<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission file number 0-14177
MRI Business Properties Fund, Ltd. II
(Exact name of Registrant as specified in its charter)
California 94-2935565
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5665 Northside Drive N.W., Ste. 370, Atlanta, Georgia 30328
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (404) 916-9090
N/A
Former name, former address and fiscal year, if changed since last report.
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes_____ No_____
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date __________________.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited) (Audited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 7,974,000 $ 9,346,000
Restricted cash 759,000 1,921,000
Accounts receivable and other assets 4,119,000 4,835,000
Real Estate:
Real estate 135,434,000 132,781,000
Accumulated depreciation (54,641,000) (53,454,000)
Allowance for impairment of value (10,948,000) (10,948,000)
------------- -------------
Real estate, net 69,845,000 68,379,000
------------- -------------
Intangible assets 1,171,000 1,187,000
------------- -------------
Total assets $ 83,868,000 $ 85,668,000
============= =============
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 2,978,000 $ 4,039,000
Due to an affiliate of the joint venture partner 69,000 91,000
Due to unconsolidated joint venture 422,000 338,000
Notes payable 56,196,000 56,814,000
------------- -------------
Total liabilities 59,665,000 61,282,000
------------- -------------
Minority interest in joint venture 2,731,000 2,630,000
------------- -------------
Partners' Equity:
General partners (deficit) (2,882,000) (2,876,000)
Limited partners' equity (91,083 assignee units
outstanding at December 31, 1994 and September
30, 1994) 24,354,000 24,632,000
------------- -------------
Total partners' equity 21,472,000 21,756,000
------------- -------------
Total liabilities and partners' equity $ 83,868,000 $ 85,668,000
============= =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, December 31,
1994 1993
<S> <C> <C>
Revenues:
Room revenue $ 8,661,000 $ 8,024,000
Food and beverage revenue 4,907,000 4,772,000
Other operating revenues 790,000 668,000
Interest 177,000 69,000
------------- -------------
Total revenues 14,535,000 13,533,000
------------- -------------
Expenses:
Room expenses 2,044,000 1,819,000
Food and beverage expenses 3,780,000 3,594,000
Other operating expenses 5,467,000 5,407,000
Interest 2,019,000 1,430,000
Depreciation and other amortization 1,202,000 1,268,000
Equity in unconsolidated joint venture's
operations 84,000 107,000
General and administrative 122,000 105,000
------------- -------------
Total expenses 14,718,000 13,730,000
------------- -------------
(Loss) before minority interest in joint venture's
operations (183,000) (197,000)
Minority interest in joint venture's operations (101,000) (21,000)
------------- -------------
Net (loss) $ (284,000) $ (218,000)
============= =============
Net (loss) per limited partnership assignee unit $ (3) $ (2)
============= =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Consolidated Statement of Partners' Equity (Deficit) (Unaudited)
For the Three Months Ended December 31, 1994
<TABLE>
<CAPTION>
General Limited Total
Partners' Partners' Partners'
(Deficit) Equity Equity
<S> <C> <C> <C>
Balance - October 1, 1994 $ (2,876,000) $ 24,632,000 $ 21,756,000
Net (loss) (6,000) (278,000) (284,000)
------------- ------------- -------------
Balance - December 31, 1994 $ (2,882,000) $ 24,354,000 $ 21,472,000
============= ============= =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, December 31,
1994 1993
<S> <C> <C>
Operating Activities:
Net (loss) $ (284,000) $ (218,000)
Adjustments to reconcile net (loss) to net
cash provided by operating activities:
Depreciation and amortization 1,331,000 1,337,000
Mortgage costs (211,000) (122,000)
Minority interest in joint venture's operations 101,000 21,000
Equity in unconsolidated joint venture's
operations 84,000 107,000
Changes in operating assets and liabilities:
Accounts receivable and other assets 866,000 222,000
Accounts payable, other liabilities and due to
an affiliate of the joint venture partner (1,082,000) (254,000)
------------- -------------
Net cash provided by operating activities 805,000 1,093,000
------------- -------------
Investing Activities:
Properties and improvements additions (2,653,000) (413,000)
Settlement proceeds - 102,000
Proceeds from cash investments - 3,166,000
Purchase of cash investments - (3,945,000)
Restricted cash 1,162,000 (110,000)
Unconsolidated joint venture contributions - (150,000)
------------- -------------
Net cash (used in) investing activities (1,491,000) (1,350,000)
------------- -------------
Financing Activities:
Satisfaction of mortgages payable (19,874,000) -
Proceeds from mortgage refinancing 19,400,000 -
Notes payable principal payments (212,000) (222,000)
------------- -------------
Net cash (used in) financing activities (686,000) (222,000)
------------- -------------
Increase (Decrease) in Cash and Cash
Equivalents (1,372,000) (479,000)
Cash and Cash Equivalents at Beginning of Period 9,346,000 4,063,000
------------- -------------
Cash and Cash Equivalents at End of Period $ 7,974,000 $ 3,584,000
============= =============
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the period $ 1,906,000 $ 1,246,000
============= =============
Supplemental Disclosure of Non-Cash Investing and
Financing Activities:
Equipment financed $ - $ 329,000
============= =============
</TABLE>
See notes to consolidated financial statements.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements, footnotes and discussions
should be read in conjunction with the consolidated financial statements,
related footnotes and discussions contained in the Partnership's Annual Report
for the year ended September 30, 1994. Certain accounts have been reclassified
in order to conform to the current period.
The financial information contained herein is unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such financial
information have been included. All adjustments are of a normal recurring
nature, except for the mortgage refinancing, as described in Note 3.
The results of operations for the three months ended December 31, 1994 and 1993
are not necessarily indicative of the results to be expected for the full year.
2. Transactions with Related Parties
Affiliates of the Managing General Partner received reimbursements of
administrative expenses amounting to $28,000 during the three months ended
December 31, 1994. These reimbursements are primarily included in general and
administrative expenses.
3. Notes Payable
The Partnership's $650,000 renovation loan from Marriott on the Partnership's
Somerset Marriott Hotel matured in January 1994. The Partnership has not repaid
the loan and is negotiating with the lender to extend the loan. Although
management is confident that this loan can be extended, if the Partnership is
unable to extend the loan, the Partnership would have sufficient working capital
reserves to satisfy the loan.
On December 21, 1994, the Partnership satisfied the renovation loan from
Marriott on the Partnership's Marriott Riverwalk Hotel in the amount of
$1,487,000 plus accrued interest of approximately $126,000. The loan was due to
mature December 31, 1994.
The mortgages encumbering the Marriott Riverwalk Hotel were refinanced and
consolidated on December 23, 1994 in the principal amount of $19,400,000. The
loan requires monthly payments of approximately $185,000, bears interest at
9.85% and is being amortized over a twenty year period. The mortgage matures on
January 1, 2002 at which time a balloon payment of approximately $16,319,000
will be due. A premium (prepayment penalty) is to be calculated under the terms
of the mortgage if the loan is prepaid. The Partnership incurred closing costs
and fees of approximately $194,000 during the year ended September 30, 1994 and
$211,000 during the quarter ended December 31, 1994, in connection with this
refinancing. The Partnership also paid a $640,000 prepayment penalty which is
included in interest expense.
Pursuant to a revised management agreement between the Partnership and Marriott
Hotel Services, Inc., the Partnership has increased its replacement reserve
escrow (from 5% of gross revenues) to 10% of gross revenues in 1995 and 1996, 9%
of gross revenues in 1997, 7% of gross revenues in 1998 and 5% thereafter to be
used for renovation costs.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in Unconsolidated Joint Venture
The following are the condensed balance sheets as of December 31, 1994 and
September 30, 1994 and condensed statements of operations for the three months
ended December 31, 1994 and 1993 of the unconsolidated joint venture:
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994 1994
(Unaudited) (Audited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 691,000 $ 561,000
Restricted cash 258,000 564,000
Accounts receivable and other assets 1,386,000 1,323,000
Real Estate:
Real estate 62,970,000 62,898,000
Accumulated depreciation (16,735,000) (16,335,000)
Allowance for impairment of value (11,962,000) (11,962,000)
------------- -------------
Real estate, net 34,273,000 34,601,000
------------- -------------
Total assets $ 36,608,000 $ 37,049,000
============= =============
Liabilities and Partners' Deficiency
Accounts payable and other liabilities $ 2,436,000 $ 2,320,000
Due to affiliates 1,872,000 2,095,000
Note payable 34,000,000 34,000,000
------------- -------------
Total liabilities 38,308,000 38,415,000
------------- -------------
Minority interest in joint venture (856,000) (689,000)
------------- -------------
Partners' Deficiency:
MRI BPF, LTD. II (422,000) (338,000)
MRI BPF, LTD. III (422,000) (339,000)
------------- -------------
Total partners' deficiency (844,000) (677,000)
------------- -------------
Total liabilities and partners'
deficiency $ 36,608,000 $ 37,049,000
============= =============
</TABLE>
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Investment in Unconsolidated Joint Venture (Continued)
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, December 31,
1994 1993
<S> <C> <C>
Revenues $ 4,871,000 $ 5,128,000
Expenses 5,205,000 5,549,000
------------- -------------
Loss before minority interest in joint
venture operations (334,000) (421,000)
Minority interest in joint venture
operations 167,000 208,000
------------- -------------
Net loss $ (167,000) $ (213,000)
============= =============
Allocation of net loss:
MRI BPF, Ltd. II $ (84,000) $ (107,000)
MRI BPF, Ltd. III (83,000) (106,000)
------------- -------------
Net loss $ (167,000) $ (213,000)
============= =============
</TABLE>
The three months ended December 31, 1993 contained fourteen weeks.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
This item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Liquidity and Capital Resources
All of Registrant's properties are hotels, including Registrant's interest in
the unconsolidated joint venture. Registrant receives hotel operating revenues
and is responsible for operating expenses, administrative expenses, capital
improvements and debt service payments. Registrant uses working capital reserves
provided from any undistributed cash flow from operations as its primary source
of liquidity. During the three months ended December 31, 1994, the Radisson
South generated positive cash flow while the Marriott Riverwalk and the Somerset
Marriott Hotel generated negative cash flow. The Holiday Inn Crowne Plaza,
owned by the unconsolidated joint venture, experienced positive cash flow during
such period. In total, Registrant experienced negative cash flow for the three
months ended December 31, 1994. The Radisson South spent $407,000 of cash
during the three months ended December 31, 1994 for guest room and other
renovations. Management anticipates spending an additional $2,600,000 for room
renovations at the Radisson South. Although not budgeted for fiscal year 1995,
Registrant's Radisson South Hotel property may expend approximately $2,000,000
to $3,000,000 over the ensuing years performing various asbestos abatement
programs. Guest room renovations continue at the Holiday Inn Crowne Plaza. To
date, $72,000 has been spent and management anticipates spending an additional
$900,000 to complete the renovations. The Marriott Riverwalk spent $1,692,000
and the Somerset Marriott spent $550,000 in guest room renovations. An
additional $1,300,000 in guest room and other renovations are anticipated at the
Marriott Riverwalk. All renovations will be funded by working capital and
replacement reserves (restricted cash). To preserve working capital reserves,
required for these renovations and provide resources for debt restructuring,
cash distributions remained suspended during the first three months of fiscal
year 1995. Cash distributions will be evaluated in the near future.
The level of liquidity based upon cash and cash equivalents experienced a
$1,372,000 decrease at December 31, 1994, as compared to September 30, 1994.
Registrant's $805,000 of cash from operating activities was offset by $1,491,000
of investing activities and $686,000 of financing activities. Investing
activities consisted of properties and improvements additions of $2,653,000 and
a decrease in restricted cash of $1,162,000. The decrease in restricted cash is
primarily the result of the lender releasing $823,000 of restricted cash
relating to completed renovations on Registrant's Marriott Somerset property.
Financing activities consisted of $19,874,000 of mortgage principal repayments
and $212,000 of notes payable principal payments, which was partially offset by
$19,400,000 of proceeds from the mortgage refinancing. Proceeds (before
mortgage costs) of $374,000 were received from refinancing the mortgage
encumbering Registrant's Riverwalk property. These proceeds are net of
approximately $640,000 in prepayment penalty paid on the former mortgage.
Mortgage costs of $211,000 paid during the three months ended December 31, 1994
and $194,000 paid in the prior year (operating activities) were incurred in
connection with the refinancing. The new mortgage encumbering Registrant's
Riverwalk property, requires monthly payments of $185,000 at 9.85% and is being
amortized over a
9 of 15
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Liquidity and Capital Resources (Continued)
twenty year period. The mortgage matures on January 1, 2002 at which time a
balloon of approximately $16,319,000 will be due. The former first mortgage
accrued interest at 10.25% and was scheduled to mature on January 1, 2010. The
former note also required an additional interest payment on specified levels of
hotel gross operating income. Additional interest of $308,000 was paid for the
fiscal year ended September 30, 1994. The second former mortgage accrued
interest at 8.25% and was scheduled to mature on January 1, 2010. All other
increases (decreases) in certain assets and liabilities are the result of the
timing of receipt and payment of various operating activities.
During the first quarter of fiscal 1995, DeForest Ventures I L.P. acquired
26,266 limited partnership units or 28.8% of total limited partnership units of
Registrant. The purchase is not expected to have an impact on the operations or
liquidity of Registrant.
Working capital reserves are primarily invested in money market accounts. The
Managing General Partner believes that, if market conditions remain relatively
stable, cash flow from operations, when combined with working capital reserves,
will be sufficient to fund essential capital improvements and debt service
payments in 1995 and the foreseeable future. A $650,000 renovation loan from
Marriott on Registrant's Somerset Marriott Hotel matured in January 1994.
Registrant has not repaid the loan and is negotiating with the lender to extend
the loan. If Registrant is unable to extend the loan, Registrant would have
sufficient working capital reserves to satisfy the loan. On December 21, 1994,
Registrant satisfied the renovation loan from Marriott on Registrant's Marriott
Riverwalk Hotel in the amount of $1,437,000. The loan was due to mature
December 31, 1994. Registrant has balloon payments of $14,278,000 due in
December 1995 on the mortgages encumbering the Radisson South Hotel. Although
management is confident that these mortgages can be replaced, there is no
assurance that this will be accomplished, in which case, Registrant will be
required to sell the property or risk losing its entire investment in the
property. If the Radisson South is lost through foreclosure, Registrant would
incur a loss of approximately $6,200,000. The mortgage encumbering the Holiday
Inn Crowne Plaza, matures in July 1995. The mortgage agreement provides an
option to extend the maturity date to June 1999. The new interest rate on the
loan if extended will be approximately 12%. The Managing General Partner
believes that each of the mortgages will be refinanced in an orderly fashion.
At this time, it appears that the investment objective of capital growth will
not be attained and that investors will not receive a return of all of their
invested capital. The extent to which invested capital is returned to investors
is dependent upon the performance of Registrant's properties and the markets in
which such properties are located and on the sales price of the remaining
properties. The ability to hold and operate these properties is dependent on
Registrant's ability to obtain refinancing or debt modification as required.
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Real Estate Market
The income and expenses of operating the properties owned by Registrant are
subject to factors outside of Registrant's control, such as over-supply of
similar properties resulting from over-building, increases in unemployment or
population shifts or changes in patterns or needs of users. Expenses, such as
local real estate taxes and miscellaneous expenses, are subject to change and
cannot always be reflected in room rate increases due to market conditions. In
addition, there are risks inherent in owning and operating lodging facilities
because such properties are management and labor intensive and especially
susceptible to the impact of economic and other conditions outside the control
of Registrant. There have been, and it is possible there may be other Federal,
state and local legislation and regulations enacted relating to the protection
of the environment. Registrant is unable to predict the extent, if any, to
which such new legislation or regulations might occur and the degree to which
such existing or new legislation or regulations might adversely affect the
properties owned by Registrant.
Results of Operations
Three Months Ended December 31, 1994 vs. December 31, 1993
Operating results, prior to the minority interest in joint venture's operations,
improved by $14,000 for the three months ended December 31, 1994, as compared to
1993. The increase in revenues of $1,002,000 was partially offset by an
increase in expenses of $988,000.
Revenues increased by $1,002,000 due to increases in room revenues of $637,000,
food and beverage revenues of $135,000, other operating income of $122,000 and
interest income of $108,000. The increase in room revenue was attributable to
increases in both occupancy and rates at Registrant's Radisson South Hotel and
Somerset Marriott which was only partially offset by a decrease in occupancy and
rates at the Marriott Riverwalk. Food and beverage revenue increased due to an
increase of $167,000 at Registrant's Radisson South Hotel, which was partially
offset by decreases at Registrant's Marriott Riverwalk and Somerset Hotels.
Other operating revenues increased primarily due to increases in telephone and
miscellaneous income at all of Registrant's hotels. Interest income increased
primarily due to an increase in average working capital reserves available for
investment.
Expenses increased by $988,000 for the three months ended December 31, 1994, as
compared to 1993, due to increases in room expenses of $225,000, food and
beverage expenses of $186,000, other operating expenses of $60,000, interest
expense of $589,000, and general and administrative expenses of $17,000, which
were only partially offset by decreases in depreciation and amortization expense
of $66,000 and equity in unconsolidated joint venture's operations of $23,000.
The increase in room expenses is attributable to the increase in occupancy at
Registrant's Radisson South and Somerset Hotels. Food and beverage expenses
increased at Registrant's Radisson South hotel. Other operating expenses
increased at Registrant's Radisson South Hotel, which was partially offset by
decreases in other operating expenses at Registrant's Marriott Riverwalk and
Somerset Marriott Hotels. Interest expense increased at Registrant's Marriott
Riverwalk Hotel due to a prepayment penalty of $640,000
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Results of Operations (Continued)
on the former mortgage. General and administrative expenses increased primarily
due to increased asset management costs and an increase in reimbursed expenses.
Depreciation and amortization expense decreased due to a portion of Registrant's
assets becoming fully depreciated in the prior year.
Unconsolidated Joint Venture Operations
(MRI BPF Combined Fund No. 1)
Three Months Ended December 31, 1994 vs. December 31, 1993
Operating results, remained relatively constant, during the thirteen week
comparative period, due to increased occupancy and room rates which were offset
by increased expenses.
Properties
A description of the hotel properties in which Registrant has an ownership
interest during the period covered by this Report, together with occupancy and
room rate data, follows:
MRI BUSINESS PROPERTIES FUND, LTD. II
OCCUPANCY AND ROOM RATE SUMMARY
<TABLE>
<CAPTION>
Average Average
Occupancy Daily Room
Rate (%) Rate ($)
------------ --------------
Three months Three months
Date Ended Ended
of December 31, December 31,
Name and Location Rooms Purchase 1994 1993 1994 1993
- - - --------------------------- ----- -------- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Radisson South Hotel
Bloomington, Minnesota 575 11/84 67 60 75.76 71.93
Marriott Riverwalk Hotel
San Antonio, Texas 500 11/84 72 76 114.80 115.92
Somerset Marriott Hotel
Somerset County, New Jersey 434 09/85 67 60 86.28 85.21
Holiday Inn Crowne Plaza
Atlanta, Georgia (1) 492 03/86 71 68 89.20 87.53
</TABLE>
(1) Registrant and an affiliated partnership, MRI Business Properties Fund, Ltd.
III, own a joint venture which has a 50 percent interest in this property.
12 of 15
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 Promissory Note dated December 21, 1994 by MRI Business Properties
Fund, Ltd. II (the "Partnership") in favor of Connecticut General
Life Insurance Company ("CIGNA") in the principal amount of
$19,400,000.
10.2 Deed of Trust, Security Agreement and Financing Statement, dated as
of December 21, 1994, by the Partnership and John B. Stewart,
trustee, for the benefit of CIGNA.
(b) Reports on Form 8-K:
On October 12, 1994, a Current Report on Form 8-K was filed with the
Securities and Exchange Commission to provide for the sale by National
Property Investors, Inc. ("NPI"), the parent of NPI Equity Investments
II, Inc., of one-third of its stock to an affiliate of Apollo Real Estate
Advisors, L.P. ("Apollo"). In addition, the 8-K disclosed the acquisition
by affiliates of Apollo and NPI of (I) the stock in the general partners
of DeForest Ventures I L.P. ("DeForest") and DeForest Ventures II L.P.
("DeForest II") and (ii) a limited partnership interest in DeForest and
DeForest II.
13 of 15
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MRI BUSINESS PROPERTIES FUND, LTD. II
By: MONTGOMERY REALTY COMPANY 84,
A California General Partnership,
its managing general partner
By: FOX REALTY INVESTORS,
A California General Partnership,
its managing general partner
By: NPI Equity Investments II, Inc.,
A Florida Corporation,
its managing partner
/s/ ARTHUR N. QUELER
ARTHUR N. QUELER
Executive Vice President, Treasurer, Secretary
and Director (Principal Financial and Accounting
Officer)
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1994
EXHIBIT INDEX
Exhibits Page No.
- - - -------- --------
10.1 Promissory Note dated December 21, 1994 by MRI 20
Business Properties Fund, Ltd. II (the "Partnership")
in favor of Connecticut General Life Insurance
Company ("CIGNA") in the principal amount of
$19,400,000.
10.2 Deed of Trust, Security Agreement and Financing 33
Statement, dated as of December 21, 1994, by the
Partnership and John B. Stewart, trustee, for the
benefit of CIGNA.
15 of 15
PROMISSORY NOTE
$19,400,000.00 December _____, 1994
FOR VALUE RECEIVED, the undersigned MRI BUSINESS PROPERTIES
FUND, LTD. II, a California limited partnership (herein called
"Maker"), hereby promises to pay to the order of CONNECTICUT
GENERAL LIFE INSURANCE COMPANY (herein together with all subsequent
holders hereof called "Holder") at its offices in Hartford,
Connecticut, or at such other address as the Holder hereof may from
time to time designate in writing to Maker, the principal sum of
$19,400,000.00, together with interest at the rate hereinafter
provided on the principal balance from time to time remaining
unpaid, commencing December _____, 1994 (the "day of funding").
I. Maturity Date:
As used herein, the "Maturity Date" for this Note shall be the
first to occur of acceleration in accordance with the terms of this
Note, or January 1, 2002.
II. Interest Rate:
Prior to the Maturity Date, interest on the outstanding
principal balance of this Note shall accrue at the rate of nine and
eighty-five hundredths percent (9.85%) per annum and shall be
calculated on the unpaid principal to the date of each installment
paid at a daily rate equal to 1/360th of the annual percentage rate
provided for herein, based upon a 360-day year comprised of twelve
thirty-day months, except that interest accruing prior to January
1, 1995 will be calculated on the basis of a 365-day year.
III. Payment of Principal and Interest:
This Note shall be due and payable as follows, to-wit:
On the day of funding, interest only will be payable in an
amount equal to the product of $5,235.34 multiplied by the number
of days from and including the day of funding of this Note through
and including December 31, 1994. Thereafter, principal and
interest shall be due and payable in equal monthly installments of
$185,290.29, commencing on February 1, 1995, and continuing
regularly and monthly thereafter on the first day of each suc-
ceeding calendar month until the Maturity Date, when all accrued
and unpaid interest and all unpaid principal, which Maker
recognizes will be an amount in excess of the scheduled monthly
installments, shall be due and payable in full. IN ANY EVENT, ALL
UNPAID PRINCIPAL AND ALL ACCRUED AND UNPAID INTEREST SHALL BE DUE
AND PAYABLE IN FULL ON THE MATURITY DATE, WHETHER SUCH MATURITY
OCCURS BY ACCELERATION OR OTHERWISE.
All payments called for hereunder shall (a) be paid in lawful
money of the United States of America in federal or other
immediately collected funds, which, at the time of payment is legal
tender for the payment of public and private debts; (b) be payable
not later than 2:00 p.m. Eastern Standard Time on the date such
payments are due; (c) at the option of Holder, be applied first to
the payment of prepayment premiums, accrued but unpaid interest,
and costs and expenses, and then to principal, or in such other
manner and order which Holder shall determine in its sole
discretion, subject to the provisions regarding legal interest
limitations; and (d) be made to the Holder at the address stated
herein, or at such other address as the Holder may from time to
time designate in writing to Maker.
