FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]
For the fiscal year ended December 31, 1997
or
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period from........to.........
Commission file number 0-14470
INVESTORS FIRST-STAGED EQUITY L.P.
(Name of small business issuer in its charter)
Delaware 36-3310965
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
630 Dundee Road, Suite 220
Northbrook, Illinois 60062
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (847) 562-4537
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $9,835,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of a specified date within the past 60 days. Market value
information for the Registrant's partnership interests is not available. Should
a trading market develop for these interests, it is the General Partners' belief
that the aggregate market value of the voting partnership interests would not
exceed $25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Prospectus of the Registrant dated August 16, 1985, as
supplemented by Supplement numbers 1, 2, 3, and 4 dated January 6, 1986, January
30, 1986, December 18, 1986 and September 9, 1987 (collectively, the
"Prospectus"), and filed pursuant to Rules 424(b) and (c) under the Securities
Act of 1933 are incorporated by reference into Part I of this Annual Report on
Form 10-KSB.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Investors First-Staged Equity L.P. (the "Partnership" or "Registrant") is a
limited partnership formed in May 1985 under the Delaware Revised Uniform
Limited Partnership Act. The business of the Partnership is to own, manage and
ultimately dispose of income-producing residential and commercial properties.
The Partnership raised total equity of $48,802,000 from the sale of Limited
Partnership Interests (the "Units", the "Limited Partnership Units") to the
public in 1985 pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933 (Registration Statement No. 2-97608). The Partnership was
subsequently granted on June 27, 1986, a 1934 Act file number (0-14470) because
of the Partnership's registration on Form 8-A as a Section 12(g) reporting
company under the Securities Exchange Act of 1934.
A total of 16,511 units were sold to the public at $3,000 per unit as of the
termination date of the offering, December 31, 1985. Limited Partners in the
Partnership paid $1,000 per unit upon subscription and executed a non-recourse
note for the remaining $2,000 per unit. The non-recourse note provided for the
optional payment, without interest, of $1,000 per unit on each of February 15,
1986 and 1987. The Partnership has collected capital contributions totaling
$48,802,000; $16,511,000 pertaining to the payments due in 1985, $16,511,000
pertaining to the payments due in 1986 and the remarketed units sold in 1986 and
$15,780,000 pertaining to the payments due in 1987 and the remarketed units sold
in 1987. As each whole unit represents capital contributions aggregating
$3,000, the final number of units outstanding is 16,267. The Limited Partners
share in the ownership of the Partnership's real property investments according
to the number of Limited Partnership Units held.
On October 2, 1985, the Partnership acquired interests in six (6) real property
investments, two of which, Village Green Apartments and Woodland Meadows
Apartments, were sold at foreclosure sales to parties unaffiliated with the
Partnership in May 1990 and June 1991, respectively. East Bluff Apartments was
foreclosed upon by the Federal Deposit Insurance Corporation ("FDIC"), holder of
the second mortgage, on May 23, 1994. The three (3) remaining real property
investments are described under "Description of Properties" in "Item 2". The
Partnership acquired interests in the properties by purchasing a 99.99%
interest in each subpartnership which directly owned fee title to the individual
properties. Proceeds of the offering were used for the payment of the costs
associated with the offering and the costs of acquiring the interests in the
properties, including acquisition fees payable to the General Partner and the
assumption of liabilities of the acquired subpartnerships. Such liabilities
included advances and accrued interest thereon made by affiliates of the General
Partner to the subpartnerships and expenses reimbursable to and brokerage fees
paid to non-affiliated entities by affiliates in connection with the acquisition
of properties by the subpartnerships. Additional information regarding the
properties is included on pages 40 through 61 of the Prospectus dated August 16,
1985, which is incorporated herein by reference.
The Partnership's real property investments are subject to competition from
similar types of properties owned by both affiliates and non-affiliates.
Average annual occupancy levels for the properties currently owned by the
Partnership are set forth in "Item 2, Description of Properties". The
Partnership's existing real property investments are located in California.
The Partnership is engaged solely in the business of real estate investment.
Therefore, a presentation of industry segment information is not applicable.
On January 1, 1986, the VMS organization underwent a restructuring. Under this
reorganization, the General Partner's name was changed from VMS Realty Partners
to VMS Realty Investment and certain of its assets were transferred by
assignment to a new partnership created under the laws of the State of Illinois.
Effective January 1, 1986, the General Partner, VMS Realty Investment (formerly
known as VMS Realty Partners) assigned its interest in future profits, losses,
operating cash flow and liquidation proceeds of the Partnership to VMS Realty
Investment II, which subsequently became the General Partner. VMS Realty
Investment II is a general partnership formed to be the sole general partner of
Investors First-Staged Equity L.P. and has the same constituent partners as VMS
Realty Investment, its predecessor. Effective January 1, 1987, VMS Realty
Investment II assigned its beneficial interest in the Partnership to VMS Realty
Investment. Effective January 2, 1998, the current General Partner was replaced
by MAERIL, Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia").
MAERIL is a Delaware corporation, formed in March 1994, for the purpose of
serving as general partner of various Partnerships. MAE GP Corporation ("MAE
GP") is the sole stockholder of MAERIL and Metropolitan Asset Enhancement, L.P.
("MAE") is the sole stockholder of MAE GP Corporation. Effective February 25,
1998, MAE GP was merged into Insignia Properties Trust ("IPT") which is an
affiliate of Insignia. Thus, the General Partner is now a wholly-owned
subsidiary of IPT.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
The Partnership has no employees. Affiliates of Insignia have provided real
estate advisory and asset management services to the Partnership since January
1, 1994. As advisor, such affiliates provide all partnership accounting and
administrative services, investment management and supervisory services over
property management and leasing.
INSPECTOR GENERAL AUDIT
The Office of the Inspector General (OIG) for the Department of Housing and
Urban Development (HUD) has completed an audit of the books and records of VMS
Realty Management, Inc. relative to seven HUD projects which VMS Realty
Management, Inc. managed from 1987 to 1991, the years which were the subject of
the OIG audit. The OIG concluded that VMS Realty Management, Inc. did not
comply with the terms and conditions for the HUD Regulatory Agreements and
applicable HUD regulations and instructions relating to the financial and
general management practices for six of the seven HUD projects reviewed.
Specifically, the OIG audit concluded that VMS Management, Inc. inappropriately
disbursed $6,366,000 from the projects' funds for partnership expenses from 1987
to 1991 when the projects were in a non-surplus cash position or lacked adequate
surplus cash for the payments as the term "surplus cash" is defined pursuant to
the HUD Regulatory Agreements. $3,776,000 of the $6,366,000 which the OIG has
concluded to have been inappropriately disbursed in payment of partnership
obligations relates to two projects in which the Partnership is a partner.
These inappropriate disbursements included payments for second mortgages, asset
management fees, notes payable and other partnership expenses.
The OIG's Audit Report to HUD recommended that (1) the projects' owners
reimburse $6,366,000 to the projects' accounts for the excess distributions and
if the owners fail to comply, then HUD should initiate action for double damages
remedy, (2) take action to debar VMS Realty Management, Inc. and the individuals
which comprise it, and (3) require the appropriate HUD Regional/Field Offices to
conduct reviews of the 13 remaining HUD projects which VMS Realty Management,
Inc. previously managed which were not the subject of the OIG audit.
The Partnership, VMS Realty Management, Inc. and HUD entered into a Settlement
Agreement dated December 9, 1996, related to the appropriateness of certain
Richardson Highlands and Rivercrest Village disbursements totaling approximately
$2,168,000 and $1,608,000, respectively, made during the years 1987 through
1991. The Settlement Agreement provided an aggregate payment of $550,000 to the
Federal government, $391,000 of which was paid from available funds of
Richardson Highlands and the remainder of the settlement payment of $159,000 was
paid by entities other than the Partnership and its subpartnerships.
ITEM 2. DESCRIPTION OF PROPERTIES:
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Type of Ownership Use
Rivercrest Village 10/85 Fee ownership subject Apartment
Apartments to first and second 328 units
mortgage
Richardson Highlands 10/85 Fee ownership subject Apartment
Apartments to first and second 198 units
mortgage
Serramonte Plaza 10/85 Fee ownership subject Commercial complex
Office Center to first mortgage of approx. 219,000 s.f.
located on approx.
15.4 acres
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Rivercrest Village 5-7 yrs 150% B
Apartments $18,088 $10,882 17-25 yrs S/L $ 5,077
Richardson Highlands 5-7 yrs 150% B
Apartments 17,019 7,590 17-25 yrs S/L 8,132
Serramonte Plaza 5-7 yrs
Office Center 12,465 5,690 20-25 yrs S/L 6,256
$47,572 $24,162 $19,465
See "Note A" of the Consolidated Financial Statements included in "Item 7" for a
description of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1997 Rate Amortized Date Maturity
Rivercrest Village
1st mortgage $11,600 7.35% 30 yrs 01/01/08 $10,053
2nd mortgage 3,620 10.0% (1) 01/15/00 3,620
Richardson Highlands
1st mortgage 16,900 7.33% 30 yrs 01/01/05 15,502
2nd mortgage 1,867 10.0% (1) 01/15/00 1,867
Serramonte Plaza
1st mortgage 11,943 8.67% 25 yrs 07/01/04 10,721
$45,930
1) Interest only payments at a 7% rate are made to the extent of surplus cash.
In June 1997, the Partnership refinanced the mortgage indebtedness encumbering
Serramonte Plaza. The previous mortgage note of approximately $7,365,000 was
repaid from loan proceeds received from the refinancing. The new mortgage debt
of $12,000,000 carries a stated interest rate of 8.67%, with a balloon payment
due July 1, 2004. An extraordinary loss on early extinguishment of debt of
approximately $1,348,000 was realized during the second quarter of 1997 due to
the payment of approximately $1,102,000 in early payment mortgage fees and a
loss of approximately $246,000 on the write-off of unamortized loan costs. In
conjunction with the refinancing, a capital improvement reserve of approximately
$500,000 was established and approximately $371,000 in loan costs were incurred.
In October 1990, the Partnership defaulted on the Richardson Highlands and
Rivercrest Village subordinate notes payable (the second mortgage loans) due to
the failure to make the required monthly debt service payments. The Partnership
and the lender finalized an agreement on June 22, 1994, retroactive to July 1,
1993, to restructure the debt held on Richardson Highlands and Rivercrest
Village. The junior lien mortgages were restructured to mature on January 15,
2000, and provide for a 10% interest rate (with a 7% pay rate), based on the
"Agreed Valuation Amount", as defined in the restructure agreement. Interest
payments are payable from surplus cash. The Agreed Valuation Amounts for
Richardson Highlands and Rivercrest Village were approximately $7,268,000 and
$7,110,000, respectively. A Note Face Amount of $8,126,000 for Richardson
Highlands and $8,417,000 for Rivercrest Village was payable if an event of
default under the restructure agreements was uncured.
Prior to the restructuring of the loans, interest accrued under the terms of the
original subordinate notes payable. This accrued interest of $1,732,000 for
Richardson Highlands and $2,327,000 for Rivercrest Village was added to the
carrying amount of the loans at the date of restructure. The debt
restructurings were accounted for as a modification of terms in which total
future cash payments under the restructured loans exceeded the carrying values
of the loans as of the date of restructure. Consequently, the carrying amounts
of the loans were not changed and no gains were recognized on the
restructurings. Interest accrued at an effective interest rate of 6.14% for
Richardson Highlands and 4.37% for Rivercrest Village to equate the present
values of the total future cash payments under the new terms with the carrying
amounts of the loans at the date of restructure.
During 1995 and 1996, the Partnership was in default of the provisions of these
restructured subordinate loans as a result of not paying the scheduled interest
payments. Subsequently, during the fourth quarter of 1996, the Partnership
disbursed approximately $1,290,000 and $678,000 from available cash at
Richardson Highlands and Rivercrest Village, respectively, which was applied to
the accrued interest related to the subordinate notes payable. These payments
effectively cured the default.
Excess proceeds from the 1997 refinancing of the first mortgages on Richardson
Highlands and Rivercrest Village (as discussed below) were used to make payments
of approximately $8,250,000 and $8,000,000, respectively, on the properties
second mortgages. At December 31, 1997, the total estimated future cash
payments are less than the recorded balance. Therefore, in compliance with
Financial Accounting Standards 15, the Partnership reduced the carrying balance
to the estimated future cash payments of $1,867,000 (Richardson Highlands) and
$3,620,000 (Rivercrest Village) recognizing an extraordinary gain of
approximately $1,887,000 on the partial extinguishment of debt. At December 31,
1997, the Agreed Valuation Amounts are $864,000 for Richardson Highlands and
$1,934,000 for Rivercrest Village. The Note Face Amounts are $1,722,000 for
Richardson Highlands and $3,241,000 for Rivercrest Village.
On December 31, 1997, the Richardson Highlands' first mortgage and Rivercrest
Village's first mortgage were refinanced by Lehman Brothers Holdings, Inc.
("LBHI") with the outstanding principal balance being increased to $16,900,000
and $11,600,000, respectively. The old mortgage notes in the amount of
$6,182,000 and $6,137,000 were repaid from loan proceeds received from the
refinancing. The new Richardson Highlands' mortgage note carries a stated
interest rate of 7.326%, with a balloon payment due January, 1, 2005, and
requires monthly principal and interest payments. The new Rivercrest Village's
mortgage note carries a stated interest rate of 7.348%, with a balloon payment
due January 1, 2008, and requires monthly principal and interest payments. An
extraordinary loss on early extinguishment of debt of approximately $32,000 on
Richardson Highlands and $19,000 on Rivercrest Village was realized during the
fourth quarter of 1997 due to prepayment penalties. In conjunction with the
refinancing, a Repair Escrow of approximately $145,000 for Richardson Highlands
and $190,000 for Rivercrest Village was established and loan costs of
approximately $413,000 for Richardson Highlands and $299,000 for Rivercrest
Village were incurred.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average
Rental Rates Occupancy
Property 1997 1996 1997 1996
Rivercrest Village $ 7,509/unit $ 7,355/unit 91% 91%
Richardson Highlands $13,060/unit $11,886/unit 98% 98%
Serramonte Plaza $12.82/sq.ft. $11.71/sq.ft. 88% 88%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other buildings in the area. The General Partner believes that
all of the properties are adequately insured.
The following is a schedule of the lease expirations for the years 1998-2008:
(dollar amounts in thousands)
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
Serramonte Plaza
1998 20 23,054 $463 18%
1999 9 39,453 498 20%
2000 11 17,571 308 12%
2001 5 13,793 127 5%
2002 9 31,562 565 22%
2003 -- -- -- --
2004 1 2,419 54 2%
2005 1 12,317 214 9%
2006 5 14,619 239 10%
2007 1 48,492 48 2%
2008 -- -- -- --
The following schedule reflects information on tenants occupying 10% or more of
the leasable square feet for Serramonte Plaza, the Partnership's only commercial
property:
Nature of Square Footage Annual Rent Per Lease
Business Leased Square Foot Expiration
Office Space 48,492 $ .99 1/16/07
SCHEDULE OF REAL ESTATE TAXES AND RATES:
(dollar amounts in thousands)
1997 1997
Taxes Rate
Rivercrest Village $ 154 1.14%
Richardson Highlands 202 1.40%
Serramonte Plaza 96 1.12%
ITEM 3. LEGAL PROCEEDINGS
The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The Managing General Partner of the Registrant believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition, or operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 1997, no matter was submitted to a
vote of unit holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR PARTNERSHIP EQUITY AND RELATED PARTNER MATTERS
MARKET INFORMATION AND HOLDERS
As of December 31, 1997, there were 3,015 holders of record owning an aggregate
of 16,267 Units. There is not, nor is it anticipated that there will be, a
public market for the Units. The General Partner will not redeem or repurchase
the Units, nor will the General Partner facilitate the matching of potential
buyers and sellers of Units.
Pursuant to the terms of the Restated Limited Partnership Agreement, there are
restrictions on the ability of the Limited Partners to transfer their Units. In
all cases, the General Partner must consent to any transfer.
CASH DISTRIBUTIONS
In accordance with the Restated Limited Partnership Agreement, there are no
material restrictions on the Partnership's ability to make cash distributions.
The amount of cash distributions is dependent upon the ability of the
Partnership's properties to generate positive cash flow and the sale or
refinancing of these properties in future years. In the short term, it is
unlikely that the Partnership will be able to make cash distributions.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
This item should be read in conjunction with the consolidated financial
statements and other items contained else where in this report.
RESULTS OF OPERATIONS
The Partnership's net income for the year ended December 31, 1997, was
approximately $1,102,000 compared to a net loss of approximately $2,118,000 in
1996. The increase in net income for December 31, 1997, versus the
corresponding period of 1996, resulted from the gain of approximately $2,042,000
realized on the sale of buildings and land at Serramonte Plaza in the second
quarter of 1997 and the extraordinary net gain on early extinguishment of debt
of approximately $488,000 realized on the refinancing of all of the
Partnership's investment properties (see discussion below). The increase in net
income also resulted from an increase in rental income and a decrease in both
general and administrative and depreciation expenses. Rental income increased
primarily due to rental rate increases at Richardson Highlands and Rivercrest
Village Apartments. Occupancy remained stable at all properties for 1997.
General and administrative expense decreased primarily due to the reduced legal
expenses incurred by Serramonte, LP, relating to VMS Apt-Port II's HUD
settlement agreement reached in 1996.
Excess proceeds from the 1997 refinancing of the first mortgages on Richardson
Highlands and Rivercrest Village (as discussed below) were used to make payments
of approximately $8,250,000 and $8,000,000, respectively, on the properties
second mortgages. At December 31, 1997, the total estimated future cash
payments are less than the recorded balance. Therefore, in compliance with
Financial Accounting Standards 15, the Partnership reduced the carrying balance
to the estimated future cash payments of $1,867,000 (Richardson Highlands) and
$3,620,000 (Rivercrest Village), recognizing an extraordinary gain of
approximately $1,887,000 on the partial extinguishment of debt. At December 31,
1997, the Agreed Valuation Amounts are $864,000 for Richardson Highlands and
$1,934,000 for Rivercrest Village. The Note Face Amounts are $1,722,000 for
Richardson Highlands and $3,241,000 for Rivercrest Village.
On December 31, 1997, the Richardson Highlands' first mortgage and Rivercrest
Village's first mortgage were refinanced by Lehman Brothers Holdings, Inc.
("LBHI") with the outstanding principal balance being increased to $16,900,000
and $11,600,000, respectively. The old mortgage notes in the amount of
$6,182,000 and $6,137,000 were repaid from loan proceeds received from the
refinancing. The new Richardson Highlands' mortgage note carries a stated
interest rate of 7.326%, with a balloon payment due January, 1, 2005, and
requires monthly principal and interest payments. The new Rivercrest Village's
mortgage note carries a stated interest rate of 7.348%, with a balloon payment
due January 1, 2008, and requires monthly principal and interest payments. An
extraordinary loss on early extinguishment of debt of approximately $32,000 on
Richardson Highlands and $19,000 on Rivercrest Village was realized during the
fourth quarter of 1997 due to prepayment penalties. In conjunction with the
refinancing, a Repair Escrow of approximately $145,000 for Richardson Highlands
and $190,000 for Rivercrest Village was established and loan costs of
approximately $413,000 for Richardson Highlands and $299,000 for Rivercrest
Village were incurred.
On April 10, 1997, the Partnership sold three buildings and two parcels of land
associated with Serramonte Plaza located in Daly City, California, to an
unaffiliated party, Daly City Partners, LLC, a California limited liability
company. The property was sold in an effort to maximize the Partnership's
return on its investment. The sales price for the three buildings and two
parcels of land was approximately $4,778,000 and was determined primarily by
reference to appraised values. The sale resulted in net proceeds of
approximately $4,360,000, after payment of closing costs, and the gain on the
sale amounted to approximately $2,042,000. The proceeds from the sale were used
to reduce the mortgage debt secured by Serramonte Plaza.
In June 1997, the Partnership refinanced the mortgage indebtedness encumbering
Serramonte Plaza. The previous mortgage note of approximately $7,365,000 was
repaid from loan proceeds received from the refinancing. The new mortgage debt
of $12,000,000 carries a stated interest rate of 8.67%, with a balloon payment
due July 1, 2004. An extraordinary loss on early extinguishment of debt of
approximately $1,348,000 was realized during the second quarter of 1997 due to
the payment of approximately $1,102,000 in early payment mortgage fees and a
loss of approximately $246,000 on the write-off of unamortized loan costs. In
conjunction with the refinancing, a capital improvement reserve of approximately
$500,000 was established and approximately $371,000 in loan costs were incurred.
These loan costs are included in "Other assets" on the accompanying balance
sheet and will be amortized over the term of the loan.
Included in operating expense for 1997 is approximately $185,000 of major
repairs and maintenance comprised primarily of exterior painting, parking lot
repairs, major landscaping and exterior building improvements. For 1996
approximately $207,000 of major repairs and maintenance comprised primarily of
exterior building improvements, major landscaping and exterior painting are
included in operating expense.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increase in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee the
General Partner will be able to sustain such a plan.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Partnership held cash and cash equivalents of
approximately $2,640,000 compared to approximately $1,557,000 at December 31,
1996. The net increase (decrease) in cash and cash equivalents for the years
ended December 31, 1997 and 1996 was $1,083,000 and ($1,250,000), respectively.
Net cash used in operating activities decreased primarily due to net income in
the current year compared to a net loss in 1996. The increase is offset by
gains realized on the sale of investment properties and the early extinguishment
of debt. Net cash provided by investing activities increased primarily as a
result of the proceeds received from the sale of buildings and land at
Serramonte Plaza (See Item 7: Note H - Sale of Property), a decrease in
restricted escrows and an increase in property improvements and replacements.
Net cash used in financing activities increased primarily as a result of the
refinancing of all of the investment properties.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. The mortgage indebtedness
of approximately $45,930,000, matures from January 2000 until January 2008, with
balloon payments due at maturity, at which time the properties will either be
refinanced or sold. Future cash distributions will depend on the levels of cash
generated from operations, property sales, and availability of cash reserves.
No cash distributions were paid during the year ended December 31, 1997 or
December 31, 1996.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this annual report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this annual report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
ITEM 7.FINANCIAL STATEMENTS
INVESTORS FIRST-STAGED EQUITY L.P.
LIST OF CONSOLIDATED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors Report
Consolidated Balance Sheet at December 31, 1997
Consolidated Statements of Operations for the years
ended December 31, 1997 and 1996
Consolidated Statements of Changes in Partners' Deficit for the years
ended December 31, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Investors First-Staged Equity L.P.
We have audited the accompanying consolidated balance sheet of Investors First-
Staged Equity L.P. (A Limited Partnership) as of December 31, 1997, and the
related consolidated statements of operations, changes in partners' deficit and
cash flows for each of the two years in the period ended December 31, 1997.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Investors First-
Staged Equity L.P. at December 31, 1997, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 3, 1998,
except for Note L, as to which the date is
March 17, 1998
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1997
Assets
Cash and cash equivalents $ 2,640
Receivables and deposits (Note E) 712
Restricted escrows 766
Other assets 1,501
Investment properties (Notes C, H and I):
Land $ 8,402
Buildings and related improvements 39,170
47,572
Less accumulated depreciation (24,162) 23,410
$ 29,029
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 52
Accrued interest 183
Tenant security deposit liabilities 391
Other liabilities 101
Advances from affiliates of General Partner 320
Mortgage notes payable (Note C) 45,930
Partners' Deficit
General partner $ (361)
Limited partners (16,267 units issued and
outstanding) (17,587) (17,948)
$ 29,029
See Accompanying Notes to Consolidated Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1997 1996
Revenues:
Rental income $ 7,408 $ 7,071
Other income 385 292
Gain on sale of investment property 2,042 --
Total revenues 9,835 7,363
Expenses:
Operating 2,842 2,704
General and administrative 194 529
Depreciation 1,844 1,907
Interest 3,884 3,887
Property taxes 457 454
Total expenses 9,221 9,481
Income (loss) before extraordinary item 614 (2,118)
Extraordinary item - net gain on early
extinguishment of debt (Note C) 488 --
Net income (loss) $ 1,102 $ (2,118)
Net income (loss) allocated to general partners (1%) $ 11 $ (21)
Net income (loss) allocated to limited partners (99%) 1,091 (2,097)
$ 1,102 $ (2,118)
Per limited partnership unit:
Income (loss) before extraordinary item $ 37.37 $(128.91)
Extraordinary item 29.70 --
Net income (loss) $ 67.07 $(128.91)
See Accompanying Notes to Consolidated Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Partners' deficit at
December 31, 1995 16,267 $(351) $(16,581) $(16,932)
Net loss for the year
ended December 31, 1996 -- (21) (2,097) (2,118)
Partner's deficit at
December 31, 1996 16,267 $(372) $(18,678) $(19,050)
Net income for the year
ended December 31, 1997 -- 11 1,091 1,102
Partners' deficit at
December 31, 1997 16,267 $(361) $(17,587) $(17,948)
See Accompanying Notes to Consolidated Financial Statements
INVESTORS FIRST-STAGED EQUITY L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,102 $ (2,118)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation 1,844 1,907
Amortization of loan costs and leasing commissions 120 114
Bad debt expense -- 119
Gain on sale of investment property (2,042) --
Extraordinary net gain on early extinguishment of debt (488) --
Change in accounts:
Receivables and deposits 114 154
Other assets (212) (137)
Accounts payable (26) (17)
Accrued interest (416) (391)
Tenant security deposit liabilities (55) 40
Other liabilities (83) (191)
Net cash used in operating activities (142) (520)
Cash flows from investing activities:
Proceeds from sale of investment property 4,360 --
Property improvements and replacements (652) (193)
Withdrawals from (deposits to) restricted escrows 131 (457)
Collections on note receivable 44 40
Net cash provided by (used in)
investing activities 3,883 (610)
Cash flows from financing activities:
Payment of loan costs (1,083) (368)
Prepayment penalty (51) --
Payments on mortgage notes payable (437) (630)
Payment of mortgage fee (1,102) --
Payments on advances from affiliates (189) (545)
Repayment of mortgage note payable (40,296) (10,577)
Proceeds from refinance of mortgage 40,500 12,000
Net cash used in financing activities (2,658) (120)
Net increase (decrease) in cash and cash equivalents 1,083 (1,250)
Cash and cash equivalents at beginning of year 1,557 2,807
Cash and cash equivalents at end of year $ 2,640 $ 1,557
Supplemental disclosure of cash flow information:
Cash paid for interest $ 5,457 $ 4,156
Interest transferred to principal $ 1,335 $ --
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
INVESTORS FIRST-STAGED EQUITY L.P.
Notes to Consolidated Financial Statements
December 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization:
Investors First-Staged Equity L.P. (the "Partnership") was organized in May
1985, and began operations on October 2, 1985. The Restated Limited Partnership
Agreement provides for VMS Realty Investment (formerly known as VMS Realty
Partners) to be the General Partner and for the admittance of Limited Partners
through the sale of up to 23,220 Limited Partnership Units at $3,000 for each
unit. The Partnership has collected capital contributions totaling $48,802,000
representing 16,267 Units outstanding. The Partnership currently owns and
operates two residential properties and an office center in California.
Effective January 1, 1986, VMS Realty Investment assigned its interest in future
profits, losses, operating cash flow and liquidation proceeds of the Partnership
to VMS Realty Investment II, which subsequently became the General Partner. VMS
Realty Investment II is a general partnership formed to be the sole general
partner of the Partnership and has the same constituent partners as VMS Realty
Investment, its predecessor. Effective January 1, 1987, VMS Realty Investment
II assigned its beneficial interest in the Partnership to VMS Realty Investment.
Effective January 2, 1998, the current General Partner was replaced by MAERIL,
Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia"). MAERIL is a
Delaware corporation, formed in March 1994, for the purpose of serving as
general partner of various Partnerships. MAE GP Corporation ("MAE GP") is the
sole stockholder of MAERIL and Metropolitan Asset Enhancement, L.P. ("MAE") is
the sole stockholder of MAE GP Corporation. Effective February 25, 1998, MAE GP
was merged into Insignia Properties Trust ("IPT") which is an affiliate of
Insignia. Thus, the General Partner is now a wholly-owned subsidiary of IPT.
Basis of Consolidation:
The accompanying consolidated financial statements of the Partnership include
its 99% limited partnership interests in Serramonte, LP, VMS Apartments
Portfolio II and VMS Apartments Portfolio III. The Partnership may remove the
General Partner of Serramonte, LP, VMS Apartments Portfolio II and VMS
Apartments Portfolio III; therefore, the partnerships are controlled and
consolidated by the Partnership. All significant interpartnership balances have
been eliminated.
Cash and Cash Equivalents: Cash and cash equivalents includes cash on hand and
in banks, money market funds and certificates of deposit with original
maturities of less that ninety days. At certain times the amount of cash
deposited at a bank may exceed the limit on insured deposits.
Restricted Escrows:
Capital Improvement Reserve - In connection with the refinancing of Serramonte
Plaza, Richardson Highlands and Rivercrest Village in 1997, approximately
$835,000 of the proceeds were designated as a repair escrow and capital
improvement escrow for the funding of immediately required capital improvements
and repairs as noted in the loan documents. At December 31, 1997, approximately
$369,000 remain in the accounts.
Replacement Reserve - In connection with the refinancing of Richardson Highlands
and Rivercrest Village in 1997, monthly deposits of approximately $11,000 are
required each month during the term of the loan. The December 31, 1997
replacement reserve balance of approximately $397,000 relates to old mortgage
notes. Reimbursements to the Partnership of this amount is expected in 1998.
Depreciation: Depreciation is computed using the following methods and
estimated useful lives:
GAAP BASIS TAX BASIS
Lives Lives
Method (Years) Method (Years)
Buildings and
improvements:
Commercial Straight-line 20-25 Straight-line 18, 19, 31.5
(ACRS & MACRS) and 39
Residential Straight-line 17-25 175% Declining 18, 19 and
Balance (ACRS, 27.5
MACRS)
Personal Property 150% Declining 5 & 7 150% Declining 5 & 7
Balance Balance (ACRS,
and MACRS)
Investment Properties: Investment properties are stated at cost. Acquisition
fees are capitalized as a cost of real estate. The Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. No adjustments for impairment of value were necessary
for the years ended December 31, 1997 or 1996.
Loan Costs: Loan costs, included in other assets on the balance sheet, of
approximately $1,083,000 are being amortized on a straight-line basis over the
lives of the related loans. Current accumulated amortization is approximately
$26,000 and is also included in other assets on the balance sheet. Amortization
of loan costs is included in interest expense in the accompanying statements of
operations.
Lease Commissions: Lease commissions of approximately $280,000, less
accumulated amortization of approximately $137,000, are being amortized using
the straight-line method over the term of the respective leases.
Tenant Security Deposits: The Partnership requires security deposits from all
apartment lessees for the duration of the lease and such deposits are included
in receivables and deposits. The security deposits are refunded when the tenant
vacates, provided the tenant has not damaged its space and is current on its
rental payments.
Fair Value of Financial Instruments: The Partnership believes that the carrying
amount of its financial instruments (except for long term debt) approximates
their fair value due to the short term maturity of these instruments. The fair
value of the Partnership's long term debt, after discounting the scheduled loan
payments at an estimated borrowing rate currently available to the Partnership,
approximates its carrying value.
Leases: The Partnership generally leases apartment units at Rivercrest Village
and Richardson Highlands for twelve-month terms or less. The Partnership leases
certain commercial space at Serramonte Plaza to tenants under various lease
terms. For leases with fixed rental increases, rents are recognized on a
straight-line basis over the terms of the lease. This straight-line basis
recognized approximately $234,000 more in rental income than was collected in
1997 and prior years. This amount will be collected in future years as cash
collections under the terms of the leases exceed the straight-line basis of
revenue recognition.
Use of Estimates: The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
Reclassifications: Certain reclassifications have been made to the 1996
balances to conform to the 1997 presentation.
NOTE B - RESTATED LIMITED PARTNERSHIP AGREEMENT
The Partnership was organized in May 1985, and commenced operations on October
2, 1985. The General Partner is VMS Realty Investment II.
Pursuant to the terms in the Agreement, net operating profits or losses and
operating cash flow beginning October 2, 1985, are allocated 1% to the General
Partner and 99% to the Limited Partners. The allocation of profits and losses
to and among the Limited Partners is subject to certain special allocations as
described in the Agreement.
In general, net proceeds from any sale or refinancing of the properties will be
allocated 85% to the Limited Partners and 15% to the General Partner, after the
Limited Partners have received an amount equal to their original capital
contributions and a cumulative 6% per annum, noncompounded, return on their
adjusted capital contributions from such proceeds.
The net profit of the Partnership from any sale or refinancing of the properties
shall be allocated (with ordinary income being allocated first) as follows: (i)
first, an amount equal to the aggregate deficit balances of the Partners'
capital accounts shall be allocated to each Partner that has a deficit capital
account balance in the same ratio as the deficit balance of such Partner's
capital account bears to the aggregate of the deficit balance of all Partners'
capital accounts; (ii) second, to the Limited Partners in an amount equal to the
excess of their adjusted capital contribution over the balance of their
respective capital accounts after taking into account the allocation provided
for in subparagraph (i) above; (iii) third, to the Limited Partners in an amount
equal to any unpaid preferred cumulative return; (iv) fourth, to the General
Partner in an amount equal to the excess of its adjusted capital contribution
over its capital account balance; and (v) thereafter, 85% to the Limited
Partners and 15% to the General Partner. The net loss to the Partnership from
any sale or other disposition of the properties shall be allocated as follows:
(i) first, in an amount equal to the aggregate positive balances in the
partners' capital accounts, to each partner in the same ratio as the positive
balance in such partner's capital account bears to the aggregate of all such
partners' positive capital accounts; and (ii) thereafter, 99% to the Limited
Partners and 1% to the General Partner.
NOTE C - MORTGAGE NOTES PAYABLE
(dollar amounts in thousands)
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1997 Interest Rate Date Maturity
Rivercrest Village
1st mortgage $11,600 $ 80 7.35% 01/01/08 $10,053
2nd mortgage 3,620 (1) 10.0% 01/15/00 3,620
Richardson Highlands
1st mortgage 16,900 116 7.33% 01/01/05 15,502
2nd mortgage 1,867 (1) 10.0% 01/15/00 1,867
Serramonte Plaza
1st mortgage 11,943 98 8.67% 07/01/04 10,721
$45,930
(1) Interest only payments at a 7% rate are made to the extent of surplus cash.
All first mortgage agreements include non-recourse provisions which limit the
lenders' remedies in the event of default to the specific properties
collateralizing each loan.
The second mortgage agreements are collateralized by all the Partnership's
interests in the sub-tier partnerships that own the related properties.
In June 1997, the Partnership refinanced the mortgage indebtedness encumbering
Serramonte Plaza. The previous mortgage note of approximately $7,365,000 was to
be repaid from loan proceeds received from the refinancing. The new mortgage
debt of $12,000,000 carries a stated interest rate of 8.67%, with a balloon
payment due July 1, 2004. An extraordinary loss on early extinguishment of debt
of approximately $1,348,000 was realized during the second quarter of 1997 due
to the payment of approximately $1,102,000 in early payment mortgage fees and a
loss of approximately $246,000 on the write-off of unamortized loan costs. In
conjunction with the refinancing, a capital improvement reserve of approximately
$500,000 was established and approximately $371,000 in loan costs were incurred.
In October 1990, the Partnership defaulted on the Richardson Highlands and
Rivercrest Village subordinate notes payable (the second mortgage loans) due to
the failure to make the required monthly debt service payments. The Partnership
and the lender finalized an agreement on June 22, 1994, retroactive to July 1,
1993, to restructure the debt held on Richardson Highlands and Rivercrest
Village. The junior lien mortgages were restructured to mature on January 15,
2000, and provide for a 10% interest rate (with a 7% pay rate), based on the
"Agreed Valuation Amount", as defined in the restructure agreement. Interest
payments are payable from surplus cash. The Agreed Valuation Amounts for
Richardson Highlands and Rivercrest Village were approximately $7,268,000 and
$7,110,000, respectively. A note face amount of $8,126,000 for Richardson
Highlands and $8,417,000 for Rivercrest Village was payable upon maturity. The
agreement also allowed the lender to receive fifty percent of any net proceeds
from the sale or refinancing of the properties after the payment of all mortgage
notes payable and subordinated debt.
Prior to the restructuring of the loans, interest accrued under the terms of the
original subordinate notes payable. This accrued interest of $1,732,000 for
Richardson Highlands and $2,327,000 for Rivercrest Village was added to the
carrying amount of the loans at the date of restructure. The debt
restructurings were accounted for as a modification of terms in which total
future cash payments under the restructured loans exceeded the carrying values
of the loans as of the date of restructure. Consequently, the carrying amounts
of the loans were not changed and no gains were recognized on the
restructurings. Interest accrued at an effective interest rate of 6.14% for
Richardson Highlands and 4.37% for Rivercrest Village to equate the present
values of the total future cash payments under the new terms with the carrying
amounts of the loans at the date of restructure.
During 1995 and 1996, the Partnership was in default of the provisions of these
restructured subordinate loans as a result of not paying the scheduled interest
payments. Subsequently, during the fourth quarter of 1996, the Partnership
disbursed approximately $1,290,000 and $678,000 from available cash at
Richardson Highlands and Rivercrest Village, respectively, which was applied to
the accrued interest related to the subordinate notes payable. These payments
effectively cured the default.
Excess proceeds from the 1997 refinancing of the first mortgages on Richardson
Highlands and Rivercrest Village (as discussed below) were used to make payments
of approximately $8,250,000 and $8,000,000, respectively, on the properties
second mortgages. At December 31, 1997, the total estimated future cash
payments are less than the recorded balance. Therefore, in compliance with
Financial Accounting Standards 15, the Partnership reduced the carrying balance
to the estimated future cash payments of $1,867,000 (Richardson Highlands) and
$3,620,000 (Rivercrest Village), recognizing an extraordinary gain of
approximately $1,887,000 on the partial extinguishment of debt. At December 31,
1997, the Agreed Valuation Amounts are $864,000 for Richardson Highlands and
$1,934,000 for Rivercrest Village. The Note Face Amounts are $1,722,000 for
Richardson Highlands and $3,241,000 for Rivercrest Village.
On December 31, 1997, the Richardson Highlands' first mortgage and Rivercrest
Village's first mortgage were refinanced by Lehman Brothers Holdings, Inc.
("LBHI") with the outstanding principal balance being increased to $16,900,000
and $11,600,000, respectively. The old mortgage notes in the amount of
$6,182,000 and $6,137,000 were repaid from loan proceeds received from the
refinancing. The new Richardson Highlands' mortgage note carries a stated
interest rate of 7.326%, with a balloon payment due January, 1, 2005, and
requires monthly principal and interest payments. The new Rivercrest Village's
mortgage note carries a stated interest rate of 7.348%, with a balloon payment
due January 1, 2008, and requires monthly principal and interest payments. An
extraordinary loss on early extinguishment of debt of approximately $32,000 on
Richardson Highlands and $19,000 on Rivercrest Village was realized during the
fourth quarter of 1997 due to prepayment penalties. In conjunction with the
refinancing, a Repair Escrow of approximately $145,000 for Richardson Highlands
and $190,000 for Rivercrest Village was established and loan costs of
approximately $412,000 for Richardson Highlands and $299,000 for Rivercrest
Village were incurred.
Scheduled principal payments of mortgage notes payable subsequent to December
31, 1997, are as follows (dollar amount in thousands):
1998 $ 394
1999 450
2000 5,973
2001 526
2002 568
Thereafter 38,019
$45,930
NOTE D - INCOME TAXES
(dollar amounts in thousands, except unit data)
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
The following is a reconciliation of reported net income (loss) and Federal
taxable income (loss):
1997 1996
Net income (loss) as reported $ 1,102 $ (2,118)
Add (deduct)
Sale of property 86 --
Debt forgiveness 524 --
Depreciation differences 44 (467)
Interest on advances from
affiliates -- (258)
Deferred expense (234) (382)
Other 490 (190)
Federal taxable (loss) income $ 2,102 $ (3,415)
Federal taxable (loss) income
per limited partnership unit $ 122.45 $(207.83)
The following is a reconciliation between the partnership's reported amounts and
Federal tax basis of net assets and liabilities as of December 31, 1997:
Net deficit as reported $(17,948)
Land and buildings 6,336
Accumulated depreciation (10,281)
Syndication 6,832
Debt forgiveness 524
Accrued liabilities (234)
Other 79
Net deficit - Federal tax basis $(14,692)
NOTE E - NOTE RECEIVABLE
During 1990, Serramonte Plaza advanced $305,000 for tenant improvements to one
of its tenants as provided for in the related lease documents. The note bears
interest at 12% per annum and is to be repaid over the remaining term of the
lease through monthly additional rent payments of approximately $5,000 from
October 1990 through May 1999. The outstanding balance of the note receivable
was $75,000 at December 31, 1997, and is included in receivables and deposits.
NOTE F - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The Partnership has no employees and is dependent on the General Partner or its
affiliates for the management and administration of all partnership activities.
The General Partner or its affiliates may be reimbursed for direct expenses
relating to the Partnership's administration and other costs charged on behalf
of the Partnership.
Effective January 2, 1998, the current General Partner was replaced by MAERIL,
Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia").
The Partnership has engaged affiliates of Insignia to provide day-to-day
management of the Partnership's properties. These affiliates received
approximately $390,000 and $385,000 of such fees during 1997 and 1996,
respectively. An affiliate of Insignia also provided partnership administration
and management services for the Partnership in 1997 and 1996. Reimbursements
for direct expenses relating to these services totaled approximately $793,000
(including approximately $506,000 relating to the refinancing of all of the
properties, approximately $143,000 relating to the sale of property (see Note
H), and $4,000 of construction service fees) for 1997 and $153,000 for 1996.
Approximately $82,000 of accrued expense reimbursements which had been accruing
since 1994 were paid in 1997. Also, on December 31, 1997 an affiliate of
Insignia acquired all rights in the Partnership's Subordinated Notes for
$250,000.
NOTE G - OPERATING LEASES
(dollar amounts in thousands)
The Partnership receives rental income from commercial leases under operating
leases with various terms. Minimum future rentals under operating leases with
terms of one year or more for the Partnership as of December 31, 1997, are as
follows:
1998 $2,243
1999 1,764
2000 1,495
2001 1,268
2002 957
Thereafter 1,796
$9,523
NOTE H - SALE OF PROPERTY
On April 10, 1997, the Partnership sold three buildings and two parcels of land
associated with Serramonte Plaza located in Daly City, California, to an
unaffiliated party, Daly City Partners, LLC, a California limited liability
company. The property was sold in an effort to maximize the Partnership's
return on its investment. The sales price for the three buildings and two
parcels of land was approximately $4,778,000 and was determined primarily by
reference to appraised values. The sale resulted in net proceeds of
approximately $4,360,000, after payment of closing costs, and the gain on the
sale amounted to approximately $2,042,000. The proceeds from the sale were used
to reduce the mortgage debt secured by Serramonte Plaza.
NOTE I- INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
(dollar amounts in thousands)
Initial Cost
To Partnership
Buildings,
Leasehold Cost
interests Capitalized
and Related (Written down)
Encumbrances Land Personal Subsequent
Rivercrest Village
Sacramento, CA $15,220 $ 1,230 $15,171 $ 1,687
Richardson Highlands
Marin County, CA 18,767 5,196 10,455 1,368
Serramonte Plaza
Daly City, CA 11,943 4,272 20,278 (12,085)
Totals $45,930 $10,698 $45,904 $ (9,030)
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1997
Buildings
And Related
Personal
Description Land Property Total Depreciation Construction Acquired
<S> <C> <C> <C> <C> <C> <C>
Rivercrest Village $1,231 $16,857 $18,088 $10,882 1975 10/85
Richardson 5,200 11,819 17,019 7,590 1979 10/85
Serramonte Plaza 1,971 10,494 12,465 5,690 1971-1981 10/85
Totals $8,402 $39,170 $47,572 $24,162
</TABLE>
The depreciable lives for the buildings and components are 5 to 25 years. The
depreciable lives for related personal property are 5 to 7 years.
Reconciliation of "Investment Properties and Accumulated Depreciation":
Year Ended Year Ended
December 31, December 31,
1997 1996
Investment Properties
Balance at beginning of year $51,125 $50,932
Property improvements 652 193
Disposition of Property (4,205) --
Balance at End of Year $47,572 $51,125
Accumulated Depreciation
Balance at beginning of year $24,213 $22,306
Additions charged to expense 1,844 1,907
Disposition of property (1,895) --
Balance at End of Year $24,162 $24,213
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1997 and 1996, is $53,908,000 and $58,797,000, respectively.
