corporation, having an address at Three World Financial Center, 200 Vesey
Street, New York, New York 10285 (hereinafter referred to as "Lender"), or at
such other place as the holder hereof may from time to time designate in
writing, the principal sum of FOUR MILLION AND 00/100 DOLLARS ($4,000,000.00),
in lawful money of the United States of America with interest thereon to be
computed from the date of this Note at the Applicable Interest Rate (hereinafter
defined), and to be paid as hereinafter provided.
A. PAYMENT TERMS
Borrower shall pay to Lender:
(i) a payment of interest only, if any, as of the date of funding,
calculated from the date of funding through and including April 30,
1998;
(ii) a constant payment of $26,719.64 (the "Monthly Payment") on June 1,
1998 and on the first day of each calendar month (the "Monthly Payment
Date") thereafter to and including the first day of April, 2008; and
(iii)the balance of the principal sum then outstanding and all interest
thereon shall be due and payable on the first day of May, 2008 (the
"Maturity Date").
Each of such payments shall be applied as follows:
(i) First to the payment of interest computed at the Applicable Interest
Rate; and
(ii) The balance applied toward the reduction of the principal sum.
B. INTEREST
The term "Applicable Interest Rate" as used in this Note shall mean
7.040% per annum.
Interest on the principal sum of this Note shall be calculated by
multiplying the actual number of days elapsed in the period for which interest
is being calculated by a daily rate based on a 360-day year.
C. DEFAULT AND ACCELERATION
The whole of the principal sum of this Note, together with all
interest accrued and unpaid thereon and all other sums due under the Security
Instrument (hereinafter defined) and this Note (all such sums hereinafter
collectively referred to as the "Debt") shall without notice become immediately
due and payable at the option of Lender if any payment required in this Note is
not paid within ten (10) days after written notice from the Lender notifying
Borrower that the same is due or on the happening of any other default, after
the expiration of any applicable notice and grace periods, herein or under the
terms of the Security Instrument (hereinafter collectively an "Event of
Default"). All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents (hereinafter defined) are hereby
made part of this Note to the same extent and with the same force as if they
were fully set forth herein. In the event that it should become necessary to
employ counsel to collect the Debt or to protect, sell or foreclose the security
hereof, Borrower also agrees to pay reasonable attorney's fees for the services
of such counsel whether or not suit be brought.
D. PREPAYMENT
Borrower shall not have the right or privilege to prepay all or any
portion of the unpaid principal balance of this Note until April 30, 2002.
Beginning May 1, 2002, provided no Event of Default exists, the principal
balance of this Note may be prepaid, in whole but not in part, upon: (i) not
less than 30 days and not more than 45 days prior written notice (the
"Prepayment Notice") to Lender specifying the scheduled payment date on which
prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued
and unpaid interest on the outstanding principal balance of this Note to and
including the Prepayment Date together with a payment of all interest which
would have accrued on the principal balance of this Note to and including the
first day of the calendar month immediately following the Prepayment Date, if
such prepayment occurs on a date which is not the first day of a calendar month
(the "Shortfall Interest Payment"); (iii) payment of all other sums then due
under this Note, the Security Instrument and the Other Security Documents and
(iv) if the Prepayment Date occurs prior to the date which is six months prior
to the Maturity Date payment of a prepayment consideration (the "Prepayment
Consideration") in an amount equal to the greater of: (A) one (1%) percent of
the principal amount of this Note being prepaid; and (B) the present value of a
series of payments each equal to the Payment Differential (hereinafter defined)
and payable on each monthly payment date over the remaining original term of
this Note and on the Maturity Date discounted at the Reinvestment Yield
(hereinafter defined) for the number of months remaining from the Prepayment
Date to each such monthly payment date and the Maturity Date. The term
"Reinvestment Yield" as used herein shall be equal to the lesser of (a) the
yield on the U.S. Treasury issue (primary issue) with a maturity date closest to
the Maturity Date, or (b) the yield on the U.S. Treasury issue (primary issue)
with a term equal to the remaining average life of the Debt, with each such
yield being based on the bid price for such issue as published in The Wall
Street Journal on the date that is 14 days prior to the Prepayment Date set
forth in the Prepayment Notice (or, if such bid price is not published on that
date, the next preceding date on which such bid price is so published) and
converted to a monthly compounded nominal yield. The term "Payment
Differential" as used herein shall be equal to (x) the Applicable Interest Rate
minus the Reinvestment Yield, divided by (y) 12 and multiplied by (z) the
principal sum outstanding on such Prepayment Date after application of the
Constant Monthly Payment (if any) due on such Prepayment Date, provided that the
Payment Differential shall in no event be less than zero. In no event, however,
shall Lender be required to reinvest any prepayment proceeds in U.S. Treasury
obligations or otherwise. Lender shall notify Borrower of the amount, and the
basis of determination, of the required Prepayment Consideration. If a
Prepayment Notice is given by Borrower to Lender pursuant to this Article D, the
principal balance of this Note and the other sums required under this Article D
shall be due and payable on the Prepayment Date.