IV. Security:
This Note is secured by a Deed of Trust, Security Agreement
and Financing Statement of even date herewith (the "Deed of Trust")
executed by Maker to John B. Stewart, Trustee, for the use and
benefit of Holder, covering and constituting a first lien on the
real and personal property more fully described therein, including
Maker's leasehold interest in the real property described in
Exhibit "A" attached hereto and by this reference incorporated
herein (on which is located the 27 story, 502 room luxury hotel
known as the San Antonio Marriott Riverwalk Hotel), and is further
secured by, among other documents, an Absolute Assignment of Leases
and Rents of even date herewith (the "Assignment"). All of the
real and personal properties, rights and estates, including all
improvements now or hereafter located thereon, and all additions
thereto or proceeds thereof, which now or at any time hereafter
constitute security for the payment of this Note are herein
collectively sometimes referred to as the "Property". The Note,
Deed of Trust, Assignment and all other documents or instruments
securing the Note may be collectively referred to herein as the
"Security Documents."
V. Limitation On Interest:
This Note and all documents securing the same have been
executed under and shall be construed and enforced in accordance
with the laws of the State of Texas from time to time in effect,
except to the extent applicable United States federal law permits
Holder to contract for, charge or receive a greater amount of
interest. It is expressly stipulated and agreed to be the intent
of Maker and Holder to at all times comply strictly with the
applicable usury laws now or hereafter governing consideration
received under the Note, Security Documents or any other agreements
between the parties with respect to the Property. If the
applicable law is ever revised, repealed or judicially interpreted
so as to render usurious any consideration called for, contracted
for, charged, taken, reserved or received with respect to the Note,
the Security Documents, or any other agreement between the parties
with respect to the Property, or if any prepayment by Maker, or
Holder's exercise of the options herein contained to accelerate the
maturity of this Note, results in Maker having paid any interest in
excess of that permitted by applicable law, then notwithstanding
anything to the contrary in this Note, the Security Documents or
any other agreement, it is Maker's and Holder's express intent and
agreement that all excess amounts theretofore collected by Holder
be credited on the principal balance of this Note or any other
principal indebtedness of Maker to Holder (or, if this Note and all
other such indebtedness have been paid in full, refunded to Maker)
and the provisions of this Note, the Security Documents and any
other agreements, shall immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new documents, so as
to comply with the then applicable law, but so as to permit the
recovery of the greatest amount otherwise called for hereunder and
thereunder. The right to accelerate the maturity of this Note does
not include the right to accelerate any interest which has not
otherwise accrued on the date of such acceleration, and Holder does
not intend to collect any unearned interest in the event of
acceleration. All consideration paid to the Holder hereof in
consideration for the loan evidenced by this Note that constitutes
interest under applicable law shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread
throughout the full term of such indebtedness (including the period
of any renewal or extension hereof) so that the rate of interest on
account of such indebtedness does not exceed the usury ceiling from
time to time in effect and applicable to the loan evidenced by this
Note for so long as the debt is outstanding. The term "applicable
law" and similar terms used herein refer to the law in effect on
the date of the first disbursement under this Note; provided that
if the law is subsequently revised to permit more interest to be
charged on the loan evidenced by this Note, then Holder and Maker
agree that to the extent permitted by law, such revised law shall
be the "applicable law" as used herein. The provisions of this
paragraph shall control all agreements between the Maker and the
Holder hereof.
Maker represents and warrants to Holder and to all other
owners or holders of this Note, that the loan evidenced hereby is
for business, commercial, investment or other similar purposes, and
not primarily for personal, family, household or agricultural use,
as such terms are used in Chapter 1 of the Texas Credit Code. In
no event shall the provisions of Chapter 15, Article 5069 of the
Revised Civil Statutes of Texas (which regulates certain revolving
loan accounts and revolving tri-party accounts) apply to the loan
evidenced by this Note.
VI. Prepayment:
A. This Note is closed to prepayment until February 1, 1997
(the "Closed Period"), and except as hereinafter provided in this
Article VI, Maker shall have no right or privilege to prepay this
Note in whole or in part.
B. Maker will have the privilege of prepaying this Note in
full, but not in part, on any monthly installment payment date on
or after February 1, 1997, provided that:
(1) Holder shall have received at least sixty (60) days'
prior written notice of Maker's intention to make such
prepayment; and
(2) Such prepayment must be accompanied by a cash
prepayment premium (the "Prepayment Premium) equal to the
greater of (a) one percent (1%) of the unpaid principal
balance of this Note on the date of prepayment, or (b) the
Yield Maintenance (as hereinafter defined) on the date of
prepayment. The Prepayment Premium is not to be applied to
the principal or interest owed on the Note.
C. Notwithstanding the foregoing, Maker shall have a one-
time right to prepay a part of the principal balance of the Note on
any monthly installment payment date on or after February 1, 1997,
provided that:
(1) the amount of the principal prepayment is greater
than $5,000,000.00;
(2) Holder shall have received at least sixty (60) days
prior written notice of Maker's intention to make such
prepayment; and
(3) such prepayment must be accompanied by a cash
Prepayment Premium equal to the greater of (a) one percent
(1.0%) of the amount of principal prepaid, or (b) the Yield
Maintenance on the date of prepayment, calculated with respect
to the amount of principal prepaid.
In addition, Maker will have the privilege of prepaying this Note
in full without paying the Prepayment Premium, if and only if the
prepayment occurs on the first day of October, November or December
of the year 2001, and Holder shall have received at least sixty
(60) days prior written notice of Maker's intention to make such a
prepayment.
D. Except as hereinafter provided, the Prepayment Premium
shall be due and payable whether such prepayment is voluntary or
involuntary. Without limiting the foregoing, if there occurs an
Event of Default (as defined in Article VI) and Holder accelerates
the Maturity Date of this Note, then Maker shall owe and pay to
Holder immediately, and any payment of the principal balance must
be accompanied by, the Prepayment Premium described in Subparagraph
B(2) above, unless the acceleration occurs during the Closed
Period, in which event the Prepayment Premium shall equal the sum
of two percent (2.0%) of the unpaid principal balance of this Note
on the date of acceleration, plus the Yield Maintenance on the date
of acceleration.
E. Provided that there does not exist an Event of Default
under the terms of this Note or Security Documents, no Prepayment
Premium shall be payable to Holder if the prepayment results from
the application of insurance proceeds or condemnation proceeds in
accordance with the terms of the Security Documents.
F. Any partial reduction in the principal balance of this
Note from either (1) an involuntary prepayment caused by the
application of condemnation or casualty insurance proceeds in
accordance with the Security Documents, or (2) a voluntary partial
prepayment permitted under Subparagraph C above, or (3) a partial
prepayment otherwise permitted by Holder, will cause a pro rata
reduction in the amount of the regular monthly payments scheduled
under this Note, in the same proportion as the amount of principal
prepaid bears to $19,400,000.00, so as to maintain the same
interest rate payable under this Note. For example, if
$1,940,000.00 (i.e., ten percent) of the principal is so prepaid at
any time, then the monthly payments shall be reduced by ten percent
to $166,761.26.
G. Notwithstanding Subparagraphs A and B of this Article VI
to the contrary, if Maker consummates a bona fide, arms-length sale
of the Property to an unrelated third party in accordance with the
terms and conditions of Paragraph 11.17.2 of the Deed of Trust,
then simultaneously with such sale Maker shall pay this Note in
full, including all principal and accrued and unpaid interest and
any other sums due pursuant to this Note or any of the other
Security Documents, and with such payment Maker shall concurrently
pay to Holder a cash Prepayment Premium equal to three percent
(3.0%) of the principal amount so prepaid.
H. All prepayments of this Note shall be applied, at
Holder's option, first to the Prepayment Premium then to accrued
and unpaid interest, and then to the last maturing installments of
principal under this Note, and interest shall cease accruing on the
amount of principal so paid.
I. Definitions:
(1) The "Yield Maintenance" as of the "Applicable Date"
(defined herein to mean the date of prepayment or
acceleration, as applicable) shall mean the sum of the Present
Values (as hereinafter defined) as of the Applicable Date, of
the Monthly Interest Shortfalls (as hereinafter defined) for
the Remaining Term (as hereinafter defined) of this Note, dis-
counted at the Applicable Treasury Yield (as hereinafter
defined).
(2) The "Monthly Interest Shortfalls" are calculated for
each monthly payment date and as used herein shall mean the
product of (i) the positive difference, if any, of the Semi-
Annual Equivalent Rate (as hereinafter defined) less the
Applicable Treasury Yield (as hereinafter defined), multiplied
by (ii) one-twelfth (1/12th), multiplied by (iii) the
anticipated (assuming no prepayments) outstanding principal
balance of this Note on each monthly payment date for which
the calculation is made for each full and partial month in the
Remaining Term.
(3) The "Present Values" of the Monthly Interest
Shortfalls as used herein shall be determined by discounting
each such Monthly Interest Shortfall at the Applicable
Treasury Yield divided by twelve (12).
(4) The "Semi-Annual Equivalent Rate" as used herein
shall mean 10.220%.
(5) The "Applicable Treasury Yield" as used herein will
be determined by reference to the Federal Reserve Statistical
Release H.15 (519) of Selected Interest Rates (or any similar
successor publication of the Federal Reserve) for the first
week ending not less than two (2) full weeks prior to the
Applicable Date. If the Remaining Term is less than one year,
then the Applicable Treasury Yield will equal the yield for
one-year Treasury Constant Maturities. If the Remaining Term
is equal to one of the maturities of the Treasury Constant
Maturities (e.g., one-year, two-year, etc.), then the
Applicable Treasury Yield will equal the yield for the
Treasury Constant Maturity with a maturity equalling the
Remaining Term. If the Remaining Term is longer than one year
but does not equal one of the maturities of the Treasury
Constant Maturities, then the Applicable Treasury Yield will
equal the yield for the Treasury Constant Maturity closest to
but not exceeding the Remaining Term, and if there is no such
Treasury Constant Maturity, then the Applicable Treasury Yield
will equal the yield for one-year Treasury Constant
Maturities.
(6) The "Remaining Term", as used herein, as of the
Applicable Date shall mean the number of whole and partial
calendar months remaining between the Applicable Date and
January 1, 2002.
VII. Default:
It is hereby agreed that:
(i) If default shall be made in the payment of any part
of the principal or interest or Prepayment Premiums on this
Note when due, or in the payment of escrow amounts or any
other sums due under the Deed of Trust or any of the other
Security Documents, and such payment is not received by Holder
within five (5) business days after its due date; or
(ii) If default shall be made in the performance or
observance of any of the covenants or agreements contained in
this Note, the Deed of Trust or any of the other Security
Documents, other than a covenant to pay money, and such
default continues for thirty (30) days following written
notice thereof by or on behalf of Holder; provided, however,
if such default is curable but cannot be cured within such 30-
day period, no Event of Default shall be deemed to have
occurred if Maker immediately commences and thereafter
continuously and diligently proceeds to cure such default
within a reasonable period of time not to exceed 180 days
after the notice from Holder; or
(iii) Upon the occurrence of any other event (including
applicable grace periods, if any) whereby, according to the
terms of this Note, the Deed of Trust or any other Security
Document, an Event of Default has occurred or the required
time of payment of this Note may be accelerated;
then Maker shall be in default under this Note (an "Event of
Default") and in such event, without further notice or demand, the
entire unpaid principal balance of and accrued interest on this
Note, and all prepayment premiums, shall, at the option of the
Holder hereof, become immediately due and payable, and Holder may
foreclose all liens securing payment hereof, pursue any and all
other rights, remedies and recourses available to Holder, or pursue
any combination of the foregoing, all remedies hereunder and under
the Security Documents being cumulative. Failure by the Holder to
exercise any option upon one Event of Default shall not constitute
a waiver thereof or a waiver of the right to exercise such option
in the event of a subsequent Event of Default. The acceptance by
Holder of any payment hereunder that is less than payment in full
of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to exercise any of the
foregoing options at that time or at any subsequent time, or
nullify any prior exercise of any such option without the express
written consent of the Holder. If, after an Event of Default, this
Note is placed in the hands of an attorney for collection, or if
collected through judicial proceedings, Maker shall pay, in
addition to the sums referred to above, all costs incurred by
Holder in collection of the unpaid amounts due hereunder, including
a reasonable sum as collection or attorneys' fees, whether or not
any judicial action is instituted to enforce this Note.
VIII. Late Charge and Default Interest:
If Holder has not received the full amount of any monthly
installment due hereunder, or any payment of tax and insurance
deposits, replacement reserve deposits (if any), or any other
payment that may be required under this Note or under the Security
Documents (excluding the balance due on the Maturity Date), on or
before the date that such amount or payment is due, then Maker
shall pay, in addition to the amount due, a late charge (the "Late
Charge") equal to four percent (4.0%) of each dollar of principal,
interest, deposit or other amount not paid when due, for the
purpose of defraying the expense incident to handling such
delinquent payments, whether or not the Note is accelerated for
such delinquency. The Late Charge shall be due and payable
immediately whether or not demand is made for payment of same.
It is further agreed that from and after the Maturity Date,
whether maturity occurs by acceleration or lapse of time or
otherwise, any sums which shall not be paid when due, whether
principal, interest, Prepayment Premiums, costs, attorney's fees or
any money owing for advances by Holder pursuant to the Deed of
Trust or any other Security Documents, shall bear interest (the
"Default Interest") from the date due at a rate equal to the lesser
of the highest rate permitted by applicable law (taking into
account any Late Charge collected or charged by Holder), or
thirteen and eighty-five hundredths percent (13.85%) per annum.
Default Interest shall be due and payable upon demand, and if no
demand, then on the first (1st) day of each and every month after
the Maturity Date. During any time when the Default Interest is in
effect, Holder may, at its sole option, collect interest at a rate
that is less than the rate for Default Interest, however, any such
forbearance by Holder, or any demand by Holder for less than the
full amount of Default Interest, shall not constitute a waiver of
Holder's right to demand payment in full of the total Default
Interest both with respect to the period of forbearance or any
later period, and shall not constitute or imply any consent to a
reduction in the rate of the Default Interest.
The rights of Holder under this Article VIII shall in any
event be subject to the limitations set forth in Article V.
IX. Waivers:
Except as otherwise specifically set forth in this Note, each
Maker and all sureties, endorsers, guarantors and any other party
now or hereafter liable for the payment of this Note in whole or in
part, hereby severally (i) WAIVE DEMAND, NOTICE OF INTENT TO
DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT, PROTEST,
NOTICE OF PROTEST, GRACE, NOTICE OF DISHONOR, NOTICE OF INTENT TO
ACCELERATE MATURITY, NOTICE OF ACCELERATION OF MATURITY, AND ALL
OTHER NOTICES, FILING OF SUIT AND DILIGENCE IN COLLECTING THIS NOTE
OR ENFORCING ANY OF THE SECURITY HERETOFORE, (ii) AGREE TO ANY
SUBSTITUTION, SUBORDINATION, EXCHANGE OR RELEASE OF ANY OF SUCH
SECURITY OR THE RELEASE OF ANY PARTY PRIMARILY OR SECONDARILY
LIABLE HEREON, (iii) AGREE THAT THE HOLDER HEREOF SHALL NOT BE
REQUIRED FIRST TO INSTITUTE SUIT OR EXHAUST ITS REMEDIES HEREON
AGAINST THE MAKER, OR ANY ONE OF THEM, OR OTHERS LIABLE OR TO
BECOME LIABLE HEREON, OR TO ENFORCE ITS RIGHTS AGAINST THEM OR ANY
SECURITY HERETOFORE, (iv) CONSENT TO ANY EXTENSION OR POSTPONEMENT
OF TIME OF PAYMENT OF THIS NOTE AND TO ANY OTHER INDULGENCE WITH
RESPECT HERETO WITHOUT NOTICE THEREOF TO ANY OF THEM AND WITHOUT
AFFECTING THEIR LIABILITY HEREUNDER. Maker acknowledges that
Holder has no duty of good faith to Maker, and acknowledges that no
fiduciary, trust or other special relationship exists between
Holder and Maker.
X. Notices:
All notices hereunder shall be given at the following
addresses:
To Lender: Connecticut General Life Insurance
Corporation
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attn: Real Estate Investment Service, S-319
With copy to: CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, Connecticut 06152-2215
Attn: Real Estate Division, S-215A
To Maker: MRI Business Properties Fund, Ltd. II
c/o NPI Equity Investments II, Inc.
Attn: Peter Braverman, Vice President
100 Jericho Quadrangle, Suite 214
Jericho, New York 11753
With copy to: David J. Heymann, Esq.
Post & Heymann
100 Jericho Quadrangle, Suite 214
Jericho, New York 11753
Any party may change its address for notice purposes upon giving
thirty (30) days prior notice thereof in accordance with this
paragraph. All notices given hereunder shall be in writing and
shall be considered properly given if mailed by first-class United
States Mail, postage prepaid, registered or certified with return
receipt requested, or by delivering same to the intended addressee
by a reputable overnight delivery service, or by prepaid telegram.
Any notice mailed as above provided shall be deemed to be effective
and received upon its deposit in the custody of the U.S. Postal
Service (whether or not actually received). All other notices
shall be effective upon actual receipt.
XI. Acceleration upon Disposition:
As more fully detailed in the Deed of Trust, Maker expressly
acknowledges, covenants and agrees (i) that, except as may be
provided otherwise in the Deed of Trust, there may be no sale,
lease, transfer, conveyance, assignment or any other disposition of
all or any portion of, or interest in, the Property securing this
Note, or the beneficial ownership interest in Maker, without the
prior written consent of Holder, (ii) that, except as may be
provided otherwise in the Deed of Trust, Holder may arbitrarily
withhold such prior written consent in its sole discretion, and
(iii) that in the event any such disposition occurs without
Holder's prior written consent, then Holder shall have the option
of accelerating the maturity hereof and declaring the then unpaid
principal balance and accrued interest and Prepayment Premiums
immediately due and payable, as if an Event of Default had occurred
under this Note.
XII. Joint and Several Liability:
If this Note is executed by more than one Maker, each such
party shall be jointly and severally liable for the obligations of
Maker under this Note.
XIII. Successors and Assigns:
The terms and conditions hereof shall inure to the benefit of
and be binding upon the successors and assigns of the parties
hereto.
XIV. Venue:
MAKER AGREES THAT BEXAR COUNTY, TEXAS SHALL BE THE PROPER
VENUE FOR ANY JUDICIAL PROCEEDINGS BROUGHT IN CONNECTION WITH THIS
NOTE.
XV. Limitation on Recourse:
Except as hereinafter provided, no judgment for the repayment
of the indebtedness evidenced by this Note will be enforced against
Maker or any principal of Maker personally in any action to
foreclose the Deed of Trust or to collect any amount payable under
the Security Documents (except as may be specifically provided in
certain Security Documents); provided, however, that the foregoing
limitation on recourse shall not apply, and Maker shall have
personal liability for the following acts or omissions, to the
extent described:
Act or Omission Liability
- - - -------------------------------- ----------------------------
(a) Maker misapplies any To the extent of such
condemnation or insurance misapplication;
proceeds attributable to
the Property,
(b) Maker misapplies any To the extent of such
security deposits misapplication;
attributable to the Property,
(c) Maker collects rents To the extent of such
in advance in violation rents collected in
of any covenant under any advance;
Security Document,
(d) Maker commits any fraud, To the extent of any
material misrepresentation, remedies available
or material waste, at law or equity;
(e) Gross revenues from the To the extent of any
Property are sufficient to pay funds diverted from
any portion of the indebtedness such payments or
evidenced by this Note, expenses (during the
operating and maintenance period 12 months prior
expenses, insurance premiums, to Holder's notice of
deposits into a reserve account, acceleration through
or other sums required by the date Holder takes
the Security Documents, and title to the Property);
Maker fails to make such
payments or deposits when due,
(f) Maker fails to pay To the extent of any
real estate taxes and unpaid taxes and assessments
assessments which are a lien (until the earlier of the
against the Property during date Holder takes actual
the period of Maker's possession of the Property,
ownership, or a receiver is appointed
by a court of competent
jurisdiction) and any
additional interest,
penalties or other
charges assessed as a
result of such non-
payment;
(g) Maker fails to In the amount of the
maintain the level of loss incurred as the
insurance required under result of such
the Security Documents, uninsured casualty or
to the extent that a casualty uninsured liability;
or liability occurs
or arises and insurance proceeds
would have been available had
such insurance been maintained,
and provided further that the provisions of this Article shall not
in any manner waive, release, affect or impair: (i) the
enforceability of the liens, mortgages, assignments and security
interests created by the Security Documents; or (ii) the right of
Holder to pursue any one or more parties to a separate
Environmental Indemnity Agreement executed by the Maker or others,
or any other agreement, if any, executed by Maker or other persons
or entities; or (iii) any other remedies available to the Holder,
or any other rights of Holder in the Property, as described in the
Deed of Trust and other Security Documents."
IN WITNESS WHEREOF Maker has duly executed this Note as of the
day and year first above written.
MAKER:
MRI BUSINESS PROPERTIES FUND, LTD. II., a
California limited partnership
By: Montgomery Realty Company - 84, a
California general partnership, its
Managing General Partner
By: Fox Realty Investors, a California
general partnership, its Managing
General Partner
By: NPI Equity Investments II,
Inc., a Florida corporation,
its Managing General Partner
By: _________________________
Peter Braverman, Vice
President
[Signature Page to $19,400,000.00 Promissory Note dated December
_____, 1994, executed by MRI BUSINESS PROPERTIES FUND, LTD. II, in
favor of CONNECTICUT GENERAL LIFE INSURANCE COMPANY]
EXHIBITS:
Exhibit "A" - Property Description
DEED OF TRUST, SECURITY AGREEMENT AND FINANCING STATEMENT
This DEED OF TRUST, SECURITY AGREEMENT AND FINANCING STATEMENT
(hereinafter referred to as the "Deed of Trust") is entered into as of
the ________ day of December, 1994, by MRI BUSINESS PROPERTIES FUND,
LTD. II, a California limited partnership (hereinafter referred to as
"Grantor," whether one or more), and JOHN B. STEWART, TRUSTEE (herein-
after referred to in such capacity as "Trustee"), for the benefit of the
hereinbelow defined Beneficiary, upon the following terms and
conditions:
Article 1
DEFINITIONS
1.1 Definitions. As used herein, the following terms shall have
the following meanings:
Beneficiary: CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a
Connecticut corporation, and the subsequent holder or holders, from
time to time, of the Note as defined below.
Buildings: Any and all structures or other buildings,
covered garages, utility sheds, workrooms, air conditioning towers,
lighting and utility facilities and other improvements, and any and
all additions, alterations, betterments or appurtenances thereto,
now or at any time hereafter situated, placed or constructed upon
the Land (as defined below), or any part thereof.
City Leases: Collectively, the Ground Lease and Riverwalk
Lease.
Event of Default: Any happening or occurrence described in
Article 6 below, or elsewhere in this Deed of Trust as constituting
an "Event of Default".
Fixtures: All materials, supplies, equipment, apparatus and
other things owned or hereafter acquired by Grantor and now or
hereafter attached to, installed in or used (temporarily or
permanently) in connection with any of the Improvements, Buildings
or the Land, including, but not limited to, any and all partitions,
dynamos, generators, window screens and shades, drapes, rugs and
other floor coverings, awnings, pumps, tanks, conduits, wiring,
switchboards, motors, engines, boilers, furnaces, elevators,
escalators, pipes, plumbing, cleaning, sprinkler systems, fire
prevention, fire extinguishing apparatus and equipment, water
tanks, telephonic communication systems, data processing equipment,
swimming pools, spas, saunas, heating, freezing, ventilating,
plumbing, laundry, incinerating, air conditioning and air cooling
equipment and systems, gas and electric machinery, appurtenances
and equipment, disposals, dishwashers, refrigerators and ranges,
computers and computer systems, recreational equipment,
communications apparatus, radio communication equipment and
facilities of all kinds, and water, gas, electrical, storm and
sanitary sewer facilities and all other utilities, whether or not
situated in easements.