The accumulated depreciation taken for Federal income tax purposes at December
31, 1997 and 1996, is $34,443,000 and $35,960,000, respectively.
NOTE J - HUD CONTINGENCIES
The Office of the Inspector General (OIG) for the Department of Housing and
Urban Development (HUD) has completed an audit of the books and records of VMS
Realty Management, Inc. relative to seven HUD projects which VMS Realty
Management, Inc. managed from 1987 to 1991, the years which were the subject of
the OIG audit. The OIG concluded that VMS Realty Management, Inc. did not
comply with the terms and conditions for the HUD Regulatory Agreements and
applicable HUD regulations and instructions relating to the financial and
general management practices for six of the seven HUD projects reviewed.
The Partnership, VMS Realty Management, Inc. and HUD entered into a Settlement
Agreement dated December 9, 1996, related to the appropriateness of certain
Richardson Highlands and Rivercrest Village disbursements totaling approximately
$2,168,000 and $1,608,000, respectively, made during the years 1987 through
1991. The Settlement Agreement provided an aggregate payment of $550,000 to the
Federal government, $391,000 of which was paid from available funds of
Richardson Highlands and the remainder of the settlement payment of $159,000 was
paid by entities other than the Partnership and its subpartnerships.
NOTE K- LEGAL PROCEEDINGS
The Registrant is unaware of any pending or outstanding litigation that is not
of a routine nature. The General Partner of the Registrant believes that all
such pending or outstanding litigation will be resolved without a material
adverse effect upon the business, financial condition, or operations of the
Partnership.
NOTE L - SUBSEQUENT EVENTS
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The General Partner of the Partnership at December 31, 1997, was VMS Realty
Investment II, an Illinois General Partnership.
VMS Realty Partners ("VMS"), an affiliate of the General Partner, assisted the
General Partner in the management and control of the Venture's affairs through
November 17, 1993, and Strategic Realty Advisors, Inc. ("SRA"), also an
affiliate of the General Partner, replaced VMS in assisting the General Partner
effective November 18, 1993. VMS Realty Partners is an Illinois general
partnership whose partners are Van Kampen/Morris/Stone, Inc. (100% owned by
Robert D. Van Kampen, Peter R. Morris and Joel A. Stone), Residential Equities,
Ltd. (100% owned by Mr. Morris), XCC Investment Corporation (a subsidiary of
Xerox Credit Corporation) and Brewster Realty, Inc. (100% owned by Messrs. Van
Kampen and Stone). A substantial number of the officers of VMS are also
officers of entities affiliated with VMS. The principal executive officers of
VMS are the following:
Joel A. Stone ............. President and Chief Executive Officer and
Member of the Executive Committee
Peter R. Morris ........... Member of the Executive Committee
Robert D. Van Kampen ...... Member of the Executive Committee
Stuart Ross ............... Member of the Executive Committee
The principal executive officers of SRA are the following:
Joel A. Stone ............. President and Chief Executive Officer
Richard A. Berman ........... Senior Vice President/Secretary
Thomas A. Gatti ............. Senior Vice President
JOEL A. STONE, age 53, is President and Chief Executive Officer of Strategic
Realty Advisors, Inc., since November 1993. From the inception in 1981 of VMS
Realty Partners, he held the positions of President and then Chief Executive
Officer. Mr. Stone began his career as an Internal Revenue Agent and worked as
a certified public accountant and an attorney specializing in taxation and real
estate law. In 1972, Mr. Stone co-founded the certified public accounting firm
formerly known as Moss, Stone and Gurdak. In 1979, Mr. Stone joined the Van
Kampen group of companies, a privately held business engaged in investment
banking and in real estate activities. He served as Senior Vice President of
Van Kampen Merritt, Inc. until its sale to Xerox Corporation in 1984. An
alumnus of DePaul University, Mr. Stone earned a Bachelor of Science degree in
Accounting in 1966 and a Juris Doctorate in 1970. Mr. Stone is a member of the
Illinois Bar and a certified public accountant.
PETER R. MORRIS, age 48, is a member of the Executive Committee of VMS, and is
one of the three individuals owning the entities that own VMS. From July 1970
to June 1973, Mr. Morris was employed by Continental Wingate Company, Inc., a
firm engaged in the development of inner city housing projects, in the
capacities of Vice President/Finance, Director/Consulting Division and Executive
Assistant to the President. He has published a book and numerous articles
relating to real estate development and syndication. Mr. Morris has been
involved in the real estate and finance business with Messrs. Van Kampen and
Stone since 1977. He received a Bachelor of Arts degree (summa cum laude) from
Princeton University in 1971 and a Juris Doctorate (cum laude) from Harvard Law
School in 1975.
ROBERT D. VAN KAMPEN, age 59, is a member of the Executive Committee of VMS and
is one of the three individuals owning the entities that own VMS. Mr. Van
Kampen has been involved in various facets of the municipal and corporate bond
business for over 20 years. In 1967, he co-founded the company now known as Van
Kampen Merritt, Inc., which specializes in municipal bonds and acts as a sponsor
of unit investment trusts. The firm was sold to Xerox Corporation in January
1984. Mr. Van Kampen is a general partner of Van Kampen Enterprises. Mr. Van
Kampen received his Bachelor of Science degree from Wheaton College in 1960.
STUART ROSS, age 61, is a member of the Executive Committee of VMS. He is an
executive vice president of Xerox Corporation and chairman and chief executive
officer of Xerox Financial Services, Inc., a wholly owned subsidiary. Mr. Ross
joined Xerox in 1966 and has held a series of financial management positions.
He assumed his current position in May 1990. Prior to Xerox, Mr. Ross was a
financial representative for The Macmillan Publishing Company from 1963 to 1966,
and a public accountant for Harris, Kerr, Forster & Company from 1958 to 1963.
Mr. Ross is a director of Crum and Forster, Inc. and Ekco Group, Inc., and a
trustee of the State University of New York at Purchase. He received a bachelor
of science degree in accounting from New York University in 1958 and a master of
business administrative degree from the City College of New York in 1966. Mr.
Ross is a certified public accountant.
RICHARD A. BERMAN, age 46, is a Senior Vice President and General Counsel of
Strategic Realty Advisors, Inc. From 1986 through 1993, Mr. Berman was employed
by VMS Realty Partners and was First Vice President and Corporate Counsel.
Prior to joining VMS Realty Partners, Mr. Berman was a partner in the law firm
of Gottlieb and Schwartz with his practice concentrated in corporate and real
estate law. He received a Juris Doctorate from Northwestern University School
of Law (Cum laude, 1976) and a Bachelor of Arts degree from the University of
Illinois (high honors, 1973). Mr. Berman is a member of the Illinois Bar.
THOMAS A. GATTI, age 41, is Senior Vice President - Partnership Accounting of
Strategic Realty Advisors, Inc., effective November 18, 1993. Prior to this
time, Mr. Gatti was First Vice President - Partnership Accounting with VMS
Realty Partners, where he was employed since January, 1982. Prior to joining
VMS Realty Partners, he was with Coopers & Lybrand. Mr. Gatti received a
Bachelor of Science in Accounting from DePaul University in 1978. Mr. Gatti is
a Certified Public Accountant.
ITEM 10. EXECUTIVE COMPENSATION
None of the directors and officers of the General Partner received any
remuneration from the Partnership.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Units of the
Partnership as of December 31, 1997 and as of the date of this filing.
(b) No officers of the General Partner or its affiliates own any Limited
Partnership Units in the Partnership.
No officer of the General Partner or its affiliates possesses a right to
acquire a beneficial ownership of Limited Partnership Units of the
Partnership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Neither the General Partner nor its affiliates are prohibited from providing
services to, and otherwise dealing or doing business with, persons who deal with
the Partnership. However, no rebates or "concessions" may be received by the
General Partner or any such affiliates of the General Partner, nor may the
General Partner or any such affiliates participate in any reciprocal business
arrangements which would have the effect of circumventing any of the provisions
of the Restated Limited Partnership Agreement.
The Partnership may borrow or enter into other transactions with an affiliate;
provided, however, that such borrowings and other transactions will be conducted
by the General Partner on terms which are not less favorable to the Partnership
than those available from others. See Section Q of the Restated Limited
Partnership Agreement on pages A-16 to A-20 of the Prospectus which is
incorporated by reference.
Upon the sale or refinancing of a real estate investment purchased by the
Partnership, provided that the Limited Partners have first recovered their
adjusted capital contributions together with their preferred cumulative return,
and that the General Partner or its affiliates have rendered such services, the
General Partner will receive real estate brokerage commissions in an amount
equal to the lesser of: (a) 3% of the sales or refinancing proceeds of the
property or (b) 1/2 of the competitive real estate commission. Such real estate
brokerage commissions will be paid directly by the Partnership except that the
General Partner may receive such real estate brokerage commissions from the
buyers of properties from the Partnership. In no event, however, will the
aggregate real estate brokerage commissions paid to the General Partner from all
sources in connection with the sale or refinancing of properties by the
Partnership exceed 3% of the sales or refinancing proceeds of the properties
sold or refinanced. In the event an unaffiliated real estate broker assists in
any such sale or refinancing the total of all fees paid to all parties for such
services shall not exceed 6% of the purchase price (or refinancing proceeds) of
the property. Real estate brokerage commissions paid to the General Partner by
buyers of properties from the Partnership are taken into account by buyers in
determining the purchase price of properties so that, in effect, the
Partnership, as seller, bears such commissions as a reduction in the sales
prices of properties.
The Partnership has no employees and is dependent on the General Partner or its
affiliates for the management and administration of all partnership activities.
The General Partner or its affiliates may be reimbursed for direct expenses
relating to the Partnership's administration and other costs charged on behalf
of the Partnership.
Effective January 2, 1998, the current General Partner was replaced by MAERIL,
Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia").
Effective February 25, 1998, MAE GP was merged into Insignia Properties Trust
("IPT") which is an affiliate of Insignia. Thus, the General Partner is now a
wholly-owned subsidiary of IPT.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust, with Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust. The closing, which
is anticipated to happen in the third quarter of 1998, is subject to customary
conditions, including government approvals and the approval of Insignia's
shareholders. If the closing occurs, AIMCO will then control the General
Partner of the Partnership.
The Partnership has engaged affiliates of Insignia to provide day-to-day
management of the Partnership's properties. These affiliates received
approximately $390,000 and $385,000 of such fees during 1997 and 1996,
respectively. An affiliate of Insignia also provided partnership administration
and management services for the Partnership in 1997 and 1996. Reimbursements
for direct expenses relating to these services totaled approximately $793,000
(including approximately $506,000 relating to the refinancing of all of the
properties, approximately $143,000 relating to the sale of property, and $4,000
of construction service fees) for 1997 and $153,000 for 1996. Approximately
$82,000 of accrued expense reimbursements which had been accruing since 1994
were paid in 1997. Also, on December 31, 1997 an affiliate of Insignia acquired
all rights in the Partnership's Subordinated Notes for $250,000.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
See Exhibit Index
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed during the fourth quarter of 1997:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INVESTORS FIRST-STAGED EQUITY L.P.
(Registrant)
By: VMS Realty Investment II,
its General Partner
By: JAS Realty Corporation
Date: April 2, 1998 By: /s/Joel A. Stone
Joel A. Stone, President
Date: April 2, 1998 By: /s/Thomas A. Gatti
Thomas A. Gatti, Senior Vice
President and Principal
Accounting Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the Registrant and in the capacities on
the date indicated.
/s/Joel A. Stone President
Joel A. Stone
/s/Thomas A. Gatti Senior Vice President and
Thomas A. Gatti Principal Accounting Officer
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
3 The Partnership Agreement is incorporated by reference to
the Form 10-K dated December 31, 1987 (file number 0-
14470).
10A Assignment and Assumption Agreement dated May 23, 1994
between the Federal Deposit Insurance Corporation, VMS
Apartment Portfolio Associates I, VMS Apartment Portfolio
Associates, Ltd., and Investors First-Staged Equity L.P.
related to East Bluff Apartments is incorporated by
reference to the Form 10-QSB dated June 30, 1994.
10B Contracts related to debt restructure:
a) Restated note dated July 1, 1993 between VMS Apartment
Portfolio Associates Ltd. and the Federal Deposit
Insurance Corporation related to Rivercrest Village is
incorporated by reference to the Form 10-QSB dated June
30, 1994.
b) Modification of Security Agreement between Investors
First-Staged Equity, L.P., VMS Apartment Portfolio
Associates, Ltd., and the Federal Deposit Insurance
Corporation dated July 1, 1993 related to Rivercrest
Village is incorporated by reference to the Form 10-QSB
dated June 30, 1994.
10C Contracts related to debt restructure:
a) Restated note dated July 1, 1993 between VMS Apartment
Portfolio Associates Ltd. and the Federal Deposit
Insurance Corporation related to Richardson Highlands is
incorporated by reference to the Form 10-QSB dated June
30, 1994.
b) Modification of Security Agreement between Investors
First-Staged Equity, L.P., VMS Apartment Portfolio
Associates, Ltd., and the Federal Deposit Insurance
Corporation dated July 1, 1993 related to Richardson
Highlands is incorporated by reference to the Form 10-
QSB dated June 30, 1994.
10D Contracts related to sale of buildings and land at
Serramonte Plaza:
a) CONTRACT OF SALE executed August 28, 1996, made and
entered into by and between Serramonte Plaza, a
California limited partnership, and Daly City Partners,
LLC, a California limited liability company.
b) FIRST AMENDMENT TO CONTRACT OF SALE entered into
effective as of September 27, 1996, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
c) SECOND AMENDMENT TO CONTRACT OF SALE entered into
effective as of October 7, 1996, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
d) THIRD AMENDMENT TO CONTRACT OF SALE entered into
effective as of October 14, 1996, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
e) FOURTH AMENDMENT TO CONTRACT OF SALE entered into
effective as of November 1996, by and between Serramonte
Plaza, a California limited partnership, and Daly City
Partners, LLC, a California limited liability company.
f) FIFTH AMENDMENT TO CONTRACT OF SALE entered into
effective as of January 1997, by and between Serramonte
Plaza, a California limited partnership, and Daly City
Partners, LLC, a California limited liability company.
g) SIXTH AMENDMENT TO CONTRACT OF SALE entered into
effective as of March 20, 1997, by and between
Serramonte Plaza, a California limited partnership, and
Daly City Partners, LLC, a California limited liability
company.
h) ASSIGNMENT AND ASSUMPTION OF LEASES.
i) BLANKET CONVEYANCE, BILL OF SALE AND ASSIGNMENT.
10E Contracts related to debt refinancing of Rivercrest
Apartments:
a) Promissory note dated December 31, 1997 between VMS
Apartment Portfolio Associates III and Lehman Brothers
Holdings, Inc.
b) Deed of Trust, Security Agreement, Fixture Filing and
Assignment of Leases and Rents by VMS Apartment Portfolio
Associates III to Commonwealth Land Title Insurance
Company for the benefit of Lehman Brothers Holdings, Inc.
dated December 31, 1997.
c) Absolute Assignment of Leases and Rents by VMS Apartment
Portfolio Associates III to Lehman Brothers Holdings,
Inc. dated December 31, 1997.
10F Contracts related to debt refinancing of Richardson
Highlands Apartments.
a) Promissory note dated December 31, 1997 between VMS
Apartment Portfolio Associates II and Lehman Brothers
Holdings, Inc.
b) Deed of Trust, Security Agreement, Fixture Filing and
Assignment of Leases and Rents by VMS Apartment Portfolio
Associates II to Commonwealth Land Title Insurance
Company for the benefit of Lehman Brothers Holdings,
Inc. dated December 31, 1997.
c) Absolute Assignment of Leases and Rents by VMS Apartment
Portfolio Associates II to Lehman Brothers Holdings, Inc.
dated December 31, 1997.
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Investors
First-Staged Equity, L.P. 1997 Year-End 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000768834
<NAME> INVESTORS FIRST-STAGED EQUITY, L.P.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,640
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 47,572
<DEPRECIATION> (24,162)
<TOTAL-ASSETS> 29,029
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 45,930
0
0
<COMMON> 0
<OTHER-SE> (17,948)
<TOTAL-LIABILITY-AND-EQUITY> 29,029
<SALES> 0
<TOTAL-REVENUES> 9,835
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,884
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,102
<EPS-PRIMARY> 67.07<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
PROMISSORY NOTE
$11,600,000 New York, New York
As of December 31, 1997
FOR VALUE RECEIVED VMS APARTMENT PORTFOLIO ASSOCIATES III, a
California general partnership, having an address at c/o Insignia Financial
Group, Inc., One Insignia Financial Plaza, Greenville, South Carolina 29601
(hereinafter referred to as "Borrower"), promises to pay to the order of LEHMAN
BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS
HOLDINGS INC., a Delaware corporation, having an address at Three World
Financial Center, 200 Vesey Street, New York, New York 10285 (hereinafter
referred to as "Lender"), or at such other place as the holder hereof may from
time to time designate in writing, the principal sum of ELEVEN MILLION SIX
HUNDRED THOUSAND AND 00/100 Dollars ($11,600,000), in lawful money of the United
States of America with interest thereon to be computed from the date of this
Note at the Applicable Interest Rate (hereinafter defined), and to be paid as
hereinafter provided.
A. PAYMENT TERMS
Borrower shall pay to Lender:
(i) a payment of interest only on the date hereof;
(ii) a constant payment of $79,904.97 (the "Monthly Payment") on
February 1, 1998 and on the first day of each calendar month (the
"Monthly Payment Date") thereafter to and including the first day
of December, 2007; and
(iii) the balance of the principal sum then outstanding and all
interest thereon shall be due and payable on the first day of
January, 2008 (the "Maturity Date").
Each of such payments shall be applied as follows:
(i) First to the payment of interest computed at the Applicable Interest
Rate; and
(ii) The balance applied toward the reduction of the principal sum.
B. INTEREST
The term "Applicable Interest Rate" as used in this Note shall mean
7.348% per annum.
Interest on the principal sum of this Note shall be calculated by
multiplying the actual number of days elapsed in the period for which interest
is being calculated by a daily rate based on a 360-day year.
C. DEFAULT AND ACCELERATION
The whole of the principal sum of this Note, together with all
interest accrued and unpaid thereon and all other sums due under the Security
Instrument (hereinafter defined) and this Note (all such sums hereinafter
collectively referred to as the "Debt") shall without notice become immediately
due and payable at the option of Lender if any payment required in this Note is
not paid within ten (10) days after written notice from the Lender notifying
Borrower that the same is due or on the happening of any other default, after
the expiration of any applicable notice and grace periods, herein or under the
terms of the Security Instrument (hereinafter collectively an "Event of
Default"). All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents (hereinafter defined) are hereby
made part of this Note to the same extent and with the same force as if they
were fully set forth herein. In the event that it should become necessary to
employ counsel to collect the Debt or to protect, sell or foreclose the security
hereof, Borrower also agrees to pay reasonable attorney's fees for the services
of such counsel whether or not suit be brought.
D. PREPAYMENT
Borrower shall not have the right or privilege to prepay all or any
portion of the unpaid principal balance of this Note until December 31, 2001.
Beginning January 1, 2002, provided no Event of Default exists, the principal
balance of this Note may be prepaid, in whole but not in part, upon: (i) not
less than 30 days and not more than 45 days prior written notice (the
"Prepayment Notice") to Lender specifying the scheduled payment date on which
prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued
and unpaid interest on the outstanding principal balance of this Note to and
including the Prepayment Date together with a payment of all interest which
would have accrued on the principal balance of this Note to and including the
first day of the calendar month immediately following the Prepayment Date, if
such prepayment occurs on a date which is not the first day of a calendar month
(the "Shortfall Interest Payment"); (iii) payment of all other sums then due
under this Note, the Security Instrument and the Other Security Documents and
(iv) if the Prepayment Date occurs prior to the date which is six months prior
to the Maturity Date payment of a prepayment consideration (the "Prepayment
Consideration") in an amount equal to the greater of: (A) one (1%) percent of
the principal amount of this Note being prepaid; and (B) the present value of a
series of payments each equal to the Payment Differential (hereinafter defined)
and payable on each monthly payment date over the remaining original term of
this Note and on the Maturity Date discounted at the Reinvestment Yield
(hereinafter defined) for the number of months remaining from the Prepayment
Date to each such monthly payment date and the Maturity Date. The term
"Reinvestment Yield" as used herein shall be equal to the lesser of (a) the
yield on the U.S. Treasury issue (primary issue) with a maturity date closest to
the Maturity Date, or (b) the yield on the U.S. Treasury issue (primary issue)
with a term equal to the remaining average life of the Debt, with each such
yield being based on the bid price for such issue as published in The Wall
Street Journal on the date that is 14 days prior to the Prepayment Date set
forth in the Prepayment Notice (or, if such bid price is not published on that
date, the next preceding date on which such bid price is so published) and
converted to a monthly compounded nominal yield. The term "Payment
Differential" as used herein shall be equal to (x) the Applicable Interest Rate
minus the Reinvestment Yield, divided by (y) 12 and multiplied by (z) the
principal sum outstanding on such Prepayment Date after application of the
Constant Monthly Payment (if any) due on such Prepayment Date, provided that the
Payment Differential shall in no event be less than zero. In no event, however,
shall Lender be required to reinvest any prepayment proceeds in U.S. Treasury
obligations or otherwise. Lender shall notify Borrower of the amount, and the
basis of determination, of the required Prepayment Consideration. If a
Prepayment Notice is given by Borrower to Lender pursuant to this Article D, the
principal balance of this Note and the other sums required under this Article D
shall be due and payable on the Prepayment Date.
Lender shall not be obligated to accept any prepayment of the
principal balance of this Note unless it is accompanied by all sums due in
connection therewith. Notwithstanding anything contained herein to the
contrary, provided no Event of Default exists, no Prepayment Consideration shall
be due in connection with a complete or partial prepayment resulting from the
application of insurance proceeds or condemnation awards pursuant to paragraphs
3 and 6 of the Security Instrument. In the event of any permitted partial
prepayment of the principal balance of this Note, the amount of principal
prepaid (but not including any Prepayment Consideration or interest) shall be
applied to the principal last due under this Note and shall not release Borrower
from the obligation to pay the Constant Monthly Payments next becoming due under
this Note and the Constant Monthly Payment shall not be adjusted or recalculated
as a result of such partial prepayment.
If a Default Prepayment (defined herein) occurs prior to the date
which is six months prior to the Maturity Date, Borrower shall pay to Lender the
entire Debt, including, without limitation, the Prepayment Consideration.
For purposes of this Note, the term "Default Prepayment" shall mean a
prepayment of the principal amount of this Note made during the continuance of
any Event of Default or after an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Instrument provided by statute
under foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a statutory
right to redeem or prevent foreclosure, any sale in foreclosure or under
exercise of a power of sale or otherwise.
Notwithstanding any provision of this Article D to the contrary,
Lender may require Borrower, in lieu of a prepayment as contemplated in the
first paragraph of this Article D, to deliver to Lender the Defeasance
Collateral (hereinafter defined) in the manner contemplated herein. After
Lender's receipt of the Prepayment Notice, Lender shall, if it so elects, advise
Borrower that, in lieu of a prepayment, the Defeasance Collateral shall be
required, in which event Borrower shall be entitled to a release of the Property
(hereinafter defined) from the lien of the Security Instrument and the Other
Security Documents upon satisfaction of the following:
I. Lender shall have received written confirmation from the rating
agencies that have rated the REMIC "real estate mortgage investment conduit"
(defined in Section 860D of the Internal Revenue Code of 1986, as amended from
time to time or any successor statute (the "Code")) ("REMIC") related to the
Securities (as defined in the Security Instrument) that such substitution of
Defeasance Collateral will not result in a downgrade, withdrawal or
qualification of the ratings then assigned to any of the Securities; provided,
however, that in the event that Lender or its agent is unable to obtain such
confirmation, the Lender or its agent shall so advise Borrower and Borrower will
then be subject to the other provisions of this Article D set forth above;
II. all accrued and unpaid interest and all other sums due under this
Note, the Security Instrument and other Security Documents up to the date of the
delivery of the Defeasance Collateral (the "Release Date"), including, without
limitation, all costs and expenses incurred by Lender or its agents in
connection with such release (including, without limitation, the review of the
proposed Defeasance Collateral and the preparation of the Defeasance Security
Agreement (as hereinafter defined) and the related documentation), shall be
fully paid on or before the Release Date; and
III. Borrower shall have delivered to Lender on or before the Release
Date:
(a) a pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion, creating a first
priority security interest in favor of Lender in the Defeasance
Collateral (the "Defeasance Security Agreement"), which shall provide,
among other things, that any excess received by Lender from the
Defeasance Collateral over the amount payable by Borrower hereunder
shall be refunded to Borrower promptly following each Monthly Payment
Date and the Maturity Date;
(b) direct, non-callable obligations of the United States of
America (the "US Obligations") that provide for payments prior, but as
close as possible, to all successive Monthly Payment Dates occurring
after the Release Date and the Maturity Date, with each such payment
being equal to or greater than the amount of the corresponding
Constant Monthly Payment required to be paid under this Note for the
balance of the term hereof and the amount required to be paid on the
Maturity Date (the "Defeasance Collateral"), each of which shall be
duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
wholly satisfactory to Lender (including, without limitation, such
instrument as may be required by the depository institution holding
such securities or the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the book-entry
facilities of such institution) in order to perfect upon the delivery
of the Defeasance Security Agreement the first priority security
interest therein in favor of the Lender in conformity with all
applicable state and federal laws governing the granting of such
security interests; Borrower shall authorize and direct that the
payments received from the U.S. Obligations shall be made directly to
Lender or Lender's designee and applied to satisfy the Obligations of
Borrower under this Note;
(c) evidence reasonably satisfactory to Lender that title to the
Release Property has been transferred to an entity other than
Borrower.
(d) Lender shall have received an opinion of Borrower's counsel,
dated as of the Release Date, in form reasonably satisfactory to
Lender stating, among other things, that (A) the Defeasance Collateral
and the U.S. Obligations have been duly and validly assigned and
delivered to Lender and Lender has a valid, perfected, first priority
lien and security interest in the Defeasance Collateral delivered by
Borrower, (B) the Defeasance Collateral has been validly assigned to
the REMIC, (C) the Defeasance has been effected in accordance with the
requirements of Treasury Regulation 1.860(g)-2(a)(8) (as such
regulation may be amended or substituted from time to time) and will
not be treated as an exchange pursuant to Section 1001 of the Code and
(D) the tax qualification and status of the REMIC will not be
adversely affected or impaired as a result of the Defeasance.
(e) a certificate by Borrower's independent public accountant
certifying that all of the requirements set forth in Clause I and II
above and this Clause III have been fully satisfied; and
(f) such other certificates, documents or instruments as Lender
may reasonably require.
Notwithstanding the foregoing, no such Release shall be
made, given or be deemed effective under this Article D until the
first day after expiration of the period during which the delivery to
Lender of the Defeasance Collateral in connection therewith is subject
to avoidance and recovery as a preferential transfer under 11 U.S.C.
Section 547 in the event of a bankruptcy of the delivering person or
entity without such avoidance and recovery (which day shall be
identified in writing by Borrower at any time that Borrower delivers
the Defeasance Collateral to Lender), unless Lender receives, at the
time of such delivery, an opinion of counsel to the effect that such
delivery of the Defeasance Collateral would not be avoided and
recovered as a preferential transfer under 11 U.S.C. Section547 in the
event of the filing of a bankruptcy petition in respect of the
conveying or delivering person or entity.
Upon compliance with the foregoing requirements relating to the
delivery of the Defeasance Collateral, the Property shall be released from the
lien of the Security Instrument and the Other Security Documents and the
Defeasance Collateral shall constitute collateral which shall secure this Note
and the Debt. Lender will, at Borrower's expenses, execute and deliver any
agreements reasonably requested by Borrower to release the lien of the Security
Instrument from the Property. Upon the release by the Lender in accordance with
this Article D, Borrower shall have no further right to prepay this Note
pursuant to the other provisions of this Article D or otherwise.
E. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default or upon the failure of Borrower to pay the Debt in full on the Maturity
Date, Lender shall be entitled to receive and Borrower shall pay interest
("Default Interest") on the entire unpaid principal sum at the rate of (i) the
greater of (a) two percent (2%) over the Prime Rate (hereinafter defined), as
such Prime Rate shall change from time to time or (b) five percent (5%) over the
Applicable Interest Rate then in effect or (ii) the maximum rate of interest
which Borrower may by law pay, whichever is lower, to be computed from the
occurrence of the Event of Default until the actual receipt and collection of
the Debt (the "Default Interest Rate"). This charge shall be added to the Debt,
and shall be deemed secured by the Security Instrument. This clause, however,
shall not be construed as an agreement or privilege to extend the date of the
payment of the Debt, nor as a waiver of any other right or remedy accruing to
Lender by reason of the occurrence of any Event of Default. The term "Prime
Rate" as used in this Note shall mean the daily "prime rate" published in The
Wall Street Journal from the date of the Event of Default, as such "prime rate"
shall change from time to time. In the event The Wall Street Journal ceases to
publish the "prime rate" then Lender shall select an equivalent publication
which publishes such "prime rate"; and in the event such prime rates are no
longer generally published or are limited, regulated or administered by a
governmental or quasi-governmental body, then Lender shall select a comparable
interest rate index.
F. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean the
Deed of Trust and Security Agreement dated as of the date hereof in the
principal sum of $11,600,000.00 given by Borrower to Lender encumbering the fee
estate of Borrower in certain premises located in Sacramento County, State of
California and other property, as more particularly described therein and
intended to be duly recorded in said County. The term "Other Security
Documents" as used in this Note shall mean all and any of the documents other
than this Note or the Security Instrument now or hereafter executed by Borrower
and/or others and by or in favor of Lender, which wholly or partially secure or
guarantee payment of this Note. Whenever used, the singular number shall
include the plural, the plural the singular, and the words "Lender" and
"Borrower" shall include their respective successors, assigns, heirs, executors
and administrators.
G. SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate shall be deemed to be immediately
reduced to such maximum rate and all previous payments in excess of the maximum
rate shall be deemed to have been payments in reduction of principal and not on
account of the interest due hereunder.
H. LATE CHARGE
If any sum payable under this Note is not received by Lender within
five (5) days of the date on which it is due, without taking into account or
including within said five (5) day period any applicable notice or grace period,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law to defray the expenses incurred by Lender in handling and processing such
delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment and such amount shall be secured by the Security Instrument
and the Other Security Documents. Nothing contained herein is intended to
affect the rights of Lender in and to any Default Interest due to Lender
pursuant to the provisions of paragraph E hereof entitled "Default Interest".
I. MISCELLANEOUS
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
If Borrower consists of more than one person or party, the obligations
and liabilities of each such person or party shall be joint and several. The
foregoing sentence, however, is not intended to affect the limited liability of
any limited partner or stockholder of Borrower afforded by applicable
partnership or corporate law.
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment. No
release of any security for the Debt or extension of time for payment of this
Note or any installment hereof, and no alteration, amendment or waiver of any
provision of this Note, the Security Instrument or the Other Security Documents
made by agreement between Lender and any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower, and any other who may become liable for the payment of
all or any part of the Debt, under this Note, the Security Instrument or the
Other Security Documents.
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
This Note shall be governed and construed in accordance with the laws
of the State of New York and the applicable laws of the United States of
America.
J. EXCULPATION
Lender shall not enforce the liability and obligation of Borrower to
perform and observe the obligations contained in this Note or the Security
Instrument by any action or proceeding wherein a money judgment shall be sought
against Borrower or any general or limited partner or member of Borrower
(hereinafter collectively referred to as the "Exculpated Parties"), except that
Lender may bring a foreclosure action, action for specific performance or other
appropriate action or proceeding to enable Lender to enforce and realize upon
this Note, the Security Instrument, the Other Security Documents, and the
interest in the Property, the Rents (as defined in the Security Instrument) and
any other collateral given to Lender created by this Note, the Security
Instrument and the Other Security Documents; provided, however, that any
judgment in any such action or proceeding shall be enforceable against the
Exculpated Parties only to the extent of Borrower's interest in the Property, in
the Rents and in any other collateral given to Lender. Lender, by accepting
this Note and the Security Instrument, agrees that it shall not sue for, seek or
demand any deficiency judgment against the Exculpated Parties in any such action
or proceeding, under or by reason of or under or in connection with the Security
Instrument, the Other Security Documents or this Note. The provisions of this
paragraph shall not, however, (i) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Security Instrument, the Other
Security Documents or this Note; (ii) impair the right of Lender to name
Borrower as a party defendant in any action or suit for judicial foreclosure and
sale under the Security Instrument; (iii) affect the validity or enforceability
of any guaranty made in connection with the Security Instrument, this Note, or
the Other Security Documents; (iv) impair the right of Lender to obtain the
appointment of a receiver upon the occurrence and continuance of an Event of
Default; (v) impair the enforcement of the Assignment of Leases and Rents dated
the date hereof given by Borrower to Lender executed in connection herewith;
(vi) impair the right of Lender to bring suit with respect to fraud or
intentional misrepresentation by Borrower, the Exculpated Parties or any other
person or entity in connection with the Security Instrument, this Note or the
Other Security Documents; (vii) impair the right of Lender to obtain the Rents
received by any of the Exculpated Parties after the occurrence and continuance
of an Event of Default; (viii) impair the right of Lender to bring suit with
respect to the Exculpated Parties' misappropriation of tenant security deposits
or Rents collected in advance; (ix) impair the right of Lender to obtain
insurance proceeds or condemnation awards due to Lender under the Security
Instrument; (x) impair the right of Lender to enforce the provisions of sub-
paragraphs 36(g) through 36(k), inclusive and paragraphs 34 and 35 of the
Security Instrument against the Borrower (excluding the general and limited
partners or members of Borrower); or (xi) impair the right of Lender to recover
any part of the Debt from the Borrower (excluding the general and limited
partners or members of Borrower) following the breach of any covenant contained
in paragraphs 9 or 55 of the Security Instrument.
THIS NOTE, AND THE OTHER SECURITY DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND
UNDERSTANDING BETWEEN LENDER, BORROWER AND THE OTHER RESPECTIVE PARTIES HERETO
AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
ARTICLE K: CALIFORNIA PROVISIONS
(a) In the event of any inconsistencies between the terms and
conditions of this Article K and any other Articles in this Note, the terms and
conditions of this Article K shall control and be binding.
(b) The following paragraphs are hereby added immediately following
the Article D entitled "Prepayment":
(c) Article H hereof, entitled "Late Charge", is deleted in its
entirety and the following is substituted therefor:
Borrower acknowledges that late payment to Lender will cause Lender to
incur costs not contemplated herein. Such costs include, without
limitation, processing and accounting costs. Therefore, if any
payment due under this Note is not received by Lender before the tenth
(10th) day after the date on which it is due, Borrower shall pay to
Lender as a late charge a sum equal to the lesser of five percent (5%)
of the overdue amount or the maximum amount permitted by applicable
law to defray such costs. Such amount shall be secured by the
Security Instrument and the Other Security Documents. Borrower
further acknowledges that this late charge represents a reasonable sum
considering all of the circumstances existing on the date hereof and
represents a fair and reasonable time of the costs that Lender will
incur by reason of late payment. Borrower agrees that proof of actual
damages would be costly or inconvenient. Acceptance of any late
charge shall not constitute a waiver of the default with respect to
the overdue amount and shall not prevent Lender from exercising any of
the other rights and remedies available to Lender.
IN WITNESS WHEREOF, Borrower has duly executed this Note the day and
year first above written.
VMS APARTMENT PORTFOLIO ASSOCIATES III, a
California general partnership
By: GP SERVICES XIX, INC., a South Carolina
corporation, its general partner
By: /s/ Leigh A. Watters
Name: Leigh A. Watters
Title: Vice President
This instrument prepared by:
Mitchell G. Williams, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
RECORD AND RETURN TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Carson M. Leonard, Esq.
Counsel's File No.: 16248-00328
DEED OF TRUST, SECURITY AGREEMENT,
FIXTURE FILING and ASSIGNMENT OF LEASES AND RENTS
VMS APARTMENT PORTFOLIO ASSOCIATES III,
a California general partnership
(Trustor)
to
COMMONWEALTH LAND TITLE INSURANCE COMPANY,
(Trustee)
for the benefit of
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF
LEHMAN BROTHERS HOLDINGS INC.
a Delaware corporation
(Lender)
Dated:As of December 31, 1997
Location: Rivercrest Apartments
Sacramento, California
Sacramento County
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Security Instrument"), is
made as of the 31st day of December, 1997, by VMS APARTMENT PORTFOLIO ASSOCIATES
III, a California general partnership, having an address c/o Insignia Financial
Group, Inc., One Insignia Financial Plaza, Greenville, South Carolina 29601, as
grantor ("Borrower"), to Commonwealth Land Title Insurance Company, having an
address at 877 Ygnacio Valley Road #100, Walnut Creek, California 94596, as
trustee ("Trustee"), for the benefit of LEHMAN BROTHERS HOLDINGS INC. D/B/A
LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware
corporation, having an address at Three World Financial Center, 200 Vesey
Street, New York, New York 10285, as beneficiary ("Lender").
W I T N E S E T H :
To secure the payment of an indebtedness in the principal sum of
ELEVEN MILLION SIX HUNDRED THOUSAND AND 00/100 DOLLARS ($11,600,000.00), lawful
money of the United States of America, to be paid with interest according to a
certain note dated the date hereof made by Borrower to Lender (the note,
together with all extensions, renewals or modifications thereof being
hereinafter collectively called the "Note") (said indebtedness, interest and all
other sums due hereunder and under the Note being collectively called the
"Debt"), Borrower has given, granted, bargained, sold, aliened, enfeoffed,
conveyed, confirmed, pledged, assigned, warranted and hypothecated and by these
presents does give, grant, bargain, sell, alien, enfeoff, convey, confirm,
pledge, assign, warrant, set over and hypothecate unto Trustee, its successors
and assigns, for the benefit of Lender with power of sale and right of entry and
possession, and grants a security interest in, the real property described in
the Exhibit A attached hereto (the "Premises");
TOGETHER WITH: all right, title, interest and estate of Borrower now
owned, or hereafter acquired, in and to the buildings, structures, fixtures,
additions, enlargements, extensions, modifications, repairs, replacements and
improvements now or hereafter located thereon (the "Improvements") and the
following property, rights, interests and estates (the foregoing fee and
leasehold estates, as the case may be, in the Premises, the Improvements
together with the following property, rights, interests and estates being
hereinafter collectively referred to as the "Property"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights
and powers, air rights and development rights, and all estates, rights,
titles, interests, privileges, liberties, tenements, hereditaments and
appurtenances of any nature whatsoever, in any way belonging, relating or
pertaining to the Premises and/or the Improvements, and the reversion and
reversions, remainder and remainders, and all land lying in the bed of any
street, road or avenue, opened or proposed, in front of or adjoining the
Premises, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy,
property, possession, claim and demand whatsoever, both at law and in
equity, of Borrower of, in and to the Premises and/or Improvements, and
every part and parcel thereof, with the appurtenances thereto;
(b) all machinery, equipment, fixtures (including but not limited to
all heating, air conditioning, plumbing, lighting, communications and
elevator fixtures) and other property of every kind and nature whatsoever
owned by Borrower, or in which Borrower has or shall have an interest, now
or hereafter located upon the Premises and the Improvements, or appurtenant
thereto, and usable in connection with the present or future management,
maintenance operation and occupancy of the Premises and the Improvements
and all building equipment, materials and supplies of any nature whatsoever
owned by Borrower, or in which Borrower has or shall have an interest, now
or hereafter located upon the Premises and the Improvements, or appurtenant
thereto, or usable in connection with the present or future management,
maintenance operation and occupancy of the Premises and the Improvements
(hereinafter collectively called the "Equipment"), and the right, title and
interest of Borrower in and to any of the Equipment which may be subject to
any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Property is
located (the "Uniform Commercial Code"), superior in lien to the lien of
this Security Instrument;
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Property, whether from
the exercise of the right of eminent domain (including but not limited to
any transfer made in lieu of or in anticipation of the exercise of said
right), or for a change of grade, or for any other injury to or decrease in
the value of the Property;
(d) all leases and other agreements affecting the use, enjoyment or
occupancy of the Premises and the Improvements heretofore or hereafter
entered into (the "Leases") and all right, title and interest of Borrower,
its successors and assigns therein and thereunder, including, without
limitation, cash or securities deposited thereunder to secure the
performance by the lessees of their obligations thereunder and all rents,
additional rents, revenues, issues and profits (including all oil and gas
or other mineral royalties and bonuses) from the Premises and the
Improvements (the "Rents") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to
the payment of the Debt;
(e) all proceeds of and any unearned premiums on any insurance
policies covering the Property, including, without limitation, the right to
receive and apply the proceeds of any insurance, judgments, or settlements
made in lieu thereof, for damage to the Property;
(f) the right, in the name and on behalf of Borrower, to appear in
and defend any action or proceeding brought with respect to the Property
and to commence any action or proceeding to protect the interest of Lender
in the Property;
(g) all contract rights, with respect to, or which may in any way
pertain to, the Premises or the business of the Borrower, including,
without limitation, all refunds, rebates, security deposits, or other
expectancy under or from any such account or contract right;
(h) all general intangibles with respect to, or which may in any way
pertain to, the Premises or the business of the Borrower, including without
limitation, any trade names, or other names under or by which the Premises
may at any time be operated or known, the good will of the Borrower in
connection therewith and the right of the Borrower to carry on business
under any or all such name or names and any variant or variants thereof,
insofar as the same may be transferable by the Borrower without breach of
any agreement pursuant to which the Borrower may have obtained its right to
use such name or names, and any and all trademarks, prints, labels,
advertising concepts and literature;
TO HAVE AND TO HOLD the above granted and described Property unto the
Trustee, and the successors and assigns of Trustee, forever;
IN TRUST, FOR THE USE, BENEFIT AND BEHOOF OF LENDER, WITH POWER OF SALE, to
secure the payment to Lender of the Debt at the time and in the manner provided
for its payment in the Note and in this Security Instrument;
PROVIDED, HOWEVER, these presents are upon the express condition that, if
Borrower shall well and truly pay to Lender the Debt at the time and in the
manner provided in the Note and this Security Instrument and shall well and
truly abide by and comply with each and every covenant and condition set forth
herein and in the Note, these presents and the estate hereby granted shall
cease, terminate and be void;
AND Borrower represents and warrants to and covenants and agrees with
Lender as follows:
PROVISIONS OF GENERAL APPLICATION
1. Payment of Debt and Incorporation of Covenants, Conditions and
Agreements. Borrower will pay the Debt at the time and in the manner provided
in the Note and in this Security Instrument. All the covenants, conditions and
agreements contained in (a) the Note and (b) all and any of the documents other
than the Note or this Security Instrument now or hereafter executed by Borrower
and/or others and by or in favor of Lender, which wholly or partially secure or
guaranty payment of the Note including but not limited to the Assignment of
Leases and Rents (the "Assignment of Rents") between Borrower, as assignor and
Lender, as assignee (collectively, the "Other Security Documents"), are hereby
made a part of this Security Instrument to the same extent and with the same
force as if fully set forth herein.
2. Warranty of Title. Borrower warrants that Borrower has good title to
the Property and has the right to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, pledge, assign and hypothecate and grant a security
interest in the same and that Borrower possesses an unencumbered fee estate in
the Premises and the Improvements and that it owns the Property free and clear
of all liens, encumbrances and charges whatsoever except for those exceptions
shown in the title insurance policy insuring the lien of this Security
Instrument. Borrower shall forever warrant, defend and preserve such title and
the validity and priority of the lien of this Security Instrument and shall
forever warrant and defend the same to Lender against the claims of all persons
whomsoever.