Lender shall not be obligated to accept any prepayment of the
principal balance of this Note unless it is accompanied by all sums due in
connection therewith. Notwithstanding anything contained herein to the
contrary, provided no Event of Default exists, no Prepayment Consideration shall
be due in connection with a complete or partial prepayment resulting from the
application of insurance proceeds or condemnation awards pursuant to paragraphs
3 and 6 of the Security Instrument. In the event of any permitted partial
prepayment of the principal balance of this Note, the amount of principal
prepaid (but not including any Prepayment Consideration or interest) shall be
applied to the principal last due under this Note and shall not release Borrower
from the obligation to pay the Constant Monthly Payments next becoming due under
this Note and the Constant Monthly Payment shall not be adjusted or recalculated
as a result of such partial prepayment.
If a Default Prepayment (defined herein) occurs prior to the date
which is six months prior to the Maturity Date, Borrower shall pay to Lender the
entire Debt, including, without limitation, the Prepayment Consideration.
For purposes of this Note, the term "Default Prepayment" shall mean a
prepayment of the principal amount of this Note made during the continuance of
any Event of Default or after an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Instrument provided by statute
under foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a statutory
right to redeem or prevent foreclosure, any sale in foreclosure or under
exercise of a power of sale or otherwise.
Notwithstanding any provision of this Article D to the contrary,
Lender may require Borrower, in lieu of a prepayment as contemplated in the
first paragraph of this Article D, to deliver to Lender the Defeasance
Collateral (hereinafter defined) in the manner contemplated herein. After
Lender's receipt of the Prepayment Notice, Lender shall, if it so elects, advise
Borrower that, in lieu of a prepayment, the Defeasance Collateral shall be
required, in which event Borrower shall be entitled to a release of the Property
(hereinafter defined) from the lien of the Security Instrument and the Other
Security Documents upon satisfaction of the following:
I. Lender shall have received written confirmation from the rating
agencies that have rated the REMIC "real estate mortgage investment conduit"
(defined in Section 860D of the Internal Revenue Code of 1986, as amended from
time to time or any successor statute (the "Code")) ("REMIC") related to the
Securities (as defined in the Security Instrument) that such substitution of
Defeasance Collateral will not result in a downgrade, withdrawal or
qualification of the ratings then assigned to any of the Securities; provided,
however, that in the event that Lender or its agent is unable to obtain such
confirmation, the Lender or its agent shall so advise Borrower and Borrower will
then be subject to the other provisions of this Article D set forth above;
II. all accrued and unpaid interest and all other sums due under this
Note, the Security Instrument and other Security Documents up to the date of the
delivery of the Defeasance Collateral (the "Release Date"), including, without
limitation, all costs and expenses incurred by Lender or its agents in
connection with such release (including, without limitation, the review of the
proposed Defeasance Collateral and the preparation of the Defeasance Security
Agreement (as hereinafter defined) and the related documentation), shall be
fully paid on or before the Release Date; and
III. Borrower shall have delivered to Lender on or before the Release
Date:
(a) a pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion, creating a first
priority security interest in favor of Lender in the Defeasance
Collateral (the "Defeasance Security Agreement"), which shall provide,
among other things, that any excess received by Lender from the
Defeasance Collateral over the amount payable by Borrower hereunder
shall be refunded to Borrower promptly following each Monthly Payment
Date and the Maturity Date;
(b) direct, non-callable obligations of the United States of
America (the "US Obligations") that provide for payments prior, but as
close as possible, to all successive Monthly Payment Dates occurring
after the Release Date and the Maturity Date, with each such payment
being equal to or greater than the amount of the corresponding
Constant Monthly Payment required to be paid under this Note for the
balance of the term hereof and the amount required to be paid on the
Maturity Date (the "Defeasance Collateral"), each of which shall be
duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
wholly satisfactory to Lender (including, without limitation, such
instrument as may be required by the depository institution holding
such securities or the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the book-entry
facilities of such institution) in order to perfect upon the delivery
of the Defeasance Security Agreement the first priority security
interest therein in favor of the Lender in conformity with all
applicable state and federal laws governing the granting of such
security interests, provided, however, that the price of the
Defeasance Collateral shall not exceed all sums that would otherwise
be due in connection with a prepayment of the principal balance of
this Note under the first paragraph of this Article D; Borrower shall
authorize and direct that the payments received from the U.S.