Governmental Authority: Any and all courts, boards, agencies,
commissions, offices or authorities of any nature whatsoever for
any governmental unit (federal, state, county, district, municipal,
city or otherwise), whether now or hereafter in existence,
including but not limited to municipal utility districts.
Grantor: The above defined Grantor, whether one or more, and
any and all subsequent owners of the Mortgaged Property as defined
below, or any part thereof.
Ground Lease: That certain Lease Agreement dated April 28,
1978 between the City of San Antonio as Lessor (hereinafter the
"Ground Lessor") and San Antonio River Hotel Company as Lessee,
recorded in Volume 1119, Page 413 of the Real Property Records of
Bexar County, Texas, said Lease Agreement having been assigned by
various Assignments recorded in Volume 1119, Page 448, Volume 3248,
Page 1282, and Volume 3248, Page 1328, respectively, of the Real
Property Records of Bexar County, Texas, having been modified by
Lease Agreement Amendment dated December 20, 1985, recorded in
Volume 3942, Page 543 of the Real Property Records of Bexar County,
Texas, between Ground Lessor and Mariner/MRI Associates No. 2, and
having been further assigned to Grantor by Assignment of Leases
dated March 31, 1989 recorded in Volume 4538, Page 1705 of the Real
Property Records of Bexar County, Texas.
Guarantor (individually and/or collectively, as the context
may require): NONE.
Guaranty (individually and/or collectively, as the context may
require): That or those instrument(s) of Guaranty of even date
herewith, from Guarantor to Beneficiary guaranteeing the repayment
of the Indebtedness and the satisfaction of, or continued
compliance with, the Obligations (as defined below).
Impositions: All real estate and personal property taxes;
water, gas, sewer, electricity and other utility rates and charges;
charges for any easement, license or agreement maintained for the
benefit of the Mortgaged Property; and all other taxes, charges and
assessments and any interest, costs or penalties with respect
thereto, general and special, ordinary and extraordinary, foreseen
and unforeseen, of any kind and nature whatsoever, which at any
time prior to or after the execution hereof may be assessed, levied
or imposed upon the Mortgaged Property, or the Rents as defined
below, or the ownership, use, occupancy or enjoyment thereof,
including but not limited to assessments by municipal utility
districts.
Improvements: All improvements now existing or hereafter
constructed on the Land, those existing being generally described
as a 27 story, 502 room luxury hotel known as the San Antonio
Marriott Riverwalk Hotel, including all parking spaces and other
amenities, and any parking areas, streets, curbs or other site
improvements now or hereafter existing on the Land or required by
any Governmental Authority or Legal Requirement in connection
therewith.
Indebtedness: (a) the principal of, interest on and all
other amounts, payments and premiums at any time evidenced by or
due under the Note, the Deed of Trust, or any other Security
Document (as defined below); and (b) such additional sums, with
interest thereon, as may hereafter be borrowed from Beneficiary,
its successors or assigns, by Grantor or the then record owner of
the Mortgaged Property, when evidenced by a promissory note or
other instrument which, by its terms, is secured hereby (it being
contemplated that such future indebtedness may be incurred); and
(c) any and all other indebtedness, obligations and liabilities of
any kind of Grantor to Beneficiary in connection with the Mortgaged
Property, now or hereafter existing, absolute or contingent, joint
and/or several, secured or unsecured, due or not due, arising by
operation of law or otherwise, or direct or indirect, including
indebtedness, obligations and liabilities of Grantor to Beneficiary
as a member of any partnership, joint venture, association or other
group, and whether incurred by Grantor as principal, surety,
endorser, guarantor, accommodation party or otherwise; and (d) any
modifications, renewals, extensions or increases of any of the
foregoing; provided, however, that in no event shall the
Indebtedness secured by this Deed of Trust under clauses (b) or (c)
above include any installment loan, open-ended line of credit, or
any other loan established under and governed by Chapter 3, Chapter
4 or Chapter 15 of the Texas Credit Code.
Insurance Policies: The term "Insurance Policies" shall mean:
(a) All Risks Replacement Cost hazard insurance on the
Mortgaged Property with agreed amount endorsement in an amount
equal to the greater of $19,400,000.00 or 100% of the re-
placement cost of the Mortgaged Property, including the cost
of debris removal, or in such other amount as Beneficiary may
authorize in writing, with annual agreed amount endorsement
sufficient at all times to prevent Grantor from becoming a co-
insurer, providing all risk coverage which shall include loss
by fire, explosion (including boiler explosion), windstorm,
hail, tornado, collapse, and earthquake and sprinkler leakage,
and other hazards, casualties and contingencies normally
covered by such insurance, and, if available, risks of war and
any other risks reasonably requested by Beneficiary; such
insurance during the course of any construction or repair of
Improvements to be in Builder's Risk form on a non-reporting
basis, and to include collapse and transit coverage for the
total value of all work performed and equipment, supplies and
materials furnished, wherever located, to include the
"permission to occupy upon completion of work or occupancy"
endorsement, and to be on an occurrence basis for any claim
for personal injury; and
(b) Rent loss and business interruption insurance in an
amount equal to the greater of (i) the gross receipts from all
sources of income from the Mortgaged Property for a period of
twelve (12) months, or (ii) the sum of all operating expenses,
real estate taxes, Impositions, special assessments and
utility charges and premiums for all insurance required to be
paid by Grantor during a twelve (12) month period; and
(c) Policies of comprehensive general public liability
insurance for owner and contractors, against claims for bodily
injury or death and property damages occurring in or about or
resulting from the Mortgaged Property, including blanket
contractual liability, premises operations, products and
completed operations, broad form property damage, personal
injury (including employees), independent contractors,
explosion, collapse and underground hazards, liquor
liability/dram shop, elevators and escalators, innkeeper's
liability, garage keeper's liability, products liability,
automobile liability, and such other liability in such initial
minimum liability amounts and on such other terms as
Beneficiary may require, together with blanket excess umbrella
liability coverage over the foregoing risks in an amount
reasonably acceptable to Beneficiary, but not less than
$20,000,000.00; and
(d) If the Mortgaged Property is in a "Flood Hazard
Area," a flood insurance policy in an amount equal to the
lesser of (i) the original principal amount of the Note or
(ii) the maximum amount available under the Flood Disaster
Protection Act of 1973, and regulations issued pursuant
thereto, as amended from time to time, in form complying with
the "insurance purchase requirement" of that act; and
(e) Worker's Compensation Insurance for statutory
limits; and
(f) Such other insurance as Beneficiary may reasonably
require from time to time in amounts, form and substance
satisfactory to Beneficiary.
Land: The real estate or interest therein described in
Exhibit "A" attached hereto and incorporated herein and all rights,
titles and interests appurtenant thereto, including but not limited
to all minerals and executory rights, if any.
Leases: Any and all existing or future leases, subleases,
licenses, concessions or other agreements (written or verbal) which
grant a possessory interest in and to, or the right to use, the
Mortgaged Property or any portion thereof, and all other
agreements, such as utility contracts, maintenance agreements and
service contracts, which in any way relate to the use, occupancy,
operation, maintenance, enjoyment or ownership of the Mortgaged
Property together with all renewals, extensions, modifications and
replacements thereof; save and except any and all leases, subleases
or other agreements pursuant to which Grantor is granted a
possessory interest in the Land.
Legal Requirements: (a) any and all present and future
judicial decisions, statutes, rulings, rules, regulations, permits,
policies, certificates or ordinances of any Governmental Authority
in any way applicable to Grantor or the Mortgaged Property,
including the ownership, use, occupancy, possession, operation,
maintenance, alteration, repair or reconstruction thereof, (b) if
applicable, Grantor's presently or subsequently effective
partnership agreement, articles of incorporation, by-laws, or any
other instrument creating or governing Grantor, (c) any and all
Leases, (d) any and all covenants, conditions or restrictions
applicable to the Mortgaged Property or the ownership, use or
occupancy thereof, and (e) any and all leases and other contracts
(written or oral) of any nature that relate in any way to the
Mortgaged Property to which Grantor may be bound, including,
without limitation, any lease or other contract pursuant to which
Grantor is granted a possessory interest in the Land.
Management Agreement: That one certain San Antonio Hotel
Management Agreement dated April 6, 1978, originally executed by
Mariner Interests, as owner, and Marriott Corporation, as manager,
concerning the management of the Mortgaged Property, as modified by
First Amendment to Management Agreement dated December 20, 1979,
Second Amendment to Management Agreement dated March 16, 1984,
Third Amendment to Management Agreement dated November 1, 1984,
Fourth Amendment to Management Agreement dated December 30, 1988,
Fifth Amendment to Management Agreement dated June 6, 1989, and
Sixth Amendment to Management Agreement dated October 17, 1994,
together with any written modification thereto or replacements
thereof hereafter made, to the extent and only to the extent the
modification or replacements are approved in writing by
Beneficiary; the rights and obligations of the manager under the
Management Agreement having been assigned to and assumed by
Marriott Hotel Services, Inc. by an Assignment and Assumption of
Agreements dated June 19, 1993.
Manager: Marriott Hotel Services, Inc., a Delaware
corporation, the present manager under the Management Agreement, or
such successor Manager of the Mortgaged Property approved in
writing by Beneficiary.
Mortgaged Property: The Land, Improvements, Buildings,
Fixtures, Personalty as defined below and Rents, together with:
(a) All rights, privileges, tenements, titles,
hereditaments, strips, gores and appurtenances pertaining to
the Land, including, but not limited to: (i) all rights in
streets, roads, public places, easements, and rights-of-way,
existing or proposed, and public or private, which are
adjacent to or used in connection with the Land, including,
but not limited to, any railroad spur or track agreements; and
(ii) any drainage ponds or other like drainage areas not
located on the Land which may be required for water run off,
and any easements necessary to obtain access from the Land to
such drainage areas or to any other location to which Grantor
has a right to drain water or sewage; and (iii) any land
required to be maintained as undeveloped land by the zoning
rules and regulations or other Legal Requirements applicable
to the Land, Improvements or Buildings; and (iv) any easements
and agreements which are or may be established to allow
satisfactory ingress to, egress from, and operation of the
Land, Improvements and Buildings; and (v) any and all
easements, leases, contracts or other agreements to provide
parking spaces for Grantor and the tenants, patrons, employees
or other occupants or users of the Land, Improvements or
Buildings.
(b) All betterments, improvements, additions,
alterations, appurtenances, substitutions, replacements and
revisions thereof and thereto and all reversions and
remainders therein;
(c) All of Grantor's right, title and interest in and to
any awards, remunerations, reimbursements, settlements,
insurance proceeds, or compensation heretofore made or
hereafter to be made by any insurer or any Governmental
Authority pertaining to the Land, Improvements, Buildings,
Fixtures or Personalty, including, but not limited to, those
for casualty or damage to any of the Improvements, Buildings,
Fixtures or Personalty, those for any vacation of, or change
of grade in, any streets affecting the Land or the Im-
provements or Buildings and those for municipal utility
district or other utility costs incurred or deposits made in
connection with the Land;
(d) Any and all water rights associated with the Land,
Building, Improvements, or any other portion of the Mortgaged
Property, including, but not limited to, (i) all rights to
water located on, or adjacent to, the Land, and (ii) all
rights to receive or install water and sanitary sewer service
from the governmental unit or units providing or regulating
the same, including any living unit equivalents (L.U.E.s) or
other similar utility rights or permits owned by Grantor which
allow for the development of the Land and construction of the
Improvements and Buildings and all rights associated with the
Land, Improvements and Buildings to receive other utility
services, including but not limited to electricity, gas, and
telephone, together with any additions, replacements, renewals
or appurtenances thereto (all of the foregoing rights being
collectively referred to herein as the "Water and Utility
Rights");
(e) The entire Lessee's interest in and leasehold estate
created by the Ground Lease and Riverwalk Lease, and any
interest of Grantor in the Land, Buildings, Improvements,
Fixtures or other Mortgaged Property pursuant thereto or
otherwise.
(f) All options or agreements owned or acquired by
Grantor to purchase the Land the Mortgaged Property, or any
part thereof, whether now existing or hereafter granted, and
specifically including the title, estate and interest in the
Land acquired pursuant to the exercise of any such options or
performance under such agreements, it being agreed by Grantor
that the lien of this Deed of Trust shall extend to and
encumber any additional property or interest in the Land and
other Mortgaged Property acquired by the exercise of any such
option or the performance under any such agreement; provided,
however, there shall be no merger of the estate with the
leasehold estate under the Ground Lease and Riverwalk Lease,
which City Leases shall remain in full force and effect in
accordance with their respective terms as separate and
distinct estates in the property covered by the City Leases.
(g) All termination options and all renewal options
granted to Grantor, if any, under the terms of the Ground
Lease or the Riverwalk Lease.
(h) Any and all other security and collateral, of any
nature whatsoever, now or hereafter given for the repayment of
the Indebtedness or the performance and discharge of the
Obligations; and
(i) Any and all proceeds from the Land, Buildings,
Improvements, Fixtures, Personal Property, Water and Utility
Rights, and any other Mortgaged Property described above,
including but not limited to any proceeds of the sale, lease
or other disposition thereof, all crops and timber, all oil,
gas and other minerals, any and all proceeds (including
premium refunds) of each policy of insurance relating thereto
and any and all proceeds from the taking of all or any part
thereof by condemnation or by purchase in lieu thereof
(including the change of grade of streets, curb cuts or other
rights of access) for any public or private purpose (all such
proceeds being collectively referred to herein as the
"Proceeds").
As used in this Deed of Trust, the term "Mortgaged Property" shall
be expressly defined as meaning all or, where the context permits
or requires, any portion of the above and all or, where the context
permits or requires, any interest therein.
Note: The Promissory Note of even date herewith, executed by
Grantor payable to the order of Beneficiary, in the amount of
$19,400,000.00, and secured, in part, by this Deed of Trust, and
any and all renewals, rearrangements, enlargements or extensions of
such Promissory Note or of any promissory note or notes given
therefor, and any judgments rendered on any of the foregoing.
Obligations: Any and all of the covenants, conditions, war-
ranties, representations and other obligations (other than to repay
the Indebtedness) made or undertaken by Grantor or others to
Beneficiary, Trustee or others, as set forth in any of the Security
Documents, or in any lease, sublease or other agreement pursuant to
which Grantor is granted a possessory interest in the Land,
including but not limited to the Ground Lease and Riverwalk Lease.
Permitted Encumbrances: The outstanding liens, easements,
building lines, restrictions, security interests and other matters
(if any), as reflected on Exhibit "B" attached hereto, and the
liens and security interests created by the Security Documents.
Personalty: All of the right, title and interest of Grantor
in and to all furniture, furnishings, equipment, machinery, goods,
inventory, building materials, general intangibles (including,
without limitation, trademarks, trade names and symbols), all
revenues, profits and income generated in connection with the Land,
Buildings or Improvements, including all rentals and charges of
room rentals, trade accounts, accounts receivables, credit card
receivables, room deposits, inventories, rights to payment for
goods and services, including food, beverages and other items sold
or leased, whether or not earned by performance, cash, advance
deposits, accounts, reservation agreements, fees paid to Grantor
for services rendered to tenants or other occupants, money,
insurance proceeds, bank accounts, funds deposited with Beneficiary
as an impound account for the payment of taxes, insurance premiums,
replacements, repairs or other expenses, funds deposited with
Beneficiary as a completion deposit under the Security Documents or
under any other agreement between Beneficiary and Grantor, docu-
ments, insurance policies, loan commitments, instruments, notes or
chattel paper arising from, or by virtue of, any transactions
related to the Land, Buildings, or Improvements, including all
books and records in connection therewith, contract rights, all
refundable, returnable, or reimbursable fees, deposits (including
tenant's security deposits and escrow deposits under contracts for
sale) or other funds or evidences of credit or indebtedness
deposited by or on behalf of Grantor with any governmental
agencies, boards, corporations, providers of utility services,
public or private, including specifically but without limitation,
all refundable, returnable or reimbursable tap fees, utility
deposits, commitment fees and development costs, all utility
contracts, maintenance contracts, warranties and service contracts
which relate to the Land, Buildings or Improvements, including the
Management Agreement and all contracts for the supply of chilled
water and steam, all permits, licenses, franchises, certificates,
and other rights and privileges obtained in connection with the
Land, Buildings or Improvements, including liquor licenses and any
agreements or arrangements with third parties holding such liquor
licenses, and all other personal property in which Grantor has an
interest (other than the Fixtures) of any kind or character as
defined in and subject to the provisions of the Texas Business and
Commerce Code (Article 9 - Secured Transactions), which are now or
hereafter located or to be located upon, within or about the Land
and the Buildings, or which are or may be used in or related to the
planning, development, construction, financing, management or
operation of the Mortgaged Property; together with all accessories,
replacements and substitutions thereto or therefor and the proceeds
thereof.
Plans: Any and all plans, specifications and other technical
descriptions prepared for the development or construction of the
Improvements and Buildings.
Rents: All of the rents, revenues, royalties, bonuses, delay
rentals, percentage rentals, issues, income, proceeds, profits,
security and other types of deposits and other benefits paid or
payable by parties to the Leases or otherwise for using, leasing,
licensing, possessing, operating from, residing in, mining, selling
or otherwise enjoying the Mortgaged Property or any part thereof.
Riverwalk Lease: That certain San Antonio Riverwalk Lease
Agreement dated December 19, 1985, between the City of San Antonio
as Lessor and Mariner/MRI Associates No. 2 as Lessee, recorded in
Volume 3942, Page 524 of the Real Property Records of Bexar County,
Texas, and assigned to Grantor by Assignment of Leases dated March
31, 1989, recorded in Volume 4538, Page 1705 of the Real Property
Records of Bexar County, Texas.
Security Documents: The Note, this Deed of Trust, the
Absolute Assignment of Leases and Rents of even date herewith (the
"Rent Assignment"), the Collateral Assignment of Management
Agreement of even date herewith, the Borrower's Affidavit of even
date herewith, the Environmental Indemnity Agreement of even date
herewith, and any and all other documents now or hereafter executed
by Grantor or any other person or party to evidence or secure the
payment of the Indebtedness or the performance and discharge of the
Obligations.
1.2 Other Definitions: This Deed of Trust contains other terms
that are defined in context where used.
Article 2
GRANT
To secure the full and timely payment of the Indebtedness and the
full and timely performance and discharge of the Obligations, Grantor
has GRANTED, BARGAINED, SOLD and CONVEYED, and by these presents does
GRANT, BARGAIN, SELL AND CONVEY the Mortgaged Property unto Trustee;
subject, however, to the Permitted Encumbrances, TO HAVE AND TO HOLD the
Mortgaged Property unto Trustee, forever, and Grantor does hereby bind
itself, its successors and assigns to warrant and forever defend the
title to the Mortgaged Property unto Trustee against every person
whomsoever lawfully claiming or to claim the same or any part thereof;
provided, however, that if Grantor shall pay (or cause to be paid) the
Indebtedness as and when the same shall become due and payable and shall
perform and discharge (or cause to be performed and discharged) the
Obligations on or before the dates same are to be performed and
discharged, then the liens, security interests, estates and rights
granted by the Security Documents shall automatically terminate; and the
Beneficiary, at Grantor's sole expense, agrees to execute any and all
documents reasonably necessary to evidence such termination; otherwise
the same shall remain in full force and effect.
Article 3
WARRANTIES AND REPRESENTATIONS
Grantor hereby unconditionally warrants and represents to
Beneficiary as follows:
3.1 Organization and Power: Grantor (a) is a California limited
partnership duly organized, validly existing and in good standing under
the laws of the State of California and has complied with all conditions
prerequisite to its doing business in the State of Texas, and (b) has
all requisite power and all governmental certificates of authority,
licenses, permits, qualifications and documentation to own and operate
the Mortgaged Property and to carry on its business as now being and as
proposed to be conducted.
3.2 Validity of Security Documents: The execution, delivery and
performance by Grantor of the Security Documents and the borrowing
evidenced by the Note (a) are within Grantor's powers and have been duly
authorized by all necessary partnership action, and all other requisite
action for such authorization has been taken, (b) have received all (if
any) requisite prior governmental approval in order to be legally
binding and enforceable in accordance with the terms thereof; and (c)
will not violate, be in conflict with, result in a breach of or
constitute (with due notice or lapse of time, or both) a default under
any Legal Requirement or result in the creation or imposition of any
lien, charge or encumbrance of any nature whatsoever upon any of
Grantor's property or assets, except as contemplated by the provisions
of the Security Documents. The Security Documents constitute the legal,
valid and binding obligations of Grantor and others obligated under the
terms of the Security Documents.
3.3 Information: All information, reports, papers and data
given to Beneficiary with respect to the Mortgaged Property, the Leases,
Grantor, or others obligated under the terms of the Security Documents,
are accurate, complete and correct in all material respects and do not
omit any fact, the inclusion of which is necessary to prevent the facts
contained therein from being materially misleading. All information,
reports, papers and data which purport to be estimates, projections or
the like given to Beneficiary by Grantor, or others obligated under the
terms of the Security Documents with respect to the Mortgaged Property
in connection with the loan evidenced by the Security Documents, to the
best of Grantor's knowledge, information and belief (Grantor having made
reasonable inquiry into the accuracy of such information, reports,
papers and data), are substantially true and correct.
3.4 Title to Mortgaged Property and Lien of This Instrument:
Grantor has good and indefeasible title to the Land (in fee simple, if
the lien created hereunder be on the fee, or a first and prior leasehold
estate, if it be created on the leasehold estate), Improvements and
Buildings and good and marketable title to the Fixtures and Personalty,
free and clear of any liens, charges, encumbrances, security interests
and adverse claims whatsoever except the Permitted Encumbrances. This
Deed of Trust constitutes a valid, subsisting first lien deed of trust
on the Land, Improvements, Buildings and Fixtures and a valid,
subsisting first priority security interest in and to the Personalty,
Leases, Plans and Rents, all in accordance with the terms hereof, and a
valid first lien or security interest, as applicable, with respect to
any other Mortgaged Property.
3.5 Taxes and Other Payments: Grantor has filed all Federal,
state, county, municipal and city income and other tax returns required
to have been filed by them and have paid all taxes which have become due
pursuant to such returns or pursuant to any assessments received by
them, and Grantor knows of no basis for any additional assessment in
respect of any such taxes.
3.6 Governmental Compliance: Grantor represents and warrants to
Beneficiary that the location, construction, occupancy, operation and
use of the Mortgaged Property do not and will not violate any applicable
law, statute, ordinance, rule, regulation, order or determination of any
Governmental Authority or any board of fire underwriters (or other body
exercising similar functions), or any restrictive covenant or deed
restriction (recorded or otherwise), or any other Legal Requirements
affecting the Mortgaged Property or its operation, including without
limitation all applicable zoning ordinances and building codes, all
flood disaster laws, and all health and environmental laws and
regulations.
3.7 ADA Requirements: Grantor has submitted to Beneficiary a plan
of action (the "ADA Compliance Plan"), identified and transmitted by a
letter of even date from Grantor to Beneficiary, that identifies the
extent to which the Mortgaged Property complies or does not comply with
Title III of the Americans With Disability Act (the "ADA") and Article
9102 of Texas Revised Civil Statutes Annotated, and all rules and
regulations thereunder, and identifies those non-compliance items that
are "readily achievable" under the terms of the ADA. The ADA Compliance
Plan includes a prioritized list of the items to be accomplished and a
timetable for accomplishment. Without limitation of Grantor's
representations and warranties under Paragraph 3.6 of this Deed of Trust
and Grantor's obligations under Paragraph 4.3 of this Deed of Trust,
Grantor represents and warrants to Beneficiary that Grantor will, in a
good and workmanlike manner, timely implement the ADA Compliance Plan in
accordance with its terms.