3. Insurance. (a) Borrower will keep the Property insured against loss
or damage by fire, flood and such other hazards, risks and matters, as Lender
may from time to time reasonably require, including without limitation, rental
value insurance against the abatement in rent or business interruption insurance
for at least twelve (12) months and general public liability in an amount not
less than $1,000,000.00, including excess liability coverage and umbrella
liability insurance. Borrower shall pay the premiums for such insurance (the
"Insurance Premiums") as the same become due and payable. All policies of
insurance (the "Policies") shall (i) be issued under forms acceptable to Lender
(containing the standard New York mortgagee non-contribution clause naming the
Lender as the insured mortgagee and the person to which all payments made by the
Qualified Insurer (hereinafter defined) shall be paid); (ii) provide for at
least thirty (30) days prior written notice to the Lender of any cancellation,
reduction in an amount or change in insurance coverage; (iii) contain a
replacement cost endorsement for 100% of all replacement costs relating to the
Improvements (without deduction for depreciation); (iv) contain an "enforcement"
or "Law and Ordinance" endorsement in form and substance satisfactory to Lender;
and (v) be issued by insurers qualified under the laws of the State in which the
Property is located, duly authorized and licensed to transact insurance business
in such State and reflecting a claims-paying ability of A or better as
determined by Standard & Poors' Corporation ("S&P"), Duff and Phelps Credit
Rating Co. ("Duff"), if rated by Duff, Fitch Investors Service, Inc. ("Fitch"),
if rated by Fitch, and a claims paying ability of A2 as determined by Moody's
Investors Service, Inc. ("Moody's"), if rated by Moody's (each such insurer
hereinafter referred to as a "Qualified Insurer", collectively "Qualified
Insurers"). Notwithstanding the foregoing, Travelers/Aetna Casualty and Surety
("Aetna") is an acceptable insurance company to Lender provided that if Aetna
has a senior unsecured debt rating of less than A by each of the Rating Agencies
(hereinafter defined), then such insurer shall be replaced with a Qualified
Insurer or Qualified Insurers within thirty (30) days after written notice by
the Lender of the reduction of such rating. Such insurance shall not be
invalidated due to the use or occupancy of the Property for purposes more
hazardous than are permitted by the policy. The maximum amount deductible
permitted under each insurance policy shall be such as is customarily carried by
owners or managing agents operating first class multi-family residences of
similar type and size of the Property of similar type, size and quality to the
Property as applicable. Borrower shall deliver the Policies, or duplicate
originals of the same, to Lender. Not later than forty five (45) days prior to
the expiration date of each of the Policies, Borrower will deliver evidence
satisfactory to Lender of the renewal of each of the Policies. The Borrower
shall not insure the Property under any insurance policy other than as expressly
set forth herein.
(b) If the Property shall be damaged or destroyed, in whole or in part, by
fire or other casualty, Borrower shall give prompt notice thereof to Lender.
The net amount of all insurance proceeds received by Lender with respect to such
damage or destruction, shall be held in a segregated account (the "Net Proceeds
Account") and invested in an Eligible Investment (hereinafter defined). Lender
shall be entitled to deduct from such insurance proceeds all of its out-of-
pocket administrative costs and expenses reasonably incurred in connection with
the investing and collection of such insurance proceeds, and the balance if any,
(the "Net Proceeds") shall be disbursed by Lender in accordance with the terms
and conditions set forth herein to pay for the costs and expenses of the
Restoration (hereinafter defined) provided (i) no Event of Default has occurred
and remains uncured under this Security Instrument, the Note or any of the Other
Security Documents, (ii) Borrower proceeds promptly after the insurance claims
are settled with the restoration, replacement, rebuilding or repair of the
Property as nearly as possible to the condition the Property was in immediately
prior to such fire or other casualty (the "Restoration"), (iii) the Restoration
shall be done in compliance with all applicable laws, rules and regulations,
and, following the Restoration, the Property shall be permitted under all
applicable zoning laws to be used for, and shall continue to be used for, all
purposes associated with multi-family residences, (iv) a set of the plans and
specifications in connection with the Restoration shall be submitted to Lender
and shall be reasonably acceptable to Lender in all respects, (v) all costs and
reasonable expenses incurred by Lender in connection with making the Net
Proceeds available for the Restoration of the Property including, without
limitation, counsel fees and inspecting engineer fees incurred by Lender, shall
be paid by Borrower, (vi) rental loss insurance is available to offset fully any
abatement of rent to which any tenant of the Property may be entitled or any
rent loss arising out of the cancellation of any Lease as a result of the
casualty, throughout the Restoration and a reasonable lease-up period following
the Restoration, and (vii) in Lender's judgment, the Restoration must be able to
be completed within one (1) year after the loss and at least one (1) year prior
to the Maturity Date of the Note. The term "Eligible Investment" shall mean any
investment approved by Lender in its sole discretion.
(c) The Net Proceeds shall be held in trust in the Net Proceeds Account.
The Net Proceeds shall be paid by Lender (or by a disbursing agent
("Depository") selected by Lender), to, or as directed by, Borrower from time to
time during the course of the Restoration, upon receipt of evidence, and
certification from Borrower, satisfactory to Lender, that (i) all materials
installed and work and labor performed (except to the extent they are to be paid
for out of the requested payment) in connection with the Restoration have been
paid for in full, (ii) no notices of intention, mechanics' or other liens or
encumbrances on the Property arising out of the Restoration exist, and (iii) the
balance of the Net Proceeds plus the balance of any deficiency deposits given by
Borrower to Lender or Depository pursuant to the provisions of this paragraph
hereinafter set forth shall be sufficient to pay in full the balance of the cost
of the Restoration. Borrower shall pay all fees and expenses of the Depository
in connection with the above.
(d) Notwithstanding anything to the contrary contained herein, if the Net
Proceeds shall be less than $50,000.00, only one disbursement shall be required
upon the completion of the Restoration to the satisfaction of Lender. If the
Net Proceeds shall be $50,000.00 or more, Lender shall disburse the Net Proceeds
as provided above, however, in no event shall Lender be required to disburse
such Net Proceeds, or any portion thereof, more often then once every thirty
(30) days. If at any time the Net Proceeds, or the undisbursed balance thereof,
shall not, be sufficient to pay in full the balance of the cost of the
Restoration, Borrower shall deposit the deficiency with Lender or Depositary
before any further disbursement of the Net Proceeds shall be made.
(e) Any amount of the Net Proceeds received by Lender and not required to
be disbursed for the Restoration pursuant to the provisions of this paragraph
hereinabove set forth shall be retained and applied by Lender toward the payment
of the Debt whether or not then due and payable in such priority and proportions
as Lender in its discretion shall deem proper. Upon the receipt and retention
by Lender of such insurance proceeds, the lien of this Security Instrument shall
be reduced only by the amount thereof received and retained by Lender and
actually applied by Lender in reduction of the Debt.
(f) Notwithstanding anything to the contrary contained herein, Lender
shall not be obligated to make the Net Proceeds available for Restoration of the
Property unless the principal balance of the Note following the completion of
the Restoration (assuming the amount of Net Proceeds received by Lender in
excess of the cost of the Restoration (as estimated by Lender) is applied to the
prepayment of the Note) will be in an amount sufficient to cause (i) the Debt
Service Coverage Ratio (hereinafter defined) applicable to the Property
immediately following the Restoration to be not less than 1.20 to 1.0 and (ii)
in the event of any Restoration involving Net Proceeds of more than $250,000.00,
the ratio of (a) the then outstanding principal balance of the Note to (b) the
appraised value of the Property after completion of the Restoration (as
determined by an independent third-party appraiser holding an MAI designation
and having a national practice and at least ten (10) years real estate
experience appraising properties of a similar nature and type as the Property)
to be equal to or less than the Minimum Loan to Value Ratio (hereinafter
defined). The term "Minimum Loan to Value Ratio" means a ratio, expressed as a
percentage, equal to the lesser of (i) 80% or (ii) the ratio of (a) the then
outstanding principal balance of the Note to (b) the appraised value of the
Property on the date hereof. The fee for such appraisal shall be paid for by
Borrower.
4. Payment of Taxes, etc. Borrower shall pay all taxes, assessments,
water rates and sewer rents, now or hereafter levied or assessed or imposed
against the Property or any part thereof (the "Taxes") and all ground rents,
maintenance charges, other governmental impositions, and other charges,
including without limitation vault charges and license fees for the use of
vaults, chutes and similar areas adjoining the Premises, now or hereafter levied
or assessed or imposed against the Property or any part thereof (the "Other
Charges") as same become due and payable. Upon written request from Lender,
Borrower will deliver to Lender evidence satisfactory to Lender that the Taxes
and Other Charges have been so paid or are not then delinquent. Borrower shall
not suffer and shall promptly cause to be paid and discharged any lien or charge
whatsoever which may be or become a lien or charge against the Property, and
shall promptly pay for all utility services provided to the Property. Borrower
shall furnish to Lender receipts for the payment of the Taxes, Other Charges and
said utility services prior to the date the same shall become delinquent.
Notwithstanding the above, after prior written notice to Lender, Borrower,
at its own expense, may contest by appropriate legal proceeding, promptly
initiated and conducted in good faith and with due diligence, the amount or
validity or application in whole or in part of any of the Taxes, provided that
(i) no Event of Default under the Note or this Security Instrument shall have
occurred and be continuing, (ii) Borrower is permitted to do so under the
provisions of any mortgage or deed of trust or deed to secure debt superior or
junior in lien to this Security Instrument, (iii) such proceeding shall suspend
the collection of the Taxes from Borrower and from the Property, (iv) such
proceeding shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Borrower is subject and shall not
constitute a default thereunder, (v) neither the Property nor any part thereof
or interest therein will be in danger of being sold, forfeited, terminated,
canceled or lost, (vi) Borrower shall have set aside adequate reserves for the
payment of the Taxes, together with all interest and penalties thereon, and
(vii) Borrower shall have furnished such security as may be reasonably required
in the proceeding, or as may be requested by Lender to insure the payment of any
such Taxes, together with all interest and penalties thereon.
5. Escrow Fund. Upon (i) the occurrence of an Event of Default
(hereinafter defined), and for so long as such Event of Default shall be
continuing, or (ii) the transfer of the Property to any entity in accordance
with the terms of paragraph 9(c) hereof, Borrower shall pay to Lender upon
request on the fifteenth day of each calendar month thereafter (a) one-twelfth
of an amount which would be sufficient to pay the Taxes payable, or estimated by
Lender to be payable, during the next ensuing twelve (12) months and (b) one-
twelfth of an amount which would be sufficient to pay the Insurance Premiums due
for the renewal of the coverage afforded by the Policies upon the expiration
thereof (the amounts set forth in (a) and (b) above hereinafter called the
"Escrow Fund"). The Escrow Fund and the payments of interest or principal or
both, payable pursuant to the Note shall be added together and shall be paid as
an aggregate sum by Borrower to Lender. Borrower hereby pledges to Lender any
and all monies now or hereafter deposited in the Escrow Fund as additional
security for the payment of the Debt. Lender will apply the Escrow Fund to
payments of Taxes and Insurance Premiums required to be made by Borrower
pursuant to paragraphs 3 and 4 hereof. If the amount of the Escrow Fund shall
exceed the amounts due for Taxes and Insurance Premiums pursuant to paragraphs 3
and 4 hereof, Lender shall credit such excess against future payments to be made
to the Escrow Fund. In allocating such excess, Lender may deal with the person
shown on the records of Lender to be the owner of the Property. If the Escrow
Fund is not sufficient to pay the items set forth in (a) and (b) above, Borrower
shall promptly pay to Lender, upon demand, an amount which Lender shall estimate
as sufficient to make up the deficiency. Lender may apply any sums then present
in the Escrow Fund to the payment of the following items in any order in its
uncontrolled discretion:
(I) Taxes and Other Charges;
(ii) Insurance Premiums;
(iii) Interest on the unpaid principal balance of the Note;
(iv) Amortization of the unpaid principal balance of the Note;
(v) All other sums payable pursuant to the Note, this Security
Instrument and the Other Security Documents, including without
limitation advances made by Lender pursuant to the terms of this
Security Instrument.
Until expended or applied as above provided, any amounts in the Escrow Fund
shall constitute additional security for the Debt. The Escrow Fund shall not
constitute a trust fund and may be commingled with other monies held by Lender.
No earnings or interest on the Escrow Fund shall be payable to Borrower, except
after repayment in full of the Debt.
6. Condemnation. (a) Borrower shall give Lender prompt notice of the
actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. If less than 25% of the land constituting the
Property is taken, then the net amount of all awards and payments received by
Lender with respect to such taking shall be held in a segregated account (the
"Net Awards Account") and invested in an Eligible Investment. Lender shall be
entitled to deduct from the condemnation award all of its administrative costs
and expenses incurred in connection with investing and collecting such
condemnation award and the balance, if any, (hereinafter referred to as the "Net
Award"), will be disbursed by Lender to pay for the costs and expenses of the
Condemnation Restoration (hereinafter defined), provided (i) Borrower is not in
default under this Security Instrument, the Note or any of the Other Security
Documents, (ii) Borrower proceeds promptly after the making of any award of
payment for such taking with the restoration, replacement, rebuilding or repair
of the Property as nearly as possible to the condition the Property was in
immediately prior to such taking (the "Condemnation Restoration"), (iii) the
Condemnation Restoration shall be done in compliance with all applicable laws,
rules and regulations, and, following the Condemnation Restoration, the Property
shall be permitted under all applicable zoning laws to be used for, and shall
continue to be used for, all purposes associated with multi-family residences,
(iv) a set of plans and specifications in connection with the Condemnation
Restoration shall be submitted to Lender and shall be satisfactory to Lender in
all respects, (v) Borrower shall have reimbursed Lender for all costs and
expenses incurred by Lender in connection with making the Net Award available
for the Condemnation Restoration of the Property, including, without limitation,
counsel fees, inspecting engineer fees and appraisal fees incurred by Lender,
(vi) rental loss proceeds are available to offset in full any loss in rents
throughout the Condemnation Restoration and a reasonable lease-up period
following the completion of the Condemnation Restoration, and (vii) in the
opinion of Lender the Condemnation Restoration of the Property can be completed
within one (1) year after the taking and at least one (1) year prior to the
maturity date of the Note.
(b) The Net Award shall be held in trust by Lender in the Net Awards
Account and shall be paid by Lender or a Depository designated by Lender to, or
as directed by, Borrower from time to time during the course of the Condemnation
Restoration, upon receipt of evidence satisfactory to Lender, that (i) all
materials installed and work and labor performed (except to the extent they are
to be paid for out of the requested payment) in connection with the Condemnation
Restoration have been paid for in full, (ii) there exist no notices of
intention, mechanics' or other liens or encumbrances on the Property arising out
of the Condemnation Restoration, and (iii) the balance of the Net Award plus the
balance of any deficiency deposits given by Borrower to Lender or Depositary
pursuant to the provisions of this paragraph hereinafter set forth shall be
sufficient to pay in full the balance of the cost of the Condemnation
Restoration.
(c) Notwithstanding anything to the contrary contained herein, Lender
shall not be obligated to make the Net Award available for the Condemnation
Restoration of the Property unless the principal balance of the Note after the
completion of the Condemnation Restoration (assuming the amount of the Net Award
received by Lender in excess of the cost of the Condemnation Restoration as
estimated by Lender is applied to the prepayment of the Note) will be sufficient
to cause (i) the Debt Service Coverage Ratio applicable to the Property
immediately following the Condemnation Restoration to be not less than 1.2 to
1.0 and (ii) in the event of any Condemnation Restoration involving Net Award of
more than $250,000.00, the ratio of (a) the then outstanding principal balance
of the Note to (b) the appraised value of the Property after completion of the
Condemnation Restoration (as determined by an independent third-party appraiser
holding an MAI designation and having a national practice and at least ten (10)
years real estate experience appraising properties of a similar nature and type
as the Property) to be equal to or less than the Minimum Loan to Value Ratio.
(d) Notwithstanding anything to the contrary contained herein, if the Net
Award shall be less than $50,000.00, only one such disbursement shall be
required upon the completion of the Condemnation Restoration to the satisfaction
of Lender. If the Net Award shall be $50,000.00 or more, Lender shall disburse
the Net Award as provided above, however, in no event shall Lender be required
to disburse such Net Award, or any portion thereof, more often than once every
thirty (30) days. If at any time the Net Award, or the undisbursed balance
thereof, shall not, in the opinion of Lender, be sufficient to pay in full the
balance of the cost of Condemnation Restoration, Borrower shall deposit such
deficiency with Lender or Depository before any further disbursement of the Net
Award shall be made.
(e) Notwithstanding anything to the contrary contained herein, any taking
by any public or quasi public authority through eminent domain or otherwise
(including but not limited to any transfer made in lieu of or in anticipation of
the exercise of such taking), Borrower shall continue to pay the Debt at the
time and in the manner provided for in the Note and in this Security Instrument
and the Debt shall not be reduced until any award or payment therefor shall have
been actually received and applied in accordance with this paragraph 6. Lender
shall not be limited to the interest paid on the award by the condemning
authority but shall be entitled to receive out of the award interest at the rate
or rates provided herein and in the Note.
(f) Any amount of the Net Award received by Lender and not required to be
disbursed for the Condemnation Restoration pursuant to the provisions of this
paragraph hereinabove set forth may be retained and applied by Lender to the
discharge of the Debt, whether or not then due and payable, in such priority and
proportions as Lender in its discretion shall deem proper. If the Property is
sold through foreclosure or otherwise prior to the receipt by Lender of such
award or payment, Lender shall have the right, whether or not a deficiency
judgment on the Note shall have been sought, recovered or denied, to receive
such award or payment or a portion thereof sufficient to pay the Debt, whichever
is less. Borrower shall file and prosecute its claim or claims for any such
award or payment in good faith and with due diligence and cause the same to be
collected and paid over to Lender, and Borrower hereby irrevocably authorizes
and empowers Lender, in the name of Borrower or otherwise, to collect and
receipt for any such award or payment and to file and prosecute such claim or
claims, and although it is hereby expressly agreed that the same shall not be
necessary in any event, Borrower shall upon demand of Lender make, execute and
deliver any and all assignments and other instruments sufficient for the purpose
of assigning any such award or payment to Lender, free and clear of any
encumbrances of any kind or nature whatsoever.
7. Leases and Rents. (a) Trustee and Lender are hereby granted and
assigned by Borrower the right to enter the Property for the purpose of
enforcing its interest in the Leases and the Rents, this Security Instrument
constituting a present, absolute assignment of the Leases and the Rents.
Nevertheless, subject to the terms of this paragraph 7, Lender grants to
Borrower a revocable license to operate and manage the Property and to collect
the Rents. Borrower shall hold the Rents, or a portion thereof sufficient to
discharge all current sums due on the Debt, for use in the payment of such sums.
Upon or at any time after an Event of Default, the license granted to Borrower
herein may be revoked by Lender, and Lender or Trustee may enter upon the
Property, and collect, retain and apply the Rents toward payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.
(b) All Leases shall be written on the standard form of lease which has
been approved by Lender. Upon written request from Lender, Borrower shall
furnish Lender with executed copies of all Leases and all modifications thereto
as soon as may be practicable. No material changes may be made to the Lender-
approved standard forms except as may be required by applicable law. In
addition, all renewals of Leases and all proposed leases shall provide for
rental rates comparable to existing local market rates and shall be arms-length
transactions. Borrower shall not enter into any lease having a term of more
than three (3) years. All Leases shall provide that they are subordinate to
this Security Instrument and that the lessee agrees to attorn to Lender.
Borrower (i) shall observe and perform all the obligations imposed upon the
lessor under the Leases and shall not do or permit to be done anything to impair
the value of the Leases as security for the Debt; (ii) shall enforce all of the
terms, covenants and conditions contained in the Leases upon the part of the
lessee thereunder to be observed or performed; (iii) shall not collect any of
the Rents more than one (1) month in advance; (iv) shall not execute any other
assignment of lessor's interest in the Leases or the Rents; (v) shall not
materially alter, modify or change the terms of the Leases, or cancel or
terminate the Leases or accept a surrender thereof or convey or transfer or
suffer or permit a conveyance or transfer of the Premises or of any interest
therein so as to effect a merger of the estates and rights of, or a termination
or diminution of the obligations of, lessees thereunder, except that Borrower
may terminate any Lease in exercising its rights as landlord thereunder upon a
default by the tenant under said Lease; (vi) shall not alter, modify or change
the terms of any guaranty of the Leases or cancel or terminate such guaranty;
(vii) shall not consent to any assignment of or subletting under the Leases not
in accordance with their terms; and (viii) shall execute and deliver all such
further assurances, confirmations and assignments in connection with the
Property as Lender shall from time to time require.
8. Maintenance of Property. (a) Borrower shall cause the Property to be
maintained in a good and safe condition and repair. The Improvements and the
Equipment shall not be removed, demolished or materially altered (except for
normal replacement of the Equipment). Borrower shall promptly comply with all
laws, orders and ordinances affecting the Property, or the use thereof.
Borrower shall promptly repair, replace or rebuild any part of the Property
which may be destroyed by any casualty, or become damaged, worn or dilapidated
or which may be affected by any proceeding of the character referred to in
paragraph 6 hereof and shall complete and pay for any structure at any time in
the process of construction or repair on the Premises. Borrower shall not
initiate, join in, acquiesce in, or consent to any change in any private
restrictive covenant, zoning law or other public or private restriction,
limiting or otherwise changing the uses which may be made of the Property or any
part thereof. If under applicable zoning provisions the use of all or any
portion of the Property is or shall become a nonconforming use, Borrower will
not cause or permit such nonconforming use to be discontinued or abandoned
without the express written consent of Lender.
(b) Borrower hereby represents that all inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Property and with respect to the use and occupancy of the same, including
but not limited to, certificates of occupancy and fire underwriter certificates,
have been made by or obtained from the appropriate governmental authorities.
Borrower hereby represents, warrants and covenants that it has obtained and will
maintain all permits and licenses required to operate the Property as a multi-
family residential development. Borrower has and shall continue to comply in
all material respects with and make all payments required under all laws,
ordinances, regulations, covenants, conditions and restrictions now or hereafter
affecting the Property or any part thereof or the business or the activity
conducted thereon. Borrower will not commit, suffer, permit or allow any act to
be done in or upon the Property in violation of any law, ordinance or
regulation. Borrower is in material compliance and shall continue to comply in
all material respects with all existing and future requirements of all
governmental authorities having jurisdiction over the Property.
9. Transfer or Encumbrance of the Property. (a) Borrower acknowledges
that Lender has examined and relied on the creditworthiness of Borrower and the
experience of Borrower in owning properties such as the Property in agreeing to
make the loan secured hereby, and that Lender will continue to rely on
Borrower's ownership of the Property as a means of maintaining the value of the
Property as security for repayment of the Debt. Borrower acknowledges that
Lender has a valid interest in maintaining the value of the Property so as to
ensure that, should Borrower default in the repayment of the Debt, Lender can
recover the Debt by a sale of the Property. Except as otherwise provided in
subparagraph 9(c) hereof, Borrower shall not sell, convey, alien, mortgage,
encumber, pledge or otherwise transfer the Property or any part thereof, or
permit the Property or any part thereof to be sold, conveyed, aliened,
mortgaged, encumbered, pledged or otherwise transferred.
(b) A sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer within the meaning of this paragraph 9 shall be deemed to include (i)
an installment sales agreement wherein Borrower agrees to sell the Property or
any part thereof for a price to be paid in installments; (ii) an agreement by
Borrower leasing all or a substantial part of the Property for other than actual
occupancy by a space tenant thereunder or a sale, assignment or other transfer
of, or the grant of a security interest in, Borrower's right, title and interest
in and to any Leases or any Rents; (iii) if Borrower or any general partner of
Borrower is a corporation, the voluntary or involuntary sale, conveyance or
transfer of such corporation's stock or the creation or issuance of new stock by
which an aggregate of more than 49% of such corporation's stock shall be vested
in a party or parties who are not now stockholders, except for any sale,
conveyance or transfer of such corporation's stock to an Affiliate provided
Lender shall have received prior written notice of such transfer; (iv) if
Borrower or any general partner or managing member of Borrower is a limited or
general partnership or joint venture, the change, removal or resignation of a
general partner or managing partner or the transfer of the partnership interest
of any general partner or managing partner, except for any transfer of such
partnership interest to an Affiliate, and excluding the removal or resignation
of any non Affiliate or non managing general partner where the managing general
partner shall remain following such removal or resignation, provided, in either
case, Lender shall have received prior written notice of such transfer
resignation or removal; (v) if Borrower or any Guarantor or any general partner
or managing member of Borrower or any Guarantor is a limited liability company,
the change, removal or resignation of the managing member of such company, or
the transfer or pledge of the membership interest of the managing member of such
company or any profits or proceeds relating to such membership interest or the
transfer of more than 49% in the aggregate of any membership interests in such
company whether in one transfer or a series of transfers, except for any
transfer of membership interests to an Affiliate, provided Lender shall have
received prior written notice of such transfer, resignation or removal; (vi) any
transfer of any interest by the Manager (hereinafter defined) other than as
permitted under paragraph 53; and (vii) any transfer of the beneficial interest
of any Borrower in any trust holding legal title to the Property.
(c) Notwithstanding anything to the contrary contained herein:
(i) Upon sixty (60) days prior written notice to Lender, the
Borrower shall have the limited right to transfer legal title to the
Property to a Single Purpose Entity Transferee (hereinafter defined)
provided (a) such Single Purpose Entity Transferee assumes all of the
obligations of the Borrower under this Security Instrument, the Note
and the Other Security Documents in a manner satisfactory to Lender in
all respects, including, without limitation, by entering into an
assumption agreement with Borrower and Lender in form and substance
reasonably satisfactory to Lender (an "Assumption Agreement"), (b) the
Single Purpose Entity Transferee shall have been newly formed
exclusively and solely for the purpose of owning and operating the
Property and shall have been engaged in no other business activities
prior to the transfer of title to such Single Purpose Entity
Transferee and must be a "United States person" as defined by Section
7701(a)(30) of the United States Internal Revenue Code of 1986, as
amended, (c) the Single Purpose Entity Transferee or the management
agent it employs to manage the Property shall have Adequate Real
Estate Experience (hereinafter defined), (d) the Single Purpose Entity
Transferee shall deliver to Lender evidence of the fulfillment of the
requirements of subsection (b) above, (e) the Single Purpose Entity
Transferee shall deliver any and all organizational documentation
requested by Lender, which documentation shall be reasonably
satisfactory to Lender in all respects, and shall deliver an opinion
of counsel of the Single Purpose Entity Transferee covering the
Assumption Agreement in form and substance similar to the due
execution, delivery and enforcement opinions delivered by counsel to
Borrower in connection with the execution of this Security Instrument,
(f) the Single Purpose Entity Transferee shall deliver any
certificates and opinions of counsel, enter into agreements and
covenants, or cause each of its general partners (or any other
principal thereof) to deliver certificates, enter into agreements and
covenants, which certificates, agreements, opinions of counsel and
covenants shall be similar in nature to those delivered, executed and
made by Borrower or any general partner of Borrower in connection with
the execution of this Security Instrument or the Securitization
(hereinafter defined) relating to the single purpose nature of the
Single Purpose Entity Transferee or otherwise, and (g) Borrower shall
deliver, at its sole cost and expense, an endorsement to the existing
title policy insuring the Security Instrument as modified by the
Assumption Agreement as a valid first lien on the Property, naming the
Single Purpose Entity Transferee as owner of the fee estate of the
Property, which endorsement shall insure that, as of the date of the
recording of the Assumption Agreement, the Property shall not be
subject to any additional exceptions or liens other than those
contained in the original title policy insuring the lien of this
Security Instrument and delivered in connection with the execution of
this Security Instrument. Any and all reasonable costs incurred in
connection with the above (including Lender's counsel's fees and
disbursements and expenses and all recording fees, mortgage or
intangible taxes, and title insurance premiums), shall be paid by
Borrower. Lender shall respond to Borrower's request to transfer
legal title to the Property within thirty (30) days of delivery of all
of the information required by subsections (a)-(g) above. The failure
of Lender to respond to such request shall not be deemed consent to
the transfer.
For purposes of this Security Instrument, the term "Adequate Real
Estate Experience" shall mean an entity which manages first class
multi-family residences of a type and size similar to the Property,
and which manages in the aggregate no less than 1,000 residential
units at the time of such transfer.
The term "Single Purpose Entity Transferee" shall mean an entity that:
A. shall not own any asset other than the Property;
B. shall not engage in any business other than those necessary for
the ownership, management or operation of the Property and any
such business transactions with any general partner, principal or
affiliate of the Single Purpose Entity Transferee or any
affiliate of the general partner of the Single Purpose Entity
Transferee shall be entered into upon terms and conditions that
are intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties
other than an affiliate of the Single Purpose Entity Transferee
or the general partner or an affiliate of the general partner of
the Single Purpose Entity Transferee;
C. shall not incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than
the Debt, any Affiliate Advance (hereinafter defined), and the
Subordinate Debt ("Subordinate Debt"), as defined in that certain
Subordination Agreement dated as of the date hereof between
Lender and IFSE Holding Co., L.L.C.;
D. shall not make any loans or advances to any third party
(including any affiliates of such Single Purpose Entity
Transferee or the general partner or managing member or an
affiliate of the general partner or managing member of such
Single Purpose Entity Transferee);
E. shall be solvent and pay its debts from its assets as the same
become due;
F. shall do or cause to be done all things necessary to preserve its
existence, and shall not amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of
incorporation or by-laws in a manner which adversely affects such
Single Purpose Entity Transferee's existence as a single purpose
entity;
G. shall maintain books and records and bank accounts separate from
those of its affiliates, including its general partners;
H. shall be, and at all times shall hold itself out to the public
as, a legal entity separate and distinct from any other entity
(including any affiliate thereof, including the general partner
or any affiliate of the general partner of such Single Purpose
Entity Transferee);
I. shall file its own tax returns;
J. shall maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations;
K. shall not seek the dissolution or winding up, in whole or in
part, of the Single Purpose Entity Transferee or voluntarily
file, or consent to the filing of, a petition for bankruptcy,
reorganization, assignment for the benefit of creditors or
similar proceeding; and
L. shall not commingle its funds or other assets with any other
person or entity.
The term "Affiliate Advance" shall mean and be limited to a payment made by
an Affiliate to a third party on behalf of Borrower, the repayment of which
remains an unsecured obligation of the Borrower, provided: (i) such payment
shall have been made by the Affiliate to enable the Borrower to pay for its
ordinary and customary operating expenses or property or capital expense
(exclusive of any payments of debt service under any loan made to Borrower,
including, without limitation, the Debt secured by this Security Instrument),
(ii) upon an Event of Default under the Note, this Security Instrument or the
Other Security Documents, no payments of or accrual of interest or principal
shall be made or required on or before the repayment of all sums due under the
Note, this Security Instrument or the Other Security Documents, and (iii) the
obligation of Borrower, whether written or otherwise, shall be (a) subordinate
in lien and payment to the Debt, (b) non-defaultable and non-callable upon a
default (monetary or nonmonetary) or otherwise, prior to one year and a day from
the repayment of all sums due under the Note, this Security Instrument or the
Other Security Documents and (c) unsecured obligation of Borrower at all times.
(ii) [INTENTIONALLY OMITTED]
(iii) Borrower may sell, convey or transfer stock, partnership or
membership interest as described in subsections 9(b)(iii), (iv) and
(v) hereof in the Borrower or a general partner or managing member of
Borrower (but not by any subsequent Single Purpose Entity Transferee),
provided that:
1. No Event of Default shall have occurred and be continuing;
2. The Single Purpose Entity Transferee shall be a person, firm or
corporation whose character, financial strength, stability and
experience shall be similar to the existing Borrower and any
general partner of Borrower as of the date hereof and otherwise
reasonably satisfactory to Lender;
3. The Single Purpose Entity Transferee shall deliver such
organizational documentation and other material necessary to
establish the transfer; and
4. The Single Purpose Entity Transferee shall pay the costs and
expenses of Lender and Lender's counsel incurred in connection
with the review and approval of such stock, partnership or
membership transfer.
The term "Affiliate" shall mean a corporation or other entity which shall
(i) control, (ii) be controlled by, or (iii) be under common control with either
Borrower, any general partner of Borrower, Insignia Financial Group, Inc. or a
corporation or other entity that would be considered an affiliate of Borrower or
Insignia Financial Group, Inc. under the regulations promulgated by the United
States Securities and Exchange Commission.
The term "Debt Service Coverage Ratio" shall mean the ratio of (a) the NOI
(hereinafter defined) produced by the operation of the Property during the
twelve (12) calendar month period immediately preceding the calculation to (b)
the projected aggregate payments of interest and principal due under this
Security Instrument and the Note and any other subordinate loans affecting the
Property for the twelve (12) calendar month period immediately following the
calculation.
The term "Expenses" shall mean the aggregate of the following items: (a)
real estate taxes, general and special assessments or similar charges; (b)
sales, use and personal property taxes; (c) management fees and disbursements;
(d) wages, salaries, pension costs and all fringe and other employee-related
benefits and expenses; (e) insurance premiums; (f) cost of utilities, and all
other administrative, management, ownership, operating, leasing and maintenance
expenses, excluding depreciation and other non-cash expenses incurred in
connection with the operation of the Property; (g) cost of necessary repair or
replacement of existing improvements on the Property with repairs or
replacements of like kind and quantity or such kind or quality which is
necessary to maintain the Property to the same standards as competitive rental
properties of similar size and location of the Property; and (h) the cost of
such other maintenance materials, HVAC repairs, parts and supplies, other
decorating supplies, floor covering repairs, other decorating contracts, drapes
and equipment. The Expenses shall be based on the above-described items
actually incurred by Borrower during the period for which the calculation is
being made.
The term "NOI" shall mean the gross income derived from the operation of
the Property, less Expenses. NOI shall include only Rents, and such other
income, including any rent loss or business interruption insurance proceeds,
vending income, pet charges, late fees, forfeited security deposits and other
miscellaneous tenant charges, which are actually received during the period for
which the NOI is being calculated. NOI shall be calculated on a cash basis in
accordance with customary accounting principles applicable to real estate.
The term "general partner" shall include the sole member or the managing
member of Borrower or a general partner of Borrower if Borrower or any general
partner of Borrower is a limited liability company.
(d) Lender reserves the right to condition the consent required hereunder
upon such other conditions as Lender shall determine in its reasonable
discretion to be in the interest of Lender. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Debt immediately due and payable upon
Borrower's sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer of the Property in violation of this Security Instrument without
Lender's consent. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Property regardless
of whether voluntary or not, or whether or not Lender has consented to any
previous sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer
of the Property.
10. Estoppel Certificates. (a) After request by Lender, Borrower, within
ten (10) days, shall furnish Lender with a statement, duly acknowledged and
certified, setting forth (i) the amount of the original principal amount of the
Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest
of the Note, (iv) the date installments of interest and/or principal were last
paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi)
that the Note and this Security Instrument are valid, legal and binding obliga-
tions and have not been modified or if modified, giving particulars of such
modification.
11. Changes in the Laws Regarding Taxation. If any law is enacted or
adopted or amended after the date of this Security Instrument which deducts the
Debt from the value of the Property for the purpose of taxation or which imposes
a tax, either directly or indirectly, on the Debt or Lender's interest in the
Property, Borrower will pay such tax, with interest and penalties thereon, if
any. In the event Lender is advised by counsel chosen by it that the payment of
such tax or interest and penalties by Borrower would be unlawful or taxable to
Lender or unenforceable or provide the basis for a defense of usury, then in any
such event, Lender shall have the option, by written notice of not less than
ninety (90) days, to declare the Debt immediately due and payable.
12. No Credits on Account of the Debt. Borrower will not claim or demand
or be entitled to any credit or credits on account of the Debt for any part of
the Taxes or Other Charges assessed against the Property, or any part thereof,
and no deduction shall otherwise be made or claimed from the assessed value of
the Property, or any part thereof, for real estate tax purposes by reason of
this Security Instrument or the Debt. In the event such claim, credit or
deduction shall be required by law, Lender shall have the option, by written
notice of not less than ninety (90) days, to declare the Debt immediately due
and payable.
13. Documentary Stamps. If at any time the United States of America, any
State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Note or this Security Instrument, or impose
any other tax or charge on the same, Borrower will pay for the same, with
interest and penalties thereon, if any.
14. Usury Laws. This Security Instrument and the Note are subject to the
express condition that at no time shall Borrower be obligated or required to pay
interest on the Debt at a rate which could subject the holder of the Note to
either civil or criminal liability as a result of being in excess of the maximum
interest rate which Borrower is permitted by applicable law to contract or agree
to pay. If by the terms of this Security Instrument or the Note, Borrower is at
any time required or obligated to pay interest on the Debt at a rate in excess
of such maximum rate, the rate of interest under the same shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Note.
15. Books and Records. Borrower shall keep adequate books and records of
account which accurately reflect the operations of, and income and expenses
attributable to, the Property and furnish to Lender the following statements,
all of which shall be in form and substance acceptable to Lender:
(i) a quarterly and annual, or as more frequently requested by Lender
or by the rating agencies in connection with securities issued in
connection with the loan secured hereby, occupancy statement
listing each and every Lease, identifying the leased premises,
names of all tenants, monthly rental and all other charges
payable under the Lease, date to which paid, date of occupancy,
date of expiration, any and every special provision, concession
or inducement granted to tenants and such other information as is
reasonably requested by Lender, signed, dated and certified as
true and accurate by the general partner of Borrower and
Borrower;
(ii) an annual operating statement of the operation of the Property in
a form pre-approved by Lender and otherwise satisfactory to
Lender, showing in reasonable detail total revenues received and
total expenses, prepared and certified by the general partner of
Borrower and Borrower;
(iii) an annual balance sheet and profit and loss statement of
Borrower, prepared and certified by the general partner of
Borrower and Borrower within ninety (90) days after the close of
each fiscal year; and
(iv) such annual and monthly (including, without limitation, with
respect to the Reserve Account and the Capital Improvements
Account) balance sheets and profit and loss statements and other
financial statements as may, from time to time, be required by
Lender.
16. Performance of Other Agreements. Borrower shall observe and perform
each and every term to be observed or performed by Borrower pursuant to the
terms of any agreement or recorded instrument affecting or pertaining to the
Property.
17. Further Acts, etc. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
require, for the better assuring, conveying, assigning, transferring, and
confirming unto Lender the property and rights hereby mortgaged, given, granted,
bargained, sold, aliened, enfeoffed, conveyed, confirmed, pledged, assigned and
hypothecated or intended now or hereafter so to be, or which Borrower may be or
may hereafter become bound to convey or assign to Lender, or for carrying out
the intention or facilitating the performance of the terms of this Security
Instrument or for filing, registering or recording this Security Instrument.
Borrower on demand, will execute and deliver and hereby authorizes Lender to
execute in the name of Borrower or without the signature of Borrower to the
extent Lender may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Lender in the Property. Borrower grants to Lender an irrevocable
power of attorney coupled with an interest for the purpose of perfecting any and
all rights and remedies available to Lender at law and in equity pursuant to the
terms of the Note, this Security Instrument or the Other Security Documents,
including without limitation such rights and remedies available to Lender
pursuant to this paragraph 17.
18. Recording of Security Instrument, etc. Borrower forthwith upon the
execution and delivery of this Security Instrument and thereafter, from time to
time, will cause this Security Instrument, and any security instrument creating
a lien or security interest or evidencing the lien hereof upon the Property and
each instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Lender in, the Property. Borrower will pay all
filing, registration or recording fees, and all expenses incident to the
preparation, execution and acknowledgment of this Security Instrument, any
mortgage supplemental hereto, any security instrument with respect to the
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Security Instrument, any
mortgage supplemental hereto, any security instrument with respect to the
Property or any instrument of further assurance, except where prohibited by law
so to do. Borrower shall hold harmless and indemnify Lender, its successors and
assigns, against any liability incurred by reason of the imposition of any tax
on the making and recording of this Security Instrument.
19. Prepayment. If permitted by the Note, the Debt may be prepaid in
accordance with the terms thereof.
20. Events of Default. The Lender may declare the Debt immediately due
and payable upon any one or more of the following events ("Event of Default"):
(a) if any portion of the Debt is not paid within ten (10) days after
written notice is delivered by the Lender notifying Borrower that the
same is overdue;
(b) except as otherwise provided in paragraph 4 hereof, if any of the
Taxes or Other Charges is not paid when the same is due and payable;
(c) if the Policies are not kept in full force and effect, or if the
Policies (or duplicate originals thereof) are not delivered to Lender
upon request;
(d) if Borrower violates or does not comply with any of the provi-
sions of paragraphs 7, 9, 34, 35 or 55 hereof;
(e) if any representation or warranty of Borrower made herein or in
any certificate, report, financial statement or other instrument or
document furnished to Lender shall have been false or misleading in
any material respect when made;
(f) if Borrower shall make an assignment for the benefit of creditors
or if Borrower shall generally not be paying its debts as they become
due;
(g) if a receiver, liquidator or trustee of Borrower shall be
appointed or if Borrower shall be adjudicated a bankrupt or insolvent,
or if any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state
law, shall be filed by or against, consented to, or acquiesced in by,
Borrower or if any proceeding for the dissolution or liquidation of
Borrower shall be instituted; however, if such appointment, adjudica-
tion, petition or proceeding was involuntary and not consented to by
Borrower, upon the same not being discharged, stayed or dismissed
within ninety (90) days;
(h) [INTENTIONALLY OMITTED]
(i) if Borrower shall be in default under any other mortgage or
security agreement covering any part of the Property whether it be
superior or junior in lien to this Security Instrument;
(j) if the Property becomes subject to any mechanic's, materialman's
or other lien other than a lien for local real estate taxes and
assessments not then due and payable and such lien shall remain
undischarged of record (by payment, bonding or otherwise) on the
earlier of (i) forty-five (45) days after Borrower shall have notice
(written or oral) of such lien or (ii) following a judgment in favor
of the holder of such lien, one week prior to the date on which such
lien may be foreclosed;
(k) if Borrower fails to cure promptly any violations of laws or
ordinances affecting or which may be interpreted to affect the
Property; provided, however, after prior written notice to Lender,
Borrower, at its own expense, may contest by appropriate legal
proceeding, promptly initiated and conducted in good faith and with
due diligence, the validity or application of any building, fire or
zoning law or ordinance affecting the Property provided that (i) no
other Event of Default exists under the Note, this Security
Instrument, or the Other Security Documents, (ii) such proceeding
shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Borrower is subject and
shall not constitute a default thereunder, (iii) neither the Property
nor any part thereof or interest therein will be in danger of being
sold, forfeited, terminated, canceled or lost, and (iv) if by the
terms of such law or ordinance, compliance therewith pending the
prosecution of any such proceeding may legally be delayed without
incurring any lien, charge or liability of any kind against the
Property, or any part thereof, and without subjecting the Borrower or
the Lender to any liability, civil or criminal, for failure to comply
therewith; or
(l) if Borrower shall continue to be in default under any of the
other terms, covenants or conditions of the Note, this Security
Instrument or the Other Security Documents for five (5) days after
notice from Lender in the case of any default which can be cured by
the payment of a sum of money or for thirty (30) days after notice
from Lender in the case of any other default, provided that if such
default cannot reasonably be cured within such thirty (30) day period
and Borrower shall have commenced to cure such default within such
thirty (30) day period and thereafter diligently and expeditiously
proceeds to cure the same, such thirty (30) day period shall be
extended for so long as it shall require Borrower in the exercise of
due diligence to cure such default, it being agreed that no such
extension shall be for a period in excess of ninety (90) days.
21. Remedies of Lender/Application of Proceeds. (a) Upon the occurrence
of an Event of Default, (a) Borrower will pay, from the date of that Event of
Default, interest on the unpaid principal balance of the Note at the rate of (i)
the greater of (A) five percent (5%) over the Applicable Interest Rate (as
defined in the Note) due under the Note and (B) two percent (2%) over the Prime
Rate (hereinafter defined) as the same shall change from time to time or (ii) at
the maximum interest rate which Borrower may by law pay, whichever is lower,
(the "Default Rate") and (b) Lender shall have the right to exercise any and all
rights and remedies available at law and in equity. The term "Prime Rate" shall
mean the daily "Prime Rate" published in The Wall Street Journal from the date
of the default, as such "Prime Rate" shall change from time to time. In the
event The Wall Street Journal ceases to publish the prime rate or in the event
such prime rates are no longer generally published or are limited, regulated or
administered by a governmental or quasi-governmental body, a comparable interest
rate index shall be substituted therefor by Lender.
(b) The purchase money, proceeds and avails of any disposition of the
Property, or any part thereof, pursuant to paragraph 22 of this Security
Instrument or any other sums collected by Lender pursuant to the Note, this
Security Instrument or the Other Security Documents, may be applied by Lender to
the payment of the Debt in such priority and proportions as Lender in its
discretion shall deem proper.
22. Sale of Property. (a) If this Security Instrument is foreclosed or
if the Property is sold pursuant to the exercise of a power of sale, the
Property, or any interest therein, may at the discretion of Lender, be sold in
one or more parcels or in several interests or portions and in any order or
manner.