Obligations shall be made directly to Lender or Lender's designee and
applied to satisfy the Obligations of Borrower under this Note;
(c) evidence reasonably satisfactory to Lender that title to the
Release Property has been transferred to an entity other than
Borrower;
(d) Lender shall have received an opinion of Borrower's counsel,
dated as of the Release Date, in form reasonably satisfactory to
Lender stating, among other things, that (A) the Defeasance Collateral
and the U.S. Obligations have been duly and validly assigned and
delivered to Lender and Lender has a valid, perfected, first priority
lien and security interest in the Defeasance Collateral delivered by
Borrower, (B) the Defeasance Collateral has been validly assigned to
the REMIC, (C) the Defeasance has been effected in accordance with the
requirements of Treasury Regulation 1.860(g)-2(a)(8) (as such
regulation may be amended or substituted from time to time) and will
not be treated as an exchange pursuant to Section 1001 of the Code and
(D) the tax qualification and status of the REMIC will not be
adversely affected or impaired as a result of the Defeasance;
(e) a certificate by Borrower's independent public accountant
certifying that all of the requirements set forth in Clause I and II
above and this Clause III have been fully satisfied;
(f) such other certificates, documents or instruments as Lender
may reasonably require; and
(g) Notwithstanding the foregoing, no such Release shall be
made, given or be deemed effective under this Article D until the
first day after expiration of the period during which the delivery to
Lender of the Defeasance Collateral in connection therewith is subject
to avoidance and recovery as a preferential transfer under 11 U.S.C. '
547 in the event of a bankruptcy of the delivering person or entity
without such avoidance and recovery (which day shall be identified in
writing by Borrower at any time that Borrower delivers the Defeasance
Collateral to Lender), unless Lender receives, at the time of such
delivery, an opinion of counsel to the effect that such delivery of
the Defeasance Collateral would not be avoided and recovered as a
preferential transfer under 11 U.S.C. '547 in the event of the filing
of a bankruptcy petition in respect of the conveying or delivering
person or entity.
Upon compliance with the foregoing requirements relating to the
delivery of the Defeasance Collateral, the Property shall be released from the
lien of the Security Instrument and the Other Security Documents and the
Defeasance Collateral shall constitute collateral which shall secure this Note
and the Debt. Lender will, at Borrower's expenses, execute and deliver any
agreements reasonably requested by Borrower to release the lien of the Security
Instrument from the Property. Upon the release by the Lender in accordance with
this Article D, Borrower shall have no further right to prepay this Note
pursuant to the other provisions of this Article D or otherwise.
E. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default or upon the failure of Borrower to pay the Debt in full on the Maturity
Date, Lender shall be entitled to receive and Borrower shall pay interest
("Default Interest") on the entire unpaid principal sum at the rate of (i) the
greater of (a) two percent (2%) over the Prime Rate (hereinafter defined), as
such Prime Rate shall change from time to time or (b) five percent (5%) over the
Applicable Interest Rate then in effect or (ii) the maximum rate of interest
which Borrower may by law pay, whichever is lower, to be computed from the
occurrence of the Event of Default until the actual receipt and collection of
the Debt (the "Default Interest Rate"). This charge shall be added to the Debt,
and shall be deemed secured by the Security Instrument. This clause, however,
shall not be construed as an agreement or privilege to extend the date of the
payment of the Debt, nor as a waiver of any other right or remedy accruing to
Lender by reason of the occurrence of any Event of Default. The term "Prime
Rate" as used in this Note shall mean the daily "prime rate" published in The
Wall Street Journal from the date of the Event of Default, as such "prime rate"
shall change from time to time. In the event The Wall Street Journal ceases to
publish the "prime rate" then Lender shall select an equivalent publication
which publishes such "prime rate"; and in the event such prime rates are no
longer generally published or are limited, regulated or administered by a
governmental or quasi-governmental body, then Lender shall select a comparable
interest rate index.
F. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean the
Deed of Trust and Security Agreement dated as of the date hereof in the
principal sum of $4,000,000.00 given by Borrower to Lender encumbering the fee
estate of Borrower in certain premises located in Travis County, State of Texas
and other property, as more particularly described therein and intended to be
duly recorded in said County. The term "Other Security Documents" as used in
this Note shall mean all and any of the documents other than this Note or the
Security Instrument now or hereafter executed by Borrower and/or others and by
or in favor of Lender, which wholly or partially secure or guarantee payment of
this Note. Whenever used, the singular number shall include the plural, the
plural the singular, and the words "Lender" and "Borrower" shall include their
respective successors, assigns, heirs, executors and administrators.
G. SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate shall be deemed to be immediately
reduced to such maximum rate and all previous payments in excess of the maximum
rate shall be deemed to have been payments in reduction of principal and not on
account of the interest due hereunder.
H. LATE CHARGE
If any sum payable under this Note is not received by Lender within
five (5) days of the date on which it is due, without taking into account or
including within said five (5) day period any applicable notice or grace period,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law to defray the expenses incurred by Lender in handling and processing such
delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment and such amount shall be secured by the Security Instrument
and the Other Security Documents. Nothing contained herein is intended to
affect the rights of Lender in and to any Default Interest due to Lender
pursuant to the provisions of paragraph E hereof entitled "Default Interest".
I. MISCELLANEOUS
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
If Borrower consists of more than one person or party, the obligations
and liabilities of each such person or party shall be joint and several. The
foregoing sentence, however, is not intended to affect the limited liability of
any limited partner or stockholder of Borrower afforded by applicable
partnership or corporate law.
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment. No
release of any security for the Debt or extension of time for payment of this
Note or any installment hereof, and no alteration, amendment or waiver of any
provision of this Note, the Security Instrument or the Other Security Documents
made by agreement between Lender and any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower, and any other who may become liable for the payment of
all or any part of the Debt, under this Note, the Security Instrument or the
Other Security Documents.
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
This Note shall be governed and construed in accordance with the laws
of the State of New York and the applicable laws of the United States of
America.
J. EXCULPATION
Lender shall not enforce the liability and obligation of Borrower to
perform and observe the obligations contained in this Note or the Security
Instrument by any action or proceeding wherein a money judgment shall be sought
against Borrower or any general or limited partner or member of Borrower
(hereinafter collectively referred to as the "Exculpated Parties"), except that
Lender may bring a foreclosure action, action for specific performance or other
appropriate action or proceeding to enable Lender to enforce and realize upon
this Note, the Security Instrument, the Other Security Documents, and the
interest in the Property, the Rents (as defined in the Security Instrument) and
any other collateral given to Lender created by this Note, the Security
Instrument and the Other Security Documents; provided, however, that any
judgment in any such action or proceeding shall be enforceable against the
Exculpated Parties only to the extent of Borrower's interest in the Property, in
the Rents and in any other collateral given to Lender. Lender, by accepting
this Note and the Security Instrument, agrees that it shall not sue for, seek or
demand any deficiency judgment against the Exculpated Parties in any such action
or proceeding, under or by reason of or under or in connection with the Security
Instrument, the Other Security Documents or this Note. The provisions of this
paragraph shall not, however, (i) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Security Instrument, the Other
Security Documents or this Note; (ii) impair the right of Lender to name
Borrower as a party defendant in any action or suit for judicial foreclosure and
sale under the Security Instrument; (iii) affect the validity or enforceability
of any guaranty made in connection with the Security Instrument, this Note, or
the Other Security Documents; (iv) impair the right of Lender to obtain the
appointment of a receiver upon the occurrence and continuance of an Event of
Default; (v) impair the enforcement of the Assignment of Leases and Rents dated
the date hereof given by Borrower to Lender executed in connection herewith;
(vi) impair the right of Lender to bring suit with respect to fraud or
intentional misrepresentation by Borrower, the Exculpated Parties or any other
person or entity in connection with the Security Instrument, this Note or the
Other Security Documents; (vii) impair the right of Lender to obtain the Rents
received by any of the Exculpated Parties after the occurrence and continuance
of an Event of Default; (viii) impair the right of Lender to bring suit with
respect to the Exculpated Parties' misappropriation of tenant security deposits
or Rents collected in advance; (ix) impair the right of Lender to obtain
insurance proceeds or condemnation awards due to Lender under the Security
Instrument; (x) impair the right of Lender to enforce the provisions of sub-
paragraphs 36(g) through 36(k), inclusive and paragraphs 34 and 35 of the
Security Instrument against the Borrower (excluding the general and limited
partners or members of Borrower); or (xi) impair the right of Lender to recover
any part of the Debt from the Borrower (excluding the general and limited
partners or members of Borrower) following the breach of any covenant contained
in paragraphs 9 or 55 of the Security Instrument.