3.8 Environmental Compliance: Without limitation of Paragraph 3.6
above, Grantor also represents and warrants to Beneficiary the
following:
(a) The Mortgaged Property and Grantor are not in violation
of or subject to any existing, pending or threatened investigation
or inquiry by any Governmental Authority or to any remedial
obligations under any Legal Requirement pertaining to Environmental
Laws (as hereinafter defined) or Hazardous Materials (as
hereinafter defined); and this representation and warranty would
continue to be true and correct following disclosure to the
applicable Governmental Authorities of all relevant facts, con-
ditions and circumstances, if any, pertaining to the Mortgaged
Property.
(b) Grantor has not obtained and is not required to obtain by
reason of any Environmental Laws, any permits, licenses or similar
authorizations to construct, occupy, operate or use any buildings,
improvements, fixtures and equipment forming a part of the
Mortgaged Property.
(c) Grantor has taken all steps necessary to determine, and
has determined, and hereby represents and warrants to the best of
Grantor's knowledge and belief, that no Hazardous Materials have
been disposed of or otherwise released or migrated on, to or from
the Mortgaged Property. The use which Grantor makes and intends to
make or permits to be made of the Mortgaged Property will not
result in the disposal or other release of any Hazardous Materials
on, to or from the Mortgaged Property in violation of Environmental
Laws. The term "release" shall have the meaning specified in
CERCLA (as defined in Paragraph 3.8(g) below), and the term "dis-
posal" (or "disposed") shall have the meaning specified in RCRA (as
defined in Paragraph 3.8(g) below); provided, in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term
defined thereby, such broader meaning shall apply subsequent to the
effective date of such amendment and provided further, to the
extent that the laws of the State of Texas establish a meaning for
"release," or "disposal" which is broader than that specified in
either CERCLA or RCRA, such broader meaning shall apply.
(d) Without limiting the foregoing, Grantor has taken all
reasonable steps necessary to determine, and has determined, and
represents and warrants to the best of Grantor's knowledge and
belief, that except as disclosed in that certain Report of Building
Survey for Asbestos-Containing Materials dated May, 1994, prepared
by Law Engineering and Environmental Services. Project No. 321-
04245-01 (the "ACM Survey"), the Mortgaged Property does not
contain and has not in the past contained any asbestos-containing
material ("ACM"), and that there is no current or potential air-
borne contamination of the Mortgaged Property by asbestos fiber,
including without limitation any potential contamination that would
or could be caused by maintenance of, or tenant finish-out
activities in, the Improvements located on the Mortgaged Property.
Without limiting Grantor's representations, warranties and
obligations under other provisions of this Deed of Trust, Grantor
shall promptly, in accordance with the Environmental Protection
Agency "Green Book" ("Managing Asbestos In Place" 20T-2003, July
1990) establish and manage an Operations and Maintenance Program
for all "suspected" or assumed or confirmed ACM's located on or as
part of the Mortgaged Property, and shall promptly furnish a copy
of such Operations and Maintenance Program to Beneficiary.
(e) All of the foregoing representations and warranties made
by Grantor shall be continuing and shall be true and correct for
the period from the date hereof through and as of the date of the
payment of all Indebtedness and the performance of all Obligations
secured hereby and the release of this Deed of Trust, with the same
force and effect as if made each day throughout such period, and
all of such representations and warranties shall survive such
payment, performance and release.
(f) "Hazardous Materials" shall mean and include those
elements, materials, compounds, mixtures, wastes or substances
which are contained in any list of hazardous substances adopted by
the United States Environmental Protection Agency (the "EPA") or
any list of toxic pollutants designated by the United States
Congress or the EPA or which are defined as hazardous, toxic,
pollutant, infectious, flammable or radioactive by any of the
Environmental Laws (as hereinafter defined), and, whether or not
included in such lists, shall be deemed to include all products or
substances containing petroleum, asbestos, and polychlorinated
biphenyls.
(g) "Environmental Laws" shall mean and include any Federal,
State, or local statute, law, ordinance, code, rule, regulation,
order, or decree regulating or relating to protection of human
health or the environment, or regulating or imposing liability or
standards of conduct concerning the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of any hazardous, toxic, or waste, substance, element,
compound, mixture or material, as now or at any time hereafter in
effect, including, without limitation, the Texas Water Code, the
Texas Health and Safety Code, the Texas Clean Air Act, Tex. Health
and Safety Code Ann. 382.001, et. seq. (Vernon 1992), the Texas
Water Quality Control Act, Tex. Water Code Ann. 26.001, et. seq.
(Vernon 1988), the Texas Solid Waste Disposal Act, Tex. Health and
Safety Code Ann. 361.001, et. seq. (Vernon 1992), the Texas
Hazardous Substances and Spill Prevention and Control Act, Tex.
Water Code Ann. 26.261, et. seq. (Vernon 1988), the Texas Open
Beaches Act, Tex. Nat. Res. Code Ann. 61.001, et. seq. (Vernon
1978), the Coastal Public Lands Management Act of 1973, Tex. Nat.
Res. Code Ann. 33.001, et. seq. (Vernon 1978), the Texas Injection
Well Act, Tex. Water Code Ann. 27.001, et. seq. (Vernon 1988), the
Federal Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. 9601 et. seq., as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. 9601 et.
seq. ("CERCLA"), the Federal Oil Pollution Act of 1990, 33 U.S.C.
2701, et. seq., the Federal Toxic Substances Control Act, 15
U.S.C. 2601 et. seq., the Federal Resource Conservation and
Recovery Act as amended, 42 U.S.C. 6901 et. seq. ("RCRA"), the
Federal Hazardous Material Transportation Act 49 U.S.C. 1801 et.
seq., the Federal Clean Air Act 42 U.S.C. 7401 et. seq., the
Federal Safe Drinking Water Act, 41 U.S.C. 300f et. seq., the
Federal Water Pollution Control Act, 33 U.S.C. 1251 et. seq., the
River and Harbors Act of 1899, 33 U.S.C. et. seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. 136 et.
seq., the Federal Noise Control Act, 41 U.S.C. 4901 et. seq., and
all rules and regulations of the EPA, or any other state or federal
department, board, or agency, or any other agency or governmental
board or entity having jurisdiction over the Security, as any of
the foregoing have been, or are hereafter amended.
Article 4
AFFIRMATIVE COVENANTS
Grantor hereby unconditionally covenants and agrees with
Beneficiary as follows:
4.1 Payment and Performance: Grantor will pay the Indebtedness
as and when called for in the Security Documents and on or before the
due dates thereof, and will perform all of the Obligations in full and
on or before the dates same are to be performed.
4.2 Existence: Grantor will preserve and keep in full force and
effect its existence, rights, franchises and trade marks.
4.3 Compliance with Legal Requirements: Grantor will at all
times promptly and faithfully comply with, conform to and obey all
present and future Legal Requirements, including but not limited to
obligations under the Ground Lease and Riverwalk Lease, and whether or
not the Legal Requirements shall necessitate structural changes in,
improvements to, or interfere with the use or enjoyment of the Mortgaged
Property. Without limiting the foregoing, Grantor shall promptly upon
demand from Beneficiary or any Governmental Authority make such repairs,
modifications or improvements to the Mortgaged Property and Improvements
as necessary to comply with the Americans With Disabilities Act of 1990
and with similar Texas laws, including but not limited to Texas Revised
Civil Stat. Ann. Art. 9102.
4.4 First Lien Status: Grantor will protect the first lien and
security interest status of this Deed of Trust and will not, except for
the Permitted Encumbrances, a Subordinate Loan approved in writing by
Beneficiary under Paragraph 5.5 of this Deed of Trust, and the liens
created by this Deed of Trust, place, or permit to be placed, or other-
wise mortgage, hypothecate or encumber the Mortgaged Property with any
other lien or security interest of any nature whatsoever (statutory,
constitutional or contractual), regardless of whether same is allegedly
or expressly inferior to the lien and security interest created by this
Deed of Trust, and if any such lien or security interest is asserted
against the Mortgaged Property, Grantor will promptly, and at its own
cost and expense, (a) pay the underlying claim in full or take such
other action so as to cause same to be released; and (b) within five (5)
days from the date such lien or security interest is asserted, give such
Beneficiary notice of such lien or security interest. Such notice shall
specify who is asserting such lien or security interest and shall detail
the origin and nature of the underlying claim giving rise to such
asserted lien or security interest. No provision hereof shall require
Grantor to pay any claims for labor, materials or services which Grantor
in good faith disputes and which Grantor, at its own expense, is
currently and diligently contesting; provided, however, that Grantor
shall, within ten (10) days after the filing of any claim or lien that
is disputed or contested by Grantor, obtain and record, if required by
Beneficiary, a bond that is in form and substance satisfactory to
Beneficiary, and in amount reasonably required by Beneficiary, such
amount not to exceed 200% of the amount of the claim, provided that
Grantor thereafter diligently proceeds to cause such lien to be removed
and discharged.
4.5 Payment of Impositions: Grantor will duly pay and
discharge, or cause to be paid and discharged, the Impositions not later
than the due date thereof, or the day any fine, penalty, interest or
cost may be added thereto or imposed, or the day any lien may be filed,
for the nonpayment thereof (if such day is used to determine the due
date of the respective item) and will promptly furnish Beneficiary with
official receipts of payment thereof, and if Grantor fails to do so,
Beneficiary may pay such Impositions, together with all interest,
penalties and costs thereon, at Grantor's expense; provided, however,
that Grantor may, if permitted by law and if such installment payment
would not create or permit the filing of a lien against the Mortgaged
Property, pay the Impositions in installments whether or not interest
shall accrue on the unpaid balance of such Impositions; provided
further, however, that Grantor may, in good faith, in lieu of paying
such Impositions as they become due and payable, by appropriate
proceedings, contest the validity thereof, and pending such contest,
Grantor shall not be deemed in default hereunder because of such
nonpayment if: (a) prior to delinquency of the asserted Impositions,
Grantor furnishes to Beneficiary an indemnity bond that (i) is
conditioned that such Impositions with interest, cost and penalties, be
paid as herein stipulated, and (ii) is secured by a deposit, in cash, or
security acceptable to Beneficiary or with a surety acceptable to
Beneficiary, in the amount of the Imposition being contested by Grantor
and a reasonable additional sum to pay all possible costs, interest and
penalties imposed or incurred in connection therewith, and (b) Grantor
promptly pays any amount adjudged by a court of competent jurisdiction
to be due, with all costs, penalties and interest thereon, before such
judgment becomes final; and provided further, that in any event, each
contest shall be concluded and the Imposition, penalties, interest and
costs shall be paid prior to the date such judgment becomes final or any
writ or order is issued under which the Mortgaged Property may be sold
pursuant to such judgment.
4.6 Repair: Grantor will keep the Mortgaged Property in first
class order and condition and will make all repairs, replacements,
renewals, additions, betterments, improvements and alterations thereof
and thereto, interior and exterior, structural and nonstructural,
ordinary and extraordinary, foreseen and unforeseen, which are necessary
or reasonably appropriate to keep same in such order and condition.
Grantor will prevent any act or occurrence which might impair the value
or usefulness of the Mortgaged Property for its intended use, as set
forth in the Security Documents. Grantor will promptly replace all
worn-out or obsolete Fixtures, Personalty or other collateral covered by
this Deed of Trust with fixtures, personalty and collateral comparable
to that replaced when new, including replacement of carpets and drapes
when needed, and repainting of the Mortgaged Property when needed.
Grantor shall not cut or remove, or suffer the cutting or removal of,
trees or timber from the Mortgaged Property, and will maintain all
fences and walls upon the Mortgaged Property. Upon request of
Beneficiary (but no more frequently than three times in each calendar
year), Grantor will deliver to Beneficiary an inventory describing and
showing the make, model, serial number and location of all Personalty,
Fixtures and other collateral upon and used in the management,
maintenance and operation of the Mortgaged Property, and that all such
items are owned by Grantor free and clear of any lien or security
interests. In instances where repairs, replacements, renewals,
additions, betterments, improvements or alterations are required in and
to the Mortgaged Property on an emergency basis to prevent loss, damage,
waste or destruction thereof, Grantor shall proceed to construct same,
or cause same to be constructed, notwithstanding anything to the
contrary contained in Paragraph 5.2 hereinbelow; provided, however, that
in instances where such emergency measures are to be taken, Grantor will
notify Beneficiary, in writing, of the commencement of same and the
measures to be taken, and when same are completed, the completion date
and the measures actually taken.
4.7 Insurance: Grantor, at Grantor's sole cost and expense, will
obtain and maintain the Insurance Policies upon and relating to the
Mortgaged Property, insuring against the risks required under this Deed
of Trust, and such other risks as may be specified by Beneficiary from
time to time, all in form and in such amounts acceptable to Beneficiary,
with deductibles approved by Beneficiary, and with such insurers of
recognized responsibility as are acceptable to Beneficiary and that are
assigned a Policyholder Rating of at least "A" and a financial size
category of at least "Class XII" in the most recently published edition
of Best's Insurance Reports, or re-insurance from such a company
provided the insured and loss payee may make direct claims on such re-
insurance. Each Insurance Policy issued in connection therewith shall
provide by way of endorsements, riders or otherwise that (a) proceeds
will be payable to Beneficiary as its interest may appear, without
contribution, it being agreed by Grantor that except as hereinafter
provided, such payments shall be applied, at Beneficiary's sole option,
(i) to the restoration, repair or replacement of the Mortgaged Property,
or (ii) toward the payment of the Indebtedness, in such manner and in
such order as Beneficiary may elect in its sole discretion; (b) the
coverage of Beneficiary shall not be terminated, reduced or affected in
any manner regardless of any breach or violation by Grantor of any
warranties, declarations or conditions in such policy; (c) no such
insurance policy shall be cancelled, endorsed, altered or reissued to
effect a change in coverage for any reason and to any extent whatsoever
unless such insurer shall have first given Beneficiary thirty (30) days'
prior written notice thereof; (d) Beneficiary may, but shall not be
obligated to, make premium payments to prevent any cancellation,
endorsement, alteration or reissuance, and such payments shall be
accepted by the insurer to prevent same; and (e) such other terms,
conditions or waivers as required by Beneficiary from time to time.
Beneficiary may require that Beneficiary be named as an additional
insured under any or all of the Insurance Policies. Grantor shall
deliver to Beneficiary the original Insurance Policies (or copies of
same with an original certificate of insurance) coincident with the
execution of this Deed of Trust, and shall deliver to Beneficiary the
original of each renewal policy (or copies of same with an original
certificate of insurance) not less than ten (10) days prior to the
expiration of the initial or each preceding renewal policy, together
with a receipt or other evidence that the premiums thereon have been
paid; and if Grantor fails to do so, Beneficiary may, at its option,
procure such insurance at Grantor's expense. At Beneficiary's request,
Grantor shall furnish to Beneficiary, on or before thirty (30) days
after the close of each of Grantor's fiscal years, a statement certified
by Grantor setting forth the amounts of insurance maintained in
compliance with this Paragraph 4.7, of the risks covered by such
insurance, and of the insurance company or companies which carry such
insurance.
4.8 Application of Proceeds: All awards of insurance proceeds,
including interest thereon, are hereby assigned in their entirety to
Beneficiary, as additional security for payment of the Indebtedness, and
Grantor will make all such proceeds available to Beneficiary within five
(5) days of receipt by Grantor for application to reduction of the
Indebtedness without prepayment premium, or for use in the repair or
restoration of the Mortgaged Property, at Beneficiary's sole election.
If there has occurred an Event of Default hereunder, Beneficiary shall
be entitled to the benefit of all such insurance proceeds held by or for
any Grantor, to the same extent as if such proceeds had been made
payable to Beneficiary, and in any event, upon foreclosure hereunder,
Beneficiary shall become the owner of all such insurance proceeds. If
the proceeds of the insurance described in Paragraph 4.7 hereinabove are
to be used for restoration, repair or replacement (hereinafter referred
to as the "Work") of the Mortgaged Property, such proceeds shall be paid
out by Beneficiary from time to time to Grantor (or, at the option of
Beneficiary, jointly to Grantor and the persons furnishing labor and/or
material incident to such restoration, repair or replacement or directly
to such persons) as the Work progresses, subject to the following
conditions:
(a) if the cost of the Work estimated by Beneficiary shall
exceed $25,000.00, prior to the commencement therefor (other than
Work to be performed on an emergency basis to protect the Mortgaged
Property or prevent interference therewith), (i) an architect or
engineer, approved by Beneficiary, shall be retained by Grantor (at
Grantor's expense) and charged with the supervision of the Work,
and (ii) Grantor shall have prepared, submitted to Beneficiary and
secured Beneficiary's written approval of the plans and
specifications for such Work;
(b) each request for payment by Grantor shall be made on ten
(10) days' prior written notice to Beneficiary and shall be
accompanied by a certificate to be executed by the architect or
engineer supervising the Work (if one is required pursuant to
Paragraph 4.8[a] hereinabove), otherwise, by Grantor stating, among
such other matters as may be reasonably required by Beneficiary,
that: (i) all of the Work completed has been done in compliance
with the approved plans and specifications (if any be required
under Paragraph 4.8[a] hereinabove); (ii) the sum requested is
justly required to reimburse Grantor for payments by Grantor to, or
is justly due to, the contractor, subcontractors, materialmen,
laborers, engineers, architects or other persons rendering services
or materials for the Work (giving a brief description of such
services and materials); (iii) when added to all sums previously
paid out by Grantor, the sum requested does not exceed 90% of the
contract price for the Work done to date, or if there is no
contract price, then 90% of the value of the Work done to the date
of such certificate (except for the last sum requested which may
not exceed 100% of the value of the Work done); and (iv) the amount
of insurance proceeds remaining in the hands of Beneficiary will be
sufficient on completion of the Work to pay for the same in full
(giving in such reasonable detail, as the Beneficiary may require,
an estimate of the cost of such completion);
(c) each request shall be accompanied by waivers of lien,
satisfactory in form and substance to Beneficiary, covering that
part of the Work for which payment or reimbursement is being
requested, and by an updated and endorsed mortgagee title policy,
or by other evidence satisfactory to Beneficiary that there has not
been filed with respect to the Mortgaged Property any mechanic's
lien or other lien, affidavit or instrument asserting any lien or
lien rights with respect to the Mortgaged Property, other than
liens that have been bonded in accordance with Paragraph 4.4;
(d) there has not occurred any Event of Default since the
hazard, casualty or contingency giving rise to payment of the
insurance proceeds;
(e) in the case of the request for the final disbursement,
such request is accompanied by a copy of any Certificate of
Occupancy or other certificate required by any Legal Requirement to
render occupancy of the damaged portion of the Mortgaged Property
lawful; and
(f) if, in Beneficiary's judgment, the amount of such
insurance proceeds will not be sufficient to complete the Work
(which determination may be made prior to or during the performance
of the Work), Grantor shall deposit with Beneficiary, immediately
upon a request therefor, an amount of money which when added to
such insurance proceeds, will be sufficient, in Beneficiary's
judgment, to complete the Work.
Grantor shall be obligated to pay upon demand any and all costs and
expenses incurred by Beneficiary in connection with the disbursement of
the insurance proceeds, including but not limited to the title insurance
endorsements, reasonable attorney's fees and escrow service expenses.
Any insurance proceeds or deposits for excess costs held by Beneficiary
for such repairs and restoration shall be held without interest. If
upon completion of the Work any portion of the insurance proceeds has
not been disbursed to Grantor (or one or more of the other aforesaid
persons) incident thereto, Beneficiary may, at Beneficiary's option,
disburse such balance to Grantor or apply such balance toward the
payment of the Indebtedness in such order as Beneficiary may determine.
Nothing herein shall be interpreted to prohibit Beneficiary from
applying at any time the whole or any part of such insurance proceeds to
the curing of any Event of Default.
4.8.1 Beneficiary's Election: With respect to Beneficiary's
option under Paragraph 4.7(a) and Paragraph 4.8 concerning the
disposition of insurance proceeds, Beneficiary hereby agrees that if and
only if: (i) not more than thirty-five percent (35.0%) of the
Improvements on the Property are destroyed; and (ii) there has not
occurred an Event of Default under this Deed of Trust or any other
Security Document during the prior 12-month period; and (iii) Grantor
can demonstrate to Beneficiary's satisfaction that Grantor has the
financial ability to make payments and meet other obligations under the
Note and Security Documents during the reconstruction of the Mortgaged
Property, from the proceeds of rent insurance or otherwise; and (iv)
such damage or destruction occurs prior to January 1, 2000; and (v)
Grantor, Beneficiary and an escrow agent acceptable to Beneficiary (the
"Escrow Agent") execute an escrow agreement in form and content
acceptable to Beneficiary (the "Escrow Agreement"), pursuant to which
the insurance proceeds are deposited and released for construction
payments under arrangements satisfactory to Beneficiary; and (vi)
Beneficiary receives acceptable evidence that the projected net annual
income from operations of the Mortgaged Property after completion of the
restoration will equal or exceed at least 1.5 times $2,223,483.50 (the
annual debt service on the Indebtedness); then all insurance proceeds
(including proceeds from business interruption insurance) shall be held
by Escrow Agent in an interest bearing account to be disbursed by Escrow
Agent pursuant to the terms of the Escrow Agreement, first to
installments then payable under the Note as they become due, and then
either to the payment for Work (as defined above) in accordance with the
conditions stated above, or to prepayment of the Indebtedness, as
applicable, without prepayment premium.
4.9 Restoration Following Casualty: If any act or occurrence of
any kind or nature, ordinary or extraordinary, foreseen or unforeseen
(including any condemnation and casualty for which insurance was not
obtained or obtainable), shall result in damage to or loss or
destruction of the Mortgaged Property, Grantor will give notice thereof
to Beneficiary and, if so instructed by Beneficiary, will promptly, at
Grantor's sole cost and expense and regardless of whether the
condemnation or insurance proceeds (if any) shall be sufficient for the
purpose, commence and continue diligently to completion to restore,
repair, replace and rebuild the Mortgaged Property as nearly as possible
to its value, condition and character immediately prior to such damage,
loss or destruction.
4.10 Performance of Leases: Grantor will duly and punctually
perform and comply with any and all representations, warranties,
covenants and agreements expressed as binding upon it under each of the
Leases, and otherwise comply with the covenants, terms and provisions of
the Rent Assignment of even date herewith executed by Grantor in favor
of Beneficiary.
4.11 Inspection: Grantor will permit Trustee and Beneficiary, and
their agents, representatives and employees, to inspect the Mortgaged
Property at all reasonable times and in any reasonable manner.
4.12 Hold Harmless: Grantor will defend, at its own cost and
expense, and hold Beneficiary harmless from any action, proceeding or
claim affecting the Mortgaged Property or the Security Documents, and
all costs and expenses incurred by Beneficiary in protecting its
interests hereunder in such an event (including all court costs and
reasonable attorneys' fees) shall be borne by Grantor.