(b) In addition, Borrower hereby vests Lender with full power and
authority, upon the happening of an Event of Default, at Lender's option, to
declare the entire Debt to be immediately due and payable, and at Lender's
option, to take possession of the Property if and to the extent allowed by law,
and to sell the Property to the highest bidder at public auction in front of the
courthouse door in the county or counties, as may be required, where the
Property is located, either in person or by auctioneer, after having first given
notice of the time, place and terms of sale, together with a description of the
property to be sold, by publication once a week for four (4) successive weeks
prior to said sale in some newspaper published in said county or counties, as
may be required, and, upon payment of the purchase money, Lender or any person
conducting the sale for Lender is authorized to execute to the purchaser at said
sale a deed to the Property so purchased. Lender may bid at said sale and
purchase the Property, or any part thereof, if the highest bidder therefor. At
the foreclosure sale the Property may be offered for sale and sold as a whole
without first offering it in any other manner or may be offered for sale and
sold in any other manner as Lender may elect. The proceeds of any foreclosure
sale pursuant to this paragraph shall be applied first, to the payment of the
costs of said sale, including reasonable attorney's and auctioneer's fees;
second, to the payment of the Debt hereby secured, whether due or not, with the
unpaid interest thereon to the date of sale, and any amount that may be due
Lender by virtue of any of the special liens or agreements herein contained;
and, third, the balance, if any, to be paid over to Borrower, or as may
otherwise be provided by law.
23. Right to Cure Defaults. Upon the occurrence of any Event of Default,
if Borrower fails to make any payment or perform any act as herein provided
Lender may, but without any obligation to do so and without notice to or demand
on Borrower and without releasing Borrower from any obligation hereunder, make
or do the same in such manner and to such extent as Lender may deem necessary to
protect the security hereof. Lender is authorized to enter upon the Property
for such purposes, or appear in, defend, or bring any action or proceeding
to protect its interest in the Property or to foreclose this Security Instrument
or collect the Debt, and the cost and expense thereof (including reasonable
attorneys' fees to the extent permitted by law), with interest as provided in
this paragraph 23, shall constitute a portion of the Debt and shall be due and
payable to Lender upon demand. All such costs and expenses incurred by Lender
in remedying such Event of Default or in appearing in, defending, or bringing
any such action or proceeding shall bear interest at the Default Rate, for the
period after notice from Lender that such cost or expense was incurred to the
date of payment to Lender. All such costs and expenses incurred by Lender
together with interest thereon calculated at the Default Rate shall be deemed to
constitute a portion of the Debt and be secured by this Security Instrument and
the Other Security Documents and shall be immediately due and payable upon
demand by Lender therefor.
24. Late Payment Charge. If any portion of the Debt is not received by
Lender within five (5) days of the date on which it is due without taking into
account any applicable notice or grace period, Borrower shall pay to Lender upon
demand an amount equal to the lesser of five percent (5%) of such unpaid portion
of the Debt or the maximum amount permitted by applicable law, to defray the
expense incurred by Lender in handling and processing such delinquent payment
and to compensate Lender for the loss of the use of such delinquent payment, and
such amount shall be secured by this Security Instrument and the Other Security
Documents.
25. Prepayment After Event of Default. If following the occurrence of any
Event of Default, Borrower shall tender payment of an amount sufficient to
satisfy the Debt in whole or in part at any time prior to a foreclosure sale of
the Property, or a sale of the Property pursuant to the exercise of a power of
sale, such tender shall be deemed to be a voluntary prepayment of the principal
balance of the Note and Borrower shall, in addition to the entire Debt, also pay
to Lender a sum equal to the interest which would have accrued on the principal
balance of the Note at the Applicable Interest Rate as defined in the Note from
the date of such tender to the earlier of (i) the Maturity Date as defined in
the Note or to (ii) the first day of the period during which prepayment of the
principal balance of the Note would have been permitted together with a
prepayment consideration equal to the prepayment consideration which would have
been payable as of the first day of the period during which prepayment would
have been permitted. If at the time of such tender prepayment of the principal
balance of the Note is permitted, such tender by Borrower shall be deemed to be
a voluntary prepayment of the principal balance of the Note, and Borrower shall,
in addition to the entire Debt, also pay to Lender the applicable prepayment
consideration specified in the Note and this Security Instrument, if any.
26. Right of Entry. Lender and its agents shall have the right to enter
and inspect the Property at all reasonable times.
27. Appointment of Receiver. The holder of this Security Instrument, upon
the occurrence of an Event of Default or in any action to foreclose this
Security Instrument or upon the actual or threatened waste to any part of the
Property, shall be entitled to the appointment of a receiver without notice and
without regard to the value of the Property as security for the Debt, or the
solvency or insolvency of any person liable for the payment of the Debt.
28. Reasonable Use and Occupancy. In addition to the rights which Lender
may have herein, upon the occurrence of any Event of Default, Lender, at its
option, may require Borrower to pay monthly in advance to Lender, or any
receiver appointed to collect the Rents, the fair and reasonable rental value
for the use and occupation of such part of the Property as may be occupied by
Borrower or may require Borrower to vacate and surrender possession of the
Property to Lender or to such receiver and, in default thereof, Borrower may be
evicted by summary proceedings or otherwise.
29. Security Agreement. This Security Instrument is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property. Borrower by executing and delivering this Security
Instrument has granted and hereby grants to Lender, as security for the Debt, a
security interest in the Property to the full extent that the Property may be
subject to the Uniform Commercial Code (said portion of the Property so subject
to the Uniform Commercial Code being called in this paragraph 29 the
"Collateral"). If an Event of Default shall occur, Lender and Trustee, in
addition to any other rights and remedies which they may have, shall have and
may exercise immediately and without demand, any and all rights and remedies
granted to a secured party upon default under the Uniform Commercial Code,
including, without limiting the generality of the foregoing, the right to take
possession of the Collateral or any part thereof, and to take such other
measures as Lender may deem necessary for the care, protection and preservation
of the Collateral. Upon request or demand of Lender or Trustee, Borrower shall
at its expense assemble the Collateral and make it available to Lender and
Trustee at a convenient place acceptable to Lender. Borrower shall pay to
Lender and Trustee on demand any and all reasonable expenses, including legal
expenses and attorneys' fees, incurred or paid by Lender and Trustee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Lender or Trustee with respect to the Collateral sent to
Borrower in accordance with the provisions hereof at least five (5) days prior
to such action, shall constitute commercially reasonable notice to Borrower
unless otherwise required by law. The proceeds of any disposition of the
Collateral, or any part thereof, may be applied by Lender to the payment of the
Debt in such priority and proportions as Lender in its discretion shall deem
proper.
30. Actions and Proceedings. Lender or Trustee has the right to appear in
and defend any action or proceeding brought with respect to the Property and to
bring any action or proceeding, in the name and on behalf of Borrower, which
Lender, in its discretion, decides should be brought to protect their interest
in the Property. Lender shall, at its option, be subrogated to the lien of any
deed of trust, mortgage or other security instrument discharged in whole or in
part by the Debt, and any such subrogation rights shall constitute additional
security for the payment of the Debt.
31. Waivers. Borrower hereby waives the right to assert a counterclaim,
other than a mandatory or compulsory counterclaim, in any action or proceeding
brought against it by Lender, and waives trial by jury in any action or
proceeding brought by either party hereto against the other or in any coun-
terclaim asserted by Lender against Borrower, or in any matters whatsoever
arising out of or in any way connected with this Security Instrument, the Note,
any of the Other Security Documents or the Debt.
32. Recovery of Sums Required To Be Paid. Lender shall have the right
from time to time to take action to recover any sum or sums which constitute a
part of the Debt as the same become due, without regard to whether or not the
balance of the Debt shall be due, and without prejudice to the right of Lender
or Trustee thereafter to bring an action of foreclosure, or to sell the Property
pursuant to the exercise of a power of sale, or to bring any other action, for a
default or defaults by Borrower existing at the time such earlier action was
commenced.
33. Marshalling and Other Matters. Borrower hereby waives, to the extent
permitted by law, the benefit of all appraisement, valuation, stay, extension,
reinstatement and redemption laws now or hereafter in force and all rights of
marshalling in the event of any sale hereunder of the Property or any part
thereof or any interest therein. Further, Borrower hereby expressly waives any
and all rights of redemption from sale under any order or decree of foreclosure
of this Security Instrument on behalf of Borrower, and on behalf of each and
every person acquiring any interest in or title to the Property subsequent to
the date of this Security Instrument and on behalf of all persons to the extent
permitted by applicable law.
34. Hazardous Materials. Borrower represents and warrants that, except as
otherwise disclosed in that certain environmental report delivered by Borrower
to Lender in connection with the origination of this Security Instrument (the
"Environmental Report"), to the best of Borrower's knowledge, after due inquiry
and investigation, (a) there are no Hazardous Materials (hereinafter defined) on
the Property, except those in compliance with all applicable federal, state and
local laws, ordinances, rules and regulations, and (b) no owner or occupant nor,
to the best of Borrower's knowledge, any prior owner or occupant of the Property
has received any notice or advice from any governmental agency or any source
whatsoever with respect to Hazardous Materials on, from or affecting the
Property. Borrower covenants that the Property shall be kept free of Hazardous
Materials, and neither Borrower nor any occupant of the Property shall use,
transport, store, dispose of or in any manner deal with Hazardous Materials on
the Property, except in compliance with all applicable federal, state and local
laws, ordinances, rules and regulations. Borrower shall comply with, and ensure
compliance by all occupants of the Property with, all applicable federal, state
and local laws, ordinances, rules and regulations, and shall keep the Property
free and clear of any liens imposed pursuant to such laws, ordinances, rules or
regulations. At any time after the occurrence of an Event of Default and the
continuance thereof, Lender may enter upon the Property and conduct such
environmental tests and studies as Lender shall require. The cost and expense
of such tests and studies shall be borne by Borrower and such amounts shall be
secured by this Security Instrument. In the event that Borrower receives any
notice or advice from any governmental agency or any source whatsoever with
respect to Hazardous Materials on, from or affecting the Property, Borrower
shall immediately notify Lender. Borrower shall conduct and complete all
investigations, studies, sampling, and testing, and all remedial actions neces-
sary to clean up and remove all Hazardous Materials from the Property in accor-
dance with all applicable federal, state, and local laws, ordinances, rules and
regulations. The term "Hazardous Materials" as used in this Security Instrument
shall include, without limitation, gasoline, petroleum products, explosives,
radioactive materials, polychlorinated biphenyls or related or similar
materials, or any other substance or material defined as a hazardous or toxic
substance or material by any federal, state or local law, ordinance, rule, or
regulation, but excluding Asbestos, as defined in paragraph 35 hereof. The
obligations and liabilities of Borrower under this paragraph 34 shall survive
any entry of a judgment of foreclosure, the sale of the Property pursuant to the
exercise of a power of sale, or the delivery of a deed in lieu of foreclosure of
this Security Instrument.
35. Asbestos. Borrower represents and warrants that, except as otherwise
disclosed in the Environmental Report, to the best of Borrower's knowledge,
after due inquiry and investigation, there is no asbestos or material containing
asbestos ("Asbestos") on the Property, and that no owner or occupant nor to the
best of Borrower's knowledge, any prior owner or occupant of the Property has
received any notice or advice from any governmental agency or any source
whatsoever with respect to Asbestos on, affecting or installed on the Property.
Borrower covenants that, except as otherwise disclosed in the Environmental
Report, the Property shall be kept free of Asbestos, and neither Borrower nor
any occupant of the Property shall install, or permit to be installed, Asbestos
on the Property. Borrower shall comply with, and ensure compliance by all
occupants of the Property with, all applicable federal, state and local laws,
ordinances, rules and regulations with respect to Asbestos, and shall keep the
Property free and clear of any liens imposed pursuant to such laws, ordinances,
rules or regulations. In the event that Borrower receives any notice or advice
from any governmental agency or any source whatsoever with respect to Asbestos
on, affecting or installed on the Property, Borrower shall immediately notify
Lender. Borrower shall conduct and complete all investigations, studies,
sampling, and testing, and all remedial actions necessary to manage and remove
all Asbestos from the Property in accordance with all applicable federal, state
and local laws, ordinances, rules and regulations. The obligations and
liabilities of Borrower under this paragraph 35 shall survive any entry of a
judgment of foreclosure, the sale of the Property pursuant to the exercise of a
power of sale, or delivery of a deed in lieu of foreclosure of this Security
Instrument.
36. Indemnification. Borrower shall protect, defend, indemnify and save
harmless Lender from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys' fees and expenses), imposed upon or incurred by or
asserted against Lender (except any liability, obligation, claim, damage,
penalty, cause of action, cost or expense imposed upon or incurred by Lender by
reason of the gross negligence or willful misconduct of Lender) by reason of (a)
ownership of this Security Instrument, the Property or any interest therein
arising pursuant to the terms of this Security Instrument or receipt of any
Rents; (b) any accident, injury to or death of persons or loss of or damage to
property occurring in, on or about the Property or any part thereof or on the
adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets
or ways; (c) any use, nonuse or condition in, on or about the Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (d) any failure on the part of Borrower to
perform or comply with any of the terms of this Security Instrument; (e)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof; (f) the failure of any
person to file timely with the Internal Revenue Service an accurate Form 1099-B,
Statement for Recipients of Proceeds from Real Estate, Broker and Barter
Exchange Transactions, which may be required in connection with this Security
Instrument, or to supply a copy thereof in a timely fashion to the recipient of
the proceeds of the transaction in connection with which this Security
Instrument is made; (g) the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release, or threatened release of any Hazardous
Materials on, from, or affecting the Property or any other property or the
presence of Asbestos on the Property; (h) any personal injury (including
wrongful death) or property damage (real or personal) arising out of or related
to such Hazardous Materials or Asbestos; (i) any lawsuit brought or threatened,
settlement reached, or government order relating to such Hazardous Materials or
Asbestos; (j) the failure of Borrower to comply with the terms of the O&M Plan
(hereinafter defined); or (k) any violation of laws, orders, regulations,
requirements, or demands of government authorities, which are based upon or in
any way related to such Hazardous Materials or Asbestos including, without
limitation, the costs and expenses of any remedial action required by such
governmental authorities, attorney and consultant fees, investigation and
laboratory fees, court costs, and litigation expenses. Any amounts payable to
Lender by reason of the application of this paragraph 36 shall be secured by
this Security Instrument and shall become immediately due and payable upon
demand and shall bear interest at the Default Rate commencing on the tenth
(10th) day following such demand until paid. The obligations and liabilities of
Borrower under this paragraph 36 shall survive any termination, satisfaction,
assignment, entry of a judgment of foreclosure or delivery of a deed in lieu of
foreclosure of this Security Instrument.
37. Notices. All notices or other written communications hereunder shall
be deemed to have been properly given (i) upon delivery, if delivered in person
or by facsimile transmission with receipt acknowledged on a Business Day (or if
not on a Business Day, such notice will be deemed given on the next Business
Day) by the recipient thereof, (ii) one (1) Business Day (hereinafter defined)
after having been deposited for overnight delivery with any reputable overnight
courier service, or (iii) three (3) Business Days after having been deposited in
any post office or mail depository, postage prepaid, return receipt requested,
addressed as follows:
If to Borrower: VMS Apartment Portfolio Associates, III
c/o Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29602
Facsimile: (864) 239-1096
With a copy to: Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29601
Attention: John Lines
Facsimile: (864) 239-1096
If to Lender: Lehman Brothers Holdings Inc.
Three World Financial Center
200 Vesey Street
New York, New York 10285
Attention: Manager, Commercial Contract Finance
Facsimile: (212) 528-6014
With a copy to: Thacher Proffitt & Wood
2 World Trade Center/40th Floor
New York, New York 10048
Attention: Mitchell G. Williams
Facsimile: (212) 912-7751
If to Trustee: Commonwealth Land Title Insurance Company
877 Ygnacio Valley Road, #100
Walnut Creek, California 94596
Attention: Jack Babcock
Facsimile:
38. Authority. (a) Borrower (and the undersigned representative of
Borrower, if any) has full power, authority and legal right to execute this
Security Instrument, and to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, pledge, hypothecate, assign and grant a security
interest in the Property pursuant to the terms hereof and to keep and observe
all of the terms of this Security Instrument on Borrower's part to be performed.
(b) Borrower represents and warrants that Borrower is not a "foreign
person" within the meaning of 1445(f)(3) of the Internal Revenue Code of 1986,
as amended and the related Treasury Department regulations, including temporary
regulations.
39. Waiver of Notice. Borrower shall not be entitled to any notices of
any nature whatsoever from Lender and Trustee except with respect to matters for
which this Security Instrument specifically and expressly provides for the
giving of notice by Lender or Trustee to Borrower and except with respect to
matters for which Lender or Trustee is required by applicable law to give
notice, and Borrower hereby expressly waives the right to receive any notice
from Lender or Trustee with respect to any matter for which this Security
Instrument does not specifically and expressly provide for the giving of notice
by Lender or Trustee to Borrower.
40. Remedies of Borrower. In the event that a claim or adjudication is
made that Lender has acted unreasonably or unreasonably delayed acting in any
case where by law or under the Note, this Security Instrument or the Other
Security Documents, it has an obligation to act reasonably or promptly, Lender
shall not be liable for any monetary damages, and Borrower's remedies shall be
limited to injunctive relief or declaratory judgment.
41. Sole Discretion of Lender. Wherever pursuant to this Security
Instrument, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide that arrangements or terms are satis-
factory or not satisfactory shall be in the sole discretion of Lender, except as
may be otherwise expressly and specifically provided herein.
42. Non-Waiver. The failure of Lender or Trustee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Security Instrument. Borrower shall not be relieved of Borrower's
obligations hereunder by reason of (a) the failure of Lender or Trustee to
comply with any request of Borrower or Guarantors to take any action to
foreclose this Security Instrument or otherwise enforce any of the provisions
hereof or of the Note or the Other Security Documents, (b) the release,
regardless of consideration, of the whole or any part of the Property, or of any
person liable for the Debt or any portion thereof, or (c) any agreement or
stipulation by Lender extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Security Instrument or the Other
Security Documents. Lender may resort for the payment of the Debt to any other
security held by Lender in such order and manner as Lender, in its discretion,
may elect. Lender or Trustee may take action to recover the Debt, or any
portion thereof, or to enforce any covenant hereof without prejudice to the
right of Lender or Trustee thereafter to foreclose this Security Instrument.
The rights and remedies of Lender and Trustee under this Security Instrument
shall be separate, distinct and cumulative and none shall be given effect to the
exclusion of the others. No act of Lender or Trustee shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Lender and Trustee shall not be limited exclusively to the rights
and remedies herein stated but shall be entitled to every right and remedy now
or hereafter afforded at law or in equity.
43. No Oral Change. This Security Instrument, and any provisions hereof,
may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
44. Liability. If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several. The foregoing sentence, however, is not intended to affect the limited
liability of any limited partner or stockholder or member of Borrower afforded
by applicable partnership or corporate law. This Security Instrument shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns forever.
45. Inapplicable Provisions. If any term, covenant or condition of the
Note or this Security Instrument is held to be invalid, illegal or unenforceable
in any respect, the Note and this Security Instrument shall be construed without
such provision.
46. Headings, etc. The headings and captions of various paragraphs of
this Security Instrument are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
47. Duplicate Originals. This Security Instrument may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
48. Definitions. Unless the context clearly indicates a contrary intent
or unless otherwise specifically provided herein, words used in this Security
Instrument may be used interchangeably in singular or plural form and the word
"Borrower" shall mean "each Borrower and any subsequent owner or owners of the
Property or any part thereof or any interest therein," the word "Lender" shall
mean "Lender and any subsequent holder of the Note," the word "Trustee" shall
mean "Trustee and any subsequent holder of this Security Instrument," the word
"Note" shall mean "the Note and any other evidence of indebtedness secured by
this Security Instrument," the word "person" shall include an individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, and any other entity, and the words "Property" shall
include any portion of the Property and any interest therein. Whenever the
context may require, any pronouns used herein shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns and pronouns
shall include the plural and vice versa.
49. CHOICE OF LAW. THIS SECURITY INSTRUMENT SHALL BE DEEMED TO BE A
CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND SHALL IN
ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, PROVIDED HOWEVER, THAT WITH RESPECT TO THE
ATTACHMENT, CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OF THIS
SECURITY INSTRUMENT, THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL
APPLY.
50. Exculpation. Lender shall not enforce the liability and obligation of
Borrower to perform and observe the obligations contained in the Note or this
Security Instrument by any action or proceeding wherein a money judgment shall
be sought against Borrower or any general or limited partner or member of
Borrower (hereafter collectively referred to as the "Exculpated Parties"),
except that Lender may bring a foreclosure action, action for specific
performance or other appropriate action or proceeding to enable Lender to
enforce and realize upon this Security Instrument, the Other Security Documents,
and the interest in the Property, the Rents and any other collateral given to
Lender created by this Security Instrument and the Other Security Documents;
provided, however, that any judgment in any such action or proceeding shall be
enforceable against the Exculpated Parties only to the extent of Borrower's
interest in the Property, in the Rents and in any other collateral given to
Lender. Lender, by accepting the Note and this Security Instrument, agrees that
it shall not sue for, seek or demand any deficiency judgment against the
Exculpated Parties in any such action or proceeding, under or by reason of or in
connection with the Note, the Other Security Documents or this Security
Instrument. The provisions of this paragraph shall not, however, (i) constitute
a waiver, release or impairment of any obligation evidenced or secured by the
Note, the Other Security Documents or this Security Instrument; (ii) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under this Security Instrument; (iii) affect the
validity or enforceability of any guaranty made in connection with the Note,
this Security Instrument, or the Other Security Documents; (iv) impair the right
of Lender to obtain the appointment of a receiver; (v) impair the enforcement of
the Assignment of Leases and Rents executed in connection herewith; (vi) impair
the right of Lender to bring suit with respect to fraud or intentional
misrepresentation by the Exculpated Parties or any other person or entity in
connection with the Note, this Security Instrument or the Other Security
Documents; (vii) impair the right of Lender to obtain the Rents received, and
not applied to the operating expenses of the Property, by any of the Exculpated
Parties after the occurrence of an Event of Default; (viii) impair the right of
Lender to bring suit with respect to the Exculpated Parties' misappropriation of
tenant security deposits or Rents collected in advance; (ix) impair the right of
Lender to obtain insurance proceeds or condemnation awards due to Lender under
this Security Instrument; (x) impair the right of Lender to enforce the
provisions of sub-paragraphs 36(g) through 36 (k), inclusive and paragraphs 34
and 35 of this Security Instrument against the Borrower (excluding any general
or limited partner or member thereof); or (xi) impair the right of Lender to
recover any part of the Debt from the Borrower (excluding the general and
limited partners and members of Borrower), following the breach of any covenant
contained in paragraph 9 or 55 hereof.
51. Intentionally Deleted.
52. Operations and Maintenance Plan. If required by Lender, Borrower
shall within thirty (30) days of the date hereof deliver to Lender an operation
and maintenance plan (the "O&M Plan") with respect to the maintenance or removal
of any asbestos, lead based paint, hazardous and toxic wastes and substances,
PCB's and storage tanks on the Property, which O&M Plan shall appoint an
"Program Manager" in charge of managing all asbestos-related activities on the
Property. Borrower shall (i) diligently perform and observe all of the terms,
covenants and conditions of the O&M Plan on the part of Borrower to be performed
and observed to the end that all things shall be done which are necessary to
keep unimpaired the rights of Borrower under the O&M Plan and (ii) promptly
notify Lender of the giving of any notice to Borrower of any default by the
Program Manager in the performance or observance of any of the terms, covenants
or conditions of the O&M Plan on the part of the Program Manager to be performed
and observed and deliver to Lender a true copy of each such notice. Lender
shall have the right to approve any O&M Plan which may affect the Property.
Lender's requirement that Borrower develop and comply with the O&M Plan shall
not be deemed to constitute a waiver or a modification of any of Borrower's
covenants and agreements with respect to paragraphs 34 or 35 hereof.
53. Management Agreements. The Improvements have been operated under
the terms and conditions of that certain management agreement entered into
between Borrower and the manager (the "Manager") set forth therein delivered to,
and approved by, Lender (hereinafter, together with any renewals or replacements
thereof, being referred to as the "Management Agreement"). Borrower
acknowledges that Lender has examined and relied on the Manager's experience in
operating properties such as the Property in agreeing to make the loan secured
hereby, and that Lender will continue to rely on the Manager's management of the
Property as a means of maintaining the value of the Property as security for
repayment of the Debt. Borrower shall (i) diligently perform and observe all of
the terms, covenants and conditions of the Management Agreement on the part of
Borrower to be performed and observed to the end that all things shall be done
which are necessary to keep unimpaired the rights of Borrower under the
Management Agreement and (ii) promptly notify Lender of the giving of any notice
to Borrower of any default by Borrower in the performance or observance of any
of the terms, covenants or conditions of the Management Agreement on the part of
Borrower to be performed and observed and deliver to Lender a true copy of each
such notice. Borrower shall not surrender the Management Agreement, consent to
the assignment by the Manager of its rights and obligations under the Management
Agreement, or terminate or cancel the Management Agreement or modify, change,
supplement, alter or amend the Management Agreement, in any respect, either
orally or in writing, and Borrower hereby assigns to Lender as further security
for the payment of the Debt and for the performance and observance of the terms,
covenants and conditions of this Security Instrument, all the rights, privileges
and prerogatives of Borrower to surrender the Management Agreement or to
terminate, cancel, modify, change, supplement, alter or amend the Management
Agreement in any respect, and any such surrender of the Management Agreement or
termination, cancellation, modification, change, supplement, alteration or
amendment of the Management Agreement without the prior consent of Lender shall
be void and of no force and effect, provided, however, that this provision shall
not limit the Manager's right to assign any or the Borrower's right to consent
to any assignment by Manager of any revenues deriving from the Management
Agreement. If Borrower shall default in the performance or observance of any
material term, covenant or condition of the Management Agreement on the part of
Borrower to be performed or observed, then, without limiting the generality of
the other provisions of this Security Instrument, and without waiving or
releasing Borrower from any of its obligations hereunder, Lender shall have the
right, but shall be under no obligation, to pay any sums and to perform any act
or take any action as may be appropriate to cause all the terms, covenants and
conditions of the Management Agreement on the part of Borrower to be performed
or observed to be promptly performed or observed on behalf of Borrower, to the
end that the rights of Borrower in, to and under the Management Agreement shall
be kept unimpaired and free from default. Lender and any person designated by
Lender shall have, and are hereby granted, the right to enter upon the Property
at any time and from time to time for the purpose of taking any such action. If
the Manager under the Management Agreement shall deliver to Lender a copy of any
notice sent to Borrower of default under the Management Agreement, such notice
shall constitute full protection to Lender for any action taken or omitted to be
taken by Lender in good faith, in reliance thereon. Borrower shall, from time
to time, use its best efforts to obtain from the Manager under the Management
Agreement such certificates of estoppel with respect to compliance by Borrower
with the terms of the Management Agreement as may be requested by Lender.
Borrower shall exercise each individual option, if any, to extend or renew the
term of the Management Agreement upon demand by Lender made at any time within
one (1) year of the last day upon which any such option may be exercised, and
Borrower hereby expressly authorizes and appoints Lender its attorney-in-fact to
exercise any such option in the name of and upon behalf of Borrower, which power
of attorney shall be irrevocable and shall be deemed to be coupled with an
interest.
Notwithstanding anything to the contrary contained herein, Borrower
may replace the Manager or accept the resignation of the Manager or consent to a
transfer by the Manager, provided:
(1) No Event of Default shall have occurred and be continuing;
(2) the new manager or holder of the stock or partnership
interest shall be a person, firm or corporation whose character,
financial strength, stability and experience shall be similar to the
existing Manager and otherwise have Adequate Real Estate Experience;
(3) the new manager shall deliver all organizational
documentation and other materials evidencing its Adequate Real Estate
Experience and otherwise be acceptable to Lender;
(4) the Borrower shall pay the reasonable costs and expenses of
Lender and Lender's counsel incurred in connection with the review and
approval of such new manager; and
(5) the terms of any new management agreement affecting the
Property must be acceptable to Lender in all respects, provided,
however, if the terms and conditions of the new management agreement
shall be substantially similar to the Management Agreement and the
management fee due thereunder is no greater than the fee provided in
the Management Agreement, such new management agreement shall be
deemed acceptable to Lender.
54. Rating Agencies. The term "Rating Agencies" shall mean any nationally
recognized rating agency(s) sought by Lender to obtain ratings with respect to
this Security Instrument or the Securitization (hereinafter defined). Lender
intends to, but is not required to, either (i) deposit this Security Instrument,
the Note and the Other Security Documents in a trust in exchange for the
issuance, to or at the direction of the Lender, of multiple classes of mortgage
pass-through certificates or other securities evidencing the entire beneficial
ownership interest in such trust or (ii) issue multiple classes of bonds (also,
"Securities") representing non-recourse obligations secured by this Security
Instrument, the Note and the Other Security Documents (the "Securities"). An
election will be made under the federal tax code to treat this Security
Instrument, the Note and the Other Security Documents and the related assets as
one or more real estate mortgage investment conduits. The Securities may be
sold either in a public offering or a private placement. The foregoing events
and all matters incidental thereto are herein referred to as the
"Securitization".
55. Single Purpose Entity. Borrower covenants and agrees that it has not
and shall not: (a) engage in any business or activity other than the ownership,
operation and maintenance of the Property and activities incidental thereto; (b)
acquire or own any material assets other than (i) the Property, and (ii) such
incidental Personal Property as may be necessary for the operation of the
Property; (c) merge into or consolidate with any person or entity or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise dispose of all
or substantially all of its assets or change its legal structure, without in
each case Lender's consent; (d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under the laws
of the jurisdiction of its organization or formation, or without the prior
written consent of Lender, amend, modify, terminate or fail to comply with the
provisions of Borrower's partnership agreement, articles or certificate of
incorporation or similar organizational documents, as the case may be, as same
may be further amended or supplemented, if such amendment, modification,
termination or failure to comply would adversely affect the ability of Borrower
to perform its obligations hereunder, under the Note or under the Other Security
Documents; (e) own any subsidiary or make any investment in, any person or
entity without the consent of Lender; (f) commingle its assets with the assets
of any of its general partners, affiliates, members, principals or of any other
person or entity; (g) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Debt, except with
respect to trade payables in the ordinary course of its business of owning and
operating the Property, provided that such debt is paid when due, and any
Affiliate Advance or the Subordinate Debt; (h) fail to maintain its records,
books of account and bank accounts separate and apart from those of the general
partners, principals, members and affiliates of Borrower, the affiliates of a
general partner or member of Borrower, and any other person or entity; (i) enter
into any contract or agreement with any general partner, principal, member or
affiliate of Borrower, Guarantor or Indemnitor, or any general partner,
principal, member or affiliate thereof, except upon terms and conditions that
are intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties other than any general
partner, principal, member or affiliate of Borrower, Guarantor or Indemnitor, or
any general partner, principal, member or affiliate thereof; (j) seek the
dissolution or winding up in whole, or in part, of Borrower; (k) maintain its
assets in such a manner that it will be costly or difficult to segregate,
ascertain or identify its individual assets from those of any general partner,
principal, member or affiliate of Borrower, or any general partner, principal,
member or affiliate thereof or any other person; (l) hold itself out to be
responsible for the debts of another person; (m) make any loans or advances to
any third party, including any general partner, principal, member or affiliate
of Borrower, or any general partner, principal, member or affiliate thereof; (n)
fail either to hold itself out to the public as a legal entity separate and
distinct from any other entity or person or to conduct its business solely in
its own name in order not (i) to mislead others as to the identity with which
such other party is transacting business, or (ii) to suggest that Borrower is
responsible for the debts of any third party (including any general partner,
principal, member or affiliate of Borrower, or any general partner, principal,
member or affiliate thereof); (o) fail to maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations; or (p) file or
consent to the filing of any petition, either voluntary or involuntary, to take
advantage of any applicable insolvency, bankruptcy, liquidation or
reorganization statute, or make an assignment for the benefit of creditors.
The covenants set forth in (a) through (p) above shall apply to the
corporate general partner of Borrower (the "Controlling Party") provided that
all references to "Property" set forth above shall, with respect to the
Controlling Party, be deemed to refer to its general partnership interest in
Borrower.
56. Concerning the Trustee. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Security
Instrument, covenants to perform and fulfill the trusts herein created, being
liable, however, only for willful negligence or misconduct, and hereby waives
any statutory fee and agrees to accept reasonable compensation, in lieu thereof,
for any services rendered by Trustee in accordance with the terms hereof.
Trustee may resign at any time upon giving thirty (30) days' notice to Borrower
and to Lender. Lender may remove Trustee at any time or from time to time and
select a successor trustee. In the event of the death, removal, resignation,
refusal to act, or inability to act of Trustee, or in its sole discretion for
any reason whatsoever Lender may, without notice and without specifying any
reason therefor and without applying to any court, select and appoint a
successor trustee, by an instrument recorded wherever this Security Instrument
is recorded and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Lender. The procedure provided
for in this paragraph for substitution of Trustee shall be in addition to and
not in exclusion of any other provisions for substitution, by law or otherwise.
57. Trustee's Fees. Borrower shall pay all costs, fees and expenses
incurred by Trustee and Trustee's agents and counsel in connection with the
performance by Trustee of Trustee's duties hereunder and all such costs, fees
and expenses shall be secured by this Security Instrument.
58. Certain Rights. With the approval of Lender, Trustee shall have
the right to take any and all of the following actions: (i) to select, employ,
and advise with counsel (who may be, but need not be, counsel for Lender) upon
any matters arising hereunder, including the preparation, execution, and
interpretation of the Note, this Security Instrument or the Other Security
Documents, and shall be fully protected in relying as to legal matters on the
advice of counsel, (ii) to execute any of the trusts and powers hereof and to
perform any duty hereunder either directly or through his/her agents or
attorneys, (iii) to select and employ, in and about the execution of his/her
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,
negligence, or misconduct of any such accountant, engineer or other expert,
agent or attorney-in-fact, if selected with reasonable area, or for any error
of judgment or act done by Trustee in good faith, or be otherwise responsible
or accountable under any circumstances whatsoever, except for Trustee's gross
negligence or bad faith, and (iv) any and all other lawful action as Lender
may instruct Trustee to take to protect or enforce Lender's rights hereunder.
Trustee shall not be personally liable in case of entry by Trustee, or anyone
entering by virtue of the powers herein granted to Trustee, upon the Property
for debts contracted for or liability or damages incurred in the management or
operation of the Property. Trustee shall have the right to rely on any
instrument, document, or signature authorizing or supporting an action taken or
proposed to be taken by Trustee hereunder, believed by Trustee in good faith to
be genuine. Trustee shall be entitled to reimbursement for actual expenses
incurred by Trustee in the performance of Trustee's duties hereunder and to
reasonable compensation for such of Trustee's services hereunder as shall be
rendered.
59. Retention of Money. 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 applicable law) and Trustee shall be
under no liability for interest on any moneys received by Trustee hereunder.
60. Perfection of Appointment. Should any deed, conveyance, or
instrument of any nature be required from Borrower by any Trustee or substitute
trustee to more fully and certainly vest in and confirm to the Trustee or
substitute trustee such estates rights, powers, and duties, then, upon request
by the Trustee or substitute 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 Borrower.
61. Succession Instruments. Any substitute 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/her predecessor in the rights hereunder with like
effect as if originally named as Trustee herein; but nevertheless, upon the
written request of Lender or of the substitute trustee, the Trustee ceasing to
act shall execute and deliver any instrument transferring to such substitute
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
substitute trustee so appointed in the Trustee's place.
62. California Provisions.
(a) In the event of any inconsistencies between the terms and
conditions of this Section 62 of this Security Instrument and any other terms of
this Security Instrument, the terms and conditions of this Section 62 shall
control and be binding.
(b) The word "grantor" is hereby deleted wherever it appears in this
Security Instrument and the word "Trustor" is substituted therefor.
(c) The paragraphs beginning "PROVIDED, HOWEVER" appearing at the end
of the Section of this Security Agreement entitled "Creation of Lien and Grant
of Security" is hereby deleted in its entirety and the following paragraph is
substituted therefor:
PROVIDED, HOWEVER, upon written request of Lender stating
that all sums secured hereby have been paid, that Borrower has
well and truly abided by and complied with each and every
covenant and condition set forth herein and in the Note, and upon
the surrendering of this Security Instrument and the Note to
Trustee for cancellation and retention and upon payment by
Borrower of Trustee's fees, Trustee shall reconvey to Borrower,
or to the person or persons legally entitled thereto, without
warranty, any portion of the estate hereby granted and then held
hereunder. The recitals in such reconveyance of any matters or
facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or
persons legally entitled thereto.
(d) The first sentence of Section 29 is hereby deleted and the
following is substituted therefor:
This Security Instrument is both a real property deed of
trust and a "security agreement" within the meaning of the
Uniform Commercial Code and is being recorded as a fixture
filing. With respect to said fixture filing, (i) the debtor is
Borrower, and Borrower's name and address appear in the first
paragraph of this Security Instrument, and (ii) the secured party
is Lender, and Lender's name and address appear in the first
paragraph of the Security Instrument. The Mortgaged Property
includes both real and personal property and all other rights and
interests, whether tangible or intangible in nature, of Borrower
in the Mortgaged Property, including, but not limited to, the
Leases and Rents and all proceeds thereof and all fixtures.
(e) Borrower expressly agrees that upon a violation of Section 9 of
this Security Agreement by Borrower and acceleration of the principal balance of
the Note because of such violation, Borrower will pay all sums required to be
paid in connection with a prepayment, if any, as described in the Note, herein
imposed on prepayment after an Event of Default and acceleration of the
principal balance. Borrower expressly acknowledges that Borrower has received
adequate consideration for the foregoing agreement.
(f) POWER OF SALE.
After an Event of Default, the Lender, its successors and assigns, may
elect to cause the Mortgaged Property or any part thereof to be sold
as follows:
(1) Lender may proceed as if all of the Mortgaged
Property were real property, in accordance with subparagraph
(d) below, or Lender may elect to treat any of the Mortgaged
Property which consists of a right in action or which is
property that can be severed from the Land without causing
structural damage thereto as if the same were personal
property, and dispose of the same in accordance with
subparagraph (3) below, separate and apart from the sale of
real property, the remainder of the Mortgaged Property being
treated as real property.
(2) Lender may cause any such sale or other
disposition to be conducted immediately following the
expiration of any grace period, if any, herein provided (or
immediately upon the expiration of any redemption period
required by law) or Lender may delay any such sale or other
disposition for such period of time as Lender deems to be in
its best interest. Should Lender desire that more than one
such sale or other disposition be conducted, Lender may at
its option, cause the same to be conducted simultaneously,
or successively on the same day, or at such different days
or times and in such order as Lender may deem to be in its
best interest.
(3) Should Lender elect to cause any of the Mortgaged
Property to be disposed of as personal property as permitted
by subparagraph (1) above, it may dispose of any part hereof
in any manner now or hereafter permitted by Article 9 of the
Uniform Commercial Code or in accordance with any other
remedy provided by law. Both Borrower and Lender shall be
eligible to purchase any part or all of such property at any
such disposition. Any such disposition may be either public
or private as Lender may so elect, subject to the provisions
of the Uniform Commercial Code. Lender shall give Borrower
at least five (5) days' prior written notice of the time and
place of any public sale or other disposition of such
property or of the time at or after which any private sale
or any other intended disposition is to be made, and if such
notice is sent to Borrower as provided in subparagraph (11)
hereof, it shall constitute reasonable notice to Borrower.
(4) Should Lender elect to sell the Mortgaged Property
which is real property or which Lender has elected to treat
as real property, upon such election Lender or Trustee shall
give such Notice of Default and Election to Sell as may then
be required by law. Thereafter, upon the expiration of such
time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in
the Notice of Sale, shall sell such Mortgaged Property, or
any portion thereof specified by Lender, at public auction
to the highest bidder for cash in lawful money of the United
States, subject, however, to the provisions of subparagraph
(9) hereof. Trustee for good cause may, and upon request of
Lender shall, from time to time, postpone the sale by public
announcement thereof at the time and place noticed therefor.
If the Mortgaged Property consists of several lots or
parcels, Lender may designate the order in which such lots
or parcels shall be offered for sale or sold. Any person,
including Borrower, Trustee or Lender, may purchase at the
sale. Upon any sale Trustee shall execute and deliver to
the purchaser or purchasers a deed or deeds conveying the
property so sold, but without any covenant or warranty
whatsoever, express or implied, whereupon such purchaser or
purchasers shall be let into immediate possession.
(5) In the event of a sale or other disposition of any
such property, or any part thereof, and the execution of a
deed or other conveyance, pursuant thereto, the recitals
therein of facts, such as a default, the giving of notice of
default and notice of sale, demand that such sale should be
made, postponement of sale, terms of sale, sale, purchaser,
payment of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition, shall be
conclusive proof of the truth of such facts; and any such
deed of conveyance shall be conclusive against all persons
as to such facts recited therein.
(6) Lender and/or Trustee shall apply the proceeds of
any sale or disposition hereunder to payment of the
following: (A) the expenses of such sale or disposition
together with Trustee's fees and reasonable attorneys' fees,
and the actual cost of publishing, recording, mailing and
posting notice; (B) the cost of any search and/or other
evidence of title procured in connection therewith and
transfer tax on any deed or conveyance; (C) all sums
expended under the terms hereof, not then repaid, with
accrued interest in the amount provided herein; (D) all
other sums secured hereby; and (E) the remainder if any to
the person or persons legally entitled thereto.
(7) The acknowledgment of the receipt of the purchase
money, contained in any deed or conveyance executed as
aforesaid, shall be sufficient discharge from all
obligations to see to the proper application of the
consideration therefor.
(8) Borrower hereby expressly waives any right which
it may have to direct the order in which any of the
Mortgaged Property shall be sold in the event of any sale or
sales pursuant hereto.
(9) Upon any sale of the Mortgaged Property, whether
made under a power of sale herein granted or pursuant to
judicial proceedings, if the holder of the Note is a
purchaser at such sale, it shall be entitled to use and
apply all or any portion of the indebtedness then secured
hereby for or in settlement or payment of all or any portion
of the purchase price of the property purchased, and, in
such case, this Security Instrument, the Note and documents
evidencing expenditures secured hereby shall be presented to
the person conducting the sale in order that the amount of
said indebtedness so used or applied may be credited thereon
as having been paid.
(10) No remedy herein conferred upon or reserved to
Trustee or Lender is intended to be exclusive of any other
remedy herein or by law provided, but each shall be cumula-
tive and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity
or by statute. Every power or remedy given by this
instrument to Trustee or Lender, or to which either of them
may be otherwise entitled, may be exercised from time to
time and as often as may be deemed expedient by Trustee or
Lender, and either of them may pursue inconsistent remedies.
If there exists additional security for the performance of
the obligations secured hereby, the holder of the Note, at
its sole option and without limiting or affecting any rights
or remedies hereunder, may exercise any of the rights and
remedies to which it may be entitled hereunder either
concurrently with whatever other rights it may have in
connection with such other security or in such order as it
may determine.
(11) Borrower hereby requests that every notice of
default and every notice of sale be given in accordance with
the provisions of Section 37 hereof except as otherwise
required by statute. Borrower may, from time to time,
change the address to which notice of default and sale
hereunder shall be sent by both filing a request therefor,
in the manner provided by the California Civil Code, Section
2924b, and sending a copy of such request to Lender, its
successors or assigns in accordance with the provisions of
Section 37 hereof.
(g) Trustee accepts the trust created by this Security Instrument
when this Security Instrument, duly executed and acknowledged, is made a public
record as provided by law.
(h) Trustee is not obligated to notify any party hereto of pending
sale under any other deed of trust or of any action or proceeding in which
Borrower, Lender or Trustee shall be a party, unless brought by Trustee.
(i) Trustee shall be under no duty to take any action hereunder except
as expressly required hereunder or by law, or to perform any act which would
involve Trustee in any expense or liability or to institute or defend any suit
in respect hereof, unless properly indemnified to Trustee's reasonable
satisfaction. Trustee, by acceptance of this Security Instrument, covenants to
perform and fulfill the trusts herein created, being liable, however, only for
gross negligence or willful misconduct, and hereby waives any statutory fee and
agrees to accept reasonable compensation, in lieu thereof, for any services
rendered by Trustee in accordance with the terms hereof. Trustee may resign at
any time upon giving thirty (30) days' notice to Borrower and to Lender. Lender
may remove Trustee at any time or from time to time and select a successor
trustee. In the event of the death, removal, resignation, refusal to act, or
inability to act of Trustee, or in its sole discretion for any reason whatsoever
Lender may, without notice and without specifying any reason therefor and
without applying to any court, select and appoint a successor trustee, by an
instrument recorded wherever this Security Instrument is recorded and all
powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon
become vested in such successor. Such substitute trustee shall not be required
to give bond for the faithful performance of the duties of Trustee hereunder
unless required by Lender. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
(j) Trustee shall be entitled to reasonable compensation for all
services rendered or expenses incurred in the administration or execution of the
trusts hereby created and Borrower hereby agrees to pay same. Trustee and
Lender shall be indemnified, held harmless and reimbursed by Borrower for any
liability, damage or expense, including attorneys' fees and amounts paid in
settlement, which they or either of them may incur or sustain in the execution
of this trust or in the doing of any act which they, or either of them, are
required or permitted to do by the terms hereof or by law.