K - TEXAS PROVISIONS
In the event of any inconsistencies between this paragraph K and any
other provisions of this Note, the terms and conditions of this paragraph K
shall control and be binding.
The following language is hereby added to the end of the second
paragraph of Article B hereof:
", unless such calculation would result in a usurious rate,
in which case interest shall be calculated on the per annum
basis of a year of 365 or 366 days, as the case may be."
The first paragraph of Article B hereof is hereby deleted and the
following substituted therefor:
The term "Applicable Interest Rate" as used in this
Note shall mean a rate equal to the lesser of 7.04% per
annum or the Highest Lawful Rate (hereinafter defined). The
term "Highest Lawful Rate" as used herein shall mean, with
respect to the Lender, the maximum nonusurious interest
rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the
Debt (hereinafter defined) under laws applicable to the
Lender that are presently in effect or, to the extent
allowed by law, under such applicable laws that may
hereafter be in effect and that allow a higher maximum
nonusurious interest rate than applicable laws now allow.
The phrase "maximum interest rate which Borrower is permitted by
applicable law to contract or agree to pay" is hereby deleted wherever such
phrase appears herein and the phrase "Highest Lawful Rate" substituted therefor.
Article G entitled "Savings Clause" is hereby deleted in its entirety.
The following language is hereby added to the first sentence of the
third paragraph of Article I hereof after the words "notice of dishonor...":
", notice of intention to accelerate, notice of
acceleration,"
The following language is hereby added to the end hereof immediately
preceding the words "IN WITNESS WHEREOF":
It is the intention of the parties hereto to
conform strictly to applicable usury laws. Accordingly, if
the transactions contemplated hereby would be usurious under
any such applicable law, then, and in that event,
notwithstanding anything to the contrary in this Note, or in
any other instrument or agreement entered into in connection
with or as security for this Note, it is agreed as follows:
(i) the aggregate of all consideration that constitutes
interest under any such applicable law and that is
contracted for, charged or received under this Note, or
under any of the aforesaid instruments or agreements or
otherwise in connection with this Note (whether
designated as interest, fees, late charges, payments or
otherwise) shall under no circumstances exceed the
maximum amount of interest permitted by any such
applicable law and any excess shall be cancelled
automatically and, if theretofore paid, shall be
credited on this Note by Lender (or, if this Note has
been paid in full, refunded to Borrower); and
(ii) in the event that the maturity of this Note is
accelerated by reason of an Event of Default under this
Note, or otherwise, then such consideration that
constitutes interest may never include more than the
maximum amount permitted by any such applicable law,
and excess interest, if any, provided for in this Note,
or otherwise, shall be canceled automatically as of the
date of such acceleration or prepayment, and, if
theretofore paid, shall be credited on this Note (or,
if this Note has been paid in full, refunded to
Borrower).
All sums paid or agreed to be paid to Lender for the use,
forbearance or detention of the indebtedness evidenced
hereby shall, to the extent permitted by applicable law, be
amortized, prorated, allocated and spread throughout the
full term of such indebtedness until payment in full so that
the rate or amount of interest on account of any such
indebtedness does not exceed the applicable usury ceiling.
To the extent that Texas law is applicable, applicable
interest rate ceiling under Texas law shall be the Ainterest
rate ceiling@ from time to time in effect under Chapter 1D
of the Texas Credit Title, Revised Civil Statutes of Texas
1925, as amended, substituted for or restated.
THIS NOTE, AND THE OTHER SECURITY DOCUMENTS EMBODY THE ENTIRE
AGREEMENT AND UNDERSTANDING BETWEEN LENDER, BORROWER AND THE OTHER RESPECTIVE
PARTIES HERETO AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS
BETWEEN SUCH PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
IN WITNESS WHEREOF, Borrower has duly executed this Note under seal as
of the day and year first above written.
[BORROWER]
CENTURY STONEY GREENS, L.P.,
a California limited partnership
By: CENTURY STONEY GREENS, INC.,
a California corporation, its general partner
By: /s/ William H. Jarrard
Name: William H. Jarrard
Title: President
This instrument prepared by:
Louis J. Najmy, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