4.13 Books and Records: Grantor will maintain full and accurate
books of account and other records reflecting the results of its
operations of the Mortgaged Property and will furnish, or cause to be
furnished, the following to Beneficiary on or before one hundred twenty
(120) days after the end of Grantor's fiscal year:
(a) A complete executed copy of a report of an examination of
Grantor's financial affairs, such report shall be in form satisfactory
to Beneficiary and shall include a balance sheet, statement of sources
and uses, rent roll in form approved by Beneficiary, statement of
operating cash flow, accounts receivables in reasonable detail, and
statement of profit and loss, all for Grantor's immediately preceding
fiscal year, and shall include a separate operating statement for the
Mortgaged Property, together with any and all related notes and such
other detail as Beneficiary may reasonably require, and a certificate
executed by Grantor (or if Grantor is a corporation or partnership,
Grantor's chief financial officer or authorized general partner)
certifying that such report has, except for the statement of sources and
uses (which has nonetheless been prepared consistently), been prepared
in accordance with generally accepted accounting principles applied on
a consistent basis and fairly presents Grantor's financial condition as
of the date thereof and the results of its operations for the period
covered thereby. Such annual reports shall also include certification
of the percent of room occupancy, average daily room rates, annual room
sales, food and beverage sales, and other income, room profit, food and
beverage profit, and all other profit, as well as detailed operating
expenses, and shall be accompanied by true and correct copies of all
Leases not theretofore furnished to Beneficiary. The financial reports
called for under this Paragraph 4.13(a) shall be accompanied by an
unqualified opinion from an independent certified public accountant
satisfactory to Beneficiary, confirming that the reports have been
prepared in accordance with generally accepted accounting principles,
and disclosing all "Notes to Financial Statements" relevant thereto.
Beneficiary consents to the initial use of Imowitz Koenig & Company as
such independent certified public accountants.
(b) A certificate by an officer of Grantor certifying that, as of
the date thereof, there does or does not (as the case may be) exist an
event which constitutes, or which upon due notice or lapse of time or
both would constitute, an Event of Default or, if an Event of Default
exists, specifying the nature thereof.
Beneficiary hereby agrees that if and only if, and only as long as:
(i) MRI Business Properties Fund, Ltd. II continues to own and hold
title to the Mortgaged Property, and (ii) there has not occurred an
Event of Default, and (iii) there does not exist any state of facts
which, with the passage of time or giving of notice or both, would
constitute an Event of Default; and (iv) Grantor has provided to
Beneficiary all the reports required under this Paragraph 4.13 in form
and substance satisfactory to Beneficiary, then Beneficiary will not
require that the annual reports required under Section 4.13(a) be
accompanied by an unqualified opinion from an independent certified
public accountant.
In addition to the annual reports referred to above, Grantor shall
also furnish to Beneficiary: (i) unaudited quarterly cash flow reports
and current rent rolls for the Mortgaged Property; and (ii) by January
15th of each year a proforma income statement and a current expense
statement for the current and prior year; and (iii) copies of all
monthly, quarterly or annual reports required to be furnished by or to
Grantor under the terms of the Management Agreement; and (iv) copies of
all reports required to be provided under the terms of the Ground Lease.
At any time and from time to time, Grantor shall deliver to
Beneficiary such other financial data as Beneficiary shall reasonably
request with respect to the ownership, maintenance, use and operation of
the Mortgaged Property, and Beneficiary shall have the right, at
reasonable times and upon reasonable notice, to audit, examine and make
copies or extracts of Grantor's books of account and records relating to
the Mortgaged Property, all of which shall be maintained and made avail-
able to Beneficiary and Beneficiary's representatives for such purpose
at the address specified herein for Grantor or at such other location as
Beneficiary may approve.
4.14 Reserve for Taxes: Grantor shall create a fund (the "Tax
Reserve") for the payment of taxes and assessments in accordance with
the following provisions: Upon the request of Beneficiary, Grantor
shall make an initial deposit in an amount which, when added to the
monthly deposits hereinafter provided, will be sufficient to satisfy the
next succeeding payments of the annual taxes, charges and assessments
levied, assessed or imposed against the Mortgaged Property, including
real estate and personal property taxes (the "Taxes"). Grantor shall
deposit monthly in addition to the initial deposit to such Tax Reserve,
on or before the 1st day of each month, an amount equal to one-twelfth
(1/12th) of all of the annual Taxes (estimated, wherever necessary) to
become due for the current tax year. If at any time Beneficiary
determines that any amounts theretofore paid by Grantor are insufficient
for the payment in full of such Taxes, Beneficiary shall notify Grantor
of the increased amounts required to provide a sufficient fund,
whereupon Grantor shall deposit into the Tax Reserve within thirty (30)
days thereafter the additional amount as stated in Beneficiary's notice.
All of said funds shall, at the request of Beneficiary, be deposited
directly by Grantor into, and the Tax Reserve shall be maintained as, a
separate, interest-bearing account (the "Tax Account"), which Tax
Account shall be established and administered pursuant to a Real Estate
Tax Escrow and Security Agreement (the "Tax Escrow Agreement") executed
by Grantor, Beneficiary and Beneficiary's agent as escrow holder (the
"Escrow Holder"). The Tax Account shall be established in the name of
"Connecticut General Life Insurance Company, as secured party of MRI
Business Properties Fund, Ltd. II, Real Estate Tax Escrow Account,"
with deposits to be deposited by Escrow Holder in a bank in San Antonio,
Texas selected by Grantor and approved by Beneficiary, or such other
investment requested by Grantor and approved by Escrow Holder and
Beneficiary. The Tax Account shall be collaterally assigned to
Beneficiary as additional security for repayment of the Indebtedness, in
accordance with the terms of the Tax Escrow Agreement and other terms
acceptable to Beneficiary, and Beneficiary shall be assured of a first
priority security interest in the Tax Account. All interest earned on
the Tax Account shall be reported to the Internal Revenue Service as
interest paid to Grantor, and all interest shall remain as part of the
Tax Account, except interest, less reasonable escrow costs, may be paid
to Grantor if and only if, and as long as: (i) MRI Business Properties
Fund, Ltd. II continues to hold title to and control the Mortgaged
Property, and (ii) taxes are paid in full when due, and (iii) no Event
of Default has occurred, and (iv) there does not exist any state of
facts which, with the passage of time or giving of notice, or both,
would constitute an Event of Default. Beneficiary must receive written
evidence satisfactory to Beneficiary that all deposits are timely made,
and shall receive from the Escrow Holder, contemporaneously with
Grantor's receipt, a copy of the monthly reconciliation statements for
the Tax Account. If for any reason the Tax Account is not established,
or the Tax Account is terminated, or Beneficiary otherwise does not
receive from Grantor the documentation and evidence of deposits and
payments required herein and under the Tax Escrow Agreement, or as
otherwise required by Beneficiary, then Beneficiary may, upon written
notice to Grantor, require that the Tax Reserve be held by Beneficiary
free of trust (except to the extent, if any, that applicable law shall
otherwise require), without bond, in a non-interest bearing account for
the purposes stated herein.
If no Event of Default shall have occurred and be continuing
hereunder, funds from the Tax Reserve shall, upon timely written request
of Grantor (but not less than thirty (30) days prior to the due date),
at the option of Grantor, either: (i) be paid directly to the
Governmental Authority entitled thereto, or (ii) upon receipt from
Grantor of the Governmental Authority's paid tax receipts showing that
Grantor has already paid the Taxes out of Grantor's other funds, be
reimbursed to Grantor in the amount of the Taxes so paid (to the extent
of funds in the Tax Account). Grantor shall not request withdrawal from
nor withdraw funds from the Tax Reserve or the Tax Account, except for
immediate payment of Taxes, and upon such payment will promptly furnish
Beneficiary with official receipts of payment thereof, or with such
other evidence as may be required by Beneficiary to verify that all
currently due Taxes have been paid in full at least thirty (30) days
before the Taxes otherwise become delinquent. If an Event of Default
shall have occurred and be continuing hereunder, however, Beneficiary
shall have the additional option of crediting the full amount of the Tax
Reserve against the Indebtedness.
Upon assignment of this Deed of Trust, Beneficiary shall have the
right to pay over the balance of the Tax Reserve then in its possession,
if any, to its assignee, whereupon Beneficiary and its Trustee shall
then become completely released from all liability with respect thereto.
Upon full payment of the Indebtedness or at such earlier time as
Beneficiary may elect, the balance of the Tax Reserve in its possession
shall be paid over to Grantor and no other party shall have any right or
claim thereto.
Notwithstanding anything to the contrary contained in this
Paragraph 4.14 or elsewhere in the Deed of Trust, Beneficiary hereby
reserves the right to waive the payment by Grantor to Beneficiary of the
Tax Reserve amounts, and, in the event Beneficiary does so waive such
payment, it shall be without prejudice to Beneficiary's right to insist,
with or without cause, and at any subsequent time or times, that such
payments be made in accordance herewith. References herein to the Tax
Reserve shall include the Tax Account to the extent the same is in
existence.
4.15 Taxes on Note or Deed of Trust: If at any time any law
shall be enacted imposing or authorizing the imposition of any tax upon
this Deed of Trust, or upon any rights, titles, liens, or security
interests created hereby or by any of the other Security Documents, or
upon the Note, or any part thereof, Grantor shall promptly pay all such
taxes. If Grantor fails to pay any such taxes, Beneficiary may pay the
same, together with all costs and penalties thereon, at Grantor's
expense and Grantor shall immediately reimburse Beneficiary upon demand;
provided, however, that if for any reason payment by Grantor of any such
new or additional taxes would be unlawful, or if the payment thereof
would constitute usury or render the Indebtedness wholly or partially
usurious under any of the terms or provisions of the Note or this Deed
of Trust, or otherwise, Beneficiary may, at its option, declare the
Indebtedness, with all accrued and unpaid interest thereon, but without
prepayment premiums, to be due and payable within 160 days after written
notice to Grantor, or Beneficiary may, at its option, pay the amount or
portion of such taxes which renders the Indebtedness unlawful or
usurious, in which event Grantor shall concurrently therewith pay the
remaining lawful and non-usurious portion or balance of said taxes.
Nothing contained herein shall obligate Grantor to pay any income or
franchise taxes levied against Beneficiary.
4.16 Statements by Grantor: Grantor shall within ten (10) days
after request (but no more frequently than three times in each calendar
year), furnish to Beneficiary from time to time a written statement or
affidavit, in such form as may be required by Beneficiary, stating the
unpaid balance of the Note, the date to which interest has been paid,
that there are no offsets or defenses against full payment of the Note
and the performance of the terms of the Security Documents or, if there
are any such offsets or defenses, specifying them, and that there does
or does not (as the case may be) exist an event which constitutes, or
which upon due notice or lapse of time or both would constitute, an
Event of Default or, if an Event of Default exists, specifying the
nature thereof.
4.17 Further Assurances: Grantor, upon the request of Trustee,
will execute, acknowledge, deliver and record and/or file such further
instruments and do such further acts as may be necessary, desirable or
proper to carry out more effectively the purpose of the Security
Documents and to subject to the liens and security interests thereof any
property intended by the terms thereof to be covered thereby, including
specifically, but without limitation, any renewals, additions,
substitutions, replacements, betterments or appurtenances to the then
Mortgaged Property.
4.18 Recording and Filing: Grantor will cause the Security
Documents and all amendments and supplements thereto and substitutions
therefor to be recorded, filed, re-recorded and refiled, in such manner
and in such places as Trustee or Beneficiary shall reasonably request,
and will pay all such recording, filing, re-recording and refiling
taxes, fees and other charges.
4.19 Management: At all times during the term of the Note hereby
secured, the Mortgaged Property shall be managed and operated under the
terms of the Management Agreement (defined in Paragraph 1.1 above), and
Grantor agrees to: (a) duly and punctually perform and comply with any
and all representations, warranties, covenants and agreements expressed
as binding upon the "Owner" under the Management Agreement; (b) not
voluntarily terminate, cancel or waive its rights or the obligations of
any other party under the Management Agreement, except with
Beneficiary's prior written consent; (c) use all reasonable efforts to
maintain the Management Agreement in full force and effect during the
term thereof; (d) not modify, alter or amend the Management Agreement
without Beneficiary's prior written consent, except for modifications
that reduce the fees payable to Manager; and (e) appear in and defend
any action or proceeding arising under or in any manner connected with
the Management Agreement or Grantor's obligations thereunder. Grantor
has executed a Collateral Assignment of Management Agreement of even
date herewith in favor of Beneficiary, and Grantor shall comply with all
of its obligations under such Collateral Assignment.
Grantor may not, without first obtaining Beneficiary's written
consent, enter into any new management agreement or appoint a new
manager, and Beneficiary's written approval shall be conditioned upon
Beneficiary's approval of the terms and conditions of such agreement in
its sole discretion, as well as the requirement that Grantor execute a
collateral assignment of management agreement in form and content
acceptable to Beneficiary, and that Grantor and the new manager execute
an estoppel, subordination, nondisturbance & attornment agreement in
form and content acceptable to Beneficiary.
4.20 Replacement Reserve:
(a) Replacement Fund. For the purpose of creating a reserve
fund for replacement of furniture, fixture and equipment (the
"Replacement Fund"), Grantor shall, without limitation of any other
obligation of Grantor under this Deed of Trust, upon the execution
of this Deed of Trust and on or before the fifth (5th) day of each
calendar month until the Indebtedness is paid in full, deposit with
a national bank in San Antonio, Texas acceptable to Beneficiary
(the "Escrow Agent"), an amount equal to five and one-half percent
(5.5%) of the gross revenues generated from the Mortgaged Property
during the preceding calendar month, including but not limited to
all Rents. The Replacement Fund shall be maintained in an
interest-bearing account, and unless the Escrow Agent has received
notice that there has occurred an Event of Default under this Deed
of Trust or any other Security Documents, the Escrow Agent will be
authorized to pay directly to Grantor no more frequently than
monthly, all interest earned on the Replacement Fund. The Escrow
Agent will not be authorized to make any other disbursements of the
Reserve Fund to Grantor without the prior written consent of
Beneficiary. With Beneficiary's written approval, Grantor will be
authorized to withdraw funds (to the extent available) from the
Replacement Fund no more than once each calendar quarter, for the
purpose of reimbursing Grantor for sums spent for the replacement
of furnishings, fixtures and equipment used in the operation of the
Mortgaged Property during the preceding quarterly period, upon the
following terms and conditions:
( i) Grantor shall provide Beneficiary at least thirty (30)
days prior written notice of its intent to withdraw such funds; and
( ii) There shall not have occurred an uncured Event of
Default under this Deed of Trust or any of the other Security
Documents, or any other event which with the passage of time or
notice or both would constitute an Event of Default; and
(iii) Grantor must provide Beneficiary with written
verification satisfactory to Beneficiary of the amount spent by
Grantor for replacement of furnishings, fixtures and equipment
during the preceding quarterly period. No withdrawal shall be
authorized for general repairs and maintenance in the ordinary
course of operations, as opposed to actual replacement of furni-
ture, fixtures and equipment.
All proceeds held in the Replacement Fund are additional security
for payment of the Indebtedness, and upon the occurrence of an
Event of Default under this Deed of Trust or any other Security
Document, Escrow Agent shall pay all such funds directly to
Beneficiary, and Beneficiary shall be entitled to apply such funds
either to the reduction of the Indebtedness in such order and
manner as Beneficiary may elect, or to use such funds for other
purposes as Beneficiary may deem desirable to protect the Mortgaged
Property or Beneficiary's interests therein. Grantor's failure to
make timely a monthly deposit into the Replacement Fund when
required shall be an Event of Default under this Deed of Trust.
(b) Escrow Agreement. Beneficiary, Grantor and Escrow Agent
will enter into an escrow agreement mutually satisfactory to
Beneficiary and Escrow Agent, governing the terms and conditions
under which the proceeds in the Replacement Fund will be invested
and disbursed. The Escrow Agent will not be authorized to disburse
any funds from the Replacement Fund without the prior written
consent of Beneficiary (except for interest accrued thereon and
disbursed prior to notice of an Event of Default), and shall be
authorized to pay all proceeds held in the Replacement Fund
directly to Beneficiary upon the written request of Beneficiary.
The escrow agreement must provide that Escrow Agent subordinates
any and all security interests, setoff rights or other claims that
Escrow Agent may have against the Replacement Fund, to the liens
and security interests of Beneficiary. The escrow agreement shall
contain such terms as Beneficiary may require in order to insure
that Beneficiary has a perfected, first security interest in the
Replacement Fund and the account with Escrow Agent established
pursuant to this Paragraph 4.20. If for any reason an escrow
agreement is not entered into as required by this Paragraph 4.20,
then Beneficiary may, upon written notice to Grantor, require that
the Reserve Fund be held by Beneficiary free of trust (except to
the extent, if any, that applicable law shall otherwise require),
without bond, in a non-interest bearing account. The initial
deposit into the Replacement Fund shall exceed the required monthly
deposits, and shall be in an amount reasonably required by
Beneficiary, not less than the balance of the replacement reserve
previously existing in connection with Beneficiary's prior liens
against the Mortgaged Property.
4.21 City Leases: With respect to those portions of the
Mortgaged Property which are the subject of the City Leases, Grantor
hereby agrees as follows:
(a) Performance of City Leases. Grantor shall (i) promptly
perform or cause to be performed all of the terms required to be
performed by Grantor under the City Leases and to do or cause to be
done all things necessary to preserve and keep unimpaired the
Grantor's rights under the City Leases; (ii) furnish the
Beneficiary with written evidence of payment of all rental and
other sums due the lessor under the City Leases at least fifteen
(15) days prior to the date such payment is due and payable; (iii)
take all other acts as are necessary to maintain the City Leases in
full force and effect; (iv) promptly, and in any event within five
(5) days after the occurrence thereof, notify the Beneficiary of
the receipt of any notice from any lessor under any City Lease
claiming that Grantor is in default in the performance of any of
the terms thereof and cause a copy of each such notice to be
delivered to Beneficiary; and (v) correct or cause to be corrected
any such claimed default within one-half (1/2) of the time provided
in the City Lease for correction thereof by Grantor.
(b) Grantor's Estate. In the event the Grantor acquires the
fee simple title or any other estate or interest in the real
property subject to a City Lease, such acquisition will not merge
the leasehold estate created by the City Leases, but such other
estate or interest will immediately become subject to the lien of
this Deed of Trust, and Grantor agrees to execute, acknowledge and
deliver any instruments that Beneficiary might reasonably request
for accomplishing the purposes hereof immediately on the request of
the Beneficiary therefor.
(c) Option to Cure Default. On receipt by Beneficiary from
any lessor under a City Lease of any written notice of default by
the Grantor thereunder, the Beneficiary may rely thereon and take
such action as Beneficiary deems necessary or desirable to cure
such default, even though the existence of such default or the
nature thereof is denied by Grantor or by any other person.
Grantor hereby expressly grants to Beneficiary the absolute and
immediate right to enter upon the Land and other Mortgaged Property
to such extent and as often as Beneficiary in its sole discretion
deems necessary or desirable to prevent or cure any such default by
Grantor.
(d) No Modification. Grantor will not without the prior
written consent of Beneficiary (i) surrender any of the leasehold
estates created by any City Lease or (ii) terminate or cancel any
City Lease, or (iii) modify, change, supplement, alter or amend any
City Lease, either orally or in writing, or (iv) fail to exercise
any option to renew any City Lease in order to prevent its
termination or lapse prior to the time the Indebtedness has been
paid in full; and Grantor hereby assigns to Beneficiary all of
Grantor's rights and privileges as lessee under the City Leases to
terminate, cancel, modify, change, supplement, alter, amend, renew
or extend the City Leases. Any such termination, cancellation,
modification, change, supplement, alteration, amendment or
extension of any City Lease without the prior written consent
thereto by Beneficiary will, at Beneficiary's option, be void and
of no force or effect, and shall constitute an Event of Default
hereunder.
(e) No Release. No release or forbearance of any of
Grantor's obligations under the City Leases, pursuant to the City
Leases or otherwise, will release Grantor from any of Grantor's
obligations under this Deed of Trust, including Grantor's
obligations with respect to the payment of rent as provided in the
City Leases and the performance of all of the terms, provisions,
covenants, conditions and agreements contained in the City Leases
to be performed by the Grantor thereunder.
(f) No Merger. Anything herein contained to the contrary
notwithstanding, it is agreed that the leasehold estates of the
Grantor created by the City Leases and the estate of the fee owner
and lessor under each City Lease will at all times remain separate
and apart and retain their separate identities, and no merger of
the leasehold estate of the Grantor with the estate in fee of the
owner and lessor will result with respect to the Beneficiary or
with respect to any purchaser acquiring the Mortgaged Property at
any sale on foreclosure of the leasehold estate encumbered by this
Deed of Trust without the prior written consent of the Beneficiary.
4.22 Adequate Parking: Grantor covenants, warrants and represents
to Beneficiary that: (i) there are at least 199 striped parking spaces
located on the Mortgaged Property; (ii) in addition to the 199 striped
parking spaces, there shall be additional space on the Mortgaged
Property for at least 30 cars to be parked for valet parking; and (iii)
at all times there shall be sufficient parking spaces located on the
Mortgaged Property or available pursuant to approved Parking Leases, as
are needed to maintain compliance with all Legal Requirements.
4.23 Environmental Remedial Work. In the event that any
investigation, site monitoring, containment, clean-up, removal,
restoration or other remedial work of any kind or nature (the "Remedial
Work") is required under any Legal Requirement of any applicable local,
state or federal law or regulation, any judicial order, or by any
governmental entity or person or other Governmental Authority, because
of, or in connection with, the current or future presence, suspected
presence, release or suspected release of a Hazardous Material (as
defined in Paragraph 3.8) in or about the air, soil, ground water,
surface water or soil vapor at, on, about, under or within the Mortgaged
Property (or any portion thereof), Grantor shall, within thirty (30)
days after written demand for performance thereof by Beneficiary (or
such shorter period of time as may be required under any Legal
Requirement of any Governmental Authority), commence and thereafter
diligently prosecute to completion, all such Remedial Work; provided,
however, that Grantor may delay commencement of the Remedial Work for
such time that Grantor is in good faith and diligently contesting the
Legal Requirement of the Governmental Authority otherwise imposing the
obligation to perform the Remedial Work, if and only if: (i) there does
not exist an Event of Default under this Deed of Trust; and (ii) Grantor
performs such part of the Remedial Work that Grantor is not in good
faith contesting; and (iii) there is no risk of loss or forfeiture of
the Mortgaged Property, and no risk that a lien will be created against
the Mortgaged Property that would have priority over the liens and
security interests created by this Deed of Trust; and (iv) if required
by Beneficiary, Grantor shall provide a bond, a cash deposit or other
form of assurance satisfactory to Beneficiary, in an amount reasonably
required by Beneficiary, to cover the potential penalties, fines, and
expenses that may accrue as a result of Grantor's contest of the Legal
Requirement. All costs and expenses of such Remedial Work shall be paid
by Grantor, including, without limitation, Beneficiary's Attorney's Fees
(as hereinafter defined) incurred in connection with monitoring or
review of such Remedial Work. In the event Grantor shall fail to timely
prosecute to completion such Remedial Work, Beneficiary may, but shall
not be required to, cause such Remedial Work to be performed at the
expense of Grantor, and Beneficiary may, at its option, add all such
costs and expenses thereof or incurred in connection therewith to the
Indebtedness secured by this Deed of Trust, without affecting the
liability of Grantor or any third-party indemnitors hereunder or under
any other agreement, including the Environmental Indemnity Agreement.
As used in this Paragraph 4.23, the term "Attorneys' Fees" shall
mean and include all reasonable costs, fees and charges of any attorney,
legal assistant and paralegal, and shall include both outside counsel
retained by Beneficiary and in-house counsel for CIGNA Corporation and
Beneficiary, and shall include without limitation expert witness
payments and other court costs whether or not incurred in any judicial,
bankruptcy or administrative proceeding.
The obligations of Borrower under this Paragraph 4.23 of the Deed
of Trust are intended to be in addition to and not in replacement of the
obligations of Borrower under Paragraphs 3.8 and 4.24 of this Deed of
Trust, and under the Environmental Indemnity Agreement of even date
herewith.