(k) Lender may substitute the Trustee hereunder in any manner now or
hereafter provided by law, or in lieu thereof Lender may from time to time, by
an instrument in writing, substitute a successor or successors to any Trustee
named herein or acting hereunder, which instrument, executed and acknowledged by
Lender and recorded in the Office of the Recorder of Los Angeles County, shall
be conclusive proof of proper substitution of such successor Trustee or
Trustees, who shall thereupon and without conveyance from the predecessor
Trustee, succeed to all its title, estate, rights, powers and duties. Such
instrument must contain the name of the original Borrower, Trustee and Lender
hereunder, the book and page where this Security Instrument is recorded, and the
name and address of the new Trustee.
(l) Section 49 entitled "CHOICE OF LAW" is hereby deleted in its
entirety and, subject to the exculpations contained in this Security Instrument,
the following is substituted therefor:
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS SECURITY
INSTRUMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPALS OF SUCH STATE (EXCEPT FOR SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK). BORROWER AND LENDER
FURTHER ACKNOWLEDGE, AGREE AND STIPULATE THAT THE STATE OF NEW YORK HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES INVOLVED IN THIS SECURITY
INSTRUMENT. NOTWITHSTANDING THE FOREGOING, THE PARTIES FURTHER AGREE THAT:
(1) THE PROCEDURES GOVERNING THE ENFORCEMENT BY LENDER AND TRUSTEE OF
PROVISIONAL REMEDIES AGAINST BORROWER DIRECTLY RELATING TO THE MORTGAGED
PROPERTY ENCUMBERED HEREBY, INCLUDING, BY WAY OF ILLUSTRATION BUT NOT
LIMITATION, ANY SUCH ACTIONS FOR REPLEVIN, FOR CLAIM AND DELIVERY OF
Mortgaged Property, OR FOR THE APPOINTMENT OF A RECEIVER, SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF CALIFORNIA; AND
(2) CALIFORNIA LAW SHALL APPLY TO THE EXTENT, BUT ONLY TO THE EXTENT,
NECESSARY IN ORDER TO CREATE, PERFECT AND FORECLOSE THE SECURITY INTERESTS,
LIENS AND ASSIGNMENTS OF RENTS AND LEASES ARISING UNDER THIS SECURITY
INSTRUMENT; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION SHALL IN ANY
EVENT BE CONSTRUED TO PROVIDE THAT THE SUBSTANTIVE LAW OF THE STATE OF
CALIFORNIA SHALL APPLY TO THE OBLIGATIONS AND INDEBTEDNESS SECURED BY THIS
SECURITY INSTRUMENT, WHICH ARE AND SHALL CONTINUE TO BE GOVERNED BY THE
SUBSTANTIVE LAW OF THE STATE OF NEW YORK, IN SUCH CONNECTION, THE PARTIES
FURTHER AGREE THAT:
(A) LENDER MAY ENFORCE ITS RIGHTS UNDER THE LOAN DOCUMENTS
(INCLUDING WITHOUT LIMITATION ITS RIGHT TO SUE BORROWER TO COLLECT ANY
OUTSTANDING INDEBTEDNESS OR TO OBTAIN A JUDGMENT AGAINST BORROWER IN
CALIFORNIA, NEW YORK OR OTHER STATES FOR ANY DEFICIENCY PRIOR TO OR
FOLLOWING FORECLOSURE) IN ACCORDANCE WITH NEW YORK LAW, AND IF LENDER
OBTAINS A DEFICIENCY JUDGMENT IN A STATE OTHER THAN IN CALIFORNIA,
THEN LENDER SHALL HAVE THE RIGHT TO ENFORCE SUCH JUDGMENT IN
CALIFORNIA, AS WELL AS IN OTHER STATES;
(B) CALIFORNIA'S USURY LAWS AND ANTIDEFICIENCY, ONE-ACTION AND
SECURITY-FIRST RULES (INCLUDING WITHOUT LIMITATION CALIFORNIA CODE OF
CIVIL PROCEDURE SECTIONS 580A, 580b, 580c, 580d, AND 726) ARE
INAPPLICABLE TO THE OBLIGATIONS AND INDEBTEDNESS SECURED BY THIS
SECURITY INSTRUMENT AND TO THE ENFORCEMENT OR REALIZATION BY LENDER OF
ITS RIGHTS AND REMEDIES RELATING THERETO; AND
(C) SECTION 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE SHALL
NOT APPLY (A) TO PREVENT OR LIMIT EXERCISE OR ENFORCEMENT OF ANY OTHER
RIGHTS OR REMEDIES OF LENDER (INCLUDING WITHOUT LIMITATION LENDER'S
RIGHT TO OBTAIN A DEFICIENCY JUDGMENT) EITHER PRIOR TO OR FOLLOWING
FORECLOSURE OR (B) TO PREVENT OR LIMIT LENDER'S RIGHT TO FORECLOSE
JUDICIALLY OR NONJUDICIALLY FOLLOWING ANY EXERCISE OR ENFORCEMENT OF
ANY OTHER RIGHTS OR REMEDIES OF LENDER.
(m) The term "Controlling Party" as used in section 55 shall mean GP
Services XIX, Inc.
IN WITNESS WHEREOF, this Security Instrument has been executed by
Borrower the day and year first above written.
VMS APARTMENT PORTFOLIO ASSOCIATES III, a
California general partnership
By: GP SERVICES XIX, INC.,
a South Carolina corporation,
its general partner
By: /s/ Leigh A. Watters
Name: Leigh A. Watters
Title: Vice President
This instrument prepared by:
Mitchell G. Williams, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
ACKNOWLEDGMENT
STATE OF New York )
)
COUNTY OF New York )
I, the undersigned, a Notary Public of the County and State aforesaid,
certify that Leigh A. Watters, who is known to me, acknowledged before me that
he is Vice President, of GP Services XIX, Inc., a South Carolina corporation,
that by authority duly given and as the act of the corporation in its capacity
as a general partner in and on behalf of VMS Apartment Portfolio Associates III,
a California general partnership, signed the foregoing conveyance, and that
being informed of the contents of the conveyance he in his capacity as such
officer of the Corporation, executed the same voluntarily on behalf of the
Partnership on the day the same bears date.
Given under my hand this the 31st day of December, 1997.
/s/ Lucesita A. Lombillo
Notary Public
Name: Lucesita A. Lombillo
Notary Public, State of New York
No. 31-5066748
Qualified in Queens County
Commission Expires September 30, 1998
EXHIBIT A
Legal Description
RECORD AND RETURN TO:
Thacher Proffitt & Wood
2 World Trade Center
New York, New York 10048
Attention: Carson M. Leonard
Counsel File No. 16248-00328
ABSOLUTE ASSIGNMENT
OF LEASES AND RENTS
VMS APARTMENT PORTFOLIO ASSOCIATES III,
a California general partnership
(Assignor)
to
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF
LEHMAN BROTHERS HOLDINGS INC., as assignee
(Assignee)
Dated: As of December 31, 1997
Location: Rivercrest Apartments
Sacramento, California
Sacramento County
THIS ABSOLUTE ASSIGNMENT OF LEASES AND RENTS ("Assignment") made as of
the 31st day of December, 1997, by VMS APARTMENT PORTFOLIO ASSOCIATES III, a
California partnership, as assignor, having an address at c/o Insignia Financial
Group, Inc., One Insignia Financial Plaza, Greenville, South Carolina 29601
("Borrower") to LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION
OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation, as assignee, having an
address at Three World Financial Center, 200 Vesey Street, New York, New York
10285 ("Lender").
RECITALS:
Borrower by its promissory note of even date herewith given to Lender
is indebted to Lender in the principal sum of $11,600,000 in lawful money of the
United States of America (together with all extensions, renewals, modifications,
substitutions and amendments thereof, the "Note"), with interest from the date
thereof at the rates set forth in the Note, principal and interest to be payable
in accordance with the terms and conditions provided in the Note.
Borrower desires to secure the payment of the Debt (defined below) and
the performance of all of its obligations under the Note and the Other
Obligations as defined in Article 2 of the Security Instrument (defined below).
1. ASSIGNMENT
1.1 PROPERTY ASSIGNED. Borrower hereby absolutely and unconditionally
assigns and grants to Lender the following property, rights, interests and
estates, now owned, or hereafter acquired by Borrower:
(a) Leases. All existing and future leases affecting the use,
enjoyment, or occupancy of all or any part of that certain lot or piece of land,
more particularly described in Exhibit A annexed hereto and made a part hereof,
together with the buildings, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements now or
hereafter located thereon (collectively, the "Property") and the right, title
and interest of Borrower, its successors and assigns, therein and thereunder.
(b) Other Leases and Agreements. All other leases and other
agreements, whether or not in writing, affecting the use, enjoyment or occupancy
of the Property or any portion thereof now or hereafter made, whether made
before or after the filing by or against Borrower of any petition for relief
under 11 U.S.C. Section101 et seq., as the same may be amended from time to time
(the "Bankruptcy Code") together with any extension, renewal or replacement of
the same, this Assignment of other present and future leases and present and
future agreements being effective without further or supplemental assignment.
The leases described in Subsection 1.1(a) and the leases and other agreements
described in this Subsection 1.1(b), together with all other present and future
leases and present and future agreements and any extension or renewal of the
same are collectively referred to as the "Leases".
(c) Rents. All rents, additional rents, revenues, income, issues and
profits arising from the Leases and renewals and replacements thereof and any
cash or security deposited in connection therewith and together with all rents,
revenues, income, issues and profits (including all oil and gas or other mineral
royalties and bonuses) from the use, enjoyment and occupancy of the Property
whether paid or accruing before or after the filing by or against Borrower of
any petition for relief under the Bankruptcy Code (collectively, the "Rents").
(d) Bankruptcy Claims. All of Borrower's claims and rights (the
"Bankruptcy Claims") to the payment of damages arising from any rejection by a
lessee of any Lease under the Bankruptcy Code, 11 U.S.C. Section101 et seq., as
the same may be amended (the "Bankruptcy Code").
(e) Lease Guaranties. All of Borrower's right, title and interest in
and claims under any and all lease guaranties, letters of credit and any other
credit support given by any guarantor in connection with any of the Leases
(individually, a "Lease Guarantor", collectively, the "Lease Guarantors") to
Borrower (individually, a "Lease Guaranty", collectively, the "Lease
Guaranties").
(f) Proceeds. All proceeds from the sale or other disposition of the
Leases, the Rents, the Lease Guaranties and the Bankruptcy Claims.
(g) Other. All rights, powers, privileges, options and other
benefits of Borrower as lessor under the Leases and beneficiary under the Lease
Guaranties, including without limitation the immediate and continuing right to
make claim for, receive, collect and receipt for all Rents payable or receivable
under the Leases and all sums payable under the Lease Guaranties or pursuant
thereto (and to apply the same to the payment of the Debt or the Other
Obligations), and to do all other things which Borrower or any lessor is or may
become entitled to do under the Leases or the Lease Guaranties.
(h) Entry. The right, at Lender's option, upon revocation of the
license granted herein, to enter upon the Property in person, by agent or by
court-appointed receiver, to collect the Rents.
(i) Power of Attorney. Borrower's irrevocable power of attorney,
coupled with an interest, to take any and all of the actions set forth in
Section 3.1 of this Assignment and any or all other actions designated by Lender
for the proper management and preservation of the Property.
(j) Other Rights and Agreements. Any and all other rights of
Borrower in and to the items set forth in subsections (a) through (i) above, and
all amendments, modifications, replacements, renewals and substitutions thereof.
1.2 CONSIDERATION. This Assignment is made in consideration of that
certain loan made by Lender to Borrower evidenced by the Note and secured by
that certain mortgage and security agreement, deed of trust and security
agreement, deed to secure debt and security agreement or similar real estate
security instrument given by Borrower to or for the benefit of Lender, dated the
date hereof covering the Property and intended to be duly recorded (the
"Security Instrument"). The principal sum, interest and all other sums due and
payable under the Note, the Security Instrument, this Assignment and the Other
Security Documents (defined below) are collectively referred to as the "Debt".
The documents other than this Assignment, the Note or the Security Instrument
now or hereafter executed by Borrower and/or others and by or in favor of Lender
which wholly or partially secure or guarantee payment of the Debt are referred
to herein as the "Other Security Documents".
2. TERMS OF ASSIGNMENT
2.1 PRESENT ASSIGNMENT AND LICENSE BACK. It is intended by Borrower that
this Assignment constitute a present, absolute assignment of the Leases, Rents,
Lease Guaranties and Bankruptcy Claims, and not an assignment for additional
security only. Nevertheless, subject to the terms of this Section 2.1, Lender
grants to Borrower a revocable license to collect and receive the Rents and
other sums due under the Lease Guaranties. Borrower shall hold the Rents and
all sums received pursuant to any Lease Guaranty, or a portion thereof
sufficient to discharge all current sums due on the Debt, in trust for the
benefit of Lender for use in the payment of such sums.
2.2 NOTICE TO LESSEES. Borrower hereby agrees to authorize and direct the
lessees named in the Leases or any other or future lessees or occupants of the
Property and all Lease Guarantors to pay over to Lender or to such other party
as Lender directs all Rents and all sums due under any Lease Guaranties upon
receipt from Lender of written notice to the effect that Lender is then the
holder of the Security Instrument and that a Default (defined below) exists, and
to continue so to do until otherwise notified by Lender.
2.3 INCORPORATION BY REFERENCE. All representations, warranties,
covenants, conditions and agreements contained in the Security Instrument as
same may be modified, renewed, substituted or extended are hereby made a part of
this Assignment to the same extent and with the same force as if fully set forth
herein.
3. REMEDIES
3.1 REMEDIES OF LENDER. Upon or at any time after the occurrence of a
default under this Assignment or an Event of Default (as defined in the Security
Instrument) (a "Default"), the license granted to Borrower in Section 2.1 of
this Assignment shall automatically be revoked, and Lender shall immediately be
entitled to possession of all Rents and sums due under any Lease Guaranties,
whether or not Lender enters upon or takes control of the Property. In
addition, Lender may, at its option, without waiving such Default, without
notice and without regard to the adequacy of the security for the Debt, either
in person or by agent, nominee or attorney, with or without bringing any action
or proceeding, or by a receiver appointed by a court, dispossess Borrower and
its agents and servants from the Property, without liability for trespass,
damages or otherwise and exclude Borrower and its agents or servants wholly
therefrom, and take possession of the Property and all books, records and
accounts relating thereto and have, hold, manage, lease and operate the Property
on such terms and for such period of time as Lender may deem proper and either
with or without taking possession of the Property in its own name, demand, sue
for or otherwise collect and receive all Rents and sums due under all Lease
Guaranties, including those past due and unpaid with full power to make from
time to time all alterations, renovations, repairs or replacements thereto or
thereof as may seem proper to Lender and may apply the Rents and sums received
pursuant to any Lease Guaranties to the payment of the following in such order
and proportion as Lender in its sole discretion may determine, any law, custom
or use to the contrary notwithstanding: (a) all expenses of managing and
securing the Property, including, without being limited thereto, the salaries,
fees and wages of a managing agent and such other employees or agents as Lender
may deem necessary or desirable and all expenses of operating and maintaining
the Property, including, without being limited thereto, all taxes, charges,
claims, assessments, water charges, sewer rents and any other liens, and
premiums for all insurance which Lender may deem necessary or desirable, and the
cost of all alterations, renovations, repairs or replacements, and all expenses
incident to taking and retaining possession of the Property; and (b) the Debt,
together with all costs and reasonable attorneys' fees. In addition, upon the
occurrence of a Default, Lender, at its option, may (1) complete any
construction on the Property in such manner and form as Lender deems advisable,
(2) exercise all rights and powers of Borrower, including, without limitation,
the right to negotiate, execute, cancel, enforce or modify Leases, obtain and
evict tenants, and demand, sue for, collect and receive all Rents from the
Property and all sums due under any Lease Guaranties, (3) either require
Borrower to pay monthly in advance to Lender, or any receiver appointed to
collect the Rents, the fair and reasonable rental value for the use and
occupancy of such part of the Property as may be in possession of Borrower or
(4) require Borrower to vacate and surrender possession of the Property to
Lender or to such receiver and, in default thereof, Borrower may be evicted by
summary proceedings or otherwise.
3.2 OTHER REMEDIES. Nothing contained in this Assignment and no act done
or omitted by Lender pursuant to the power and rights granted to Lender
hereunder shall be deemed to be a waiver by Lender of its rights and remedies
under the Note, the Security Instrument, or the Other Security Documents and
this Assignment is made and accepted without prejudice to any of the rights and
remedies possessed by Lender under the terms thereof. The right of Lender to
collect the Debt and to enforce any other security therefor held by it may be
exercised by Lender either prior to, simultaneously with, or subsequent to any
action taken by it hereunder. Borrower hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any setoff, counterclaim or
crossclaim of any nature whatsoever with respect to the obligations of Borrower
under this Assignment, the Note, the Security Instrument, the Other Security
Documents or otherwise with respect to the loan secured hereby in any action or
proceeding brought by Lender to collect same, or any portion thereof, or to
enforce and realize upon the lien and security interest created by this
Assignment, the Note, the Security Instrument, or any of the Other Security
Documents (provided, however, that the foregoing shall not be deemed a waiver of
Borrower's right to assert any compulsory counterclaim if such counterclaim is
compelled under local law or rule of procedure, nor shall the foregoing be
deemed a waiver of Borrower's right to assert any claim which would constitute a
defense, setoff, counterclaim or crossclaim of any nature whatsoever against
Lender in any separate action or proceeding).
3.3 OTHER SECURITY. Lender may take or release other security for the
payment of the Debt, may release any party primarily or secondarily liable
therefor and may apply any other security held by it to the reduction or
satisfaction of the Debt without prejudice to any of its rights under this
Assignment.
3.4 NON-WAIVER. The exercise by Lender of the option granted it in
Section 3.1 of this Assignment and the collection of the Rents and sums due
under the Lease Guaranties and the application thereof as herein provided shall
not be considered a waiver of any default by Borrower under the Note, the
Security Instrument, the Leases, this Assignment or the Other Security
Documents. The failure of Lender to insist upon strict performance of any term
hereof shall not be deemed to be a waiver of any term of this Assignment.
Borrower shall not be relieved of Borrower's obligations hereunder by reason of
(a) the failure of Lender to comply with any request of Borrower or any other
party to take any action to enforce any of the provisions hereof or of the
Security Instrument, the Note or the Other Security Documents, (b) the release
regardless of consideration, of the whole or any part of the Property, or (c)
any agreement or stipulation by Lender extending the time of payment or
otherwise modifying or supplementing the terms of this Assignment, the Note, the
Security Instrument or the Other Security Documents. Lender may resort for the
payment of the Debt to any other security held by Lender in such order and
manner as Lender, in its discretion, may elect. Lender may take any action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Lender thereafter to enforce its rights under
this Assignment. The rights of Lender under this Assignment shall be separate,
distinct, nonexclusive and cumulative, shall be in addition to any other
remedies to which Lender is entitled under the law, and none shall be given
effect to the exclusion of the others. No act of Lender shall be construed as
an election to proceed under any one provision herein to the exclusion of any
other provision.
3.5 BANKRUPTCY. (a) Upon or at any time after the occurrence of a
Default, Lender shall have the right to proceed in its own name or in the name
of Borrower in respect of any claim, suit, action or proceeding relating to the
rejection of any Lease, including, without limitation, the right to file and
prosecute, to the exclusion of Borrower, any proofs of claim, complaints,
motions, applications, notices and other documents, in any case in respect of
the lessee under such Lease under the Bankruptcy Code.
(b) If there shall be filed by or against Borrower a petition
under the Bankruptcy Code, and Borrower, as lessor under any Lease, shall
determine to reject such Lease pursuant to Section 365(a) of the Bankruptcy
Code, then Borrower shall give Lender not less than ten (10) days' prior notice
of the date on which Borrower shall apply to the bankruptcy court for authority
to reject the Lease. Lender shall have the right, but not the obligation, to
serve upon Borrower within such ten-day period a notice stating that (i) Lender
demands that Borrower assume and assign the Lease to Lender pursuant to Section
365 of the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate
assurance of future performance under the Lease. If Lender serves upon Borrower
the notice described in the preceding sentence, Borrower shall not seek to
reject the Lease and shall comply with the demand provided for in clause (i) of
the preceding sentence within thirty (30) days after the notice shall have been
given, subject to the performance by Lender of the covenant provided for in
clause (ii) of the preceding sentence.
4. NO LIABILITY, FURTHER ASSURANCES
4.1 NO LIABILITY OF LENDER. This Assignment shall not be construed to
bind Lender to the performance of any of the covenants, conditions or provisions
contained in any Lease or Lease Guaranty or otherwise impose any obligation upon
Lender. Lender shall not be liable for any loss sustained by Borrower resulting
from Lender's failure to let the Property after a Default or from any other act
or omission of Lender in managing the Property after a Default unless such loss
is caused by the willful misconduct and bad faith of Lender. Lender shall not
be obligated to perform or discharge any obligation, duty or liability under the
Leases or any Lease Guaranties or under or by reason of this Assignment and
Borrower shall, and hereby agrees, to indemnify Lender for, and to hold Lender
harmless from, any and all liability, loss or damage which may or might be
incurred under the Leases, any Lease Guaranties or under or by reason of this
Assignment and from any and all claims and demands whatsoever, including the
defense of any such claims or demands which may be asserted against Lender by
reason of any alleged obligations and undertakings on its part to perform or
discharge any of the terms, covenants or agreements contained in the Leases or
any Lease Guaranties. Should Lender incur any such liability, the amount
thereof, including costs, expenses and reasonable attorneys' fees, shall be
secured by this Assignment and by the Security Instrument and the Other Security
Documents and Borrower shall reimburse Lender therefor immediately upon demand
and upon the failure of Borrower so to do Lender may, at its option, declare all
sums secured by this Assignment and by the Security Instrument and the Other
Security Documents immediately due and payable. This Assignment shall not
operate to place any obligation or liability for the control, care, management
or repair of the Property upon Lender, nor for the carrying out of any of the
terms and conditions of the Leases or any Lease Guaranties; nor shall it operate
to make Lender responsible or liable for any waste committed on the Property by
the tenants or any other parties, or for any dangerous or defective condition of
the Property, including without limitation the presence of any Hazardous
Substances (as defined in the Security Instrument), or for any negligence in the
management, upkeep, repair or control of the Property resulting in loss or
injury or death to any tenant, licensee, employee or stranger.
4.2 NO MORTGAGEE IN POSSESSION. Nothing herein contained shall be
construed as constituting Lender a "mortgagee in possession" in the absence of
the taking of actual possession of the Property by Lender. In the exercise of
the powers herein granted Lender, no liability shall be asserted or enforced
against Lender, all such liability being expressly waived and released by
Borrower.
4.3 FURTHER ASSURANCES. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, conveyances, assignments, notices of assignments, transfers
and assurances as Lender shall, from time to time, require for the better
assuring, conveying, assigning, transferring and confirming unto Lender the
property and rights hereby assigned or intended now or hereafter so to be, or
which Borrower may be or may hereafter become bound to convey or assign to
Lender, or for carrying out the intention or facilitating the performance of the
terms of this Assignment or for filing, registering or recording this Assignment
and, on demand, will execute and deliver and hereby authorizes Lender to execute
in the name of Borrower to the extent Lender may lawfully do so, one or more
financing statements, chattel mortgages or comparable security instruments, to
evidence more effectively the lien and security interest hereof in and upon the
Leases.
5. MISCELLANEOUS PROVISIONS
5.1 CONFLICT OF TERMS. In case of any conflict between the terms of this
Assignment and the terms of the Security Instrument, the terms of the Security
Instrument shall prevail.
5.2 NO ORAL CHANGE. This Assignment and any provisions hereof may not be
modified, amended, waived, extended, changed, discharged or terminated orally,
or by any act or failure to act on the part of Borrower or Lender, but only by
an agreement in writing signed by the party against whom the enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
5.3 CERTAIN DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Assignment may be used interchangeably in singular or plural form and the word
"Borrower " shall mean "each Borrower and any subsequent owner or owners of the
Property or any part thereof or interest therein," the word "Lender" shall mean
"Lender and any subsequent holder of the Note," the word "Note" shall mean "the
Note and any other evidence of indebtedness secured by the Security Instrument,"
the word "person" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, the word "Property" shall include any portion of the Property and any
interest therein, the phrases "attorneys' fees", "legal fees" and "counsel fees"
shall include any and all attorneys', paralegal and law clerk fees and
disbursements, including, but not limited to, fees and disbursements at the
pre-trial, trial and appellate levels incurred or paid by Lender in protecting
its interest in the Property, the Leases and the Rents and enforcing its rights
hereunder, and the word "Debt" shall mean the principal balance of the Note with
interest thereon as provided in the Note and the Security Instrument and all
other sums due pursuant to the Note, the Security Instrument, this Assignment
and the Other Security Documents; whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
5.4 AUTHORITY. Borrower represents and warrants that it has full power
and authority to execute and deliver this Assignment and the execution and
delivery of this Assignment has been duly authorized and does not conflict with
or constitute a default under any law, judicial order or other agreement
affecting Borrower or the Property.
5.5 INAPPLICABLE PROVISIONS. If any term, covenant or condition of this
Assignment is held to be invalid, illegal or unenforceable in any respect, this
Assignment shall be construed without such provision.
5.6 DUPLICATE ORIGINALS; COUNTERPARTS. This Assignment may be executed in
any number of duplicate originals and each such duplicate original shall be
deemed to be an original. This Assignment may be executed in several
counterparts, each of which counterparts shall be deemed an original instrument
and all of which together shall constitute a single Assignment. The failure of
any party hereto to execute this Assignment, or any counterpart hereof, shall
not relieve the other signatories from their obligations hereunder.
5.7 CHOICE OF LAW. This Assignment shall be governed, construed, applied
and enforced in accordance with the laws of the state in which the Property is
located and the applicable laws of the United States of America.
5.8 TERMINATION OF ASSIGNMENT. Upon payment in full of the Debt and the
delivery and recording of a satisfaction or discharge of Security Instrument
duly executed by Lender, this Assignment shall become and be void and of no
effect.
5.9 NOTICES. All notices or other written communications hereunder shall
be deemed to have been properly given (i) upon delivery, if delivered in person
or by facsimile transmission with receipt acknowledged by the recipient thereof,
(ii) one (1) Business Day (hereinafter defined) after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed to Borrower or Lender at their addresses set forth in the Security
Instrument or addressed as such party may from time to time designate by written
notice to the other parties. For purposes of this Section 5.9, the term
"Business Day" shall mean a day on which commercial banks are not authorized or
required by law to close in New York, New York.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
5.10 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR
INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR THE LOAN
EVIDENCED BY THE NOTE, THIS ASSIGNMENT, THE NOTE, THE SECURITY INSTRUMENT OR THE
OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS,
EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
5.11 SUBMISSION TO JURISDICTION. With respect to any claim or action
arising hereunder, Borrower (a) irrevocably submits to the nonexclusive
jurisdiction of the courts of the State in which the Property is located, the
State of New York and the United States District Court located in the Borough of
Manhattan in New York, New York and the county in which the Property is located,
and appellate courts from any thereof, and (b) irrevocably waives any objection
which it may have at any time to the laying on venue of any suit, action or
proceeding arising out of or relating to this Assignment brought in any such
court, irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
5.12 LIABILITY. If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several. This Assignment shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns forever.
5.13 HEADINGS, ETC. The headings and captions of various paragraphs of
this Assignment are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
5.14 NUMBER AND GENDER. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
5.15 SOLE DISCRETION OF LENDER. Wherever pursuant to this Assignment (a)
Lender exercises any right given to it to approve or disapprove, (b) any
arrangement or term is to be satisfactory to Lender, or (c) any other decision
or determination is to be made by Lender, the decision of Lender to approve or
disapprove, all decisions that arrangements or terms are satisfactory or not
satisfactory and all other decisions and determinations made by Lender, shall be
in the sole and absolute discretion of Lender and shall be final and conclusive,
except as may be otherwise expressly and specifically provided herein.
5.16 COSTS AND EXPENSES OF BORROWER. Wherever pursuant to this Assignment
it is provided that Borrower pay any costs and expenses, such costs and expenses
shall include, but not be limited to, legal fees and disbursements of Lender,
whether of retained firms, the reimbursement of the expenses for in-house staff
or otherwise.
5.17 EXCULPATION. Borrower's obligations under this Assignment are subject
to the provisions of paragraph 55 of the Security Instrument, and such
provisions are incorporated herein by reference.
6. SPECIAL CALIFORNIA PROVISIONS
6.1 INCONSISTENCIES. In the event of any inconsistencies between the
terms and conditions of this Article 6 and any other terms of this Assignment,
the terms and conditions of this Article 6 shall control and be binding.
6.2 Section 1.2 is renamed "THE LOAN". The words "This Assignment is made
in consideration of that certain loan made by Lender to Borrower evidenced by
the Note and" are deleted from the first sentence of Section 1.2 and replaced
with the words "The Note is".
6.3 The word "other" is hereby deleted from Section 3.2 entitled "OTHER
REMEDIES" and Section 3.3 entitled "OTHER SECURITY" wherever it shall appear in
the body of such paragraphs, except where it is capitalized and used in a
defined term.
6.4 Section 5.7 Entitled "CHOICE OF LAW" is hereby deleted in its entirety
and the following is substituted therefor:
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS ASSIGNMENT SHALL
BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPALS OF SUCH STATE (EXCEPT SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW). ASSIGNOR AND ASSIGNEE FURTHER
ACKNOWLEDGE, AGREE AND STIPULATE THAT THE STATE OF NEW YORK HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES INVOLVED IN THIS TRANSACTION
AND TO THE UNDERLYING TRANSACTIONS SECURED BY THIS ASSIGNMENT.
NOTWITHSTANDING THE FOREGOING, THE PARTIES FURTHER AGREE THAT:
(a) THE PROCEDURES GOVERNING THE ENFORCEMENT BY BENEFICIARY AND
TRUSTEE OF PROVISIONAL REMEDIES AGAINST ASSIGNOR DIRECTLY RELATING TO
THE PROPERTY ENCUMBERED HEREBY, INCLUDING, BY WAY OF ILLUSTRATION BUT
NOT LIMITATION, ANY SUCH ACTIONS FOR REPLEVIN, FOR CLAIM AND DELIVERY
OF PROPERTY, OR FOR THE APPOINTMENT OF A RECEIVER, SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF CALIFORNIA; AND
(b) CALIFORNIA LAW SHALL APPLY TO THE EXTENT, BUT ONLY TO THE
EXTENT, NECESSARY IN ORDER TO CREATE, PERFECT AND FORECLOSE THE
SECURITY INTERESTS AND ASSIGNMENT OF RENTS AND LEASES ARISING UNDER
THIS ASSIGNMENT; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION SHALL
IN ANY EVENT BE CONSTRUED TO PROVIDE THAT THE SUBSTANTIVE LAW OF THE
STATE OF CALIFORNIA SHALL APPLY TO THE OBLIGATIONS AND INDEBTEDNESS
SECURED BY THIS ASSIGNMENT, WHICH ARE AND SHALL CONTINUE TO BE
GOVERNED BY THE SUBSTANTIVE LAW OF THE STATE OF NEW YORK.
6.5 The words "additional security" are hereby deleted whenever they shall
appear in this Assignment.
THIS ASSIGNMENT, together with the covenants and warranties therein
contained, shall inure to the benefit of Lender and any subsequent holder of the
Security Instrument and shall be binding upon Borrower, its heirs, executors,
administrators, successors and assigns and any subsequent owner of the Property.
IN WITNESS WHEREOF, Borrower has executed this instrument as of the day and
year first above written.
VMS APARTMENT PORTFOLIO ASSOCIATES III, a
California general partnership
By: G P SERVICES XIX, INC., a South Carolina
corporation, its general partner
By: /s/ Leigh A. Watters
Name: Leigh A. Watters
Title: Vice President
ACKNOWLEDGEMENT
STATE OF New York )
)
COUNTY OF New York )
I, the undersigned, a Notary Public of the County and State aforesaid,
certify that Leigh A. Watters, who is known to me, acknowledged before me that
he is Vice President, of GP Services XIX, Inc., a South Carolina corporation,
that by authority duly given and as the act of the corporation in its capacity
as a general partner in and on behalf of VMS Apartment Portfolio Associates III,
a California general partnership, signed the foregoing conveyance, and that
being informed of the contents of the conveyance he in his capacity as such
officer of the Corporation, executed the same voluntarily on behalf of the
Partnership on the day the same bears date.
Given under my hand this the 31st day of December, 1997.
/s/ Lucesita A. Lombillo
Notary Public
Name: Lucesita A. Lombillo
Notary Public, State of New York
No. 31-5066748
Qualified in Queens County
Commisson Expires Septemer 30, 1998
EXHIBIT A
Legal Description of Property
PROMISSORY NOTE
$16,900,000.00 New York, New York
As of December 31, 1997
FOR VALUE RECEIVED VMS APARTMENT PORTFOLIO ASSOCIATES II, a California
general partnership, having an address at c/o Insignia Financial Group, Inc.,
One Insignia Financial Plaza, Greenville, South Carolina 29601 (hereinafter
referred to as "Borrower"), promises to pay to the order of LEHMAN BROTHERS
HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC.,
a Delaware corporation, having an address at Three World Financial Center, 200
Vesey Street, New York, New York 10285 (hereinafter referred to as "Lender"), or
at such other place as the holder hereof may from time to time designate in
writing, the principal sum of SIXTEEN MILLION NINE HUNDRED THOUSAND AND 00/100
Dollars ($16,900,000.00), in lawful money of the United States of America with
interest thereon to be computed from the date of this Note at the Applicable
Interest Rate (hereinafter defined), and to be paid as hereinafter provided.
A. PAYMENT TERMS
Borrower shall pay to Lender:
(i) a payment of interest only on the date hereof;
(ii) a constant payment of $116,160.25 (the "Monthly Payment") on
February 1, 1998 and on the first day of each calendar month (the
"Monthly Payment Date") thereafter to and including the first day of
December, 2004; and
(iii)the balance of the principal sum then outstanding and all interest
thereon shall be due and payable on the first day of January, 2005
(the "Maturity Date").
Each of such payments shall be applied as follows:
(i) First to the payment of interest computed at the Applicable Interest
Rate; and
(ii) The balance applied toward the reduction of the principal sum.
B. INTEREST
The term "Applicable Interest Rate" as used in this Note shall mean
7.326% per annum.
Interest on the principal sum of this Note shall be calculated by
multiplying the actual number of days elapsed in the period for which interest
is being calculated by a daily rate based on a 360-day year.
C. DEFAULT AND ACCELERATION
The whole of the principal sum of this Note, together with all
interest accrued and unpaid thereon and all other sums due under the Security
Instrument (hereinafter defined) and this Note (all such sums hereinafter
collectively referred to as the "Debt") shall without notice become immediately
due and payable at the option of Lender if any payment required in this Note is
not paid within ten (10) days after written notice from the Lender notifying
Borrower that the same is due or on the happening of any other default, after
the expiration of any applicable notice and grace periods, herein or under the
terms of the Security Instrument (hereinafter collectively an "Event of
Default"). All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents (hereinafter defined) are hereby
made part of this Note to the same extent and with the same force as if they
were fully set forth herein. In the event that it should become necessary to
employ counsel to collect the Debt or to protect, sell or foreclose the security
hereof, Borrower also agrees to pay reasonable attorney's fees for the services
of such counsel whether or not suit be brought.
D. PREPAYMENT
Borrower shall not have the right or privilege to prepay all or any
portion of the unpaid principal balance of this Note until December 31, 2000.
Beginning January 1, 2001, provided no Event of Default exists, the principal
balance of this Note may be prepaid, in whole but not in part, upon: (i) not
less than 30 days and not more than 45 days prior written notice (the
"Prepayment Notice") to Lender specifying the scheduled payment date on which
prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued
and unpaid interest on the outstanding principal balance of this Note to and
including the Prepayment Date together with a payment of all interest which
would have accrued on the principal balance of this Note to and including the
first day of the calendar month immediately following the Prepayment Date, if
such prepayment occurs on a date which is not the first day of a calendar month
(the "Shortfall Interest Payment"); (iii) payment of all other sums then due
under this Note, the Security Instrument and the Other Security Documents and
(iv) if the Prepayment Date occurs prior to the date which is six months prior
to the Maturity Date payment of a prepayment consideration (the "Prepayment
Consideration") in an amount equal to the greater of: (A) one (1%) percent of
the principal amount of this Note being prepaid; and (B) the present value of a
series of payments each equal to the Payment Differential (hereinafter defined)
and payable on each monthly payment date over the remaining original term of
this Note and on the Maturity Date discounted at the Reinvestment Yield
(hereinafter defined) for the number of months remaining from the Prepayment
Date to each such monthly payment date and the Maturity Date. The term
"Reinvestment Yield" as used herein shall be equal to the lesser of (a) the
yield on the U.S. Treasury issue (primary issue) with a maturity date closest to
the Maturity Date, or (b) the yield on the U.S. Treasury issue (primary issue)
with a term equal to the remaining average life of the Debt, with each such
yield being based on the bid price for such issue as published in The Wall
Street Journal on the date that is 14 days prior to the Prepayment Date set
forth in the Prepayment Notice (or, if such bid price is not published on that
date, the next preceding date on which such bid price is so published) and
converted to a monthly compounded nominal yield. The term "Payment
Differential" as used herein shall be equal to (x) the Applicable Interest Rate
minus the Reinvestment Yield, divided by (y) 12 and multiplied by (z) the
principal sum outstanding on such Prepayment Date after application of the
Constant Monthly Payment (if any) due on such Prepayment Date, provided that the
Payment Differential shall in no event be less than zero. In no event, however,
shall Lender be required to reinvest any prepayment proceeds in U.S. Treasury
obligations or otherwise. Lender shall notify Borrower of the amount, and the
basis of determination, of the required Prepayment Consideration. If a
Prepayment Notice is given by Borrower to Lender pursuant to this Article D, the
principal balance of this Note and the other sums required under this Article D
shall be due and payable on the Prepayment Date.
Lender shall not be obligated to accept any prepayment of the
principal balance of this Note unless it is accompanied by all sums due in
connection therewith. Notwithstanding anything contained herein to the
contrary, provided no Event of Default exists, no Prepayment Consideration shall
be due in connection with a complete or partial prepayment resulting from the
application of insurance proceeds or condemnation awards pursuant to paragraphs
3 and 6 of the Security Instrument. In the event of any permitted partial
prepayment of the principal balance of this Note, the amount of principal
prepaid (but not including any Prepayment Consideration or interest) shall be
applied to the principal last due under this Note and shall not release Borrower
from the obligation to pay the Constant Monthly Payments next becoming due under
this Note and the Constant Monthly Payment shall not be adjusted or recalculated
as a result of such partial prepayment.
If a Default Prepayment (defined herein) occurs prior to the date
which is six months prior to the Maturity Date, Borrower shall pay to Lender the
entire Debt, including, without limitation, the Prepayment Consideration.
For purposes of this Note, the term "Default Prepayment" shall mean a
prepayment of the principal amount of this Note made during the continuance of
any Event of Default or after an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Instrument provided by statute
under foreclosure proceedings or exercise of a power of sale, any statutory
right of redemption exercised by Borrower or any other party having a statutory
right to redeem or prevent foreclosure, any sale in foreclosure or under
exercise of a power of sale or otherwise.
Notwithstanding any provision of this Article D to the contrary,
Lender may require Borrower, in lieu of a prepayment as contemplated in the
first paragraph of this Article D, to deliver to Lender the Defeasance
Collateral (hereinafter defined) in the manner contemplated herein. After
Lender's receipt of the Prepayment Notice, Lender shall, if it so elects, advise
Borrower that, in lieu of a prepayment, the Defeasance Collateral shall be
required, in which event Borrower shall be entitled to a release of the Property
(hereinafter defined) from the lien of the Security Instrument and the Other
Security Documents upon satisfaction of the following:
I. Lender shall have received written confirmation from the rating
agencies that have rated the REMIC "real estate mortgage investment conduit"
(defined in Section 860D of the Internal Revenue Code of 1986, as amended from
time to time or any successor statute (the "Code")) ("REMIC") related to the
Securities (as defined in the Security Instrument) that such substitution of
Defeasance Collateral will not result in a downgrade, withdrawal or
qualification of the ratings then assigned to any of the Securities; provided,
however, that in the event that Lender or its agent is unable to obtain such
confirmation, the Lender or its agent shall so advise Borrower and Borrower will
then be subject to the other provisions of this Article D set forth above;
II. all accrued and unpaid interest and all other sums due under this
Note, the Security Instrument and other Security Documents up to the date of the
delivery of the Defeasance Collateral (the "Release Date"), including, without
limitation, all costs and expenses incurred by Lender or its agents in
connection with such release (including, without limitation, the review of the
proposed Defeasance Collateral and the preparation of the Defeasance Security
Agreement (as hereinafter defined) and the related documentation), shall be
fully paid on or before the Release Date; and
III. Borrower shall have delivered to Lender on or before the Release
Date:
(a) a pledge and security agreement, in form and substance
satisfactory to Lender in its sole discretion, creating a first
priority security interest in favor of Lender in the Defeasance
Collateral (the "Defeasance Security Agreement"), which shall provide,
among other things, that any excess received by Lender from the
Defeasance Collateral over the amount payable by Borrower hereunder
shall be refunded to Borrower promptly following each Monthly Payment
Date and the Maturity Date;
(b) direct, non-callable obligations of the United States of
America (the "US Obligations") that provide for payments prior, but as
close as possible, to all successive Monthly Payment Dates occurring
after the Release Date and the Maturity Date, with each such payment
being equal to or greater than the amount of the corresponding
Constant Monthly Payment required to be paid under this Note for the
balance of the term hereof and the amount required to be paid on the
Maturity Date (the "Defeasance Collateral"), each of which shall be
duly endorsed by the holder thereof as directed by Lender or
accompanied by a written instrument of transfer in form and substance
wholly satisfactory to Lender (including, without limitation, such
instrument as may be required by the depository institution holding
such securities or the issuer thereof, as the case may be, to
effectuate book-entry transfers and pledges through the book-entry
facilities of such institution) in order to perfect upon the delivery
of the Defeasance Security Agreement the first priority security
interest therein in favor of the Lender in conformity with all
applicable state and federal laws governing the granting of such
security interests; Borrower shall authorize and direct that the
payments received from the U.S. Obligations shall be made directly to
Lender or Lender's designee and applied to satisfy the Obligations of
Borrower under this Note;
(c) evidence reasonably satisfactory to Lender that title to the
Release Property has been transferred to an entity other than
Borrower.
(d) Lender shall have received an opinion of Borrower's counsel,
dated as of the Release Date, in form reasonably satisfactory to
Lender stating, among other things, that (A) the Defeasance Collateral
and the U.S. Obligations have been duly and validly assigned and
delivered to Lender and Lender has a valid, perfected, first priority
lien and security interest in the Defeasance Collateral delivered by
Borrower, (B) the Defeasance Collateral has been validly assigned to
the REMIC, (C) the Defeasance has been effected in accordance with the
requirements of Treasury Regulation 1.860(g)-2(a)(8) (as such
regulation may be amended or substituted from time to time) and will
not be treated as an exchange pursuant to Section 1001 of the Code and
(D) the tax qualification and status of the REMIC will not be
adversely affected or impaired as a result of the Defeasance.
(e) a certificate by Borrower's independent public accountant
certifying that all of the requirements set forth in Clause I and II
above and this Clause III have been fully satisfied; and
(f) such other certificates, documents or instruments as Lender
may reasonably require.
Notwithstanding the foregoing, no such Release shall be
made, given or be deemed effective under this Article D until the
first day after expiration of the period during which the delivery to
Lender of the Defeasance Collateral in connection therewith is subject
to avoidance and recovery as a preferential transfer under 11 U.S.C.
Section 547 in the event of a bankruptcy of the delivering person or
entity without such avoidance and recovery (which day shall be
identified in writing by Borrower at any time that Borrower delivers
the Defeasance Collateral to Lender), unless Lender receives, at the
time of such delivery, an opinion of counsel to the effect that such
delivery of the Defeasance Collateral would not be avoided and
recovered as a preferential transfer under 11 U.S.C. Section547 in the
event of the filing of a bankruptcy petition in respect of the
conveying or delivering person or entity.
Upon compliance with the foregoing requirements relating to the
delivery of the Defeasance Collateral, the Property shall be released from the
lien of the Security Instrument and the Other Security Documents and the
Defeasance Collateral shall constitute collateral which shall secure this Note
and the Debt. Lender will, at Borrower's expenses, execute and deliver any
agreements reasonably requested by Borrower to release the lien of the Security
Instrument from the Property. Upon the release by the Lender in accordance with
this Article D, Borrower shall have no further right to prepay this Note
pursuant to the other provisions of this Article D or otherwise.
E. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default or upon the failure of Borrower to pay the Debt in full on the Maturity
Date, Lender shall be entitled to receive and Borrower shall pay interest
("Default Interest") on the entire unpaid principal sum at the rate of (i) the
greater of (a) two percent (2%) over the Prime Rate (hereinafter defined), as
such Prime Rate shall change from time to time or (b) five percent (5%) over the
Applicable Interest Rate then in effect or (ii) the maximum rate of interest
which Borrower may by law pay, whichever is lower, to be computed from the
occurrence of the Event of Default until the actual receipt and collection of
the Debt (the "Default Interest Rate"). This charge shall be added to the Debt,
and shall be deemed secured by the Security Instrument. This clause, however,
shall not be construed as an agreement or privilege to extend the date of the
payment of the Debt, nor as a waiver of any other right or remedy accruing to
Lender by reason of the occurrence of any Event of Default. The term "Prime
Rate" as used in this Note shall mean the daily "prime rate" published in The
Wall Street Journal from the date of the Event of Default, as such "prime rate"
shall change from time to time. In the event The Wall Street Journal ceases to
publish the "prime rate" then Lender shall select an equivalent publication
which publishes such "prime rate"; and in the event such prime rates are no
longer generally published or are limited, regulated or administered by a
governmental or quasi-governmental body, then Lender shall select a comparable
interest rate index.
F. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "Security Instrument" as used in this Note shall mean the
Deed of Trust and Security Agreement dated as of the date hereof in the
principal sum of $16,900,000.00 given by Borrower to Lender encumbering the fee
estate of Borrower in certain premises located in Marin County, State of
California and other property, as more particularly described therein and
intended to be duly recorded in said County. The term "Other Security
Documents" as used in this Note shall mean all and any of the documents other
than this Note or the Security Instrument now or hereafter executed by Borrower
and/or others and by or in favor of Lender, which wholly or partially secure or
guarantee payment of this Note. Whenever used, the singular number shall
include the plural, the plural the singular, and the words "Lender" and
"Borrower" shall include their respective successors, assigns, heirs, executors
and administrators.
G. SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate shall be deemed to be immediately
reduced to such maximum rate and all previous payments in excess of the maximum
rate shall be deemed to have been payments in reduction of principal and not on
account of the interest due hereunder.
H. LATE CHARGE
If any sum payable under this Note is not received by Lender within
five (5) days of the date on which it is due, without taking into account or
including within said five (5) day period any applicable notice or grace period,
Borrower shall pay to Lender upon demand an amount equal to the lesser of five
percent (5%) of such unpaid sum or the maximum amount permitted by applicable
law to defray the expenses incurred by Lender in handling and processing such
delinquent payment and to compensate Lender for the loss of the use of such
delinquent payment and such amount shall be secured by the Security Instrument
and the Other Security Documents. Nothing contained herein is intended to
affect the rights of Lender in and to any Default Interest due to Lender
pursuant to the provisions of paragraph E hereof entitled "Default Interest".
I. MISCELLANEOUS
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
If Borrower consists of more than one person or party, the obligations
and liabilities of each such person or party shall be joint and several. The
foregoing sentence, however, is not intended to affect the limited liability of
any limited partner or stockholder of Borrower afforded by applicable
partnership or corporate law.
Borrower and all others who may become liable for the payment of all
or any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest and notice of protest and non-payment. No
release of any security for the Debt or extension of time for payment of this
Note or any installment hereof, and no alteration, amendment or waiver of any
provision of this Note, the Security Instrument or the Other Security Documents
made by agreement between Lender and any other person or party shall release,
modify, amend, waive, extend, change, discharge, terminate or affect the
liability of Borrower, and any other who may become liable for the payment of
all or any part of the Debt, under this Note, the Security Instrument or the
Other Security Documents.
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
This Note shall be governed and construed in accordance with the laws
of the State of New York and the applicable laws of the United States of
America.
J. EXCULPATION
Lender shall not enforce the liability and obligation of Borrower to
perform and observe the obligations contained in this Note or the Security
Instrument by any action or proceeding wherein a money judgment shall be sought
against Borrower or any general or limited partner or member of Borrower
(hereinafter collectively referred to as the "Exculpated Parties"), except that
Lender may bring a foreclosure action, action for specific performance or other
appropriate action or proceeding to enable Lender to enforce and realize upon
this Note, the Security Instrument, the Other Security Documents, and the
interest in the Property, the Rents (as defined in the Security Instrument) and
any other collateral given to Lender created by this Note, the Security
Instrument and the Other Security Documents; provided, however, that any
judgment in any such action or proceeding shall be enforceable against the
Exculpated Parties only to the extent of Borrower's interest in the Property, in
the Rents and in any other collateral given to Lender. Lender, by accepting
this Note and the Security Instrument, agrees that it shall not sue for, seek or
demand any deficiency judgment against the Exculpated Parties in any such action
or proceeding, under or by reason of or under or in connection with the Security
Instrument, the Other Security Documents or this Note. The provisions of this
paragraph shall not, however, (i) constitute a waiver, release or impairment of
any obligation evidenced or secured by the Security Instrument, the Other
Security Documents or this Note; (ii) impair the right of Lender to name
Borrower as a party defendant in any action or suit for judicial foreclosure and
sale under the Security Instrument; (iii) affect the validity or enforceability
of any guaranty made in connection with the Security Instrument, this Note, or
the Other Security Documents; (iv) impair the right of Lender to obtain the
appointment of a receiver upon the occurrence and continuance of an Event of
Default; (v) impair the enforcement of the Assignment of Leases and Rents dated
the date hereof given by Borrower to Lender executed in connection herewith;
(vi) impair the right of Lender to bring suit with respect to fraud or
intentional misrepresentation by Borrower, the Exculpated Parties or any other
person or entity in connection with the Security Instrument, this Note or the
Other Security Documents; (vii) impair the right of Lender to obtain the Rents
received by any of the Exculpated Parties after the occurrence and continuance
of an Event of Default; (viii) impair the right of Lender to bring suit with
respect to the Exculpated Parties' misappropriation of tenant security deposits
or Rents collected in advance; (ix) impair the right of Lender to obtain
insurance proceeds or condemnation awards due to Lender under the Security
Instrument; (x) impair the right of Lender to enforce the provisions of sub-
paragraphs 36(g) through 36(k), inclusive and paragraphs 34 and 35 of the
Security Instrument against the Borrower (excluding the general and limited
partners or members of Borrower); or (xi) impair the right of Lender to recover
any part of the Debt from the Borrower (excluding the general and limited
partners or members of Borrower) following the breach of any covenant contained
in paragraphs 9 or 55 of the Security Instrument.
THIS NOTE, AND THE OTHER SECURITY DOCUMENTS EMBODY THE ENTIRE AGREEMENT AND
UNDERSTANDING BETWEEN LENDER, BORROWER AND THE OTHER RESPECTIVE PARTIES HERETO
AND THERETO AND SUPERSEDE ALL PRIOR AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH
PARTIES RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
ARTICLE K: CALIFORNIA PROVISIONS
(a) In the event of any inconsistencies between the terms and
conditions of this Article K and any other Articles in this Note, the terms and
conditions of this Article K shall control and be binding.
(b) The following paragraphs are hereby added immediately following
the Article D entitled "Prepayment":
(c) Article H hereof, entitled "Late Charge", is deleted in its
entirety and the following is substituted therefor:
Borrower acknowledges that late payment to Lender will cause Lender to
incur costs not contemplated herein. Such costs include, without
limitation, processing and accounting costs. Therefore, if any
payment due under this Note is not received by Lender before the tenth
(10th) day after the date on which it is due, Borrower shall pay to
Lender as a late charge a sum equal to the lesser of five percent (5%)
of the overdue amount or the maximum amount permitted by applicable
law to defray such costs. Such amount shall be secured by the
Security Instrument and the Other Security Documents. Borrower
further acknowledges that this late charge represents a reasonable sum
considering all of the circumstances existing on the date hereof and
represents a fair and reasonable time of the costs that Lender will
incur by reason of late payment. Borrower agrees that proof of actual
damages would be costly or inconvenient. Acceptance of any late
charge shall not constitute a waiver of the default with respect to
the overdue amount and shall not prevent Lender from exercising any of
the other rights and remedies available to Lender.
IN WITNESS WHEREOF, Borrower has duly executed this Note the day and
year first above written.
VMS APARTMENT PORTFOLIO
ASSOCIATES II, a California general partnership
By: GP SERVICES XIX, INC., a South Carolina
corporation, its general partner
By:/s/ Leigh A. Watters
Name: Leigh A. Watters
Title: Vice President
This instrument prepared by:
Mitchell G. Williams, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
RECORD AND RETURN TO:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: Carson M. Leonard, Esq.
Counsel's File No.: 16248-328
DEED OF TRUST, SECURITY AGREEMENT,
FIXTURE FILING and ASSIGNMENT OF LEASES AND RENTS
VMS APARTMENT PORTFOLIO ASSOCIATES II,
a California general partnership
(Trustor)
to
COMMONWEALTH LAND TITLE INSURANCE COMPANY,
(Trustee)
for the benefit of
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF
LEHMAN BROTHERS HOLDINGS INC.
a Delaware corporation
(Lender)
Dated:As of December 31, 1997
Location: Richardson Highlands Apartments
Marin City, California
Marin County
THIS DEED OF TRUST AND SECURITY AGREEMENT (the "Security Instrument"), is
made as of the 31st day of December, 1997, by VMS APARTMENT PORTFOLIO ASSOCIATES
II, a California general partnership, having an address c/o Insignia Financial
Group, Inc., One Insignia Financial Plaza, Greenville, South Carolina 29601, as
grantor ("Borrower"), to COMMONWEALTH LAND TITLE INSURANCE COMPANY, having an
address at 877 Ygnacio Valley Road #100, Walnut Creek, California 94596, as
trustee ("Trustee"), for the benefit of LEHMAN BROTHERS HOLDINGS INC. D/B/A
LEHMAN CAPITAL, A DIVISION OF LEHMAN BROTHERS HOLDINGS INC., a Delaware
corporation, having an address at Three World Financial Center, 200 Vesey
Street, New York, New York 10285, as beneficiary ("Lender").
W I T N E S E T H :
To secure the payment of an indebtedness in the principal sum of
SIXTEEN MILLION NINE HUNDRED THOUSAND AND 00/100 DOLLARS ($16,900,000.00),
lawful money of the United States of America, to be paid with interest according
to a certain note dated the date hereof made by Borrower to Lender (the note,
together with all extensions, renewals or modifications thereof being
hereinafter collectively called the "Note") (said indebtedness, interest and all
other sums due hereunder and under the Note being collectively called the
"Debt"), Borrower has given, granted, bargained, sold, aliened, enfeoffed,
conveyed, confirmed, pledged, assigned, warranted and hypothecated and by these
presents does give, grant, bargain, sell, alien, enfeoff, convey, confirm,
pledge, assign, warrant, set over and hypothecate unto Trustee, its successors
and assigns, for the benefit of Lender with power of sale and right of entry and
possession, and grants a security interest in, the real property described in
the Exhibit A attached hereto (the "Premises");
TOGETHER WITH: all right, title, interest and estate of Borrower now
owned, or hereafter acquired, in and to the buildings, structures, fixtures,
additions, enlargements, extensions, modifications, repairs, replacements and
improvements now or hereafter located thereon (the "Improvements") and the
following property, rights, interests and estates (the foregoing fee and
leasehold estates, as the case may be, in the Premises, the Improvements
together with the following property, rights, interests and estates being
hereinafter collectively referred to as the "Property"):
(a) all easements, rights-of-way, strips and gores of land, streets,
ways, alleys, passages, sewer rights, water, water courses, water rights
and powers, air rights and development rights, and all estates, rights,
titles, interests, privileges, liberties, tenements, hereditaments and
appurtenances of any nature whatsoever, in any way belonging, relating or
pertaining to the Premises and/or the Improvements, and the reversion and
reversions, remainder and remainders, and all land lying in the bed of any
street, road or avenue, opened or proposed, in front of or adjoining the
Premises, to the center line thereof and all the estates, rights, titles,
interests, dower and rights of dower, curtesy and rights of curtesy,
property, possession, claim and demand whatsoever, both at law and in
equity, of Borrower of, in and to the Premises and/or Improvements, and
every part and parcel thereof, with the appurtenances thereto;
(b) all machinery, equipment, fixtures (including but not limited to
all heating, air conditioning, plumbing, lighting, communications and
elevator fixtures) and other property of every kind and nature whatsoever
owned by Borrower, or in which Borrower has or shall have an interest, now
or hereafter located upon the Premises and the Improvements, or appurtenant
thereto, and usable in connection with the present or future management,
maintenance operation and occupancy of the Premises and the Improvements
and all building equipment, materials and supplies of any nature whatsoever
owned by Borrower, or in which Borrower has or shall have an interest, now
or hereafter located upon the Premises and the Improvements, or appurtenant
thereto, or usable in connection with the present or future management,
maintenance operation and occupancy of the Premises and the Improvements
(hereinafter collectively called the "Equipment"), and the right, title and
interest of Borrower in and to any of the Equipment which may be subject to
any security interests, as defined in the Uniform Commercial Code, as
adopted and enacted by the state or states where any of the Property is
located (the "Uniform Commercial Code"), superior in lien to the lien of
this Security Instrument;
(c) all awards or payments, including interest thereon, which may
heretofore and hereafter be made with respect to the Property, whether from
the exercise of the right of eminent domain (including but not limited to
any transfer made in lieu of or in anticipation of the exercise of said
right), or for a change of grade, or for any other injury to or decrease in
the value of the Property;
(d) all leases and other agreements affecting the use, enjoyment or
occupancy of the Premises and the Improvements heretofore or hereafter
entered into (the "Leases") and all right, title and interest of Borrower,
its successors and assigns therein and thereunder, including, without
limitation, cash or securities deposited thereunder to secure the
performance by the lessees of their obligations thereunder and all rents,
additional rents, revenues, issues and profits (including all oil and gas
or other mineral royalties and bonuses) from the Premises and the
Improvements (the "Rents") and all proceeds from the sale or other
disposition of the Leases and the right to receive and apply the Rents to
the payment of the Debt;
(e) all proceeds of and any unearned premiums on any insurance
policies covering the Property, including, without limitation, the right to
receive and apply the proceeds of any insurance, judgments, or settlements
made in lieu thereof, for damage to the Property;
(f) the right, in the name and on behalf of Borrower, to appear in
and defend any action or proceeding brought with respect to the Property
and to commence any action or proceeding to protect the interest of Lender
in the Property;
(g) all contract rights, with respect to, or which may in any way
pertain to, the Premises or the business of the Borrower, including,
without limitation, all refunds, rebates, security deposits, or other
expectancy under or from any such account or contract right;
(h) all general intangibles with respect to, or which may in any way
pertain to, the Premises or the business of the Borrower, including without
limitation, any trade names, or other names under or by which the Premises
may at any time be operated or known, the good will of the Borrower in
connection therewith and the right of the Borrower to carry on business
under any or all such name or names and any variant or variants thereof,
insofar as the same may be transferable by the Borrower without breach of
any agreement pursuant to which the Borrower may have obtained its right to
use such name or names, and any and all trademarks, prints, labels,
advertising concepts and literature;
TO HAVE AND TO HOLD the above granted and described Property unto the
Trustee, and the successors and assigns of Trustee, forever;
IN TRUST, FOR THE USE, BENEFIT AND BEHOOF OF LENDER, WITH POWER OF SALE, to
secure the payment to Lender of the Debt at the time and in the manner provided
for its payment in the Note and in this Security Instrument;
PROVIDED, HOWEVER, these presents are upon the express condition that, if
Borrower shall well and truly pay to Lender the Debt at the time and in the
manner provided in the Note and this Security Instrument and shall well and
truly abide by and comply with each and every covenant and condition set forth
herein and in the Note, these presents and the estate hereby granted shall
cease, terminate and be void;
AND Borrower represents and warrants to and covenants and agrees with
Lender as follows:
PROVISIONS OF GENERAL APPLICATION
1. Payment of Debt and Incorporation of Covenants, Conditions and
Agreements. Borrower will pay the Debt at the time and in the manner provided
in the Note and in this Security Instrument. All the covenants, conditions and
agreements contained in (a) the Note and (b) all and any of the documents other
than the Note or this Security Instrument now or hereafter executed by Borrower
and/or others and by or in favor of Lender, which wholly or partially secure or
guaranty payment of the Note including but not limited to the Assignment of
Leases and Rents (the "Assignment of Rents") between Borrower, as assignor and
Lender, as assignee (collectively, the "Other Security Documents"), are hereby
made a part of this Security Instrument to the same extent and with the same
force as if fully set forth herein.
2. Warranty of Title. Borrower warrants that Borrower has good title to
the Property and has the right to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, pledge, assign and hypothecate and grant a security
interest in the same and that Borrower possesses an unencumbered fee estate in
the Premises and the Improvements and that it owns the Property free and clear
of all liens, encumbrances and charges whatsoever except for those exceptions
shown in the title insurance policy insuring the lien of this Security
Instrument. Borrower shall forever warrant, defend and preserve such title and
the validity and priority of the lien of this Security Instrument and shall
forever warrant and defend the same to Lender against the claims of all persons
whomsoever.
3. Insurance. (a) Borrower will keep the Property insured against loss
or damage by fire, flood and such other hazards, risks and matters, as Lender
may from time to time reasonably require, including without limitation, rental
value insurance against the abatement in rent or business interruption insurance
for at least twelve (12) months and general public liability in an amount not
less than $1,000,000.00, including excess liability coverage and umbrella
liability insurance. Borrower shall pay the premiums for such insurance (the
"Insurance Premiums") as the same become due and payable. All policies of
insurance (the "Policies") shall (i) be issued under forms acceptable to Lender
(containing the standard New York mortgagee non-contribution clause naming the
Lender as the insured mortgagee and the person to which all payments made by the
Qualified Insurer (hereinafter defined) shall be paid); (ii) provide for at
least thirty (30) days prior written notice to the Lender of any cancellation,
reduction in an amount or change in insurance coverage; (iii) contain a
replacement cost endorsement for 100% of all replacement costs relating to the
Improvements (without deduction for depreciation); (iv) contain an "enforcement"
or "Law and Ordinance" endorsement in form and substance satisfactory to Lender;
and (v) be issued by insurers qualified under the laws of the State in which the
Property is located, duly authorized and licensed to transact insurance business
in such State and reflecting a claims-paying ability of A or better as
determined by Standard & Poors' Corporation ("S&P"), Duff and Phelps Credit
Rating Co. ("Duff"), if rated by Duff, Fitch Investors Service, Inc. ("Fitch"),
if rated by Fitch, and a claims paying ability of A2 as determined by Moody's
Investors Service, Inc. ("Moody's"), if rated by Moody's (each such insurer
hereinafter referred to as a "Qualified Insurer", collectively "Qualified
Insurers"). Notwithstanding the foregoing, Travelers/Aetna Casualty and Surety
("Aetna") is an acceptable insurance company to Lender provided that if Aetna
has a senior unsecured debt rating of less than A by each of the Rating Agencies
(hereinafter defined), then such insurer shall be replaced with a Qualified
Insurer or Qualified Insurers within thirty (30) days after written notice by
the Lender of the reduction of such rating. Such insurance shall not be
invalidated due to the use or occupancy of the Property for purposes more
hazardous than are permitted by the policy. The maximum amount deductible
permitted under each insurance policy shall be such as is customarily carried by
owners or managing agents operating first class multi-family residences of
similar type and size of the Property of similar type, size and quality to the
Property as applicable. Borrower shall deliver the Policies, or duplicate
originals of the same, to Lender. Not later than forty five (45) days prior to
the expiration date of each of the Policies, Borrower will deliver evidence
satisfactory to Lender of the renewal of each of the Policies. The Borrower
shall not insure the Property under any insurance policy other than as expressly
set forth herein.
(b) If the Property shall be damaged or destroyed, in whole or in part, by
fire or other casualty, Borrower shall give prompt notice thereof to Lender.
The net amount of all insurance proceeds received by Lender with respect to such
damage or destruction, shall be held in a segregated account (the "Net Proceeds
Account") and invested in an Eligible Investment (hereinafter defined). Lender
shall be entitled to deduct from such insurance proceeds all of its out-of-
pocket administrative costs and expenses reasonably incurred in connection with
the investing and collection of such insurance proceeds, and the balance if any,
(the "Net Proceeds") shall be disbursed by Lender in accordance with the terms
and conditions set forth herein to pay for the costs and expenses of the
Restoration (hereinafter defined) provided (i) no Event of Default has occurred
and remains uncured under this Security Instrument, the Note or any of the Other
Security Documents, (ii) Borrower proceeds promptly after the insurance claims
are settled with the restoration, replacement, rebuilding or repair of the
Property as nearly as possible to the condition the Property was in immediately
prior to such fire or other casualty (the "Restoration"), (iii) the Restoration
shall be done in compliance with all applicable laws, rules and regulations,
and, following the Restoration, the Property shall be permitted under all
applicable zoning laws to be used for, and shall continue to be used for, all
purposes associated with multi-family residences, (iv) a set of the plans and
specifications in connection with the Restoration shall be submitted to Lender
and shall be reasonably acceptable to Lender in all respects, (v) all costs and
reasonable expenses incurred by Lender in connection with making the Net
Proceeds available for the Restoration of the Property including, without
limitation, counsel fees and inspecting engineer fees incurred by Lender, shall
be paid by Borrower, (vi) rental loss insurance is available to offset fully any
abatement of rent to which any tenant of the Property may be entitled or any
rent loss arising out of the cancellation of any Lease as a result of the
casualty, throughout the Restoration and a reasonable lease-up period following
the Restoration, and (vii) in Lender's judgment, the Restoration must be able to
be completed within one (1) year after the loss and at least one (1) year prior
to the Maturity Date of the Note. The term "Eligible Investment" shall mean any
investment approved by Lender in its sole discretion.
(c) The Net Proceeds shall be held in trust in the Net Proceeds Account.
The Net Proceeds shall be paid by Lender (or by a disbursing agent
("Depository") selected by Lender), to, or as directed by, Borrower from time to
time during the course of the Restoration, upon receipt of evidence, and
certification from Borrower, satisfactory to Lender, that (i) all materials
installed and work and labor performed (except to the extent they are to be paid
for out of the requested payment) in connection with the Restoration have been
paid for in full, (ii) no notices of intention, mechanics' or other liens or
encumbrances on the Property arising out of the Restoration exist, and (iii) the
balance of the Net Proceeds plus the balance of any deficiency deposits given by
Borrower to Lender or Depository pursuant to the provisions of this paragraph
hereinafter set forth shall be sufficient to pay in full the balance of the cost
of the Restoration. Borrower shall pay all fees and expenses of the Depository
in connection with the above.
(d) Notwithstanding anything to the contrary contained herein, if the Net
Proceeds shall be less than $50,000.00, only one disbursement shall be required
upon the completion of the Restoration to the satisfaction of Lender. If the
Net Proceeds shall be $50,000.00 or more, Lender shall disburse the Net Proceeds
as provided above, however, in no event shall Lender be required to disburse
such Net Proceeds, or any portion thereof, more often then once every thirty
(30) days. If at any time the Net Proceeds, or the undisbursed balance thereof,
shall not, be sufficient to pay in full the balance of the cost of the
Restoration, Borrower shall deposit the deficiency with Lender or Depositary
before any further disbursement of the Net Proceeds shall be made.
(e) Any amount of the Net Proceeds received by Lender and not required to
be disbursed for the Restoration pursuant to the provisions of this paragraph
hereinabove set forth shall be retained and applied by Lender toward the payment
of the Debt whether or not then due and payable in such priority and proportions
as Lender in its discretion shall deem proper. Upon the receipt and retention
by Lender of such insurance proceeds, the lien of this Security Instrument shall
be reduced only by the amount thereof received and retained by Lender and
actually applied by Lender in reduction of the Debt.
(f) Notwithstanding anything to the contrary contained herein, Lender
shall not be obligated to make the Net Proceeds available for Restoration of the
Property unless the principal balance of the Note following the completion of
the Restoration (assuming the amount of Net Proceeds received by Lender in
excess of the cost of the Restoration (as estimated by Lender) is applied to the
prepayment of the Note) will be in an amount sufficient to cause (i) the Debt
Service Coverage Ratio (hereinafter defined) applicable to the Property
immediately following the Restoration to be not less than 1.20 to 1.0 and (ii)
in the event of any Restoration involving Net Proceeds of more than $250,000.00,
the ratio of (a) the then outstanding principal balance of the Note to (b) the
appraised value of the Property after completion of the Restoration (as
determined by an independent third-party appraiser holding an MAI designation
and having a national practice and at least ten (10) years real estate
experience appraising properties of a similar nature and type as the Property)
to be equal to or less than the Minimum Loan to Value Ratio (hereinafter
defined). The term "Minimum Loan to Value Ratio" means a ratio, expressed as a
percentage, equal to the lesser of (i) 80% or (ii) the ratio of (a) the then
outstanding principal balance of the Note to (b) the appraised value of the
Property on the date hereof. The fee for such appraisal shall be paid for by
Borrower.
4. Payment of Taxes, etc. Borrower shall pay all taxes, assessments,
water rates and sewer rents, now or hereafter levied or assessed or imposed
against the Property or any part thereof (the "Taxes") and all ground rents,
maintenance charges, other governmental impositions, and other charges,
including without limitation vault charges and license fees for the use of
vaults, chutes and similar areas adjoining the Premises, now or hereafter levied
or assessed or imposed against the Property or any part thereof (the "Other
Charges") as same become due and payable. Upon written request from Lender,
Borrower will deliver to Lender evidence satisfactory to Lender that the Taxes
and Other Charges have been so paid or are not then delinquent. Borrower shall
not suffer and shall promptly cause to be paid and discharged any lien or charge
whatsoever which may be or become a lien or charge against the Property, and
shall promptly pay for all utility services provided to the Property. Borrower
shall furnish to Lender receipts for the payment of the Taxes, Other Charges and
said utility services prior to the date the same shall become delinquent.
Notwithstanding the above, after prior written notice to Lender, Borrower,
at its own expense, may contest by appropriate legal proceeding, promptly
initiated and conducted in good faith and with due diligence, the amount or
validity or application in whole or in part of any of the Taxes, provided that
(i) no Event of Default under the Note or this Security Instrument shall have
occurred and be continuing, (ii) Borrower is permitted to do so under the
provisions of any mortgage or deed of trust or deed to secure debt superior or
junior in lien to this Security Instrument, (iii) such proceeding shall suspend
the collection of the Taxes from Borrower and from the Property, (iv) such
proceeding shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Borrower is subject and shall not
constitute a default thereunder, (v) neither the Property nor any part thereof
or interest therein will be in danger of being sold, forfeited, terminated,
canceled or lost, (vi) Borrower shall have set aside adequate reserves for the
payment of the Taxes, together with all interest and penalties thereon, and
(vii) Borrower shall have furnished such security as may be reasonably required
in the proceeding, or as may be requested by Lender to insure the payment of any
such Taxes, together with all interest and penalties thereon.
5. Escrow Fund. Upon (i) the occurrence of an Event of Default
(hereinafter defined), and for so long as such Event of Default shall be
continuing, or (ii) the transfer of the Property to any entity in accordance
with the terms of paragraph 9(c) hereof, Borrower shall pay to Lender upon
request on the fifteenth day of each calendar month thereafter (a) one-twelfth
of an amount which would be sufficient to pay the Taxes payable, or estimated by
Lender to be payable, during the next ensuing twelve (12) months and (b) one-
twelfth of an amount which would be sufficient to pay the Insurance Premiums due
for the renewal of the coverage afforded by the Policies upon the expiration
thereof (the amounts set forth in (a) and (b) above hereinafter called the
"Escrow Fund"). The Escrow Fund and the payments of interest or principal or
both, payable pursuant to the Note shall be added together and shall be paid as
an aggregate sum by Borrower to Lender. Borrower hereby pledges to Lender any
and all monies now or hereafter deposited in the Escrow Fund as additional
security for the payment of the Debt. Lender will apply the Escrow Fund to
payments of Taxes and Insurance Premiums required to be made by Borrower
pursuant to paragraphs 3 and 4 hereof. If the amount of the Escrow Fund shall
exceed the amounts due for Taxes and Insurance Premiums pursuant to paragraphs 3
and 4 hereof, Lender shall credit such excess against future payments to be made
to the Escrow Fund. In allocating such excess, Lender may deal with the person
shown on the records of Lender to be the owner of the Property. If the Escrow
Fund is not sufficient to pay the items set forth in (a) and (b) above, Borrower
shall promptly pay to Lender, upon demand, an amount which Lender shall estimate
as sufficient to make up the deficiency. Lender may apply any sums then present
in the Escrow Fund to the payment of the following items in any order in its
uncontrolled discretion:
(i) Taxes and Other Charges;
(ii) Insurance Premiums;
(iii) Interest on the unpaid principal balance of the Note;
(iv) Amortization of the unpaid principal balance of the Note;
(v) All other sums payable pursuant to the Note, this Security
Instrument and the Other Security Documents, including without
limitation advances made by Lender pursuant to the terms of this
Security Instrument.
Until expended or applied as above provided, any amounts in the Escrow Fund
shall constitute additional security for the Debt. The Escrow Fund shall not
constitute a trust fund and may be commingled with other monies held by Lender.
No earnings or interest on the Escrow Fund shall be payable to Borrower, except
after repayment in full of the Debt.
6. Condemnation. (a) Borrower shall give Lender prompt notice of the
actual or threatened commencement of any condemnation or eminent domain
proceeding and shall deliver to Lender copies of any and all papers served in
connection with such proceedings. If less than 25% of the land constituting the
Property is taken, then the net amount of all awards and payments received by
Lender with respect to such taking shall be held in a segregated account (the
"Net Awards Account") and invested in an Eligible Investment. Lender shall be
entitled to deduct from the condemnation award all of its administrative costs
and expenses incurred in connection with investing and collecting such
condemnation award and the balance, if any, (hereinafter referred to as the "Net
Award"), will be disbursed by Lender to pay for the costs and expenses of the
Condemnation Restoration (hereinafter defined), provided (i) Borrower is not in
default under this Security Instrument, the Note or any of the Other Security
Documents, (ii) Borrower proceeds promptly after the making of any award of
payment for such taking with the restoration, replacement, rebuilding or repair
of the Property as nearly as possible to the condition the Property was in
immediately prior to such taking (the "Condemnation Restoration"), (iii) the
Condemnation Restoration shall be done in compliance with all applicable laws,
rules and regulations, and, following the Condemnation Restoration, the Property
shall be permitted under all applicable zoning laws to be used for, and shall
continue to be used for, all purposes associated with multi-family residences,
(iv) a set of plans and specifications in connection with the Condemnation
Restoration shall be submitted to Lender and shall be satisfactory to Lender in
all respects, (v) Borrower shall have reimbursed Lender for all costs and
expenses incurred by Lender in connection with making the Net Award available
for the Condemnation Restoration of the Property, including, without limitation,
counsel fees, inspecting engineer fees and appraisal fees incurred by Lender,
(vi) rental loss proceeds are available to offset in full any loss in rents
throughout the Condemnation Restoration and a reasonable lease-up period
following the completion of the Condemnation Restoration, and (vii) in the
opinion of Lender the Condemnation Restoration of the Property can be completed
within one (1) year after the taking and at least one (1) year prior to the
maturity date of the Note.
(b) The Net Award shall be held in trust by Lender in the Net Awards
Account and shall be paid by Lender or a Depository designated by Lender to, or
as directed by, Borrower from time to time during the course of the Condemnation
Restoration, upon receipt of evidence satisfactory to Lender, that (i) all
materials installed and work and labor performed (except to the extent they are
to be paid for out of the requested payment) in connection with the Condemnation
Restoration have been paid for in full, (ii) there exist no notices of
intention, mechanics' or other liens or encumbrances on the Property arising out
of the Condemnation Restoration, and (iii) the balance of the Net Award plus the
balance of any deficiency deposits given by Borrower to Lender or Depositary
pursuant to the provisions of this paragraph hereinafter set forth shall be
sufficient to pay in full the balance of the cost of the Condemnation
Restoration.
(c) Notwithstanding anything to the contrary contained herein, Lender
shall not be obligated to make the Net Award available for the Condemnation
Restoration of the Property unless the principal balance of the Note after the
completion of the Condemnation Restoration (assuming the amount of the Net Award
received by Lender in excess of the cost of the Condemnation Restoration as
estimated by Lender is applied to the prepayment of the Note) will be sufficient
to cause (i) the Debt Service Coverage Ratio applicable to the Property
immediately following the Condemnation Restoration to be not less than 1.2 to
1.0 and (ii) in the event of any Condemnation Restoration involving Net Award of
more than $250,000.00, the ratio of (a) the then outstanding principal balance
of the Note to (b) the appraised value of the Property after completion of the
Condemnation Restoration (as determined by an independent third-party appraiser
holding an MAI designation and having a national practice and at least ten (10)
years real estate experience appraising properties of a similar nature and type
as the Property) to be equal to or less than the Minimum Loan to Value Ratio.
(d) Notwithstanding anything to the contrary contained herein, if the Net
Award shall be less than $50,000.00, only one such disbursement shall be
required upon the completion of the Condemnation Restoration to the satisfaction
of Lender. If the Net Award shall be $50,000.00 or more, Lender shall disburse
the Net Award as provided above, however, in no event shall Lender be required
to disburse such Net Award, or any portion thereof, more often than once every
thirty (30) days. If at any time the Net Award, or the undisbursed balance
thereof, shall not, in the opinion of Lender, be sufficient to pay in full the
balance of the cost of Condemnation Restoration, Borrower shall deposit such
deficiency with Lender or Depository before any further disbursement of the Net
Award shall be made.
(e) Notwithstanding anything to the contrary contained herein, any taking
by any public or quasi public authority through eminent domain or otherwise
(including but not limited to any transfer made in lieu of or in anticipation of
the exercise of such taking), Borrower shall continue to pay the Debt at the
time and in the manner provided for in the Note and in this Security Instrument
and the Debt shall not be reduced until any award or payment therefor shall have
been actually received and applied in accordance with this paragraph 6. Lender
shall not be limited to the interest paid on the award by the condemning
authority but shall be entitled to receive out of the award interest at the rate
or rates provided herein and in the Note.
(f) Any amount of the Net Award received by Lender and not required to be
disbursed for the Condemnation Restoration pursuant to the provisions of this
paragraph hereinabove set forth may be retained and applied by Lender to the
discharge of the Debt, whether or not then due and payable, in such priority and
proportions as Lender in its discretion shall deem proper. If the Property is
sold through foreclosure or otherwise prior to the receipt by Lender of such
award or payment, Lender shall have the right, whether or not a deficiency
judgment on the Note shall have been sought, recovered or denied, to receive
such award or payment or a portion thereof sufficient to pay the Debt, whichever
is less. Borrower shall file and prosecute its claim or claims for any such
award or payment in good faith and with due diligence and cause the same to be
collected and paid over to Lender, and Borrower hereby irrevocably authorizes
and empowers Lender, in the name of Borrower or otherwise, to collect and
receipt for any such award or payment and to file and prosecute such claim or
claims, and although it is hereby expressly agreed that the same shall not be
necessary in any event, Borrower shall upon demand of Lender make, execute and
deliver any and all assignments and other instruments sufficient for the purpose
of assigning any such award or payment to Lender, free and clear of any
encumbrances of any kind or nature whatsoever.
7. Leases and Rents. (a) Trustee and Lender are hereby granted and
assigned by Borrower the right to enter the Property for the purpose of
enforcing its interest in the Leases and the Rents, this Security Instrument
constituting a present, absolute assignment of the Leases and the Rents.
Nevertheless, subject to the terms of this paragraph 7, Lender grants to
Borrower a revocable license to operate and manage the Property and to collect
the Rents. Borrower shall hold the Rents, or a portion thereof sufficient to
discharge all current sums due on the Debt, for use in the payment of such sums.
Upon or at any time after an Event of Default, the license granted to Borrower
herein may be revoked by Lender, and Lender or Trustee may enter upon the
Property, and collect, retain and apply the Rents toward payment of the Debt in
such priority and proportions as Lender in its discretion shall deem proper.
(b) All Leases shall be written on the standard form of lease which has
been approved by Lender. Upon written request from Lender, Borrower shall
furnish Lender with executed copies of all Leases and all modifications thereto
as soon as may be practicable. No material changes may be made to the Lender-
approved standard forms except as may be required by applicable law. In
addition, all renewals of Leases and all proposed leases shall provide for
rental rates comparable to existing local market rates and shall be arms-length
transactions. Borrower shall not enter into any lease having a term of more
than three (3) years. All Leases shall provide that they are subordinate to
this Security Instrument and that the lessee agrees to attorn to Lender.
Borrower (i) shall observe and perform all the obligations imposed upon the
lessor under the Leases and shall not do or permit to be done anything to impair
the value of the Leases as security for the Debt; (ii) shall enforce all of the
terms, covenants and conditions contained in the Leases upon the part of the
lessee thereunder to be observed or performed; (iii) shall not collect any of
the Rents more than one (1) month in advance; (iv) shall not execute any other
assignment of lessor's interest in the Leases or the Rents; (v) shall not
materially alter, modify or change the terms of the Leases, or cancel or
terminate the Leases or accept a surrender thereof or convey or transfer or
suffer or permit a conveyance or transfer of the Premises or of any interest
therein so as to effect a merger of the estates and rights of, or a termination
or diminution of the obligations of, lessees thereunder, except that Borrower
may terminate any Lease in exercising its rights as landlord thereunder upon a
default by the tenant under said Lease; (vi) shall not alter, modify or change
the terms of any guaranty of the Leases or cancel or terminate such guaranty;
(vii) shall not consent to any assignment of or subletting under the Leases not
in accordance with their terms; and (viii) shall execute and deliver all such
further assurances, confirmations and assignments in connection with the
Property as Lender shall from time to time require.
8. Maintenance of Property. (a) Borrower shall cause the Property to be
maintained in a good and safe condition and repair. The Improvements and the
Equipment shall not be removed, demolished or materially altered (except for
normal replacement of the Equipment). Borrower shall promptly comply with all
laws, orders and ordinances affecting the Property, or the use thereof.
Borrower shall promptly repair, replace or rebuild any part of the Property
which may be destroyed by any casualty, or become damaged, worn or dilapidated
or which may be affected by any proceeding of the character referred to in
paragraph 6 hereof and shall complete and pay for any structure at any time in
the process of construction or repair on the Premises. Borrower shall not
initiate, join in, acquiesce in, or consent to any change in any private
restrictive covenant, zoning law or other public or private restriction,
limiting or otherwise changing the uses which may be made of the Property or any
part thereof. If under applicable zoning provisions the use of all or any
portion of the Property is or shall become a nonconforming use, Borrower will
not cause or permit such nonconforming use to be discontinued or abandoned
without the express written consent of Lender.
(b) Borrower hereby represents that all inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Property and with respect to the use and occupancy of the same, including
but not limited to, certificates of occupancy and fire underwriter certificates,
have been made by or obtained from the appropriate governmental authorities.
Borrower hereby represents, warrants and covenants that it has obtained and will
maintain all permits and licenses required to operate the Property as a multi-
family residential development. Borrower has and shall continue to comply in
all material respects with and make all payments required under all laws,
ordinances, regulations, covenants, conditions and restrictions now or hereafter
affecting the Property or any part thereof or the business or the activity
conducted thereon. Borrower will not commit, suffer, permit or allow any act to
be done in or upon the Property in violation of any law, ordinance or
regulation. Borrower is in material compliance and shall continue to comply in
all material respects with all existing and future requirements of all
governmental authorities having jurisdiction over the Property.
9. Transfer or Encumbrance of the Property. (a) Borrower acknowledges
that Lender has examined and relied on the creditworthiness of Borrower and the
experience of Borrower in owning properties such as the Property in agreeing to
make the loan secured hereby, and that Lender will continue to rely on
Borrower's ownership of the Property as a means of maintaining the value of the
Property as security for repayment of the Debt. Borrower acknowledges that
Lender has a valid interest in maintaining the value of the Property so as to
ensure that, should Borrower default in the repayment of the Debt, Lender can
recover the Debt by a sale of the Property. Except as otherwise provided in
subparagraph 9(c) hereof, Borrower shall not sell, convey, alien, mortgage,
encumber, pledge or otherwise transfer the Property or any part thereof, or
permit the Property or any part thereof to be sold, conveyed, aliened,
mortgaged, encumbered, pledged or otherwise transferred.
(b) A sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer within the meaning of this paragraph 9 shall be deemed to include (i)
an installment sales agreement wherein Borrower agrees to sell the Property or
any part thereof for a price to be paid in installments; (ii) an agreement by
Borrower leasing all or a substantial part of the Property for other than actual
occupancy by a space tenant thereunder or a sale, assignment or other transfer
of, or the grant of a security interest in, Borrower's right, title and interest
in and to any Leases or any Rents; (iii) if Borrower or any general partner or
managing member of Borrower is a corporation, the voluntary or involuntary sale,
conveyance or transfer of such corporation's stock or the creation or issuance
of new stock by which an aggregate of more than 49% of such corporation's stock
shall be vested in a party or parties who are not now stockholders, except for
any sale, conveyance or transfer of such corporation's stock to an Affiliate
provided Lender shall have received prior written notice of such transfer; (iv)
if Borrower or any general partner or managing member of Borrower is a limited
or general partnership or joint venture, the change, removal or resignation of a
general partner or managing partner or the transfer of the partnership interest
of any general partner or managing partner, except for any transfer of such
partnership interest to an Affiliate, and excluding the removal or resignation
of any non Affiliate or non managing general partner where the managing general
partner shall remain following such removal or resignation, provided, in either
case, Lender shall have received prior written notice of such transfer
resignation or removal; (v) if Borrower or any Guarantor or any general partner
or managing member of Borrower or any Guarantor is a limited liability company,
the change, removal or resignation of the managing member of such company, or
the transfer or pledge of the membership interest of the managing member of such
company or any profits or proceeds relating to such membership interest or the
transfer of more than 49% in the aggregate of any membership interests in such
company whether in one transfer or a series of transfers, except for any
transfer of membership interests to an Affiliate, provided Lender shall have
received prior written notice of such transfer, resignation or removal; (vi) any
transfer of any interest by the Manager (hereinafter defined) other than as
permitted under paragraph 53; and (vii) any transfer of the beneficial interest
of any Borrower in any trust holding legal title to the Property.
(c) Notwithstanding anything to the contrary contained herein:
(i) Upon sixty (60) days prior written notice to Lender, the
Borrower shall have the limited right to transfer legal title to the
Property to a Single Purpose Entity Transferee (hereinafter defined)
provided (a) such Single Purpose Entity Transferee assumes all of the
obligations of the Borrower under this Security Instrument, the Note
and the Other Security Documents in a manner satisfactory to Lender in
all respects, including, without limitation, by entering into an
assumption agreement with Borrower and Lender in form and substance
reasonably satisfactory to Lender (an "Assumption Agreement"), (b) the
Single Purpose Entity Transferee shall have been newly formed
exclusively and solely for the purpose of owning and operating the
Property and shall have been engaged in no other business activities
prior to the transfer of title to such Single Purpose Entity
Transferee and must be a "United States person" as defined by Section
7701(a)(30) of the United States Internal Revenue Code of 1986, as
amended, (c) the Single Purpose Entity Transferee or the management
agent it employs to manage the Property shall have Adequate Real
Estate Experience (hereinafter defined), (d) the Single Purpose Entity
Transferee shall deliver to Lender evidence of the fulfillment of the
requirements of subsection (b) above, (e) the Single Purpose Entity
Transferee shall deliver any and all organizational documentation
requested by Lender, which documentation shall be reasonably
satisfactory to Lender in all respects, and shall deliver an opinion
of counsel of the Single Purpose Entity Transferee covering the
Assumption Agreement in form and substance similar to the due
execution, delivery and enforcement opinions delivered by counsel to
Borrower in connection with the execution of this Security Instrument,
(f) the Single Purpose Entity Transferee shall deliver any
certificates and opinions of counsel, enter into agreements and
covenants, or cause each of its general partners (or any other
principal thereof) to deliver certificates, enter into agreements and
covenants, which certificates, agreements, opinions of counsel and
covenants shall be similar in nature to those delivered, executed and
made by Borrower or any general partner of Borrower in connection with
the execution of this Security Instrument or the Securitization
(hereinafter defined) relating to the single purpose nature of the
Single Purpose Entity Transferee or otherwise, and (g) Borrower shall
deliver, at its sole cost and expense, an endorsement to the existing
title policy insuring the Security Instrument as modified by the
Assumption Agreement as a valid first lien on the Property, naming the
Single Purpose Entity Transferee as owner of the fee estate of the
Property, which endorsement shall insure that, as of the date of the
recording of the Assumption Agreement, the Property shall not be
subject to any additional exceptions or liens other than those
contained in the original title policy insuring the lien of this
Security Instrument and delivered in connection with the execution of
this Security Instrument. Any and all reasonable costs incurred in
connection with the above (including Lender's counsel's fees and
disbursements and expenses and all recording fees, mortgage or
intangible taxes, and title insurance premiums), shall be paid by
Borrower. Lender shall respond to Borrower's request to transfer
legal title to the Property within thirty (30) days of delivery of all
of the information required by subsections (a)-(g) above. The failure
of Lender to respond to such request shall not be deemed consent to
the transfer.