4.24 Indemnification for Environmental Concerns: Grantor agrees to
indemnify and hold Beneficiary (which, as used in this Paragraph shall
collectively mean the Beneficiary described herein and any persons or
entities owned or controlled by or affiliated with such Beneficiary)
harmless from and against and to reimburse Beneficiary with respect to,
any and all claims, demands, causes of action, loss, damage,
liabilities, costs and expenses (including attorneys' fees and court
costs) of any and every kind or character, known or unknown, fixed or
contingent, asserted against or incurred by Beneficiary at any time and
from time to time by reason of or arising out of (a) the breach of any
representation or warranty of Grantor set forth in Paragraph 3.8 of this
Deed of Trust, (b) the failure of Grantor to perform any obligation
required to be performed by Grantor under Paragraph 3.8 or Paragraph
4.23 of this Deed of Trust, and (c) the violation of any Environmental
Law through the ownership, construction, occupancy, operation, use and
maintenance of the Mortgaged Property prior to the date (the "Release
Date") on which (i) the Indebtedness and Obligations secured hereby have
been paid and performed in full and this Deed of Trust has been
released, and (ii) if Beneficiary becomes the owner of the Mortgaged
Property by way of foreclosure of the lien hereof, deed in lieu of such
foreclosure or otherwise, the Mortgaged Property has been sold by
Beneficiary; provided, however, this indemnity shall not apply with
respect to matters solely caused by or arising solely out of the gross
negligence or willful misconduct of Beneficiary. The foregoing
indemnity applies, without limitation, to any violation on or before the
Release Date of any Environmental Law in effect on or before the Release
Date and any and all matters arising out of any act, omission, event or
circumstance existing or occurring on or prior to the Release Date
(including without limitation the presence on the Mortgaged Property or
release from the Mortgaged Property of Hazardous Materials or Hazardous
Materials disposed of or otherwise released prior to the Release Date
even if occurring prior to the date Grantor obtained title to the
Mortgaged Property), regardless of whether the act, omission, event or
circumstance constituted a violation of any Environmental Law at the
time of its existence or occurrence; provided, however, such indemnity
shall not apply with respect to matters solely caused by or arising
solely out of the gross negligence or willful misconduct of Beneficiary.
The terms "Hazardous Materials" and "disposed" shall have the meanings
specified in Paragraph 3.8. The provisions of this Paragraph shall
survive the Release Date and shall continue thereafter in full force and
effect. Notwithstanding the foregoing, the provisions of this Paragraph
4.24 are subject to the limitations on recourse set forth in Paragraph
11.18 below. The obligations of Borrower under this Paragraph 4.24 of
the Deed of Trust are intended to be in addition to and not in
replacement of the obligations of Borrower under Paragraphs 3.8 and 4.23
of this Deed of Trust, and under the Environmental Indemnity Agreement
of even date.
4.25 Liquor License: Grantor shall at all times: (a) either
directly or indirectly through the Manager, a subsidiary of Manager, or
another third party approved by Beneficiary (a "Liquor Permittee"),
obtain and maintain in accordance with the Texas Alcoholic Beverage Code
and related Texas laws, rules and procedures, all liquor permits needed
to serve the alcoholic beverages customarily served at the hotel located
on the Mortgaged Property; and (b) to the extent Grantor is not the
Liquor Permittee, establish and maintain written agreements with the
Liquor Permittee on terms and conditions reasonably satisfactory to
Beneficiary, pursuant to which customary alcoholic beverages may be sold
on the Mortgaged Property; and (c) provide Beneficiary with evidence in
form and substance satisfactory to Beneficiary that the Liquor Permittee
is a responsible entity that either directly or indirectly maintains
insurance in form, substance and amounts satisfactory to Beneficiary
covering the liability associated with the sale of alcoholic beverages
on the Mortgaged Property; and (d) upon the request of Beneficiary,
provide contractual agreements with the Liquor Permittee in form and
content acceptable to Beneficiary, pursuant to which the Liquor
Permittee would continue providing the services necessary to permit the
continued ability to serve alcoholic beverages on the Mortgaged Property
in the event of a foreclosure under this Deed of Trust, or a deed in
lieu thereof.
Article 5
NEGATIVE COVENANTS
Grantor hereby covenants and agrees with Beneficiary that until the
entire Indebtedness shall have been paid in full and all of the
Obligations shall have been fully performed and discharged, Grantor will
comply with all of the following covenants:
5.1 Use Violations: Grantor will not use, maintain, operate or
occupy, or allow the use, maintenance, operation or occupancy of, the
Mortgaged Property in any manner which (a) violates any Legal
Requirement, (b) constitutes a public or private nuisance, (c) makes
void, voidable or cancelable, any insurance then in force with respect
thereof, or (d) causes an increase in the premium for any insurance then
in force with respect thereof, unless such increase is immediately paid
by Grantor.
5.2 Alterations: Grantor will not commit or permit any waste of
the Mortgaged Property and will not (subject to the provisions of
Paragraphs 4.6 and 4.9 hereinabove), without the prior written consent
of Beneficiary, make or permit to be made any alterations or additions
to the Mortgaged Property of a material nature.
5.3 Replacement of Fixtures and Personalty: Grantor will not,
without the prior written consent of Beneficiary, permit any of the
Fixtures or Personalty to be removed at any time from the Land or
Buildings unless the removed item is removed temporarily for maintenance
and repair or, if removed permanently, is replaced by an article of
equal suitability and value owned by Grantor, free and clear of any lien
or security interest except such as may be first approved, in writing,
by Beneficiary.
5.4 No Drilling or Exploration: Without the prior written consent
of Beneficiary, there shall be no drilling or exploring for or
extraction, removal, or production of minerals from the surface or
subsurface of the Land. The term "minerals" as used herein shall
include, without limiting the generality of such term, oil, gas,
casinghead gas, coal, lignite, hydrocarbons, methane, carbon dioxide,
helium, uranium and all other natural elements, compounds and
substances, including sand and gravel.
5.5 No Further Encumbrances: Grantor will not, without the prior
written consent of Beneficiary, create or place, or permit to be created
or placed, or through any act or failure to act, acquiesce in the
placing of or allow to remain, any deed of trust, mortgage, pledge, lien
(statutory, constitutional or contractual), security interest,
assignment, encumbrance or charge on, or conditional sale or other title
retention agreement, regardless of whether same are expressly
subordinate to the liens of the Security Documents, with respect to the
Mortgaged Property, the Leases or the Rents, other than the Permitted
Encumbrances. If any lien or claim is asserted against the Mortgaged
Property, Grantor shall perform its obligations with respect thereto as
specified in Paragraph 4.4 above.
Beneficiary agrees not to unreasonably withhold its written consent
to subordinate lien financing (a "Subordinate Loan") for the Mortgaged
Property requested by Grantor on one or more occasions, if and only if
Grantor satisfies all of the following terms and conditions:
(a) There must not have occurred an Event of Default
under this Deed of Trust or any of the Security Documents
either at the time of the request for Beneficiary's consent to
the Subordinate Loan, or at the closing of the Subordinate
Loan.
(b) The proposed Subordinate Loan must be provided by a
lender (the "Subordinate Lender") that is an "Approved
Investor", which is defined as any bank, trust company,
insurance company, pension fund, investment advisor, credit
union, real estate investment trust or charitable foundation
that is actively engaged in acquiring or financing major
commercial real estate properties, and that is approved in
writing by Beneficiary. Beneficiary will not be required to
approve of a proposed Subordinate Lender or proposed Approved
Investor that has been a litigant, plaintiff or defendant in
any material lawsuit or legal proceedings brought by or
against Beneficiary or any of Beneficiary's affiliates.
(c) The aggregate amount of the Subordinate Loan shall
not exceed $5,000,000.00, and the proceeds of the Subordinate
Loan shall be used solely for the purpose of renovating the
Improvements.
(d) The proposed Subordinate Loan shall not be given in
satisfaction of, or to evidence, judgments or claims against
Grantor, nor shall any security agreement, deed of trust,
mortgage, assignment, title retention agreement, or other
document or agreement evidencing or securing the proposed
Subordinate Loan (hereinafter, collectively the "Subordinate
Documents"), be cross-defaulted or cross-collateralized with
any other lien or security interest in any other property.
(e) At least thirty (30) days prior to the closing of
the proposed Subordinate Loan, Grantor must deliver to
Beneficiary: (i) a written statement of all of the material
terms and provisions of the proposed Subordinate Loan,
including without limitation the proposed date of closing, the
name, background and address of the proposed Subordinate
Lender, and the principal amount, rate, periodic payments,
terms and other salient features of the Subordinate Loan; and
(ii) plans for the proposed renovation, whether or not such
planned Alterations require Beneficiary's approval under
Paragraph 5.2 of this Deed of Trust.
(f) The Subordinate Loan must not call for an accrual of
interest or for the payment of additional principal
installments, and all payments must be on a current pay basis
(amortization schedule).
(g) Grantor shall pay for all of Beneficiary's costs and
expenses associated with such proposed Subordinate Loan,
whether or not such Subordinate Loan closes, including without
limitation, attorneys' fees charged by Beneficiary's staff
counsel or special counsel.
(h) The Subordinate Lender shall enter into an
intercreditor agreement with Beneficiary to the following
effect: (i) the Subordinate Lender agrees that the
Subordinate Documents are unconditionally subordinate to this
Deed of Trust and the other Security Documents, and the
Subordinate Lender waives any right to marshalling or to
assert priority over future advances, if any, provided for in
the Security Documents; (ii) the Subordinate Lender agrees to
be bound by any renewals, extensions, reinstatements or
modifications of the Security Documents and agrees that the
liens and security interests of the Subordinate Documents
shall be subordinate to all leases of space in the Mortgaged
Property, and that without Beneficiary's prior written
consent, no action shall be taken by Subordinate Lender that
would terminate any occupancy or tenancy of third-party
tenants of the Mortgaged Property; (iii) the Subordinate
Lender agrees that Beneficiary shall in all cases be paid all
sums then currently due under the Security Documents before
the Subordinate Lender receives any sums then currently due
under the Subordinate Documents; (iv) the Subordinate Lender
agrees to notify Beneficiary of any default by Grantor or
others under such Subordinate Documents and further agrees not
to accelerate the Subordinate Loan or exercise any rights or
remedies with respect to the Mortgaged Property for a period
of ninety (90) days after Beneficiary's receipt of such
notice; and (v) the Subordinate Lender agrees that it will not
transfer its interest in the Subordinate Loan or Subordinate
Documents without the prior written consent of Beneficiary.
Grantor also covenants and agrees to furnish Beneficiary with
prompt, written notice of any notice of default furnished to Grantor by
its Subordinate Lender. In the event Beneficiary elects to cure any
default under the Subordinate Documents, any advances made by
Beneficiary to cure such default shall be included in the Indebtedness
secured by the Deed of Trust. Any transfer of ownership of all or any
part of the Mortgaged Property as a result of a default under the
Subordinate Documents shall be a Disposition under Paragraph 11.17 of
this Deed of Trust, and shall constitute an Event of Default, unless
Beneficiary consents in writing to such Disposition.
5.6 No Leasing of Personalty or Fixtures: Except as otherwise
specifically approved in writing by Beneficiary, Grantor must own all
furniture, fixtures and equipment used in connection with the ownership,
operation, or maintenance of the Mortgaged Property lien free and not
subject to any equipment leases, conditional sales contracts or any
other types of financing, and Grantor shall not, as a lessee or
otherwise, execute any lease, conditional sales contract or any other
financing agreement for the lease, purchase or encumbrance of any
Personalty or Fixtures or any other part of the Mortgaged Property that
is to be used in connection with the ownership, maintenance or operation
of the Mortgaged Property, without the prior written consent of
Beneficiary. Grantor shall submit each proposed lease, contract or
financing agreement for any such furniture, fixtures or equipment to the
Beneficiary for Beneficiary's prior written consent, which consent may
be withheld in Beneficiary's sole discretion, or may be conditioned
upon, among other requirements, the equipment lessor's agreement that
Beneficiary, at its option, may cancel or continue the lease upon a
foreclosure of the lien securing the Indebtedness, and that Beneficiary
shall in no way be responsible for or liable to pay any sums or money or
perform any of the obligations of Grantor under the leases which accrue
prior to the foreclosure date. Grantor shall deliver to Beneficiary an
executed original of each lease and shall fully comply with and perform
all obligations of the lessee under such leases.
Article 6
EVENTS OF DEFAULT
The term "Event of Default" shall include the occurrence or happen-
ing, at any time and from time to time, of any one or more of the
following:
6.1 Payment of Indebtedness: If Grantor shall fail to pay timely
and in full any installment or portion of the Indebtedness as and when
the same shall become due and payable, and such failure continues for a
period of five (5) days thereafter; provided, however, that the failure
to pay all Indebtedness which is due upon the maturity of the Note,
whether matured by acceleration or otherwise, shall be an Event of
Default immediately, without any notice, grace or opportunity to cure.
6.2 Performance of Obligations: If Grantor shall fail, refuse or
neglect to perform and discharge fully and timely any covenant of this
Deed of Trust or any of the other Obligations as and when called for
(other than a payment of Indebtedness covered under Paragraph 6.1) and
such failure, refusal or neglect shall either be uncurable or, if
curable, shall remain uncured for a period of thirty (30) days after
written notice thereof from Beneficiary; provided, however, that if such
default is curable but requires work to be performed, acts to be done or
conditions to be remedied which, by their nature, cannot be performed,
done or remedied, as the case may be, within such thirty (30) day
period, no Event of Default shall be deemed to have occurred if Grantor
immediately commences and thereafter diligently and continuously
proceeds to cure the default within a reasonable period of time not to
exceed 180 days after such notice.
6.3 False Representation: If any representation, warranty or
statement made by any Grantor or others in, under or pursuant to the
Security Documents or any affidavit or other instrument executed in
connection with the Security Documents is false or misleading in any
material respect as of the date hereof.
6.4 Voluntary Bankruptcy: If Grantor shall (a) voluntarily be
adjudicated a bankrupt or insolvent, (b) procure the voluntary or
involuntary appointment of a receiver, trustee or liquidator for itself
or for all or any part of its property, (c) file any petition seeking a
discharge, rearrangement or reorganization of its debts pursuant to the
bankruptcy laws or any other debtor relief laws of the United States or
any state or any other competent jurisdiction, (d) make a general
assignment for the benefit of its creditors, or (e) generally fail to
pay its debts as they mature or shall admit in writing its inability to
pay its debts as they mature.
6.5 Involuntary Bankruptcy: If (a) a petition is filed against
any Grantor seeking relief under the bankruptcy, arrangement,
reorganization or other debtor relief laws of the United States or any
state or other competent jurisdiction, or (b) a court of competent
jurisdiction enters an order, judgment or decree appointing, without the
consent of Grantor, a receiver or trustee for it or for all or any part
of its property, and such petition, order, judgment or decree is not
dismissed with prejudice, stayed or vacated, as appropriate, within
sixty (60) days from the date of filing or entry thereof.
6.6 Destruction of Improvements: If the Mortgaged Property is
demolished, destroyed, condemned or substantially damaged or changed
(whether by casualty, condemnation or otherwise) and Grantor fails to
restore or rebuild it within a reasonable period of time with available
funds to substantially the condition existing immediately prior to such
demolition, destruction, damage or condemnation.
6.7 Foreclosure of Other Liens: If the holder of any lien or
security interest on any part of the Mortgaged Property (without hereby
implying Beneficiary's consent to the existence, placing, creating or
permitting of any such lien or security interest) posts a notice of
public sale of any portion of the Mortgaged Property or institutes
foreclosure or other proceedings for the enforcement of its remedies
under any instrument creating such lien or security interest.
6.8 Abandonment: If Grantor abandons any of the Mortgaged
Property.
6.9 Litigation: If Grantor: (a) suffers or permits any creditor
to obtain a lien upon any of the Grantor's property through legal
proceedings which is not vacated within sixty (60) days from the date
thereof; or (b) fails to have discharged within a period of ten (10)
days any attachment, sequestration, or similar writ levied upon any
property of Grantor; or (c) fails to pay immediately any final money
judgment against Grantor.
6.10 Disposition: If there occurs without the prior written
consent of Beneficiary, a "Disposition" of all or any part of the
Mortgaged Property, Leases, or beneficial interests in Grantor as
described in Paragraph 11.17 below.
6.11 Security Documents: If there occurs a default under the terms
of the Note or any of the other Security Documents, and such default is
not cured within the applicable cure period, if any, provided in such
Note or other Security Document.
6.12 Management Agreement: If Grantor defaults under the
Management Agreement, or if the Management Agreement is modified,
amended, cancelled, terminated or altered in any manner without
Beneficiary's prior written consent.
6.13 City Leases: If there occurs a default under the terms of
the Ground Lease or the Riverwalk Lease, or if either the Ground Lease
or Riverwalk Lease is modified, amended, cancelled, terminated or
altered in any manner without Beneficiary's prior written consent.
6.14 DELETED.
6.15 DELETED.
6.16 Franchise: If without Beneficiary's prior written approval,
the franchise name associated with the Mortgaged Property is other than
Marriott.
Article 7
DEFAULT AND FORECLOSURE
7.1 Remedies: If an Event of Default shall occur, Beneficiary
may, at Beneficiary's election and by or through Trustee or otherwise,
exercise any or all of the following rights, remedies and recourses:
(a) Acceleration: Declare the then unpaid principal balance
of the Note, the accrued and unpaid interest thereon, all premiums
payable thereunder, and any other accrued but unpaid portion of the
Indebtedness to be immediately due and payable, without further
notice, presentment for payment, protest, notice of protest, notice
of intent to accelerate, notice of acceleration, or any other
notice, demand or action of any nature whatsoever (each of which
hereby is expressly waived by Grantor), whereupon the same shall
become immediately due and payable.
(b) Entry on Mortgaged Property: Enter upon the Mortgaged
Property and take exclusive possession thereof and of all books,
records and accounts relating thereto. If Grantor remains in
possession of all or any part of the Mortgaged Property after an
Event of Default and without Beneficiary's prior written consent
thereto, Beneficiary may invoke any and all legal remedies to
dispossess Grantor, including specifically one or more actions for
forcible entry and detainer, trespass to try title and writ of
restitution. Nothing contained in the foregoing sentence shall,
however, be construed to impose any greater obligation or any
prerequisites to acquiring possession of the Mortgaged Property
after an Event of Default then would have existed in the absence of
such sentence.
(c) Operation of Mortgaged Property: Hold, lease, manage,
operate or otherwise use or permit the use of the Mortgaged
Property, either itself or by other persons, firms or entities, in
such manner, for such time and upon such other terms as Beneficiary
may deem to be prudent and reasonable under the circumstances
(making such repairs, alterations, additions and improvements
thereto and taking any and all other action with reference thereto,
from time to time, as Beneficiary shall deem necessary or
desirable), and apply all Rents and other amounts collected by
Trustee in connection therewith in accordance with the provisions
of Paragraph 7.8 below.
(d) Foreclosure and Sale: Sell or offer for sale the
Mortgaged Property in such portions, order and parcels as
Beneficiary may determine, with or without having first taken
possession of same, to the highest bidder for cash at public
auction. Such sale shall be made at the area designated for
foreclosure sales at the courthouse door of the county wherein the
Land (or any of that portion thereof to be sold) is located on the
first Tuesday of any month between the hours of 10:00 A.M. and 4:00
P.M. after giving notice of the time, place and terms of sale and
that portion of the Mortgaged Property to be sold, by (a) posting,
or causing to be posted, written or printed notice thereof at least
twenty-one (21) days prior to the date of said sale at the county
courthouse door thereof; (b) filing, at least twenty-one (21) days
preceding the date of sale, a copy of said posted notice in the
office of the county clerk of the county in which the sale is to be
made; and (c) at least twenty-one (21) days preceding the date of
such sale, serving written notice of the proposed sale by certified
mail on each person or entity obligated to pay the Indebtedness
according to the records of the Beneficiary; or by accomplishing
all or any of the aforesaid in such manner as permitted or required
by Section 51.002, Texas Property Code (formerly Article 3810 of
the Texas Revised Civil Statutes) relating to the sale of real
estate, or by Chapter 9 of the Texas Business and Commerce Code
relating to the sale of collateral after default by a debtor (as
said section and chapter now exist or may be hereinafter amended or
succeeded) or by any other present or subsequent enactments
relating to same. Service of the notice called for in this
Paragraph 7.1(d) shall be completed upon deposit of the notice,
enclosed in a postage-paid wrapper, properly addressed to such
person or entity obligated to pay the Indebtedness at the most
recent address, as shown by the records of the Beneficiary, in a
post office or official depository under the care and custody of
the United States Postal Service. The affidavit of any person
having knowledge of the facts to the effect that such service was
so completed shall be prima facie evidence of the fact of service.
Grantor hereby agrees that at any such sale (i) whether made under
the power herein contained, the aforesaid Section 51.002, the Texas
Business and Commerce Code, any other Legal Requirement or by
virtue of any judicial proceedings or any other legal right, remedy
or recourse, it shall not be necessary for Trustee to have
physically present, or to have constructive possession of, the
Mortgaged Property (Grantor hereby covenanting and agreeing to
deliver to Trustee any portion of the Mortgaged Property not
actually or constructively possessed by Trustee immediately upon
demand by Trustee), and the title to and right of possession of any
such property shall pass to the purchaser thereof as completely as
if the same had been actually present and delivered to purchaser at
such sale; (ii) each instrument of conveyance executed by Trustee
shall contain a general warranty of title, binding upon Grantor;
(iii) each and every recital contained in any instrument of
conveyance made by Trustee shall be taken by all courts of law and
equity as prima facie evidence of the truth and accuracy of the
matters recited therein, including, without limitation, the
identity of Beneficiary, the existence of an Event of Default, the
acceleration of the maturity of any of the Indebtedness, the
request to sell, the notice of sale, the giving of notice to all
debtors legally entitled thereto, the advertisement, time, place,
terms, manner, and conduct of such sale, the appointment of any
Successor Trustee hereunder, the receipt, distribution and
application of the money realized from such sale, and any other act
or thing having been duly done by Beneficiary or by Trustee
hereunder, and Grantor hereby ratifies and confirms every such
recital; (iv) any and all prerequisites to the validity thereof
shall be conclusively presumed to have been performed; (v) the
receipt of Trustee or of such other party or officer making the
sale shall be a sufficient discharge to the purchaser or purchasers
for his or their purchase money, and no such purchaser or
purchasers, or his or their assigns or personal representatives,
shall thereafter be obligated to see to the application of such
purchase money or be in any way answerable for any loss, misap-
plication or nonapplication thereof; (vi) to the greatest extent
permitted by law, Grantor shall be completely and irrevocably
divested of all of its right, title, interest, claim and demand
whatsoever, either at law or in equity, in and to the property
sold, and such sale shall be a perpetual bar, both at law and in
equity, against Grantor and against any and all other persons
claiming or to claim the property sold or any part thereof, by,
through or under Grantor; and (vii) to the extent and under such
circumstances as are permitted by law, Beneficiary may be a
purchaser at any such sale. The Beneficiary shall have the option
to proceed with a foreclosure without accelerating the maturity of
the Note or declaring the entire Indebtedness due, and if such
foreclosure and sale was made because of a default in part of the
Note or other Indebtedness, such sale may be made subject to the
unmatured part of the Note and other Indebtedness, and it is agreed
that such a sale, if so made, shall not in any manner affect the
unmatured part of the Note or other Indebtedness, but as to such
unmatured part this Deed of Trust shall remain in full force and
effect just as though no sale had been made under the provisions of
this paragraph. It is further agreed that several foreclosures and
sales may be made hereunder without exhausting the right for any
unmatured part of the Note or other Indebtedness, it being the
purpose to provide for a foreclosure and sale of the Mortgaged
Property for any matured portion of the Note or other Indebtedness
without exhausting the power to foreclose and to sell the Mortgaged
Property for any other part of the Indebtedness subsequently
maturing. It is further agreed that at any such sale, Beneficiary
may sell the property subject to any existing Lease or other
encumbrance against the property to be sold, to the same effect as
if Beneficiary had elected to subordinate the liens of this Deed of
Trust to such Lease or other encumbrance. It is further agreed
that upon any such foreclosure, Beneficiary shall have the right to
cancel any Insurance Policy covering all or any part of the
Mortgage Property and shall be entitled to receive any unearned
premiums from such Insurance Policy, which shall be applied in the
same manner as proceeds of sale under Paragraph 7.8 below.