For purposes of this Security Instrument, the term "Adequate Real
Estate Experience" shall mean an entity which manages first class
multi-family residences of a type and size similar to the Property,
and which manages in the aggregate no less than 1,000 residential
units at the time of such transfer.
The term "Single Purpose Entity Transferee" shall mean an entity that:
A. shall not own any asset other than the Property;
B. shall not engage in any business other than those necessary for
the ownership, management or operation of the Property and any
such business transactions with any general partner, principal or
affiliate of the Single Purpose Entity Transferee or any
affiliate of the general partner of the Single Purpose Entity
Transferee shall be entered into upon terms and conditions that
are intrinsically fair and substantially similar to those that
would be available on an arms-length basis with third parties
other than an affiliate of the Single Purpose Entity Transferee
or the general partner or an affiliate of the general partner of
the Single Purpose Entity Transferee;
C. shall not incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than
the Debt, any Affiliate Advance (hereinafter defined) and the
Subordinate Debt (the "Subordinate Debt"), as defined in that
certain Subordination Agreement dated as of the date hereof
between Lender and IFSE Holding Co., L.L.C.;
D. shall not make any loans or advances to any third party
(including any affiliates of such Single Purpose Entity
Transferee or the general partner or managing member or an
affiliate of the general partner or managing member of such
Single Purpose Entity Transferee);
E. shall be solvent and pay its debts from its assets as the same
become due;
F. shall do or cause to be done all things necessary to preserve its
existence, and shall not amend, modify or otherwise change its
partnership certificate, partnership agreement, articles of
incorporation or by-laws in a manner which adversely affects such
Single Purpose Entity Transferee's existence as a single purpose
entity;
G. shall maintain books and records and bank accounts separate from
those of its affiliates, including its general partners;
H. shall be, and at all times shall hold itself out to the public
as, a legal entity separate and distinct from any other entity
(including any affiliate thereof, including the general partner
or any affiliate of the general partner of such Single Purpose
Entity Transferee);
I. shall file its own tax returns;
J. shall maintain adequate capital for the normal obligations
reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations;
K. shall not seek the dissolution or winding up, in whole or in
part, of the Single Purpose Entity Transferee or voluntarily
file, or consent to the filing of, a petition for bankruptcy,
reorganization, assignment for the benefit of creditors or
similar proceeding; and
L. shall not commingle its funds or other assets with any other
person or entity.
The term "Affiliate Advance" shall mean and be limited to a payment made by
an Affiliate to a third party on behalf of Borrower, the repayment of which
remains an unsecured obligation of the Borrower, provided: (i) such payment
shall have been made by the Affiliate to enable the Borrower to pay for its
ordinary and customary operating expenses or property or capital expense
(exclusive of any payments of debt service under any loan made to Borrower,
including, without limitation, the Debt secured by this Security Instrument),
(ii) upon an Event of Default under the Note, this Security Instrument or the
Other Security Documents, no payments of or accrual of interest or principal
shall be made or required on or before the repayment of all sums due under the
Note, this Security Instrument or the Other Security Documents, and (iii) the
obligation of Borrower, whether written or otherwise, shall be (a) subordinate
in lien and payment to the Debt, (b) non-defaultable and non-callable upon a
default (monetary or nonmonetary) or otherwise, prior to one year and a day from
the repayment of all sums due under the Note, this Security Instrument or the
Other Security Documents and (c) unsecured obligation of Borrower at all times.
(ii) [INTENTIONALLY OMITTED]
(iii) Borrower may sell, convey or transfer stock, partnership or
membership interest as described in subsections 9(b)(iii), (iv)
and (v) hereof in the Borrower or a general partner or managing
member of Borrower (but not by any subsequent Single Purpose
Entity Transferee), provided that:
1. No Event of Default shall have occurred and be continuing;
2. The Single Purpose Entity Transferee shall be a person, firm or
corporation whose character, financial strength, stability and
experience shall be similar to the existing Borrower and any
general partner of Borrower as of the date hereof and otherwise
reasonably satisfactory to Lender;
3. The Single Purpose Entity Transferee shall deliver such
organizational documentation and other material necessary to
establish the transfer; and
4. The Single Purpose Entity Transferee shall pay the costs and
expenses of Lender and Lender's counsel incurred in connection
with the review and approval of such stock, partnership or
membership transfer.
The term "Affiliate" shall mean a corporation or other entity which shall
(i) control, (ii) be controlled by, or (iii) be under common control with either
Borrower, any general partner of Borrower, Insignia Financial Group, Inc. or a
corporation or other entity that would be considered an affiliate of Borrower or
Insignia Financial Group, Inc. under the regulations promulgated by the United
States Securities and Exchange Commission.
The term "Debt Service Coverage Ratio" shall mean the ratio of (a) the NOI
(hereinafter defined) produced by the operation of the Property during the
twelve (12) calendar month period immediately preceding the calculation to (b)
the projected aggregate payments of interest and principal due under this
Security Instrument and the Note and any other subordinate loans affecting the
Property for the twelve (12) calendar month period immediately following the
calculation.
The term "Expenses" shall mean the aggregate of the following items: (a)
real estate taxes, general and special assessments or similar charges; (b)
sales, use and personal property taxes; (c) management fees and disbursements;
(d) wages, salaries, pension costs and all fringe and other employee-related
benefits and expenses; (e) insurance premiums; (f) cost of utilities, and all
other administrative, management, ownership, operating, leasing and maintenance
expenses, excluding depreciation and other non-cash expenses incurred in
connection with the operation of the Property; (g) cost of necessary repair or
replacement of existing improvements on the Property with repairs or
replacements of like kind and quantity or such kind or quality which is
necessary to maintain the Property to the same standards as competitive rental
properties of similar size and location of the Property; and (h) the cost of
such other maintenance materials, HVAC repairs, parts and supplies, other
decorating supplies, floor covering repairs, other decorating contracts, drapes
and equipment. The Expenses shall be based on the above-described items
actually incurred by Borrower during the period for which the calculation is
being made.
The term "general partner" shall include the sole member or the managing
member of Borrower or a general partner of Borrower if Borrower or any general
partner of Borrower is a limited liability company.
The term "NOI" shall mean the gross income derived from the operation of
the Property, less Expenses. NOI shall include only Rents, and such other
income, including any rent loss or business interruption insurance proceeds,
vending income, pet charges, late fees, forfeited security deposits and other
miscellaneous tenant charges, which are actually received during the period for
which the NOI is being calculated. NOI shall be calculated on a cash basis in
accordance with customary accounting principles applicable to real estate.
(d) Lender reserves the right to condition the consent required hereunder
upon such other conditions as Lender shall determine in its reasonable
discretion to be in the interest of Lender. Lender shall not be required to
demonstrate any actual impairment of its security or any increased risk of
default hereunder in order to declare the Debt immediately due and payable upon
Borrower's sale, conveyance, alienation, mortgage, encumbrance, pledge or
transfer of the Property in violation of this Security Instrument without
Lender's consent. This provision shall apply to every sale, conveyance,
alienation, mortgage, encumbrance, pledge or transfer of the Property regardless
of whether voluntary or not, or whether or not Lender has consented to any
previous sale, conveyance, alienation, mortgage, encumbrance, pledge or transfer
of the Property.
10. Estoppel Certificates. (a) After request by Lender, Borrower, within
ten (10) days, shall furnish Lender with a statement, duly acknowledged and
certified, setting forth (i) the amount of the original principal amount of the
Note, (ii) the unpaid principal amount of the Note, (iii) the rate of interest
of the Note, (iv) the date installments of interest and/or principal were last
paid, (v) any offsets or defenses to the payment of the Debt, if any, and (vi)
that the Note and this Security Instrument are valid, legal and binding obliga-
tions and have not been modified or if modified, giving particulars of such
modification.
11. Changes in the Laws Regarding Taxation. If any law is enacted or
adopted or amended after the date of this Security Instrument which deducts the
Debt from the value of the Property for the purpose of taxation or which imposes
a tax, either directly or indirectly, on the Debt or Lender's interest in the
Property, Borrower will pay such tax, with interest and penalties thereon, if
any. In the event Lender is advised by counsel chosen by it that the payment of
such tax or interest and penalties by Borrower would be unlawful or taxable to
Lender or unenforceable or provide the basis for a defense of usury, then in any
such event, Lender shall have the option, by written notice of not less than
ninety (90) days, to declare the Debt immediately due and payable.
12. No Credits on Account of the Debt. Borrower will not claim or demand
or be entitled to any credit or credits on account of the Debt for any part of
the Taxes or Other Charges assessed against the Property, or any part thereof,
and no deduction shall otherwise be made or claimed from the assessed value of
the Property, or any part thereof, for real estate tax purposes by reason of
this Security Instrument or the Debt. In the event such claim, credit or
deduction shall be required by law, Lender shall have the option, by written
notice of not less than ninety (90) days, to declare the Debt immediately due
and payable.
13. Documentary Stamps. If at any time the United States of America, any
State thereof or any subdivision of any such State shall require revenue or
other stamps to be affixed to the Note or this Security Instrument, or impose
any other tax or charge on the same, Borrower will pay for the same, with
interest and penalties thereon, if any.
14. Usury Laws. This Security Instrument and the Note are subject to the
express condition that at no time shall Borrower be obligated or required to pay
interest on the Debt at a rate which could subject the holder of the Note to
either civil or criminal liability as a result of being in excess of the maximum
interest rate which Borrower is permitted by applicable law to contract or agree
to pay. If by the terms of this Security Instrument or the Note, Borrower is at
any time required or obligated to pay interest on the Debt at a rate in excess
of such maximum rate, the rate of interest under the same shall be deemed to be
immediately reduced to such maximum rate and the interest payable shall be
computed at such maximum rate and all prior interest payments in excess of such
maximum rate shall be applied and shall be deemed to have been payments in
reduction of the principal balance of the Note.
15. Books and Records. Borrower shall keep adequate books and records of
account which accurately reflect the operations of, and income and expenses
attributable to, the Property and furnish to Lender the following statements,
all of which shall be in form and substance acceptable to Lender:
(i) a quarterly and annual, or as more frequently requested by Lender
or by the rating agencies in connection with securities issued in
connection with the loan secured hereby, occupancy statement
listing each and every Lease, identifying the leased premises,
names of all tenants, monthly rental and all other charges
payable under the Lease, date to which paid, date of occupancy,
date of expiration, any and every special provision, concession
or inducement granted to tenants and such other information as is
reasonably requested by Lender, signed, dated and certified as
true and accurate by the general partner of Borrower and
Borrower;
(ii) an annual operating statement of the operation of the Property in
a form pre-approved by Lender and otherwise satisfactory to
Lender, showing in reasonable detail total revenues received and
total expenses, prepared and certified by the general partner of
Borrower and Borrower;
(iii) an annual balance sheet and profit and loss statement of
Borrower, prepared and certified by the general partner of
Borrower and Borrower within ninety (90) days after the close of
each fiscal year; and
(iv) such annual and monthly (including, without limitation, with
respect to the Reserve Account and the Capital Improvements
Account) balance sheets and profit and loss statements and other
financial statements as may, from time to time, be required by
Lender.
16. Performance of Other Agreements. Borrower shall observe and perform
each and every term to be observed or performed by Borrower pursuant to the
terms of any agreement or recorded instrument affecting or pertaining to the
Property.
17. Further Acts, etc. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, deeds, conveyances, mortgages, assignments, notices of
assignments, transfers and assurances as Lender shall, from time to time,
require, for the better assuring, conveying, assigning, transferring, and
confirming unto Lender the property and rights hereby mortgaged, given, granted,
bargained, sold, aliened, enfeoffed, conveyed, confirmed, pledged, assigned and
hypothecated or intended now or hereafter so to be, or which Borrower may be or
may hereafter become bound to convey or assign to Lender, or for carrying out
the intention or facilitating the performance of the terms of this Security
Instrument or for filing, registering or recording this Security Instrument.
Borrower on demand, will execute and deliver and hereby authorizes Lender to
execute in the name of Borrower or without the signature of Borrower to the
extent Lender may lawfully do so, one or more financing statements, chattel
mortgages or other instruments, to evidence more effectively the security
interest of Lender in the Property. Borrower grants to Lender an irrevocable
power of attorney coupled with an interest for the purpose of perfecting any and
all rights and remedies available to Lender at law and in equity pursuant to the
terms of the Note, this Security Instrument or the Other Security Documents,
including without limitation such rights and remedies available to Lender
pursuant to this paragraph 17.
18. Recording of Security Instrument, etc. Borrower forthwith upon the
execution and delivery of this Security Instrument and thereafter, from time to
time, will cause this Security Instrument, and any security instrument creating
a lien or security interest or evidencing the lien hereof upon the Property and
each instrument of further assurance to be filed, registered or recorded in such
manner and in such places as may be required by any present or future law in
order to publish notice of and fully to protect the lien or security interest
hereof upon, and the interest of Lender in, the Property. Borrower will pay all
filing, registration or recording fees, and all expenses incident to the
preparation, execution and acknowledgment of this Security Instrument, any
mortgage supplemental hereto, any security instrument with respect to the
Property and any instrument of further assurance, and all federal, state, county
and municipal, taxes, duties, imposts, assessments and charges arising out of or
in connection with the execution and delivery of this Security Instrument, any
mortgage supplemental hereto, any security instrument with respect to the
Property or any instrument of further assurance, except where prohibited by law
so to do. Borrower shall hold harmless and indemnify Lender, its successors and
assigns, against any liability incurred by reason of the imposition of any tax
on the making and recording of this Security Instrument.
19. Prepayment. If permitted by the Note, the Debt may be prepaid in
accordance with the terms thereof.
20. Events of Default. The Lender may declare the Debt immediately due
and payable upon any one or more of the following events ("Event of Default"):
(a) if any portion of the Debt is not paid within ten (10) days after
written notice is delivered by the Lender notifying Borrower that the
same is overdue;
(b) except as otherwise provided in paragraph 4 hereof, if any of the
Taxes or Other Charges is not paid when the same is due and payable;
(c) if the Policies are not kept in full force and effect, or if the
Policies (or duplicate originals thereof) are not delivered to Lender
upon request;
(d) if Borrower violates or does not comply with any of the provi-
sions of paragraphs 7, 9, 34, 35 or 55 hereof;
(e) if any representation or warranty of Borrower made herein or in
any certificate, report, financial statement or other instrument or
document furnished to Lender shall have been false or misleading in
any material respect when made;
(f) if Borrower shall make an assignment for the benefit of creditors
or if Borrower shall generally not be paying its debts as they become
due;
(g) if a receiver, liquidator or trustee of Borrower shall be
appointed or if Borrower shall be adjudicated a bankrupt or insolvent,
or if any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state
law, shall be filed by or against, consented to, or acquiesced in by,
Borrower or if any proceeding for the dissolution or liquidation of
Borrower shall be instituted; however, if such appointment, adjudica-
tion, petition or proceeding was involuntary and not consented to by
Borrower, upon the same not being discharged, stayed or dismissed
within ninety (90) days;
(h) [INTENTIONALLY OMITTED]
(i) if Borrower shall be in default under any other mortgage or
security agreement covering any part of the Property whether it be
superior or junior in lien to this Security Instrument;
(j) if the Property becomes subject to any mechanic's, materialman's
or other lien other than a lien for local real estate taxes and
assessments not then due and payable and such lien shall remain
undischarged of record (by payment, bonding or otherwise) on the
earlier of (i) forty-five (45) days after Borrower shall have notice
(written or oral) of such lien or (ii) following a judgment in favor
of the holder of such lien, one week prior to the date on which such
lien may be foreclosed;
(k) if Borrower fails to cure promptly any violations of laws or
ordinances affecting or which may be interpreted to affect the
Property; provided, however, after prior written notice to Lender,
Borrower, at its own expense, may contest by appropriate legal
proceeding, promptly initiated and conducted in good faith and with
due diligence, the validity or application of any building, fire or
zoning law or ordinance affecting the Property provided that (i) no
other Event of Default exists under the Note, this Security
Instrument, or the Other Security Documents, (ii) such proceeding
shall be permitted under and be conducted in accordance with the
provisions of any other instrument to which Borrower is subject and
shall not constitute a default thereunder, (iii) neither the Property
nor any part thereof or interest therein will be in danger of being
sold, forfeited, terminated, canceled or lost, and (iv) if by the
terms of such law or ordinance, compliance therewith pending the
prosecution of any such proceeding may legally be delayed without
incurring any lien, charge or liability of any kind against the
Property, or any part thereof, and without subjecting the Borrower or
the Lender to any liability, civil or criminal, for failure to comply
therewith; or
(l) if Borrower shall continue to be in default under any of the
other terms, covenants or conditions of the Note, this Security
Instrument or the Other Security Documents for five (5) days after
notice from Lender in the case of any default which can be cured by
the payment of a sum of money or for thirty (30) days after notice
from Lender in the case of any other default, provided that if such
default cannot reasonably be cured within such thirty (30) day period
and Borrower shall have commenced to cure such default within such
thirty (30) day period and thereafter diligently and expeditiously
proceeds to cure the same, such thirty (30) day period shall be
extended for so long as it shall require Borrower in the exercise of
due diligence to cure such default, it being agreed that no such
extension shall be for a period in excess of ninety (90) days.
21. Remedies of Lender/Application of Proceeds. (a) Upon the occurrence
of an Event of Default, (a) Borrower will pay, from the date of that Event of
Default, interest on the unpaid principal balance of the Note at the rate of (i)
the greater of (A) five percent (5%) over the Applicable Interest Rate (as
defined in the Note) due under the Note and (B) two percent (2%) over the Prime
Rate (hereinafter defined) as the same shall change from time to time or (ii) at
the maximum interest rate which Borrower may by law pay, whichever is lower,
(the "Default Rate") and (b) Lender shall have the right to exercise any and all
rights and remedies available at law and in equity. The term "Prime Rate" shall
mean the daily "Prime Rate" published in The Wall Street Journal from the date
of the default, as such "Prime Rate" shall change from time to time. In the
event The Wall Street Journal ceases to publish the prime rate or in the event
such prime rates are no longer generally published or are limited, regulated or
administered by a governmental or quasi-governmental body, a comparable interest
rate index shall be substituted therefor by Lender.
(b) The purchase money, proceeds and avails of any disposition of the
Property, or any part thereof, pursuant to paragraph 22 of this Security
Instrument or any other sums collected by Lender pursuant to the Note, this
Security Instrument or the Other Security Documents, may be applied by Lender to
the payment of the Debt in such priority and proportions as Lender in its
discretion shall deem proper.
22. Sale of Property. (a) If this Security Instrument is foreclosed or
if the Property is sold pursuant to the exercise of a power of sale, the
Property, or any interest therein, may at the discretion of Lender, be sold in
one or more parcels or in several interests or portions and in any order or
manner.
(b) In addition, Borrower hereby vests Lender with full power and
authority, upon the happening of an Event of Default, at Lender's option, to
declare the entire Debt to be immediately due and payable, and at Lender's
option, to take possession of the Property if and to the extent allowed by law,
and to sell the Property to the highest bidder at public auction in front of the
courthouse door in the county or counties, as may be required, where the
Property is located, either in person or by auctioneer, after having first given
notice of the time, place and terms of sale, together with a description of the
property to be sold, by publication once a week for four (4) successive weeks
prior to said sale in some newspaper published in said county or counties, as
may be required, and, upon payment of the purchase money, Lender or any person
conducting the sale for Lender is authorized to execute to the purchaser at said
sale a deed to the Property so purchased. Lender may bid at said sale and
purchase the Property, or any part thereof, if the highest bidder therefor. At
the foreclosure sale the Property may be offered for sale and sold as a whole
without first offering it in any other manner or may be offered for sale and
sold in any other manner as Lender may elect. The proceeds of any foreclosure
sale pursuant to this paragraph shall be applied first, to the payment of the
costs of said sale, including reasonable attorney's and auctioneer's fees;
second, to the payment of the Debt hereby secured, whether due or not, with the
unpaid interest thereon to the date of sale, and any amount that may be due
Lender by virtue of any of the special liens or agreements herein contained;
and, third, the balance, if any, to be paid over to Borrower, or as may
otherwise be provided by law.
23. Right to Cure Defaults. Upon the occurrence of any Event of Default,
if Borrower fails to make any payment or perform any act as herein provided
Lender may, but without any obligation to do so and without notice to or demand
on Borrower and without releasing Borrower from any obligation hereunder, make
or do the same in such manner and to such extent as Lender may deem necessary to
protect the security hereof. Lender is authorized to enter upon the Property
for such purposes, or appear in, defend, or bring any action or proceeding
to protect its interest in the Property or to foreclose this Security Instrument
or collect the Debt, and the cost and expense thereof (including reasonable
attorneys' fees to the extent permitted by law), with interest as provided in
this paragraph 23, shall constitute a portion of the Debt and shall be due and
payable to Lender upon demand. All such costs and expenses incurred by Lender
in remedying such Event of Default or in appearing in, defending, or bringing
any such action or proceeding shall bear interest at the Default Rate, for the
period after notice from Lender that such cost or expense was incurred to the
date of payment to Lender. All such costs and expenses incurred by Lender
together with interest thereon calculated at the Default Rate shall be deemed to
constitute a portion of the Debt and be secured by this Security Instrument and
the Other Security Documents and shall be immediately due and payable upon
demand by Lender therefor.
24. Late Payment Charge. If any portion of the Debt is not received by
Lender within five (5) days of the date on which it is due without taking into
account any applicable notice or grace period, Borrower shall pay to Lender upon
demand an amount equal to the lesser of five percent (5%) of such unpaid portion
of the Debt or the maximum amount permitted by applicable law, to defray the
expense incurred by Lender in handling and processing such delinquent payment
and to compensate Lender for the loss of the use of such delinquent payment, and
such amount shall be secured by this Security Instrument and the Other Security
Documents.
25. Prepayment After Event of Default. If following the occurrence of any
Event of Default, Borrower shall tender payment of an amount sufficient to
satisfy the Debt in whole or in part at any time prior to a foreclosure sale of
the Property, or a sale of the Property pursuant to the exercise of a power of
sale, such tender shall be deemed to be a voluntary prepayment of the principal
balance of the Note and Borrower shall, in addition to the entire Debt, also pay
to Lender a sum equal to the interest which would have accrued on the principal
balance of the Note at the Applicable Interest Rate as defined in the Note from
the date of such tender to the earlier of (i) the Maturity Date as defined in
the Note or to (ii) the first day of the period during which prepayment of the
principal balance of the Note would have been permitted together with a
prepayment consideration equal to the prepayment consideration which would have
been payable as of the first day of the period during which prepayment would
have been permitted. If at the time of such tender prepayment of the principal
balance of the Note is permitted, such tender by Borrower shall be deemed to be
a voluntary prepayment of the principal balance of the Note, and Borrower shall,
in addition to the entire Debt, also pay to Lender the applicable prepayment
consideration specified in the Note and this Security Instrument, if any.
26. Right of Entry. Lender and its agents shall have the right to enter
and inspect the Property at all reasonable times.
27. Appointment of Receiver. The holder of this Security Instrument, upon
the occurrence of an Event of Default or in any action to foreclose this
Security Instrument or upon the actual or threatened waste to any part of the
Property, shall be entitled to the appointment of a receiver without notice and
without regard to the value of the Property as security for the Debt, or the
solvency or insolvency of any person liable for the payment of the Debt.
28. Reasonable Use and Occupancy. In addition to the rights which Lender
may have herein, upon the occurrence of any Event of Default, Lender, at its
option, may require Borrower to pay monthly in advance to Lender, or any
receiver appointed to collect the Rents, the fair and reasonable rental value
for the use and occupation of such part of the Property as may be occupied by
Borrower or may require Borrower to vacate and surrender possession of the
Property to Lender or to such receiver and, in default thereof, Borrower may be
evicted by summary proceedings or otherwise.
29. Security Agreement. This Security Instrument is both a real property
deed of trust and a "security agreement" within the meaning of the Uniform
Commercial Code. The Property includes both real and personal property and all
other rights and interests, whether tangible or intangible in nature, of
Borrower in the Property. Borrower by executing and delivering this Security
Instrument has granted and hereby grants to Lender, as security for the Debt, a
security interest in the Property to the full extent that the Property may be
subject to the Uniform Commercial Code (said portion of the Property so subject
to the Uniform Commercial Code being called in this paragraph 29 the
"Collateral"). If an Event of Default shall occur, Lender and Trustee, in
addition to any other rights and remedies which they may have, shall have and
may exercise immediately and without demand, any and all rights and remedies
granted to a secured party upon default under the Uniform Commercial Code,
including, without limiting the generality of the foregoing, the right to take
possession of the Collateral or any part thereof, and to take such other
measures as Lender may deem necessary for the care, protection and preservation
of the Collateral. Upon request or demand of Lender or Trustee, Borrower shall
at its expense assemble the Collateral and make it available to Lender and
Trustee at a convenient place acceptable to Lender. Borrower shall pay to
Lender and Trustee on demand any and all reasonable expenses, including legal
expenses and attorneys' fees, incurred or paid by Lender and Trustee in
protecting the interest in the Collateral and in enforcing the rights hereunder
with respect to the Collateral. Any notice of sale, disposition or other
intended action by Lender or Trustee with respect to the Collateral sent to
Borrower in accordance with the provisions hereof at least five (5) days prior
to such action, shall constitute commercially reasonable notice to Borrower
unless otherwise required by law. The proceeds of any disposition of the
Collateral, or any part thereof, may be applied by Lender to the payment of the
Debt in such priority and proportions as Lender in its discretion shall deem
proper.
30. Actions and Proceedings. Lender or Trustee has the right to appear in
and defend any action or proceeding brought with respect to the Property and to
bring any action or proceeding, in the name and on behalf of Borrower, which
Lender, in its discretion, decides should be brought to protect their interest
in the Property. Lender shall, at its option, be subrogated to the lien of any
deed of trust, mortgage or other security instrument discharged in whole or in
part by the Debt, and any such subrogation rights shall constitute additional
security for the payment of the Debt.
31. Waivers. Borrower hereby waives the right to assert a counterclaim,
other than a mandatory or compulsory counterclaim, in any action or proceeding
brought against it by Lender, and waives trial by jury in any action or
proceeding brought by either party hereto against the other or in any coun-
terclaim asserted by Lender against Borrower, or in any matters whatsoever
arising out of or in any way connected with this Security Instrument, the Note,
any of the Other Security Documents or the Debt.
32. Recovery of Sums Required To Be Paid. Lender shall have the right
from time to time to take action to recover any sum or sums which constitute a
part of the Debt as the same become due, without regard to whether or not the
balance of the Debt shall be due, and without prejudice to the right of Lender
or Trustee thereafter to bring an action of foreclosure, or to sell the Property
pursuant to the exercise of a power of sale, or to bring any other action, for a
default or defaults by Borrower existing at the time such earlier action was
commenced.
33. Marshalling and Other Matters. Borrower hereby waives, to the extent
permitted by law, the benefit of all appraisement, valuation, stay, extension,
reinstatement and redemption laws now or hereafter in force and all rights of
marshalling in the event of any sale hereunder of the Property or any part
thereof or any interest therein. Further, Borrower hereby expressly waives any
and all rights of redemption from sale under any order or decree of foreclosure
of this Security Instrument on behalf of Borrower, and on behalf of each and
every person acquiring any interest in or title to the Property subsequent to
the date of this Security Instrument and on behalf of all persons to the extent
permitted by applicable law.
34. Hazardous Materials. Borrower represents and warrants that, except as
otherwise disclosed in that certain environmental report delivered by Borrower
to Lender in connection with the origination of this Security Instrument (the
"Environmental Report"), to the best of Borrower's knowledge, after due inquiry
and investigation, (a) there are no Hazardous Materials (hereinafter defined) on
the Property, except those in compliance with all applicable federal, state and
local laws, ordinances, rules and regulations, and (b) no owner or occupant nor,
to the best of Borrower's knowledge, any prior owner or occupant of the Property
has received any notice or advice from any governmental agency or any source
whatsoever with respect to Hazardous Materials on, from or affecting the
Property. Borrower covenants that the Property shall be kept free of Hazardous
Materials, and neither Borrower nor any occupant of the Property shall use,
transport, store, dispose of or in any manner deal with Hazardous Materials on
the Property, except in compliance with all applicable federal, state and local
laws, ordinances, rules and regulations. Borrower shall comply with, and ensure
compliance by all occupants of the Property with, all applicable federal, state
and local laws, ordinances, rules and regulations, and shall keep the Property
free and clear of any liens imposed pursuant to such laws, ordinances, rules or
regulations. At any time after the occurrence of an Event of Default and the
continuance thereof, Lender may enter upon the Property and conduct such
environmental tests and studies as Lender shall require. The cost and expense
of such tests and studies shall be borne by Borrower and such amounts shall be
secured by this Security Instrument. In the event that Borrower receives any
notice or advice from any governmental agency or any source whatsoever with
respect to Hazardous Materials on, from or affecting the Property, Borrower
shall immediately notify Lender. Borrower shall conduct and complete all
investigations, studies, sampling, and testing, and all remedial actions neces-
sary to clean up and remove all Hazardous Materials from the Property in accor-
dance with all applicable federal, state, and local laws, ordinances, rules and
regulations. The term "Hazardous Materials" as used in this Security Instrument
shall include, without limitation, gasoline, petroleum products, explosives,
radioactive materials, polychlorinated biphenyls or related or similar
materials, or any other substance or material defined as a hazardous or toxic
substance or material by any federal, state or local law, ordinance, rule, or
regulation, but excluding Asbestos, as defined in paragraph 35 hereof. The
obligations and liabilities of Borrower under this paragraph 34 shall survive
any entry of a judgment of foreclosure, the sale of the Property pursuant to the
exercise of a power of sale, or the delivery of a deed in lieu of foreclosure of
this Security Instrument.
35. Asbestos. Borrower represents and warrants that, except as otherwise
disclosed in the Environmental Report, to the best of Borrower's knowledge,
after due inquiry and investigation, there is no asbestos or material containing
asbestos ("Asbestos") on the Property, and that no owner or occupant nor to the
best of Borrower's knowledge, any prior owner or occupant of the Property has
received any notice or advice from any governmental agency or any source
whatsoever with respect to Asbestos on, affecting or installed on the Property.
Borrower covenants that, except as otherwise disclosed in the Environmental
Report, the Property shall be kept free of Asbestos, and neither Borrower nor
any occupant of the Property shall install, or permit to be installed, Asbestos
on the Property. Borrower shall comply with, and ensure compliance by all
occupants of the Property with, all applicable federal, state and local laws,
ordinances, rules and regulations with respect to Asbestos, and shall keep the
Property free and clear of any liens imposed pursuant to such laws, ordinances,
rules or regulations. In the event that Borrower receives any notice or advice
from any governmental agency or any source whatsoever with respect to Asbestos
on, affecting or installed on the Property, Borrower shall immediately notify
Lender. Borrower shall conduct and complete all investigations, studies,
sampling, and testing, and all remedial actions necessary to manage and remove
all Asbestos from the Property in accordance with all applicable federal, state
and local laws, ordinances, rules and regulations. The obligations and
liabilities of Borrower under this paragraph 35 shall survive any entry of a
judgment of foreclosure, the sale of the Property pursuant to the exercise of a
power of sale, or delivery of a deed in lieu of foreclosure of this Security
Instrument.
36. Indemnification. Borrower shall protect, defend, indemnify and save
harmless Lender from and against all liabilities, obligations, claims, damages,
penalties, causes of action, costs and expenses (including without limitation
reasonable attorneys' fees and expenses), imposed upon or incurred by or
asserted against Lender (except any liability, obligation, claim, damage,
penalty, cause of action, cost or expense imposed upon or incurred by Lender by
reason of the gross negligence or willful misconduct of Lender) by reason of (a)
ownership of this Security Instrument, the Property or any interest therein
arising pursuant to the terms of this Security Instrument or receipt of any
Rents; (b) any accident, injury to or death of persons or loss of or damage to
property occurring in, on or about the Property or any part thereof or on the
adjoining sidewalks, curbs, adjacent property or adjacent parking areas, streets
or ways; (c) any use, nonuse or condition in, on or about the Property or any
part thereof or on the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (d) any failure on the part of Borrower to
perform or comply with any of the terms of this Security Instrument; (e)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Property or any part thereof; (f) the failure of any
person to file timely with the Internal Revenue Service an accurate Form 1099-B,
Statement for Recipients of Proceeds from Real Estate, Broker and Barter
Exchange Transactions, which may be required in connection with this Security
Instrument, or to supply a copy thereof in a timely fashion to the recipient of
the proceeds of the transaction in connection with which this Security
Instrument is made; (g) the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release, or threatened release of any Hazardous
Materials on, from, or affecting the Property or any other property or the
presence of Asbestos on the Property; (h) any personal injury (including
wrongful death) or property damage (real or personal) arising out of or related
to such Hazardous Materials or Asbestos; (i) any lawsuit brought or threatened,
settlement reached, or government order relating to such Hazardous Materials or
Asbestos; (j) the failure of Borrower to comply with the terms of the O&M Plan
(hereinafter defined); or (k) any violation of laws, orders, regulations,
requirements, or demands of government authorities, which are based upon or in
any way related to such Hazardous Materials or Asbestos including, without
limitation, the costs and expenses of any remedial action required by such
governmental authorities, attorney and consultant fees, investigation and
laboratory fees, court costs, and litigation expenses. Any amounts payable to
Lender by reason of the application of this paragraph 36 shall be secured by
this Security Instrument and shall become immediately due and payable upon
demand and shall bear interest at the Default Rate commencing on the tenth
(10th) day following such demand until paid. The obligations and liabilities of
Borrower under this paragraph 36 shall survive any termination, satisfaction,
assignment, entry of a judgment of foreclosure or delivery of a deed in lieu of
foreclosure of this Security Instrument.
37. Notices. All notices or other written communications hereunder shall
be deemed to have been properly given (i) upon delivery, if delivered in person
or by facsimile transmission with receipt acknowledged on a Business Day (or if
not on a Business Day, such notice will be deemed given on the next Business
Day) by the recipient thereof, (ii) one (1) Business Day (hereinafter defined)
after having been deposited for overnight delivery with any reputable overnight
courier service, or (iii) three (3) Business Days after having been deposited in
any post office or mail depository, postage prepaid, return receipt requested,
addressed as follows:
If to Borrower: VMS Apartment Portfolio Associates, II
c/o Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29601
Facsimile: (864) 239-1096
With a copy to: Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, South Carolina 29601
Attention: John Lines
Facsimile: (864) 239-1096
If to Lender: Lehman Brothers Holdings Inc.
Three World Financial Center
200 Vesey Street
New York, New York 10285
Attention: Manager, Commercial Contract Finance
Facsimile: (212) 528-6014
With a copy to: Thacher Proffitt & Wood
2 World Trade Center/40th Floor
New York, New York 10048
Attention: Mitchell G. Williams
Facsimile: (212) 912-7751
If to Trustee: Commonwealth Land Title Insurance Company
877 Ygnacio Valley Road #100
Walnut Creek, California 94596
Attention: Jack Babcock
Facsimile:
38. Authority. (a) Borrower (and the undersigned representative of
Borrower, if any) has full power, authority and legal right to execute this
Security Instrument, and to mortgage, give, grant, bargain, sell, alien,
enfeoff, convey, confirm, pledge, hypothecate, assign and grant a security
interest in the Property pursuant to the terms hereof and to keep and observe
all of the terms of this Security Instrument on Borrower's part to be performed.
(b) Borrower represents and warrants that Borrower is not a "foreign
person" within the meaning of 1445(f)(3) of the Internal Revenue Code of 1986,
as amended and the related Treasury Department regulations, including temporary
regulations.
39. Waiver of Notice. Borrower shall not be entitled to any notices of
any nature whatsoever from Lender and Trustee except with respect to matters for
which this Security Instrument specifically and expressly provides for the
giving of notice by Lender or Trustee to Borrower and except with respect to
matters for which Lender or Trustee is required by applicable law to give
notice, and Borrower hereby expressly waives the right to receive any notice
from Lender or Trustee with respect to any matter for which this Security
Instrument does not specifically and expressly provide for the giving of notice
by Lender or Trustee to Borrower.
40. Remedies of Borrower. In the event that a claim or adjudication is
made that Lender has acted unreasonably or unreasonably delayed acting in any
case where by law or under the Note, this Security Instrument or the Other
Security Documents, it has an obligation to act reasonably or promptly, Lender
shall not be liable for any monetary damages, and Borrower's remedies shall be
limited to injunctive relief or declaratory judgment.
41. Sole Discretion of Lender. Wherever pursuant to this Security
Instrument, Lender exercises any right given to it to approve or disapprove, or
any arrangement or term is to be satisfactory to Lender, the decision of Lender
to approve or disapprove or to decide that arrangements or terms are satis-
factory or not satisfactory shall be in the sole discretion of Lender, except as
may be otherwise expressly and specifically provided herein.
42. Non-Waiver. The failure of Lender or Trustee to insist upon strict
performance of any term hereof shall not be deemed to be a waiver of any term of
this Security Instrument. Borrower shall not be relieved of Borrower's
obligations hereunder by reason of (a) the failure of Lender or Trustee to
comply with any request of Borrower or Guarantors to take any action to
foreclose this Security Instrument or otherwise enforce any of the provisions
hereof or of the Note or the Other Security Documents, (b) the release,
regardless of consideration, of the whole or any part of the Property, or of any
person liable for the Debt or any portion thereof, or (c) any agreement or
stipulation by Lender extending the time of payment or otherwise modifying or
supplementing the terms of the Note, this Security Instrument or the Other
Security Documents. Lender may resort for the payment of the Debt to any other
security held by Lender in such order and manner as Lender, in its discretion,
may elect. Lender or Trustee may take action to recover the Debt, or any
portion thereof, or to enforce any covenant hereof without prejudice to the
right of Lender or Trustee thereafter to foreclose this Security Instrument.
The rights and remedies of Lender and Trustee under this Security Instrument
shall be separate, distinct and cumulative and none shall be given effect to the
exclusion of the others. No act of Lender or Trustee shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Lender and Trustee shall not be limited exclusively to the rights
and remedies herein stated but shall be entitled to every right and remedy now
or hereafter afforded at law or in equity.
43. No Oral Change. This Security Instrument, and any provisions hereof,
may not be modified, amended, waived, extended, changed, discharged or
terminated orally or by any act or failure to act on the part of Borrower or
Lender, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change, discharge
or termination is sought.
44. Liability. If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several. The foregoing sentence, however, is not intended to affect the limited
liability of any limited partner or stockholder or member of Borrower afforded
by applicable partnership or corporate law. This Security Instrument shall be
binding upon and inure to the benefit of Borrower and Lender and their
respective successors and assigns forever.
45. Inapplicable Provisions. If any term, covenant or condition of the
Note or this Security Instrument is held to be invalid, illegal or unenforceable
in any respect, the Note and this Security Instrument shall be construed without
such provision.
46. Headings, etc. The headings and captions of various paragraphs of
this Security Instrument are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
47. Duplicate Originals. This Security Instrument may be executed in any
number of duplicate originals and each such duplicate original shall be deemed
to be an original.
48. Definitions. Unless the context clearly indicates a contrary intent
or unless otherwise specifically provided herein, words used in this Security
Instrument may be used interchangeably in singular or plural form and the word
"Borrower" shall mean "each Borrower and any subsequent owner or owners of the
Property or any part thereof or any interest therein," the word "Lender" shall
mean "Lender and any subsequent holder of the Note," the word "Trustee" shall
mean "Trustee and any subsequent holder of this Security Instrument," the word
"Note" shall mean "the Note and any other evidence of indebtedness secured by
this Security Instrument," the word "person" shall include an individual,
corporation, partnership, trust, unincorporated association, government,
governmental authority, and any other entity, and the words "Property" shall
include any portion of the Property and any interest therein. Whenever the
context may require, any pronouns used herein shall include the corresponding
masculine, feminine or neuter forms, and the singular form of nouns and pronouns
shall include the plural and vice versa.
49. CHOICE OF LAW. THIS SECURITY INSTRUMENT SHALL BE DEEMED TO BE A
CONTRACT ENTERED INTO PURSUANT TO THE LAWS OF THE STATE OF NEW YORK AND SHALL IN
ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, PROVIDED HOWEVER, THAT WITH RESPECT TO THE
ATTACHMENT, CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OF THIS
SECURITY INSTRUMENT, THE LAWS OF THE STATE WHERE THE PROPERTY IS LOCATED SHALL
APPLY.
50. Exculpation. Lender shall not enforce the liability and obligation of
Borrower to perform and observe the obligations contained in the Note or this
Security Instrument by any action or proceeding wherein a money judgment shall
be sought against Borrower or any general or limited partner or member of
Borrower (hereafter collectively referred to as the "Exculpated Parties"),
except that Lender may bring a foreclosure action, action for specific
performance or other appropriate action or proceeding to enable Lender to
enforce and realize upon this Security Instrument, the Other Security Documents,
and the interest in the Property, the Rents and any other collateral given to
Lender created by this Security Instrument and the Other Security Documents;
provided, however, that any judgment in any such action or proceeding shall be
enforceable against the Exculpated Parties only to the extent of Borrower's
interest in the Property, in the Rents and in any other collateral given to
Lender. Lender, by accepting the Note and this Security Instrument, agrees that
it shall not sue for, seek or demand any deficiency judgment against the
Exculpated Parties in any such action or proceeding, under or by reason of or in
connection with the Note, the Other Security Documents or this Security
Instrument. The provisions of this paragraph shall not, however, (i) constitute
a waiver, release or impairment of any obligation evidenced or secured by the
Note, the Other Security Documents or this Security Instrument; (ii) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under this Security Instrument; (iii) affect the
validity or enforceability of any guaranty made in connection with the Note,
this Security Instrument, or the Other Security Documents; (iv) impair the right
of Lender to obtain the appointment of a receiver; (v) impair the enforcement of
the Assignment of Leases and Rents executed in connection herewith; (vi) impair
the right of Lender to bring suit with respect to fraud or intentional
misrepresentation by the Exculpated Parties or any other person or entity in
connection with the Note, this Security Instrument or the Other Security
Documents; (vii) impair the right of Lender to obtain the Rents received, and
not applied to the operating expenses of the Property, by any of the Exculpated
Parties after the occurrence of an Event of Default; (viii) impair the right of
Lender to bring suit with respect to the Exculpated Parties' misappropriation of
tenant security deposits or Rents collected in advance; (ix) impair the right of
Lender to obtain insurance proceeds or condemnation awards due to Lender under
this Security Instrument; (x) impair the right of Lender to enforce the
provisions of sub-paragraphs 36(g) through 36 (k), inclusive and paragraphs 34
and 35 of this Security Instrument against the Borrower (excluding any general
or limited partner or member thereof); or (xi) impair the right of Lender to
recover any part of the Debt from the Borrower (excluding the general and
limited partners and members of Borrower), following the breach of any covenant
contained in paragraph 9 or 55 hereof.
51. Intentionally Deleted.
52. Operations and Maintenance Plan. If required by Lender, Borrower
shall within thirty (30) days of the date hereof deliver to Lender an operation
and maintenance plan (the "O&M Plan") with respect to the maintenance or removal
of any asbestos, lead based paint, hazardous and toxic wastes and substances,
PCB's and storage tanks on the Property, which O&M Plan shall appoint an
"Program Manager" in charge of managing all asbestos-related activities on the
Property. Borrower shall (i) diligently perform and observe all of the terms,
covenants and conditions of the O&M Plan on the part of Borrower to be performed
and observed to the end that all things shall be done which are necessary to
keep unimpaired the rights of Borrower under the O&M Plan and (ii) promptly
notify Lender of the giving of any notice to Borrower of any default by the
Program Manager in the performance or observance of any of the terms, covenants
or conditions of the O&M Plan on the part of the Program Manager to be performed
and observed and deliver to Lender a true copy of each such notice. Lender
shall have the right to approve any O&M Plan which may affect the Property.