(e) Receiver: Upon or at any time after commencement of
foreclosure of the lien and security interest provided for herein
or any legal proceeding hereunder, make application to a court of
competent jurisdiction as a matter of strict right and without
notice to Grantor or regard to the adequacy of the Mortgaged
Property for the repayment of the Indebtedness, for appointment of
a receiver of the Mortgaged Property, and Grantor does hereby
irrevocably consent to such appointment. Any such receiver shall
have all the usual powers and duties of receivers in similar cases,
including the full power to rent, maintain and otherwise operate
the Mortgaged Property upon such terms as may be approved by the
court, and shall apply such Rents in accordance with the provisions
of Paragraph 7.8 below.
(f) Other: Exercise any and all other rights, remedies and
recourses granted under the Security Documents (including, without
limitation, those set forth in Paragraph 9.6 hereinbelow) or now or
hereafter existing in equity, at law, by virtue of statute or
otherwise.
7.2 Separate Sales: The Mortgaged Property may be sold in one or
more parcels and in such manner and order as Trustee, in his sole
discretion, may elect, it being expressly understood and agreed that the
right of sale arising out of any Event of Default shall not be exhausted
by any one or more sales.
7.3 Remedies Cumulative, Concurrent and Nonexclusive: Beneficiary
shall have all rights, remedies and recourses granted in the Security
Documents and available at law or equity (including specifically those
granted by the Uniform Commercial Code in effect and applicable to the
Mortgaged Property, the Leases or any portion thereof) and same (a)
shall be cumulative and concurrent, (b) may be pursued separately,
successively or concurrently against Grantor or others obligated under
the Note, or against the Mortgaged Property, or against any one or more
of them, at the sole discretion of Beneficiary, (c) may be exercised as
often as occasion therefor shall arise, it being agreed by Grantor that
the exercise or failure to exercise any of same shall in no event be
construed as a waiver or release thereof or of any other right, remedy
or recourse, and (d) are intended to be, and shall be, nonexclusive.
7.4 No Conditions Precedent to Exercise of Remedies: Neither
Grantor nor any other person hereafter obligated for payment of all or
any part of the Indebtedness or fulfillment of all or any of the
Obligations shall be relieved of such obligation by reason of (a) the
failure of Trustee to comply with any request of Grantor or of any other
person so obligated to foreclose the lien of this Deed of Trust or to
enforce any provisions of the other Security Documents, (b) the release,
regardless of consideration, of the Mortgaged Property or the addition
of any other property to the Mortgaged Property, (c) any agreement or
stipulation between any subsequent owner of the Mortgaged Property and
Beneficiary extending, renewing, rearranging or in any other way
modifying the terms of the Security Documents without first having
obtained the consent of, given notice to or paid any consideration to
Grantor or such other person, and in such event, Grantor and all such
other persons shall continue to be liable to make payment according to
the terms of any such extension or modification agreement unless
expressly released and discharged, in writing, by Beneficiary, or (d) by
any other act or occurrence, save and except the complete payment of the
Indebtedness and the complete fulfillment of all of the Obligations.
7.5 Release of and Resort to Collateral: Beneficiary may release,
regardless of consideration, any part of the Mortgaged Property without,
as to the remainder, in any way impairing, affecting, subordinating or
releasing the lien or security interests created in or evidenced by the
Security Documents or their stature as a first and prior lien and
security interest in and to the Mortgaged Property. For payment of the
Indebtedness, Beneficiary may resort to any other security therefor held
by Trustee, in such order and manner as Beneficiary may elect.
7.6 Waiver of Redemption, Notice, Marshalling of Assets and
Sureties: To the greatest extent permitted by law, Grantor hereby
irrevocably and unconditionally waives and releases (a) all benefit that
might accrue to Grantor by virtue of any present or future law exempting
the Mortgaged Property from attachment, levy or sale on execution or
providing for any appraisement, valuation, stay of execution, exemption
from civil process, redemption or extension of time for payment, (b) all
notices of any Event of Default or of Trustee's election to exercise or
his actual exercise of any right, remedy or recourse provided for under
the Security Documents, (c) any right to a marshalling of assets or a
sale in inverse order of alienation, and (d) any right or remedy which
Grantor may have or be able to assert pursuant to Chapter 34 of the
Business and Commerce Code of the State of Texas pertaining to the
rights and remedies of sureties.
7.7 Discontinuance of Proceedings: In case Beneficiary shall have
proceeded to invoke any right, remedy or recourse permitted under the
Security Documents and shall thereafter elect to discontinue or abandon
same for any reason, Beneficiary shall have the unqualified right so to
do and, in such an event, Grantor and Beneficiary shall be restored to
their former positions with respect to the Indebtedness, the
Obligations, the Security Documents, the Mortgaged Property and
otherwise, and the rights, remedies, recourses and powers of Beneficiary
shall continue as if same had never been invoked.
7.8 Application of Proceeds: The proceeds of any sale of, and the
Rents and other amounts generated by the holding, leasing, operation or
other use of, the Mortgaged Property or the Leases shall be applied by
Beneficiary or Trustee (or the receiver, if one is appointed), to the
extent that funds are so available therefrom, in the following orders of
priority:
(a) First, to the payment of the costs and expenses of taking
possession of the Mortgaged Property and of holding, using,
leasing, repairing, improving and selling the same, including,
without limitation, (i) reasonable trustees' and receivers' fees
based upon the bid price and other monies handled (which shall be
in addition to attorney's fees and other expenses); (ii) court
costs, (iii) attorneys' and accountants' fees, (iv) costs of
advertisement, (v) Beneficiary's costs of having the Mortgaged
Property appraised, and (vi) the payment of any and all
Impositions, liens, security interests or other rights, titles or
interests of this Deed of Trust (except those to which the
Mortgaged Property has been sold subject to, without in any way
implying Beneficiary's prior consent to the creation thereof); and
(b) Second, to the payment of the matured Indebtedness that
is then due and payable, discharging first that part of the matured
Indebtedness arising under the covenants or agreements contained in
the Security Documents and not evidenced by the Note or any other
note, then to the matured Indebtedness evidenced by notes other
than the Note, and then to the matured Indebtedness evidenced by
the Note, or in such other order as Beneficiary may elect; and
(c) Third, to the payment of any indebtedness or obligation
of Grantor to Beneficiary secured by a subordinate deed of trust on
or security interest in the Mortgaged Property; and
(d) Fourth, to Grantor or any other party lawfully entitled
to receive the same, in the order and in amounts as determined by
law.
Article 8
CONDEMNATION
8.1 General: Immediately upon its obtaining knowledge of the
institution or the threatened institution of any proceeding for the
condemnation of the Mortgaged Property or any part thereof, Grantor
shall notify Trustee and Beneficiary of such fact. Grantor shall then,
if requested by Beneficiary, file or defend its claim thereunder and
prosecute same with due diligence to its final disposition and shall
cause any awards or settlements to be paid over to Beneficiary for
disposition pursuant to the terms of this Deed of Trust. Grantor may be
the nominal party in such proceeding, but Beneficiary shall be entitled
to participate in same and to be represented therein by counsel of its
own choice; and Grantor will deliver, or cause to be delivered, to
Beneficiary such instruments as may be requested by it from time to time
to permit such participation. If the Mortgaged Property is taken or
diminished in value, or if a consent settlement is entered by or under
threat of such proceeding, the award or settlement payable to Grantor by
virtue of its interest in the Mortgaged Property shall be, and by these
presents is, assigned, transferred and set over unto Beneficiary to be
held by it, subject to the lien and security interest of this Deed of
Trust, to be applied as follows.
8.2 Application of Proceeds: All proceeds received by Beneficiary
with respect to a taking or a diminution in value of the Mortgaged
Property shall be applied in the following order of priority:
(a) First, to reimburse Trustee or Beneficiary for all costs
and expenses, including appraisal costs and reasonable attorneys'
fees, incurred in connection with collection of the said proceeds;
(b) Thereafter, the balance, if any, shall be applied, at the
election of Beneficiary in its sole discretion either (i) to the
payment of the Indebtedness in such manner and in such order as
Beneficiary may elect in its sole discretion until paid in full, or
(ii) to the rebuilding, restoration or repair of the Mortgaged
Property; and in either event, with the remaining balance, if any,
to be paid to Grantor or any other party lawfully entitled to
receive the same, in the order and in amounts as determined by law;
provided, however, that if Beneficiary elects to allow such
proceeds to be applied to the rebuilding, restoration or repair of
the Mortgaged Property, the provisions of Paragraph 4.8 hereinabove
shall determine the conditions precedent for utilizing such
proceeds for such purpose, and any balance remaining shall be
applied to the payment of the Indebtedness.
Article 9
SECURITY AGREEMENT
9.1 Security Interest and Assignment: This Deed of Trust shall be
construed as a deed of trust on real property and it shall also
constitute and serve as a "Security Agreement" on personal property and
fixtures within the meaning of, and shall constitute until the grant of
this Deed of Trust shall terminate, as provided in Article 2
hereinabove, a first and prior security interest under the Uniform
Commercial Code (being Chapter 9 of the Texas Business and Commerce
Code, as to property within the scope thereof and situated in the State
of Texas and being sometimes referred to herein as the "Code") with
respect to the Personalty, Fixtures, Plans, Leases, Rents and any other
portion of the Mortgaged Property constituting personal property or a
fixture within the meaning of said Code. To this end, Grantor has
GRANTED, BARGAINED, CONVEYED, ASSIGNED, TRANSFERRED and SET OVER, and by
these presents, does GRANT, BARGAIN, CONVEY, ASSIGN, TRANSFER and SET
OVER, unto Trustee and unto Beneficiary a first and prior security
interest in all of Grantor's right, title and interest in, to, under and
with respect to the Personalty, Fixtures, Plans, Leases, Rents and any
other portion of the Mortgaged Property constituting personal property
or a fixture within the meaning of said Code, to secure the full and
timely payment of the Indebtedness and the full and timely performance
and discharge of the Obligations. Grantor has executed an Assignment of
Leases and Rents (the "Rent Assignment") of even date herewith also
granting to Beneficiary an absolute assignment of certain leases, rents
and cash collateral described therein, it being the express intention of
Beneficiary and Grantor that to the extent of any irreconcilable
conflicts between the Deed of Trust and the Rent Assignment with respect
to the Leases and Rents, the Rent Assignment shall control.
9.2 Financing Statements: Grantor hereby agrees with Beneficiary
to execute and deliver to Beneficiary, in form and substance
satisfactory to Beneficiary, such "Financing Statements" and such
further assurances as Beneficiary may from time to time reasonably
consider necessary to create, perfect and preserve Beneficiary's
security interest and/or assignment herein granted, and Beneficiary may
cause such statements and assurances to be recorded and filed, at such
times and places as may be required or permitted by law, to so create,
perfect and preserve such security interest. Beneficiary, at any time
after delivery of this Deed of Trust, may sign one or more copies hereof
in order that such copies may be used as Financing Statements, and such
signature by Beneficiary may be placed between the last sentence of this
Deed of Trust and the Grantor's acknowledgment, or may follow the
Grantor's acknowledgment; provided, that such signature need not be
acknowledged and it is not necessary to the effectiveness hereof as a
deed of trust, mortgage, assignment, pledge or security agreement or
(unless otherwise required by law) as a financing statement.
9.3 Uniform Commercial Code Remedies: Beneficiary and/or Trustee
shall have all the rights, remedies and recourses with respect to the
Personalty, Fixtures, Plans, Leases and Rents and to any other portion
of the Mortgaged Property, afforded to it by the aforesaid Code, in
addition to, and not in limitation of, the other rights, remedies and
recourses afforded by this Deed of Trust and the Security Documents.
9.4 No Obligation of Trustee: The assignment and security
interest herein granted shall not be deemed or construed to constitute
Trustee or Beneficiary as a trustee in possession of the Mortgaged
Property, to obligate Trustee or Beneficiary to lease the Mortgaged
Property or attempt to do same, or to take any action, incur any
expenses or perform or discharge any obligation, duty or liability
whatsoever under any of the Leases or otherwise.
9.5. Fixture Filing: This Deed of Trust shall constitute a
"fixture filing" for the purposes of Chapter 9 of the Code with respect
to those items of the Mortgaged Property that are, or are to become,
fixtures related to the Land, and information concerning the security
interest herein granted may be obtained from Beneficiary, as secured
party, at the address stated below. The address of the Grantor, as
debtor, is stated below.
9.6 Foreclosure of Security Interest: If an Event of Default
shall occur, Beneficiary may elect, in addition to exercising any and
all other rights, remedies and recourses set forth in Article 7 or
referred to in Paragraph 9.3 hereinabove, to proceed in the manner set
forth in Section 9.501(d) of Chapter 9 of the Code relating to the
procedure to be followed when a Security Agreement covers both real and
personal property. Except as otherwise set forth in this Paragraph 9.6,
at any foreclosure and sale, as described in Paragraph 7.1(d)
hereinabove, it shall be deemed that the Trustee proceeded under such
Section 9.501(d) as to types of property covered thereby and that such
sale passed title to all of the Mortgaged Property and other property
described herein to the purchaser thereat, including, without
limitation, the Personalty, Plans, Leases and Rents. Beneficiary acting
by and through the Trustee or any other representative, may elect,
either prior to or at such sale, not to proceed under such Section
9.501(d) by notifying Grantor of the manner in which Beneficiary intends
to proceed with regard to the Personalty, Plans, Leases and Rents.
Article 10
CONCERNING THE TRUSTEE
10.1 No Required Action: Trustee shall not be required to take
any action toward the execution and enforcement of the trust hereby
created or to institute, appear in or defend any action, suit or other
proceeding in connection therewith where, in his opinion, such action
will be likely to involve him in expense or liability, unless requested
so to do by a written instrument signed by Beneficiary and, if Trustee
so requests, unless tendered security and indemnity satisfactory to him
against any and all cost, expense and liability arising therefrom.
Trustee shall not be responsible for the execution, acknowledgement or
validity of the Security Documents, or for the proper authorization
thereof, or for the sufficiency of the lien and security interest
purported to be created hereby, and makes no representation in respect
thereof or in respect of the rights, remedies and recourses of
Beneficiary.
10.2 Certain Rights: With the approval of Beneficiary, Trustee
shall have the right to take any and all of the following actions: (a)
to select, employ and advise with counsel (who may be, but need not be,
counsel for Beneficiary) upon any matters arising hereunder, including
the preparation, execution and interpretation of the Security Documents,
and shall be fully protected in relying as to legal matters on the
advise of counsel, (b) to execute any of the trusts and powers hereof
and to perform any duty hereunder, either directly or through his agents
or attorneys, (c) to select and employ, in and about the execution of
his duties hereunder, suitable accountants, engineers and other experts,
agents and attorneys-in-fact, either corporate or individual, not
regularly in the employ of Trustee, and Trustee shall not be answerable
for any act, default or misconduct of any such accountant, engineer or
other expert, agent or attorney-in-fact if selected with reasonable
care, or for any error of judgment or act done by Trustee in good faith,
circumstances whatsoever, except for Trustee's gross negligence or bad
faith, and (d) any and all other lawful action as Beneficiary may
instruct Trustee to take to protect or enforce Beneficiary's rights
hereunder. Trustee shall not be personally liable in case of entry by
him, or anyone entering by virtue of the powers herein granted him, upon
the Mortgaged Property for debts contracted or liability or damages
incurred in the management or operation of the Mortgaged Property.
Trustee shall have the right to rely on any instrument, document or
signature authorizing or supporting any action taken or proposed to be
taken by him hereunder, believed by him in good faith to be genuine.
Trustee shall be entitled to reimbursement for expenses incurred by him
in the performance of his duties hereunder and to reasonable
compensation for such of his services hereunder as shall be rendered.
Grantor will from time to time pay the compensation due to Trustee
hereunder and reimburse Trustee for, and save him harmless against, any
and all liability and expenses which may be incurred by him in the
performance of his duties.
10.3 Retention of Moneys: All moneys received by Trustee shall,
until used or applied as herein provided, be held in trust for the
purposes for which they were received, but need not be segregated in any
manner from any other moneys (except to the extent required by law), and
Trustee shall be under no liability for interest on any moneys received
by him hereunder.
10.4 Successor Trustees: Trustee may resign by the giving of
notice of such resignation, in writing, to Beneficiary. If Trustee
shall die, resign or become disqualified from acting in the execution of
this trust, or shall fail or refuse to execute the same when requested
by Beneficiary so to do, or if for any reason Beneficiary shall prefer
to appoint a substitute trustee to act instead of the forenamed Trustee,
Beneficiary shall have full power to appoint a substitute trustee and,
if preferred, several substitute trustees in succession, who shall
succeed to all the estates, rights, powers and duties of the forenamed
Trustee. Such appointment does not need to be recorded and has no
requirements of formality other than it must be evidenced in writing.
Such appointment may be executed by any authorized agent of Beneficiary,
and if such Beneficiary be a corporation and such appointment be
executed in its behalf by any officer of such corporation, such
appointment shall be conclusively presumed to be executed with authority
and shall be valid and sufficient without proof of any action by the
Board of Directors or any superior officer of the corporation. Grantor
hereby ratifies and confirms any and all acts which the forenamed
Trustee, or his successor or successors in this trust, shall do lawfully
by virtue hereof.
10.5 Perfection of Appointment: Should any deed, conveyance or
instrument of any nature be required from Grantor by any successor
trustee to more fully and certainly vest in and confirm to such new
trustee such estates, rights, powers and duties, then upon request by
such trustee, any and all such deeds, conveyances and instruments shall
be made, executed, acknowledged and delivered and shall be caused to be
recorded and/or filed by Grantor.
10.6 Succession Instruments: Any new trustee appointed pursuant
to any of the provisions hereof shall, without any further act, deed or
conveyance, become vested with all the estates, properties, rights,
powers and trusts of its or his predecessor in the rights hereunder with
like effect as if originally named as Trustee herein; but nevertheless,
upon the written request of Beneficiary or of the successor trustee, the
Trustee ceasing to act shall execute and deliver an instrument
transferring to such successor trustee, upon the trusts herein
expressed, all the estates, properties, rights, powers and trusts of the
Trustee so ceasing to act, and shall duly assign, transfer and deliver
any of the property and moneys held by such Trustee to the successor
trustee so appointed in its or his place.
10.7. No Representation by Trustee or Beneficiary: By accepting
or approving anything required to be observed, performed or fulfilled or
to be given to Trustee or Beneficiary pursuant to the Security
Documents, including (but not limited to) any officer's certificate,
balance sheet, statement of profit and loss or other financial
statement, survey, appraisal or insurance policy, neither Trustee nor
Beneficiary shall be deemed to have warranted, consented to or affirmed
the sufficiency, legality, effectiveness or legal effect of the same or
of any term, provision or condition thereof, and such acceptance or
approval thereof shall not be or constitute any warranty, consent or
affirmation with respect thereto by Trustee or Beneficiary.
Article 11
MISCELLANEOUS
11.1 Performance at Grantor's Expense: The cost and expense of
performing or complying with any and all of the Obligations shall be
borne solely by Grantor, and no portion of such cost and expense shall
be, in any way and to any extent, credited against any installment on or
portion of the Indebtedness. If the Indebtedness shall be collected by
legal proceedings, whether through a probate or bankruptcy court or
otherwise, or shall be placed in the hands of an attorney for collection
after default or maturity, Grantor agrees to pay the attorneys' and
collection fees in the amount set forth in the Note, and such fee shall
be a part of the Indebtedness.
11.2 Survival of Obligations: Each and all of the Obligations
shall survive the execution and delivery of the Security Documents, and
the consummation of the Loan called for therein, and shall continue in
full force and effect until the Indebtedness shall have been paid in
full.
11.3 Notices: All notices or other communications required or
permitted to be given pursuant to this Deed of Trust shall be in writing
and shall be considered as properly given if mailed by first class
United States mail, postage prepaid, registered or certified with return
receipt requested, or by delivering same in person to the intended
addressee by a reputable overnight delivery service, or by prepaid
telegram. Notice so mailed shall be effective and deemed received upon
its deposit in the custody of the U.S. Postal Service (whether or not
actually received). Notice given in any other manner shall be effective
only if and when received by the addressee. For purposes of notice, the
addresses of the parties shall be as follows:
If to Beneficiary: Connecticut General Life Insurance
Corporation
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attn: Real Estate Investment Service, S-319
With copy to: CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, Connecticut 06152-2215
Attn: Real Estate Division, S-215A
If to Grantor: MRI Business Properties Fund, Ltd. II
c/o NPI Equity Investments II, Inc.
Attn: Peter Braverman, Vice President
100 Jericho Quadrangle, Suite 214
Jericho, New York 11753
provided, however, that either party shall have the right to change its
address for notice hereunder to any other location within the
continental United States by the giving of thirty (30) days' notice to
the other party in the manner set forth hereinabove.
11.4 No Waiver: Any failure by Trustee or Beneficiary to insist,
or any election by Trustee or Beneficiary not to insist, upon strict
performance by Grantor of any of the terms, provisions or conditions of
the Security Documents shall not be deemed to be a waiver of same or of
any other term, provision or condition thereof, and Trustee or Benefi-
ciary shall have the right at any time or times thereafter to insist
upon strict performance by Grantor of any and all such terms, provisions
and conditions.
11.5 Beneficiary's Right to Perform the Obligations: If Grantor
shall fail, refuse or neglect to make any payment or perform any act
required by the Security Documents, then at any time thereafter and
without notice to or demand upon Grantor and without waiving or
releasing any other right, remedy or recourse Beneficiary may have
because of same, Beneficiary may (but shall not be obligated to) make
such payment or perform such act for the account of and at the expense
of Grantor and shall have the right to enter upon the Land and into the
Buildings for such purpose and to take all such action thereon and with
respect to the Mortgaged Property as it may deem necessary or
appropriate. If Beneficiary shall elect to pay any Imposition or other
sums due with reference to the Mortgaged Property, Beneficiary 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
Security Documents, Beneficiary 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. Grantor shall indemnify Beneficiary for all
losses, expenses, damages, claims and causes of action, including
reasonable attorneys' fees, incurred or accruing by reason of any acts
performed by Beneficiary pursuant to the provisions of this Paragraph,
or by reason of any other provision in the Security Documents, except
for the gross negligence or willful misconduct of Beneficiary. All sums
paid by Beneficiary pursuant to this Paragraph, and all other sums
expended by Beneficiary to which it shall be entitled to be indemnified,
together with interest thereon at the maximum rate allowed by law from
the date of such payment or expenditure, shall constitute additions to
the Indebtedness, shall be secured by the liens, security interests and
rights created by the Security Documents and shall be paid by Grantor to
Beneficiary upon demand.
11.6 Covenants Running with the Land: All Obligations contained
in the Security Documents are intended by the parties to be, and shall
be construed as, covenants running with the Mortgaged Property.
11.7 Successors and Assigns: All of the terms of the Security
Documents shall apply to, be binding upon and inure to the benefit of
the parties thereto, their successors, assigns, heirs and legal
representatives, and all other persons claiming by, through or under
them.
11.8 Severability: The Security Documents are intended to be
performed in accordance with, and only to the extent permitted by, all
applicable Legal Requirements. If any provision of any of the Security
Documents or the application thereof to any person or circumstance
shall, for any reason and to any extent, be invalid or unenforceable,
then neither the remainder of the instrument in which such provision is
contained nor the application of such provision to other persons or
circumstances nor the other instruments referred to hereinabove shall be
affected thereby, but rather, shall be enforced to the greatest extent
permitted by law. Reference is hereby made to the paragraph of the Note
concerning compliance with usury laws, for the purpose of incorporating
herein the terms and provisions of such paragraph of the Note.
11.9 Entire Agreement and Modification: The Security Documents
contain the entire agreements between the parties relating to the
subject matter hereof and thereof, and all prior agreements relative
thereto which are not contained herein or therein are terminated. The
Security Documents may not be amended, revised, waived, discharged,
released or terminated orally, but only by a written instrument or
instruments executed by the party against which enforcement of the
amendment, revision, waiver, discharge, release or termination is
asserted. Any alleged amendment, revision, waiver, discharge, release
or termination which is not so documented shall not be effective as to
any party.
11.10 Counterparts: This Deed of Trust may be executed in any
number of counterparts, each of which shall be an original, but all of
which together shall constitute but one instrument.
11.11 Applicable Law and Limitation on Interest: The Security
Documents shall be governed by and construed according to the laws of
the State of Texas from time to time in effect except to the extent
United States federal law permits the Beneficiary to contract for,
charge or receive a greater amount of interest. It is expressly
stipulated and agreed to be the intent of Grantor and Beneficiary to at
all times comply strictly with applicable usury law now or hereafter
governing the consideration payable under the Note, the loan evidenced
thereby, this Deed of Trust, the other Security Documents, and any other
agreements between the parties with respect to the Mortgaged Property.
If the applicable law is ever revised, repealed or judicially
interpreted so as to render usurious any consideration called for,
contracted for, charged, taken, reserved or received with respect to the
Note, the Security Documents, the loan evidenced by the Note, or any
other agreement between Grantor and Beneficiary, or if Beneficiary's
exercise of the option to accelerate the maturity of the Note or if any
prepayment by Grantor results in Grantor having paid any interest in
excess of that permitted by law, then notwithstanding anything to the
contrary in this or any other agreement, it is Grantor's and
Beneficiary's express intent and agreement that all excess amounts
theretofore collected by Beneficiary be credited on the principal
balance of the Note (or, if the Note and all other Indebtedness have
been paid in full, refunded to Grantor), and the provisions of the Note
and the Security Documents shall immediately be deemed reformed and the
amounts thereafter collectible hereunder and thereunder reduced, without
the necessity of the execution of any new documents, so as to comply
with the then applicable law, but so as to permit the recovery of the
greatest amount otherwise called for hereunder or thereunder. All sums
paid or agreed to be paid by Grantor to Beneficiary for the use,
forbearance or detention of the Indebtedness shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full term of such Indebtedness until payment in
full so that the rate or amount of interest on account of such Indebted-
ness does not exceed the usury ceiling from time to time in effect and
applicable to the loan for so long as debt is outstanding under the
loan.
11.12 Subrogation: All or a portion of the proceeds of the Note
have been used to extinguish, extend or renew indebtedness heretofore
existing against the Mortgaged Property, as evidenced by the following
documents (collectively, the "Prior Loan Documents"):
(a) That certain $19,500,000.00 Promissory Note dated
December 20, 1979, executed by Mariner/San Antonio Riverwalk Joint
Venture and payable to the order of Connecticut General Life
Insurance Company, as modified, and the following documents
evidencing or securing said Note: (i) the Deed of Trust and
Security Agreement dated December 20, 1979, recorded in Volume
1802, Page 404 of the Real Property Records of Bexar County, Texas;
(ii) Assignment of Lessor's Interest in Leases dated December 20,
1979, recorded in Volume 1802, Page 430 of the Real Property
Records of Bexar County, Texas; (iii) Modification of Deed of Trust
dated December 20, 1985, executed by Beneficiary and Mariner/MRI
Associates No. 2, recorded in Volume 3951, Page 1445 of the Real
Property Records of Bexar County, Texas; and (iv) Second
Modification of Deed of Trust and Other Loan Documents dated
September 30, 1993, recorded in Volume 5827, Page 615, Real
Property Records of Bexar County, Texas; and
(b) That certain $2,500,000.00 Promissory Note dated
September 30, 1993, executed by Grantor and payable to the order of
Beneficiary, and the following documents evidencing or securing
said Note: (i) Deed of Trust, Security Agreement and Financing
Statement recorded in Volume 5827, Page 548 of the Real Property
Records of Bexar County, Texas; (ii) Assignment of Leases and Rents
dated September 30, 1993, recorded in Volume 5827, Page 600 of the
Real Property Records of Bexar County, Texas;
and to the extent of such funds so used, Beneficiary, the Indebtedness
and this Deed of Trust shall be subrogated to all of the rights, claims,
liens, title and interests heretofore existing against the Mortgaged
Property to secure the indebtedness so extinguished, extended or
renewed, and the former rights, claims, liens, title and interests, if
any, are not waived, but rather, are continued in full force and effect
in favor of Beneficiary and are merged with the lien and security
interest created herein as cumulative security for the repayment of the
Indebtedness and the satisfaction of the Obligations. To the extent the
liens securing the Indebtedness constitute purchase money liens, all
repayments of the shall be applied first to the Indebtedness that is not
secured by purchase money liens. Notwithstanding the provisions in this
paragraph to the contrary, to the extent of any conflict between the
terms and provisions contained in this Deed of Trust, the Note or any
other Security Documents, and the terms and provisions contained in the
Prior Loan Documents, the terms and provisions of this Deed of Trust and
the Security Documents shall control.
11.13 No Partnership: Nothing contained in the Security Documents
is intended to create any partnership, joint venture or association
between Grantor and Beneficiary, or in any way make Beneficiary a co-
principal with Grantor with reference to the Mortgaged Property, and any
inferences to the contrary are hereby expressly negated.
11.14 No Homestead: With respect to each Grantor who is an
individual, each such individual represents and warrants to Beneficiary
that no part of the Mortgaged Property constitutes any part of his
business or residential homestead.
11.15 Beneficiary's Consent: Unless otherwise specifically stated
herein, in any instance hereunder where Beneficiary's approval or
consent is required or the exercise of Beneficiary's judgment is
required, the granting or denial of such approval or consent and the
exercise of such judgment shall be within the sole discretion of
Beneficiary, and Beneficiary shall not, for any reason or to any extent,
be required to grant such approval or consent or exercise such judgment
in any particular manner regardless of the reasonableness of either the
request or Beneficiary's judgment. To the extent Grantor requests
Beneficiary's consent to any item requiring Beneficiary's consent under
this Deed of Trust or any other Security Document, Grantor shall
reimburse Beneficiary upon demand for any costs and expenses incurred by
Beneficiary in connection with the review of such item and the approval
or denial of the Grantor's request, including but not limited to
reasonable attorneys' fees.
11.16 Headings and Construction: The Article, Paragraph and
Subparagraph entitlements hereof are inserted for convenience of
reference only and shall in no way alter, modify or define or be used in
construing the text of such Articles, Paragraphs or Subparagraphs.
Words of any gender used in this Deed of Trust shall be held and
construed to include any other gender and words in the singular number
shall be held to include the plural, and vice versa, unless the context
requires otherwise. The words "herein," "hereof," "hereunder" and other
similar compounds of the word "here" when used in this Deed of Trust
shall refer to the entire Deed of Trust and not to any particular
provision or section.
11.17 Disposition of Mortgaged Property, Leases, or Beneficial
Interest in Grantor: The loan represented by the Note has been extended
personally to Grantor, and shall not be considered to run to or with the
Mortgaged Property, or with the ownership of the Mortgaged Property, or
to be an appurtenance thereto. It is expressly acknowledged, covenanted
and agreed that there may be no sale, lease, exchange, assignment,
conveyance, encumbrance, mortgage, alienation, transfer or other
disposition (herein collectively called a "Disposition") of (a) all or
any portion of the Mortgaged Property (except for space leases to
tenants in accordance with the terms of the Rent Assignment), or the
Leases, or the Rents, or any interest therein, including undivided
interests, or (b) all or any part of the beneficial, legal or equitable
ownership interest in Grantor (if Grantor is a corporation, partnership,
joint venture, trust or other type of business association or legal
entity) or a general partner of Grantor (including Fox and Montgomery as
those terms are defined below), unless either Beneficiary has provided
its prior written consent thereto, or such consent is expressly not
required under the provisions of this Deed of Trust. A termination of
Grantor shall be deemed a Disposition under clause (b) above. A
reorganization, consolidation, dissolution, liquidation, termination, or
merger of or involving Grantor or a general partner of Grantor shall be
deemed a Disposition under clause (b) above. In the event there occurs
a Disposition described above without Beneficiary's prior written
consent, then Beneficiary may, at Beneficiary's option, accelerate the
maturity of the Indebtedness and enforce any and all of Beneficiary's
rights, remedies and recourses set forth in this Deed of Trust upon the
occurrence of an Event of Default, including the right to collect any
prepayment premiums resulting therefrom. It is acknowledged and agreed
that the Beneficiary may arbitrarily withhold, at its sole option, its
consent to any Disposition as described above, and in determining
whether to grant or withhold such consent, Beneficiary may, inter alia,
(i) consider the creditworthiness of the party to whom such Disposition
will be made and its management ability with respect to the Mortgaged
Property, (ii) consider whether or not the security for repayment of the
Indebtedness and the performance of the Obligations, or Beneficiary's
ability to enforce its rights, remedies and recourses with respect to
such security, will be impaired in any way by the proposed Disposition,
(iii) require as a condition to granting such consent, an increase in
the rate of interest payable under the Note, (iv) require that
Beneficiary be reimbursed for all costs and expenses incurred by
Beneficiary in investigating the creditworthiness and management ability
of the party to whom such Disposition will be made and in determining
whether Beneficiary's security will be impaired by the proposed
Disposition, (v) require the payment to Beneficiary of a transfer fee to
cover the cost of documenting the Disposition in its records, (vi)
require the payment of its reasonable attorney's fees in connection with
such Disposition, (vii) require the express assumption of payment of the
Indebtedness and performance of the Obligations by the party to whom
such Disposition will be made (with or without the release of Grantor
from liability for such Indebtedness and Obligations), (viii) require
the execution of assumption agreements, management agreements with
management companies approved by Beneficiary, modification agreements,
supplemental Security Documents and financing statements satisfactory in
form and substance to Beneficiary, (ix) require endorsements (to the
extent available under applicable law) to any existing mortgage title
insurance policies or construction binders insuring Beneficiary's liens
and security interests covering the Mortgaged Property, and (x) require
additional security for the payment of the Indebtedness and performance
of the Obligations. Grantor agrees to provide Beneficiary at least
thirty (30) days prior written notice of any proposed Disposition
together with complete information regarding such Disposition.
Beneficiary's failure to respond or otherwise consent within such thirty
(30) day period shall be deemed a denial of the request for approval.
Beneficiary's failure to exercise its remedies hereunder for a disap-
proved or unapproved Disposition shall not be construed as a waiver of
Beneficiary's right to subsequently exercise such remedies, nor shall
Beneficiary's acceptance of one or more monthly installment payments of
the Indebtedness constitute a waiver of Beneficiary's right to
subsequently exercise such remedies. Beneficiary's approval of a
Disposition shall not be construed as a waiver of the provisions hereof
with respect to any subsequent or other Disposition. The rights and
options herein granted to Beneficiary may be exercised at Beneficiary's
sole option and discretion, need not be based upon an increased business
risk or any other risk, and are an integral and valuable part of the
security given to Beneficiary.
11.17.1 One Time Transfer: Consistent with the terms of
Paragraph 11.17, Beneficiary hereby agrees to consent to a one-time
Disposition arising from a sale, transfer or assignment in whole but not
in part, of the interests of MRI Business Properties Fund, Ltd. II in
the Mortgaged Property to any third party purchaser (the "Purchaser"),
provided that:
(a) The Purchaser must have qualifications and
creditworthiness that equal or exceed those of MRI Business
Properties Fund, Ltd. II, and must have specific related commercial
real estate experience.
(b) There must not exist an Event of Default under this Deed
of Trust or any of the Security Documents at the time of the
Disposition.
(c) An inspection of the Mortgaged Property by Beneficiary or
Beneficiary's designee must show that all reasonably necessary
maintenance on or damage or destruction to the Mortgaged Property
has been completed or repaired, as applicable.
(d) Purchaser must be approved in writing by Beneficiary as
a "Qualified Real Estate Investor", which is hereby defined to mean
any reputable affiliate of MRI Business Properties Fund, Ltd. II,
general partner of MRI Business Properties Fund, Ltd. II,
corporation, partnership, joint venture, joint-stock company,
trust, pension fund or individual, that has a minimum net worth of
$50,000,000.00, that has real estate assets of $120,000,000.00,
that has liquid assets of $5,000,000.00, that is based in the
United States, that is free from any bankruptcy, reorganization or
insolvency proceeds or any criminal charges or proceedings, and
that shall not have been, at the time of the proposed Disposition
or in the past, a litigant, plaintiff or defendant in any suit
brought against or by Beneficiary or any of Beneficiary's
affiliates. Beneficiary agrees to be reasonable in its review of
the qualifications of a proposed Qualified Real Estate Investor.
(e) For the preceding twelve-month (12) period, the gross
income from the Mortgaged Property less all operating expenses
other than principal and interest payable on the Note and any
Subordinate Loan under Paragraph 5.5, is greater than 1.75 times
the aggregate principal and interest payable on the Note and any
Subordinate Loan during that twelve-month period.
(f) Beneficiary shall have received and approved such
subordination, assignment and consent agreements as Beneficiary
deems necessary regarding any management agreements and franchise
agreement hereinbelow required for the Mortgaged Property, and
either: (i) Marriott shall continue to be the franchise name
associated with the hotel operated on the Mortgaged Property (the
"Hotel") and Marriott Hotel Services, Inc. shall continue to manage
the Hotel, all pursuant to the existing Management Agreement; or
(ii) Marriott continues to be the franchise name associated with
the Hotel pursuant to a franchise agreement in form and substance
acceptable to Beneficiary, and either (A) the Mortgaged Property
will be owned by an Eligible Manager (as hereinafter defined) or
(B), if the Purchaser is not an Eligible Manager, the Hotel will be
managed by an Eligible Manager pursuant to a management agreement
in form and substance acceptable to Beneficiary; or (iii) if the
franchise name to be associated with the Hotel is other than
Marriott, then such new franchise name must be approved in writing
by Beneficiary and must be used by the Purchaser of the Mortgaged
Property pursuant to a franchise agreement in form and substance
acceptable to Beneficiary, and the Hotel must be either: (A) owned
by an Eligible Manager, or (B) managed by an Eligible Manager
pursuant to a management agreement in form and substance acceptable
to Beneficiary. The term "Eligible Manager" is defined to be a
professional hotel management company or partnership which manages
a minimum of 1,500 hotel rooms in six (6) or more full service
hotels providing a level of service substantially similar to the
services provided to guests of the Hotel as of the date of this
Deed of Trust.
(g) At least thirty (30) days prior to such Disposition,
Grantor shall deliver to Beneficiary, at no expense to Beneficiary,
written notice of such proposed Disposition, all of the material
provisions of such Disposition, including, without limitation, the
purchase price, the proposed date of the Disposition, the name of
the Purchaser, the net worth of the Purchaser and complete
financial statements of the Purchaser in detail satisfactory to
Beneficiary, detailed and complete information about the
background, business and business experience of the Purchaser and
its ownership and operation of similar type properties (including,
without limitation, related commercial real estate experience),
Purchaser's address, intentions of the Purchaser regarding the
management of the Mortgaged Property (including, without
limitation, evidence that the required management and/or franchise
agreements satisfactory to Beneficiary will be in place prior to,
or contemporaneously with, the closing of the Disposition), and
such other information as Beneficiary may reasonably require to
investigate the creditworthiness and management ability and other
aspects of the Purchaser and its intentions with respect to the
Mortgaged Property.
(h) Borrower and Purchaser shall provide Beneficiary with
such evidence as Beneficiary may require to assure Beneficiary that
Purchaser shall fulfill each and every obligation of Grantor under
the Note, this Deed of Trust and the other Security Documents, and
that the Disposition shall not affect or impair Beneficiary's
security, rights and remedies under the Security Documents.
Without limiting the foregoing, the Purchaser must deliver to
Beneficiary an Environmental Indemnification Agreement executed by
Purchaser and any holders of substantial beneficial or ownership
interest in Purchaser that are designated by Beneficiary in its
discretion, that indemnifies Beneficiary and its agents to the same
extent as provided in the Environmental Indemnity Agreement
included within the definition of Security Documents under
Paragraph 1.1 above.
(i) The notice received under subparagraph (g) above shall be
accompanied by a payment to Beneficiary of a non-refundable fee in
the amount of one percent (1%) of the then outstanding balance of
the Note in cash or certified check, to be retained by Beneficiary
in order to induce Beneficiary to allow the proposed Purchaser to
assume the obligations of Grantor under the Note, this Deed of
Trust, and the other Security Documents, and such fee shall be
returned to Grantor if Beneficiary disapproves of such Disposition.
(j) The loan-to-value ratio of the Note based on a then
current appraisal obtained at Grantor's expense and acceptable to
Beneficiary must not exceed sixty percent (60.0%).
(k) Grantor shall pay for all of Beneficiary's costs and
expenses associated with the proposed Disposition, including
without limitation, all attorney's fees charged by Beneficiary's
staff counsel or special counsel.
11.17.2 Special Prepayment: If and only if:
(a) Grantor attempts to qualify under Paragraph 11.17.1 with
respect to a proposed Disposition that is a bona fide, arms-length
sale (the "Special Sale") of the entire Mortgaged Property to a
third party that is unaffiliated with any Related Party (as
hereinafter defined); and
(b) Grantor timely provides to Beneficiary the information
required under Paragraph 11.17.1(g) with respect to the proposed
Special Sale and otherwise complies with the requirements of
Paragraph 11.17.1(i) and (k); and
(c) the proposed Special Sale does not receive Beneficiary's
consent under Paragraph 11.17.1; and
(d) Grantor nonetheless elects to close the proposed Special
Sale in accordance with the terms and information disclosed to
Beneficiary pursuant to Paragraph 11.17.1(g); then upon the closing
of the Special Sale, all Indebtedness shall immediately become due
and payable, including the Prepayment Premium required under the
Note, and if the foregoing conditions are all satisfied, the amount
of the Prepayment Premium shall be equal to three percent (3.0%) of
the principal amount of the Note, as provided in Article VI.G. of
the Note. Grantor agrees to provide Beneficiary at least thirty
(30) days prior written notice of any such proposed Special Sale
for which Grantor wishes to exercise the prepayment privilege under
this Paragraph 11.17.2. As used herein, the term "Related Party"
shall mean and include MRI Business Properties Fund, Ltd. II, a
California limited partnership, Montgomery Realty Company - 84, a
California general partnership, Fox Realty Investors, a California
general partnership, Montgomery Realty Corporation, Montgomery
Partners - 84, MRI Associates, Ltd. II, a California limited
partnership, and NPI Equity Investments II, Inc., a Florida
corporation.
11.18 Limitation on Recourse: Except as hereinafter provided, no
judgment for the repayment of the Indebtedness will be enforced against
Grantor or any principal of Grantor personally in any action to
foreclose this Deed of Trust or to collect any amount payable under the
Security Documents (except as may be specifically provided in certain
Security Documents); provided, however, that the foregoing limitation on
recourse shall not apply, and Grantor shall have personal liability for
the following acts or omissions, to the extent described:
Act or Omission Liability
- - - -------------------------------- -------------------------------------
(a) Grantor misapplies any To the extent of such
condemnation or insurance misapplication;
proceeds attributable to
the Mortgaged Property,
(b) Grantor misapplies any To the extent of such
security deposits misapplication;
attributable to the Mortgaged
Property,
(c) Grantor collects rents To the extent of such
in advance in violation rents collected in
of any covenant under any advance;
Security Document,
(d) Grantor commits any fraud, To the extent of any
material misrepresentation, remedies available
or material waste, at law or equity;
(e) Gross revenues from the To the extent of any
Property are sufficient to pay funds diverted from
any portion of the Indebtedness, such payments or expenses
operating and maintenance (during the period 12
expenses, insurance premiums, months prior to Beneficiary's
deposits into a reserve account, notice of acceleration through
or other sums required by the date Beneficiary takes
the Security Documents, and title to the Mortgaged
Grantor fails to make such Property);
payments or deposits when due,
(f) Grantor fails to pay To the extent of any
real estate taxes and unpaid taxes and assessments
assessments which are a lien (until the earlier of the
against the Mortgaged Property date Beneficiary takes actual
during the period of Grantor's possession of the Mortgaged Property,
ownership, or a receiver is appointed
by a court of competent
jurisdiction) and any
additional interest,
penalties or other
charges assessed as a
result of such non-
payment;
(g) Grantor fails to In the amount of the
maintain the level of loss incurred as the
insurance required under result of such
the Security Documents, uninsured casualty or uninsured
to the extent that a casualty liability;
or liability occurs
or arises and insurance proceeds
would have been available had
such insurance been maintained,
and provided further that the provisions of this Paragraph 11.18 shall
not in any manner waive, release, affect or impair: (i) the
enforceability of the liens, mortgages, assignments and security
interests created by the Security Documents; or (ii) the right of
Beneficiary to pursue any one or more parties to a separate
Environmental Indemnity Agreement executed by the Grantor or others, or
any other agreement, if any, executed by Grantor or other persons or
entities; or (iii) any other remedies available to the Beneficiary, or
any other rights of Beneficiary in the Mortgaged Property, as described
in this Deed of Trust and other Security Documents."
EXECUTED AND DELIVERED as of the day and year first above written.
GRANTOR:
MRI BUSINESS PROPERTIES FUND, LTD. II., a
California limited partnership
By: Montgomery Realty Company - 84, a California
general partnership, its Managing General
Partner
By: Fox Realty Investors, a California
general partnership, its Managing General
Partner
By: NPI Equity Investments II, Inc., a
Florida corporation, its Managing
General Partner
By: _______________________________
Peter Braverman, Vice President
STATE OF ______________ )
)
COUNTY OF _____________ )
This instrument was acknowledged before me on the _____ day of
December, 1994, by PETER BRAVERMAN, Vice President of NPI Equity
Investments II, Inc., a Florida corporation, on behalf of said
corporation as the Managing General Partner of Fox Realty Investors, a
California general partnership, as Managing General Partner of
Montgomery Realty Company - 84, a California general partnership, as
Managing General Partner of MRI Business Properties Fund, Ltd. II, a
California limited partnership.
[NOTARY STAMP] ________________________________________
Notary Public, State of ________________
Exhibits:
Exhibit "A" - Property Description
Exhibit "B" - Permitted Encumbrances
WHEN RECORDED, RETURN TO:
John B. Stewart, Esq.
Foster, Lewis, Langley, Gardner
& Banack, Inc.
112 East Pecan, Suite 1100
San Antonio, Texas 78205-1533
(File No. 06690.016.001)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from MRI Business
Properties Fund, Ltd. II and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 7,974,000
<SECURITIES> 0
<RECEIVABLES> 4,119,000 <F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 135,434,000
<DEPRECIATION> (54,641,000)
<TOTAL-ASSETS> 83,868,000
<CURRENT-LIABILITIES> 0
<BONDS> 56,196,000
<COMMON> 0
0
0
<OTHER-SE> 21,472,000
<TOTAL-LIABILITY-AND-EQUITY> 83,868,000
<SALES> 4,907,000
<TOTAL-REVENUES> 14,358,000
<CGS> 3,780,000
<TOTAL-COSTS> 12,493,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,019,000
<INCOME-PRETAX> (284,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (284,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (284,000)
<EPS-PRIMARY> (3)
<EPS-DILUTED> (3)
<FN>
<F1> Accounts receivable includes other assets of $1,644,000.
</FN>
</TABLE>