Lender's requirement that Borrower develop and comply with the O&M Plan shall
not be deemed to constitute a waiver or a modification of any of Borrower's
covenants and agreements with respect to paragraphs 34 or 35 hereof.
53. Management Agreements. The Improvements have been operated under
the terms and conditions of that certain management agreement entered into
between Borrower and the manager (the "Manager") set forth therein delivered to,
and approved by, Lender (hereinafter, together with any renewals or replacements
thereof, being referred to as the "Management Agreement"). Borrower
acknowledges that Lender has examined and relied on the Manager's experience in
operating properties such as the Property in agreeing to make the loan secured
hereby, and that Lender will continue to rely on the Manager's management of the
Property as a means of maintaining the value of the Property as security for
repayment of the Debt. Borrower shall (i) diligently perform and observe all of
the terms, covenants and conditions of the Management Agreement on the part of
Borrower to be performed and observed to the end that all things shall be done
which are necessary to keep unimpaired the rights of Borrower under the
Management Agreement and (ii) promptly notify Lender of the giving of any notice
to Borrower of any default by Borrower in the performance or observance of any
of the terms, covenants or conditions of the Management Agreement on the part of
Borrower to be performed and observed and deliver to Lender a true copy of each
such notice. Borrower shall not surrender the Management Agreement, consent to
the assignment by the Manager of its rights and obligations under the Management
Agreement, or terminate or cancel the Management Agreement or modify, change,
supplement, alter or amend the Management Agreement, in any respect, either
orally or in writing, and Borrower hereby assigns to Lender as further security
for the payment of the Debt and for the performance and observance of the terms,
covenants and conditions of this Security Instrument, all the rights, privileges
and prerogatives of Borrower to surrender the Management Agreement or to
terminate, cancel, modify, change, supplement, alter or amend the Management
Agreement in any respect, and any such surrender of the Management Agreement or
termination, cancellation, modification, change, supplement, alteration or
amendment of the Management Agreement without the prior consent of Lender shall
be void and of no force and effect, provided, however, that this provision shall
not limit the Manager's right to assign any or the Borrower's right to consent
to any assignment by Manager of any revenues deriving from the Management
Agreement. If Borrower shall default in the performance or observance of any
material term, covenant or condition of the Management Agreement on the part of
Borrower to be performed or observed, then, without limiting the generality of
the other provisions of this Security Instrument, and without waiving or
releasing Borrower from any of its obligations hereunder, Lender shall have the
right, but shall be under no obligation, to pay any sums and to perform any act
or take any action as may be appropriate to cause all the terms, covenants and
conditions of the Management Agreement on the part of Borrower to be performed
or observed to be promptly performed or observed on behalf of Borrower, to the
end that the rights of Borrower in, to and under the Management Agreement shall
be kept unimpaired and free from default. Lender and any person designated by
Lender shall have, and are hereby granted, the right to enter upon the Property
at any time and from time to time for the purpose of taking any such action. If
the Manager under the Management Agreement shall deliver to Lender a copy of any
notice sent to Borrower of default under the Management Agreement, such notice
shall constitute full protection to Lender for any action taken or omitted to be
taken by Lender in good faith, in reliance thereon. Borrower shall, from time
to time, use its best efforts to obtain from the Manager under the Management
Agreement such certificates of estoppel with respect to compliance by Borrower
with the terms of the Management Agreement as may be requested by Lender.
Borrower shall exercise each individual option, if any, to extend or renew the
term of the Management Agreement upon demand by Lender made at any time within
one (1) year of the last day upon which any such option may be exercised, and
Borrower hereby expressly authorizes and appoints Lender its attorney-in-fact to
exercise any such option in the name of and upon behalf of Borrower, which power
of attorney shall be irrevocable and shall be deemed to be coupled with an
interest.
Notwithstanding anything to the contrary contained herein, Borrower
may replace the Manager or accept the resignation of the Manager or consent to a
transfer by the Manager, provided:
(1) No Event of Default shall have occurred and be continuing;
(2) the new manager or holder of the stock or partnership
interest shall be a person, firm or corporation whose character,
financial strength, stability and experience shall be similar to the
existing Manager and otherwise have Adequate Real Estate Experience;
(3) the new manager shall deliver all organizational
documentation and other materials evidencing its Adequate Real Estate
Experience and otherwise be acceptable to Lender;
(4) the Borrower shall pay the reasonable costs and expenses of
Lender and Lender's counsel incurred in connection with the review and
approval of such new manager; and
(5) the terms of any new management agreement affecting the
Property must be acceptable to Lender in all respects, provided,
however, if the terms and conditions of the new management agreement
shall be substantially similar to the Management Agreement and the
management fee due thereunder is no greater than the fee provided in
the Management Agreement, such new management agreement shall be
deemed acceptable to Lender.
54. Rating Agencies. The term "Rating Agencies" shall mean any nationally
recognized rating agency(s) sought by Lender to obtain ratings with respect to
this Security Instrument or the Securitization (hereinafter defined). Lender
intends to, but is not required to, either (i) deposit this Security Instrument,
the Note and the Other Security Documents in a trust in exchange for the
issuance, to or at the direction of the Lender, of multiple classes of mortgage
pass-through certificates or other securities evidencing the entire beneficial
ownership interest in such trust or (ii) issue multiple classes of bonds (also,
"Securities") representing non-recourse obligations secured by this Security
Instrument, the Note and the Other Security Documents (the "Securities"). An
election will be made under the federal tax code to treat this Security
Instrument, the Note and the Other Security Documents and the related assets as
one or more real estate mortgage investment conduits. The Securities may be
sold either in a public offering or a private placement. The foregoing events
and all matters incidental thereto are herein referred to as the
"Securitization".
55. Single Purpose Entity. Borrower covenants and agrees that it has not
and shall not: (a) engage in any business or activity other than the ownership,
operation and maintenance of the Property and activities incidental thereto; (b)
acquire or own any material assets other than (i) the Property, and (ii) such
incidental Personal Property as may be necessary for the operation of the
Property; (c) merge into or consolidate with any person or entity or dissolve,
terminate or liquidate in whole or in part, transfer or otherwise dispose of all
or substantially all of its assets or change its legal structure, without in
each case Lender's consent; (d) fail to preserve its existence as an entity duly
organized, validly existing and in good standing (if applicable) under the laws
of the jurisdiction of its organization or formation, or without the prior
written consent of Lender, amend, modify, terminate or fail to comply with the
provisions of Borrower's partnership agreement, articles or certificate of
incorporation or similar organizational documents, as the case may be, as same
may be further amended or supplemented, if such amendment, modification,
termination or failure to comply would adversely affect the ability of Borrower
to perform its obligations hereunder, under the Note or under the Other Security
Documents; (e) own any subsidiary or make any investment in, any person or
entity without the consent of Lender; (f) commingle its assets with the assets
of any of its general partners, affiliates, members, principals or of any other
person or entity; (g) incur any debt, secured or unsecured, direct or contingent
(including guaranteeing any obligation), other than the Debt, except with
respect to trade payables in the ordinary course of its business of owning and
operating the Property, provided that such debt is paid when due, and any
Affiliate Advance or the Subordinate Debt; (h) fail to maintain its records,
books of account and bank accounts separate and apart from those of the general
partners, principals, members and affiliates of Borrower, the affiliates of a
general partner or member of Borrower, and any other person or entity; (i) enter
into any contract or agreement with any general partner, principal, member or
affiliate of Borrower, Guarantor or Indemnitor, or any general partner,
principal, member or affiliate thereof, except upon terms and conditions that
are intrinsically fair and substantially similar to those that would be
available on an arms-length basis with third parties other than any general
partner, principal, member or affiliate of Borrower, Guarantor or Indemnitor, or
any general partner, principal, member or affiliate thereof; (j) seek the
dissolution or winding up in whole, or in part, of Borrower; (k) maintain its
assets in such a manner that it will be costly or difficult to segregate,
ascertain or identify its individual assets from those of any general partner,
principal, member or affiliate of Borrower, or any general partner, principal,
member or affiliate thereof or any other person; (l) hold itself out to be
responsible for the debts of another person; (m) make any loans or advances to
any third party, including any general partner, principal, member or affiliate
of Borrower, or any general partner, principal, member or affiliate thereof; (n)
fail either to hold itself out to the public as a legal entity separate and
distinct from any other entity or person or to conduct its business solely in
its own name in order not (i) to mislead others as to the identity with which
such other party is transacting business, or (ii) to suggest that Borrower is
responsible for the debts of any third party (including any general partner,
principal, member or affiliate of Borrower, or any general partner, principal,
member or affiliate thereof); (o) fail to maintain adequate capital for the
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations; or (p) file or
consent to the filing of any petition, either voluntary or involuntary, to take
advantage of any applicable insolvency, bankruptcy, liquidation or
reorganization statute, or make an assignment for the benefit of creditors.
The covenants set forth in (a) through (p) above shall apply to the
corporate general partner of Borrower (the "Controlling Party") provided that
all references to "Property" set forth above shall, with respect to the
Controlling Party, be deemed to refer to its general partnership interest in
Borrower.
56. Concerning the Trustee. Trustee shall be under no duty to take
any action hereunder except as expressly required hereunder or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Security
Instrument, covenants to perform and fulfill the trusts herein created, being
liable, however, only for willful negligence or misconduct, and hereby waives
any statutory fee and agrees to accept reasonable compensation, in lieu thereof,
for any services rendered by Trustee in accordance with the terms hereof.
Trustee may resign at any time upon giving thirty (30) days' notice to Borrower
and to Lender. Lender may remove Trustee at any time or from time to time and
select a successor trustee. In the event of the death, removal, resignation,
refusal to act, or inability to act of Trustee, or in its sole discretion for
any reason whatsoever Lender may, without notice and without specifying any
reason therefor and without applying to any court, select and appoint a
successor trustee, by an instrument recorded wherever this Security Instrument
is recorded and all powers, rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor. Such substitute
trustee shall not be required to give bond for the faithful performance of the
duties of Trustee hereunder unless required by Lender. The procedure provided
for in this paragraph for substitution of Trustee shall be in addition to and
not in exclusion of any other provisions for substitution, by law or otherwise.
57. Trustee's Fees. Borrower shall pay all costs, fees and expenses
incurred by Trustee and Trustee's agents and counsel in connection with the
performance by Trustee of Trustee's duties hereunder and all such costs, fees
and expenses shall be secured by this Security Instrument.
58. Certain Rights. With the approval of Lender, Trustee shall
have the right to take any and all of the following actions: (i) to select,
employ, and advise with counsel (who may be, but need not be, counsel for
Lender) upon any matters arising hereunder, including the preparation,
execution, and interpretation of the Note, this Security Instrument or the
Other Security Documents, and shall be fully protected in relying as to
legal matters on the advice of counsel, (ii) to execute any of the trusts and
powers hereof and to perform any duty hereunder either directly or through
his/her agents or attorneys, (iii) to select and employ, in and about the
execution of his/her 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, negligence, or misconduct of any such accountant, engineer or
other expert, agent or attorney-in-fact, if selected with reasonable area, or
for any error of judgment or act done by Trustee in good faith, or be otherwise
responsible or accountable under any circumstances whatsoever, except for
Trustee's gross negligence or bad faith, and (iv) any and all other lawful
action as Lender may instruct Trustee to take to protect or enforce Lender's
rights hereunder. Trustee shall not be personally liable in case of entry by
Trustee, or anyone entering by virtue of the powers herein granted to Trustee,
upon the Property for debts contracted for or liability or damages incurred in
the management or operation of the Property. Trustee shall have the right to
rely on any instrument, document, or signature authorizing or supporting an
action taken or proposed to be taken by Trustee hereunder, believed by Trustee
in good faith to be genuine. Trustee shall be entitled to reimbursement for
actual expenses incurred by Trustee in the performance of Trustee's duties
hereunder and to reasonable compensation for such of Trustee's services
hereunder as shall be rendered.
59. Retention of Money. 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 applicable law) and Trustee shall be
under no liability for interest on any moneys received by Trustee hereunder.
60. Perfection of Appointment. Should any deed, conveyance, or
instrument of any nature be required from Borrower by any Trustee or substitute
trustee to more fully and certainly vest in and confirm to the Trustee or
substitute trustee such estates rights, powers, and duties, then, upon request
by the Trustee or substitute 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 Borrower.
61. Succession Instruments. Any substitute 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/her predecessor in the rights hereunder with like
effect as if originally named as Trustee herein; but nevertheless, upon the
written request of Lender or of the substitute trustee, the Trustee ceasing to
act shall execute and deliver any instrument transferring to such substitute
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
substitute trustee so appointed in the Trustee's place.
62. California Provisions.
(a) In the event of any inconsistencies between the terms and
conditions of this Section 62 of this Security Instrument and any other terms of
this Security Instrument, the terms and conditions of this Section 62 shall
control and be binding.
(b) The word "grantor" is hereby deleted wherever it appears in this
Security Instrument and the word "Trustor" is substituted therefor.
(c) The paragraphs beginning "PROVIDED, HOWEVER" appearing at the end
of the Section of this Security Agreement entitled "Creation of Lien and Grant
of Security" is hereby deleted in its entirety and the following paragraph is
substituted therefor:
PROVIDED, HOWEVER, upon written request of Lender stating
that all sums secured hereby have been paid, that Borrower has
well and truly abided by and complied with each and every
covenant and condition set forth herein and in the Note, and upon
the surrendering of this Security Instrument and the Note to
Trustee for cancellation and retention and upon payment by
Borrower of Trustee's fees, Trustee shall reconvey to Borrower,
or to the person or persons legally entitled thereto, without
warranty, any portion of the estate hereby granted and then held
hereunder. The recitals in such reconveyance of any matters or
facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or
persons legally entitled thereto.
(d) The first sentence of Section 29 is hereby deleted and the
following is substituted therefor:
This Security Instrument is both a real property deed of
trust and a "security agreement" within the meaning of the
Uniform Commercial Code and is being recorded as a fixture
filing. With respect to said fixture filing, (i) the debtor is
Borrower, and Borrower's name and address appear in the first
paragraph of this Security Instrument, and (ii) the secured party
is Lender, and Lender's name and address appear in the first
paragraph of the Security Instrument. The Mortgaged Property
includes both real and personal property and all other rights and
interests, whether tangible or intangible in nature, of Borrower
in the Mortgaged Property, including, but not limited to, the
Leases and Rents and all proceeds thereof and all fixtures.
(e) Borrower expressly agrees that upon a violation of Section 9 of
this Security Agreement by Borrower and acceleration of the principal balance of
the Note because of such violation, Borrower will pay all sums required to be
paid in connection with a prepayment, if any, as described in the Note, herein
imposed on prepayment after an Event of Default and acceleration of the
principal balance. Borrower expressly acknowledges that Borrower has received
adequate consideration for the foregoing agreement.
(f) POWER OF SALE.
After an Event of Default, the Lender, its successors and assigns, may
elect to cause the Mortgaged Property or any part thereof to be sold
as follows:
(1) Lender may proceed as if all of the Mortgaged
Property were real property, in accordance with subparagraph
(d) below, or Lender may elect to treat any of the Mortgaged
Property which consists of a right in action or which is
property that can be severed from the Land without causing
structural damage thereto as if the same were personal
property, and dispose of the same in accordance with
subparagraph (3) below, separate and apart from the sale of
real property, the remainder of the Mortgaged Property being
treated as real property.
(2) Lender may cause any such sale or other
disposition to be conducted immediately following the
expiration of any grace period, if any, herein provided (or
immediately upon the expiration of any redemption period
required by law) or Lender may delay any such sale or other
disposition for such period of time as Lender deems to be in
its best interest. Should Lender desire that more than one
such sale or other disposition be conducted, Lender may at
its option, cause the same to be conducted simultaneously,
or successively on the same day, or at such different days
or times and in such order as Lender may deem to be in its
best interest.
(3) Should Lender elect to cause any of the Mortgaged
Property to be disposed of as personal property as permitted
by subparagraph (1) above, it may dispose of any part hereof
in any manner now or hereafter permitted by Article 9 of the
Uniform Commercial Code or in accordance with any other
remedy provided by law. Both Borrower and Lender shall be
eligible to purchase any part or all of such property at any
such disposition. Any such disposition may be either public
or private as Lender may so elect, subject to the provisions
of the Uniform Commercial Code. Lender shall give Borrower
at least five (5) days' prior written notice of the time and
place of any public sale or other disposition of such
property or of the time at or after which any private sale
or any other intended disposition is to be made, and if such
notice is sent to Borrower as provided in subparagraph (11)
hereof, it shall constitute reasonable notice to Borrower.
(4) Should Lender elect to sell the Mortgaged Property
which is real property or which Lender has elected to treat
as real property, upon such election Lender or Trustee shall
give such Notice of Default and Election to Sell as may then
be required by law. Thereafter, upon the expiration of such
time and the giving of such Notice of Sale as may then be
required by law, Trustee, at the time and place specified in
the Notice of Sale, shall sell such Mortgaged Property, or
any portion thereof specified by Lender, at public auction
to the highest bidder for cash in lawful money of the United
States, subject, however, to the provisions of subparagraph
(9) hereof. Trustee for good cause may, and upon request of
Lender shall, from time to time, postpone the sale by public
announcement thereof at the time and place noticed therefor.
If the Mortgaged Property consists of several lots or
parcels, Lender may designate the order in which such lots
or parcels shall be offered for sale or sold. Any person,
including Borrower, Trustee or Lender, may purchase at the
sale. Upon any sale Trustee shall execute and deliver to
the purchaser or purchasers a deed or deeds conveying the
property so sold, but without any covenant or warranty
whatsoever, express or implied, whereupon such purchaser or
purchasers shall be let into immediate possession.
(5) In the event of a sale or other disposition of any
such property, or any part thereof, and the execution of a
deed or other conveyance, pursuant thereto, the recitals
therein of facts, such as a default, the giving of notice of
default and notice of sale, demand that such sale should be
made, postponement of sale, terms of sale, sale, purchaser,
payment of purchase money, and any other fact affecting the
regularity or validity of such sale or disposition, shall be
conclusive proof of the truth of such facts; and any such
deed of conveyance shall be conclusive against all persons
as to such facts recited therein.
(6) Lender and/or Trustee shall apply the proceeds of
any sale or disposition hereunder to payment of the
following: (A) the expenses of such sale or disposition
together with Trustee's fees and reasonable attorneys' fees,
and the actual cost of publishing, recording, mailing and
posting notice; (B) the cost of any search and/or other
evidence of title procured in connection therewith and
transfer tax on any deed or conveyance; (C) all sums
expended under the terms hereof, not then repaid, with
accrued interest in the amount provided herein; (D) all
other sums secured hereby; and (E) the remainder if any to
the person or persons legally entitled thereto.
(7) The acknowledgment of the receipt of the purchase
money, contained in any deed or conveyance executed as
aforesaid, shall be sufficient discharge from all
obligations to see to the proper application of the
consideration therefor.
(8) Borrower hereby expressly waives any right which
it may have to direct the order in which any of the
Mortgaged Property shall be sold in the event of any sale or
sales pursuant hereto.
(9) Upon any sale of the Mortgaged Property, whether
made under a power of sale herein granted or pursuant to
judicial proceedings, if the holder of the Note is a
purchaser at such sale, it shall be entitled to use and
apply all or any portion of the indebtedness then secured
hereby for or in settlement or payment of all or any portion
of the purchase price of the property purchased, and, in
such case, this Security Instrument, the Note and documents
evidencing expenditures secured hereby shall be presented to
the person conducting the sale in order that the amount of
said indebtedness so used or applied may be credited thereon
as having been paid.
(10) No remedy herein conferred upon or reserved to
Trustee or Lender is intended to be exclusive of any other
remedy herein or by law provided, but each shall be cumula-
tive and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity
or by statute. Every power or remedy given by this
instrument to Trustee or Lender, or to which either of them
may be otherwise entitled, may be exercised from time to
time and as often as may be deemed expedient by Trustee or
Lender, and either of them may pursue inconsistent remedies.
If there exists additional security for the performance of
the obligations secured hereby, the holder of the Note, at
its sole option and without limiting or affecting any rights
or remedies hereunder, may exercise any of the rights and
remedies to which it may be entitled hereunder either
concurrently with whatever other rights it may have in
connection with such other security or in such order as it
may determine.
(11) Borrower hereby requests that every notice of
default and every notice of sale be given in accordance with
the provisions of Section 37 hereof except as otherwise
required by statute. Borrower may, from time to time,
change the address to which notice of default and sale
hereunder shall be sent by both filing a request therefor,
in the manner provided by the California Civil Code, Section
2924b, and sending a copy of such request to Lender, its
successors or assigns in accordance with the provisions of
Section 37 hereof.
(g) Trustee accepts the trust created by this Security Instrument
when this Security Instrument, duly executed and acknowledged, is made a public
record as provided by law.
(h) Trustee is not obligated to notify any party hereto of pending
sale under any other deed of trust or of any action or proceeding in which
Borrower, Lender or Trustee shall be a party, unless brought by Trustee.
(i) Trustee shall be under no duty to take any action hereunder except
as expressly required hereunder or by law, or to perform any act which would
involve Trustee in any expense or liability or to institute or defend any suit
in respect hereof, unless properly indemnified to Trustee's reasonable
satisfaction. Trustee, by acceptance of this Security Instrument, covenants to
perform and fulfill the trusts herein created, being liable, however, only for
gross negligence or willful misconduct, and hereby waives any statutory fee and
agrees to accept reasonable compensation, in lieu thereof, for any services
rendered by Trustee in accordance with the terms hereof. Trustee may resign at
any time upon giving thirty (30) days' notice to Borrower and to Lender. Lender
may remove Trustee at any time or from time to time and select a successor
trustee. In the event of the death, removal, resignation, refusal to act, or
inability to act of Trustee, or in its sole discretion for any reason whatsoever
Lender may, without notice and without specifying any reason therefor and
without applying to any court, select and appoint a successor trustee, by an
instrument recorded wherever this Security Instrument is recorded and all
powers, rights, duties and authority of Trustee, as aforesaid, shall thereupon
become vested in such successor. Such substitute trustee shall not be required
to give bond for the faithful performance of the duties of Trustee hereunder
unless required by Lender. The procedure provided for in this paragraph for
substitution of Trustee shall be in addition to and not in exclusion of any
other provisions for substitution, by law or otherwise.
(j) Trustee shall be entitled to reasonable compensation for all
servicesrendered or expenses incurred in the administration or execution of the
trusts hereby created and Borrower hereby agrees to pay same. Trustee and
Lender shall be indemnified, held harmless and reimbursed by Borrower for any
liability, damage or expense, including attorneys' fees and amounts paid in
settlement, which they or either of them may incur or sustain in the execution
of this trust or in the doing of any act which they, or either of them, are
required or permitted to do by the terms hereof or by law.
(k) Lender may substitute the Trustee hereunder in any manner now or
hereafter provided by law, or in lieu thereof Lender may from time to time, by
an instrument in writing, substitute a successor or successors to any Trustee
named herein or acting hereunder, which instrument, executed and acknowledged by
Lender and recorded in the Office of the Recorder of Los Angeles County, shall
be conclusive proof of proper substitution of such successor Trustee or
Trustees, who shall thereupon and without conveyance from the predecessor
Trustee, succeed to all its title, estate, rights, powers and duties. Such
instrument must contain the name of the original Borrower, Trustee and Lender
hereunder, the book and page where this Security Instrument is recorded, and the
name and address of the new Trustee.
(l) Section 49 entitled "CHOICE OF LAW" is hereby deleted in its
entirety and, subject to the exculpations contained in this Security Instrument,
the following is substituted therefor:
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS SECURITY
INSTRUMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH THE INTERNAL LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPALS OF SUCH STATE (EXCEPT FOR SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK). BORROWER AND LENDER
FURTHER ACKNOWLEDGE, AGREE AND STIPULATE THAT THE STATE OF NEW YORK HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES INVOLVED IN THIS SECURITY
INSTRUMENT. NOTWITHSTANDING THE FOREGOING, THE PARTIES FURTHER AGREE THAT:
(1) THE PROCEDURES GOVERNING THE ENFORCEMENT BY LENDER AND TRUSTEE OF
PROVISIONAL REMEDIES AGAINST BORROWER DIRECTLY RELATING TO THE MORTGAGED
PROPERTY ENCUMBERED HEREBY, INCLUDING, BY WAY OF ILLUSTRATION BUT NOT
LIMITATION, ANY SUCH ACTIONS FOR REPLEVIN, FOR CLAIM AND DELIVERY OF
Mortgaged Property, OR FOR THE APPOINTMENT OF A RECEIVER, SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF CALIFORNIA; AND
(2) CALIFORNIA LAW SHALL APPLY TO THE EXTENT, BUT ONLY TO THE EXTENT,
NECESSARY IN ORDER TO CREATE, PERFECT AND FORECLOSE THE SECURITY INTERESTS,
LIENS AND ASSIGNMENTS OF RENTS AND LEASES ARISING UNDER THIS SECURITY
INSTRUMENT; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION SHALL IN ANY
EVENT BE CONSTRUED TO PROVIDE THAT THE SUBSTANTIVE LAW OF THE STATE OF
CALIFORNIA SHALL APPLY TO THE OBLIGATIONS AND INDEBTEDNESS SECURED BY THIS
SECURITY INSTRUMENT, WHICH ARE AND SHALL CONTINUE TO BE GOVERNED BY THE
SUBSTANTIVE LAW OF THE STATE OF NEW YORK, IN SUCH CONNECTION, THE PARTIES
FURTHER AGREE THAT:
(A) LENDER MAY ENFORCE ITS RIGHTS UNDER THE LOAN DOCUMENTS
(INCLUDING WITHOUT LIMITATION ITS RIGHT TO SUE BORROWER TO COLLECT ANY
OUTSTANDING INDEBTEDNESS OR TO OBTAIN A JUDGMENT AGAINST BORROWER IN
CALIFORNIA, NEW YORK OR OTHER STATES FOR ANY DEFICIENCY PRIOR TO OR
FOLLOWING FORECLOSURE) IN ACCORDANCE WITH NEW YORK LAW, AND IF LENDER
OBTAINS A DEFICIENCY JUDGMENT IN A STATE OTHER THAN IN CALIFORNIA,
THEN LENDER SHALL HAVE THE RIGHT TO ENFORCE SUCH JUDGMENT IN
CALIFORNIA, AS WELL AS IN OTHER STATES;
(B) CALIFORNIA'S USURY LAWS AND ANTIDEFICIENCY, ONE-ACTION AND
SECURITY-FIRST RULES (INCLUDING WITHOUT LIMITATION CALIFORNIA CODE OF
CIVIL PROCEDURE SECTIONS 580A, 580b, 580c, 580d, AND 726) ARE
INAPPLICABLE TO THE OBLIGATIONS AND INDEBTEDNESS SECURED BY THIS
SECURITY INSTRUMENT AND TO THE ENFORCEMENT OR REALIZATION BY LENDER OF
ITS RIGHTS AND REMEDIES RELATING THERETO; AND
(C) SECTION 726 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE SHALL
NOT APPLY (A) TO PREVENT OR LIMIT EXERCISE OR ENFORCEMENT OF ANY OTHER
RIGHTS OR REMEDIES OF LENDER (INCLUDING WITHOUT LIMITATION LENDER'S
RIGHT TO OBTAIN A DEFICIENCY JUDGMENT) EITHER PRIOR TO OR FOLLOWING
FORECLOSURE OR (B) TO PREVENT OR LIMIT LENDER'S RIGHT TO FORECLOSE
JUDICIALLY OR NONJUDICIALLY FOLLOWING ANY EXERCISE OR ENFORCEMENT OF
ANY OTHER RIGHTS OR REMEDIES OF LENDER.
(m) The term "Controlling Party" as used in section 55 shall mean GP
Services XIX, Inc.
IN WITNESS WHEREOF, this Security Instrument has been executed by
Borrower the day and year first above written.
VMS APARTMENT PORTFOLIO ASSOCIATES II, a
California general partnership
By: GP SERVICES XIX, INC.,
a South Carolina corporation,
its general partner
By: /s/ Leigh A. Watters
Name: Leigh A. Watters
Title: Vice President
This instrument prepared by:
Mitchell G. Williams, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
ACKNOWLEDGEMENT
STATE OF New York )
)
COUNTY OF New York )
I, the undersigned, a Notary Public of the County and State aforesaid,
certify that Leigh A. Watters, who is known to me, acknowledged before me that
he is Vice President, of GP Services XIX, Inc., a South Carolina corporation,
that by authority duly given and as the act of the corporation in its capacity
as a general partner in and on behalf of VMS Apartment Portfolio Associates II,
a California general partnership, signed the foregoing conveyance, and that
being informed of the contents of the conveyance he in his capacity as such
officer of the Corporation, executed the same voluntarily on behalf of the
Partnership on the day the same bears date.
Given under my hand this the 31st day of December, 1997.
/s/ Lucesita A. Lombillo
Notary Public
Name:Lucesita A. Lombillo
Notary Public, State of New York
No. 31-5066748
Qualified in Queens County
Commission Expires September 30, 1998
EXHIBIT A
Legal Description
RECORD AND RETURN TO:
Thacher Proffitt & Wood
2 World Trade Center
New York, New York 10048
Attention: Carson M. Leonard
Counsel File No. 16248-328
ABSOLUTE ASSIGNMENT
OF LEASES AND RENTS
VMS APARTMENT PORTFOLIO ASSOCIATES II,
a California general partnership
(Assignor)
to
LEHMAN BROTHERS HOLDINGS INC.
D/B/A LEHMAN CAPITAL, A DIVISION OF
LEHMAN BROTHERS HOLDINGS INC., as assignee
(Assignee)
Dated: As of December 31, 1997
Location: Richardson Highlands Apartments
Marin City, California
Marin County
THIS ABSOLUTE ASSIGNMENT OF LEASES AND RENTS ("Assignment") made as of
the 31st day of December, 1997, by VMS APARTMENT PORTFOLIO ASSOCIATES II, a
California partnership, as assignor, having an address at c/o Insignia Financial
Group, Inc., One Insignia Financial Plaza, Greenville, South Carolina 29601
("Borrower") to LEHMAN BROTHERS HOLDINGS INC. D/B/A LEHMAN CAPITAL, A DIVISION
OF LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation, as assignee, having an
address at Three World Financial Center, 200 Vesey Street, New York, New York
10285 ("Lender").
RECITALS:
Borrower by its promissory note of even date herewith given to Lender
is indebted to Lender in the principal sum of $16,900,000 in lawful money of the
United States of America (together with all extensions, renewals, modifications,
substitutions and amendments thereof, the "Note"), with interest from the date
thereof at the rates set forth in the Note, principal and interest to be payable
in accordance with the terms and conditions provided in the Note.
Borrower desires to secure the payment of the Debt (defined below) and
the performance of all of its obligations under the Note and the Other
Obligations as defined in Article 2 of the Security Instrument (defined below).
1. ASSIGNMENT
1.1 PROPERTY ASSIGNED. Borrower hereby absolutely and unconditionally
assigns and grants to Lender the following property, rights, interests and
estates, now owned, or hereafter acquired by Borrower:
(a) Leases. All existing and future leases affecting the use,
enjoyment, or occupancy of all or any part of that certain lot or piece of land,
more particularly described in Exhibit A annexed hereto and made a part hereof,
together with the buildings, structures, fixtures, additions, enlargements,
extensions, modifications, repairs, replacements and improvements now or
hereafter located thereon (collectively, the "Property") and the right, title
and interest of Borrower, its successors and assigns, therein and thereunder.
(b) Other Leases and Agreements. All other leases and other
agreements, whether or not in writing, affecting the use, enjoyment or occupancy
of the Property or any portion thereof now or hereafter made, whether made
before or after the filing by or against Borrower of any petition for relief
under 11 U.S.C. Section101 et seq., as the same may be amended from time to time
(the "Bankruptcy Code") together with any extension, renewal or replacement of
the same, this Assignment of other present and future leases and present and
future agreements being effective without further or supplemental assignment.
The leases described in Subsection 1.1(a) and the leases and other agreements
described in this Subsection 1.1(b), together with all other present and future
leases and present and future agreements and any extension or renewal of the
same are collectively referred to as the "Leases".
(c) Rents. All rents, additional rents, revenues, income, issues and
profits arising from the Leases and renewals and replacements thereof and any
cash or security deposited in connection therewith and together with all rents,
revenues, income, issues and profits (including all oil and gas or other mineral
royalties and bonuses) from the use, enjoyment and occupancy of the Property
whether paid or accruing before or after the filing by or against Borrower of
any petition for relief under the Bankruptcy Code (collectively, the "Rents").
(d) Bankruptcy Claims. All of Borrower's claims and rights (the
"Bankruptcy Claims") to the payment of damages arising from any rejection by a
lessee of any Lease under the Bankruptcy Code, 11 U.S.C. Section101 et seq., as
the same may be amended (the "Bankruptcy Code").
(e) Lease Guaranties. All of Borrower's right, title and interest in
and claims under any and all lease guaranties, letters of credit and any other
credit support given by any guarantor in connection with any of the Leases
(individually, a "Lease Guarantor", collectively, the "Lease Guarantors") to
Borrower (individually, a "Lease Guaranty", collectively, the "Lease
Guaranties").
(f) Proceeds. All proceeds from the sale or other disposition of the
Leases, the Rents, the Lease Guaranties and the Bankruptcy Claims.
(g) Other. All rights, powers, privileges, options and other
benefits of Borrower as lessor under the Leases and beneficiary under the Lease
Guaranties, including without limitation the immediate and continuing right to
make claim for, receive, collect and receipt for all Rents payable or receivable
under the Leases and all sums payable under the Lease Guaranties or pursuant
thereto (and to apply the same to the payment of the Debt or the Other
Obligations), and to do all other things which Borrower or any lessor is or may
become entitled to do under the Leases or the Lease Guaranties.
(h) Entry. The right, at Lender's option, upon revocation of the
license granted herein, to enter upon the Property in person, by agent or by
court-appointed receiver, to collect the Rents.
(i) Power of Attorney. Borrower's irrevocable power of attorney,
coupled with an interest, to take any and all of the actions set forth in
Section 3.1 of this Assignment and any or all other actions designated by Lender
for the proper management and preservation of the Property.
(j) Other Rights and Agreements. Any and all other rights of
Borrower in and to the items set forth in subsections (a) through (i) above, and
all amendments, modifications, replacements, renewals and substitutions thereof.
1.2 CONSIDERATION. This Assignment is made in consideration of that
certain loan made by Lender to Borrower evidenced by the Note and secured by
that certain mortgage and security agreement, deed of trust and security
agreement, deed to secure debt and security agreement or similar real estate
security instrument given by Borrower to or for the benefit of Lender, dated the
date hereof covering the Property and intended to be duly recorded (the
"Security Instrument"). The principal sum, interest and all other sums due and
payable under the Note, the Security Instrument, this Assignment and the Other
Security Documents (defined below) are collectively referred to as the "Debt".
The documents other than this Assignment, the Note or the Security Instrument
now or hereafter executed by Borrower and/or others and by or in favor of Lender
which wholly or partially secure or guarantee payment of the Debt are referred
to herein as the "Other Security Documents".
2. TERMS OF ASSIGNMENT
2.1 PRESENT ASSIGNMENT AND LICENSE BACK. It is intended by Borrower that
this Assignment constitute a present, absolute assignment of the Leases, Rents,
Lease Guaranties and Bankruptcy Claims, and not an assignment for additional
security only. Nevertheless, subject to the terms of this Section 2.1, Lender
grants to Borrower a revocable license to collect and receive the Rents and
other sums due under the Lease Guaranties. Borrower shall hold the Rents and
all sums received pursuant to any Lease Guaranty, or a portion thereof
sufficient to discharge all current sums due on the Debt, in trust for the
benefit of Lender for use in the payment of such sums.
2.2 NOTICE TO LESSEES. Borrower hereby agrees to authorize and direct the
lessees named in the Leases or any other or future lessees or occupants of the
Property and all Lease Guarantors to pay over to Lender or to such other party
as Lender directs all Rents and all sums due under any Lease Guaranties upon
receipt from Lender of written notice to the effect that Lender is then the
holder of the Security Instrument and that a Default (defined below) exists, and
to continue so to do until otherwise notified by Lender.
2.3 INCORPORATION BY REFERENCE. All representations, warranties,
covenants, conditions and agreements contained in the Security Instrument as
same may be modified, renewed, substituted or extended are hereby made a part of
this Assignment to the same extent and with the same force as if fully set forth
herein.
3. REMEDIES
3.1 REMEDIES OF LENDER. Upon or at any time after the occurrence of a
default under this Assignment or an Event of Default (as defined in the Security
Instrument) (a "Default"), the license granted to Borrower in Section 2.1 of
this Assignment shall automatically be revoked, and Lender shall immediately be
entitled to possession of all Rents and sums due under any Lease Guaranties,
whether or not Lender enters upon or takes control of the Property. In
addition, Lender may, at its option, without waiving such Default, without
notice and without regard to the adequacy of the security for the Debt, either
in person or by agent, nominee or attorney, with or without bringing any action
or proceeding, or by a receiver appointed by a court, dispossess Borrower and
its agents and servants from the Property, without liability for trespass,
damages or otherwise and exclude Borrower and its agents or servants wholly
therefrom, and take possession of the Property and all books, records and
accounts relating thereto and have, hold, manage, lease and operate the Property
on such terms and for such period of time as Lender may deem proper and either
with or without taking possession of the Property in its own name, demand, sue
for or otherwise collect and receive all Rents and sums due under all Lease
Guaranties, including those past due and unpaid with full power to make from
time to time all alterations, renovations, repairs or replacements thereto or
thereof as may seem proper to Lender and may apply the Rents and sums received
pursuant to any Lease Guaranties to the payment of the following in such order
and proportion as Lender in its sole discretion may determine, any law, custom
or use to the contrary notwithstanding: (a) all expenses of managing and
securing the Property, including, without being limited thereto, the salaries,
fees and wages of a managing agent and such other employees or agents as Lender
may deem necessary or desirable and all expenses of operating and maintaining
the Property, including, without being limited thereto, all taxes, charges,
claims, assessments, water charges, sewer rents and any other liens, and
premiums for all insurance which Lender may deem necessary or desirable, and the
cost of all alterations, renovations, repairs or replacements, and all expenses
incident to taking and retaining possession of the Property; and (b) the Debt,
together with all costs and reasonable attorneys' fees. In addition, upon the
occurrence of a Default, Lender, at its option, may (1) complete any
construction on the Property in such manner and form as Lender deems advisable,
(2) exercise all rights and powers of Borrower, including, without limitation,
the right to negotiate, execute, cancel, enforce or modify Leases, obtain and
evict tenants, and demand, sue for, collect and receive all Rents from the
Property and all sums due under any Lease Guaranties, (3) either require
Borrower to pay monthly in advance to Lender, or any receiver appointed to
collect the Rents, the fair and reasonable rental value for the use and
occupancy of such part of the Property as may be in possession of Borrower or
(4) require Borrower to vacate and surrender possession of the Property to
Lender or to such receiver and, in default thereof, Borrower may be evicted by
summary proceedings or otherwise.
3.2 OTHER REMEDIES. Nothing contained in this Assignment and no act done
or omitted by Lender pursuant to the power and rights granted to Lender
hereunder shall be deemed to be a waiver by Lender of its rights and remedies
under the Note, the Security Instrument, or the Other Security Documents and
this Assignment is made and accepted without prejudice to any of the rights and
remedies possessed by Lender under the terms thereof. The right of Lender to
collect the Debt and to enforce any other security therefor held by it may be
exercised by Lender either prior to, simultaneously with, or subsequent to any
action taken by it hereunder. Borrower hereby absolutely, unconditionally and
irrevocably waives any and all rights to assert any setoff, counterclaim or
crossclaim of any nature whatsoever with respect to the obligations of Borrower
under this Assignment, the Note, the Security Instrument, the Other Security
Documents or otherwise with respect to the loan secured hereby in any action or
proceeding brought by Lender to collect same, or any portion thereof, or to
enforce and realize upon the lien and security interest created by this
Assignment, the Note, the Security Instrument, or any of the Other Security
Documents (provided, however, that the foregoing shall not be deemed a waiver of
Borrower's right to assert any compulsory counterclaim if such counterclaim is
compelled under local law or rule of procedure, nor shall the foregoing be
deemed a waiver of Borrower's right to assert any claim which would constitute a
defense, setoff, counterclaim or crossclaim of any nature whatsoever against
Lender in any separate action or proceeding).
3.3 OTHER SECURITY. Lender may take or release other security for the
payment of the Debt, may release any party primarily or secondarily liable
therefor and may apply any other security held by it to the reduction or
satisfaction of the Debt without prejudice to any of its rights under this
Assignment.
3.4 NON-WAIVER. The exercise by Lender of the option granted it in
Section 3.1 of this Assignment and the collection of the Rents and sums due
under the Lease Guaranties and the application thereof as herein provided shall
not be considered a waiver of any default by Borrower under the Note, the
Security Instrument, the Leases, this Assignment or the Other Security
Documents. The failure of Lender to insist upon strict performance of any term
hereof shall not be deemed to be a waiver of any term of this Assignment.
Borrower shall not be relieved of Borrower's obligations hereunder by reason of
(a) the failure of Lender to comply with any request of Borrower or any other
party to take any action to enforce any of the provisions hereof or of the
Security Instrument, the Note or the Other Security Documents, (b) the release
regardless of consideration, of the whole or any part of the Property, or (c)
any agreement or stipulation by Lender extending the time of payment or
otherwise modifying or supplementing the terms of this Assignment, the Note, the
Security Instrument or the Other Security Documents. Lender may resort for the
payment of the Debt to any other security held by Lender in such order and
manner as Lender, in its discretion, may elect. Lender may take any action to
recover the Debt, or any portion thereof, or to enforce any covenant hereof
without prejudice to the right of Lender thereafter to enforce its rights under
this Assignment. The rights of Lender under this Assignment shall be separate,
distinct, nonexclusive and cumulative, shall be in addition to any other
remedies to which Lender is entitled under the law, and none shall be given
effect to the exclusion of the others. No act of Lender shall be construed as
an election to proceed under any one provision herein to the exclusion of any
other provision.
3.5 BANKRUPTCY. (a) Upon or at any time after the occurrence of a
Default, Lender shall have the right to proceed in its own name or in the name
of Borrower in respect of any claim, suit, action or proceeding relating to the
rejection of any Lease, including, without limitation, the right to file and
prosecute, to the exclusion of Borrower, any proofs of claim, complaints,
motions, applications, notices and other documents, in any case in respect of
the lessee under such Lease under the Bankruptcy Code.
(b) If there shall be filed by or against Borrower a petition
under the Bankruptcy Code, and Borrower, as lessor under any Lease, shall
determine to reject such Lease pursuant to Section 365(a) of the Bankruptcy
Code, then Borrower shall give Lender not less than ten (10) days' prior notice
of the date on which Borrower shall apply to the bankruptcy court for authority
to reject the Lease. Lender shall have the right, but not the obligation, to
serve upon Borrower within such ten-day period a notice stating that (i) Lender
demands that Borrower assume and assign the Lease to Lender pursuant to Section
365 of the Bankruptcy Code and (ii) Lender covenants to cure or provide adequate
assurance of future performance under the Lease. If Lender serves upon Borrower
the notice described in the preceding sentence, Borrower shall not seek to
reject the Lease and shall comply with the demand provided for in clause (i) of
the preceding sentence within thirty (30) days after the notice shall have been
given, subject to the performance by Lender of the covenant provided for in
clause (ii) of the preceding sentence.
4. NO LIABILITY, FURTHER ASSURANCES
4.1 NO LIABILITY OF LENDER. This Assignment shall not be construed to
bind Lender to the performance of any of the covenants, conditions or provisions
contained in any Lease or Lease Guaranty or otherwise impose any obligation upon
Lender. Lender shall not be liable for any loss sustained by Borrower resulting
from Lender's failure to let the Property after a Default or from any other act
or omission of Lender in managing the Property after a Default unless such loss
is caused by the willful misconduct and bad faith of Lender. Lender shall not
be obligated to perform or discharge any obligation, duty or liability under the
Leases or any Lease Guaranties or under or by reason of this Assignment and
Borrower shall, and hereby agrees, to indemnify Lender for, and to hold Lender
harmless from, any and all liability, loss or damage which may or might be
incurred under the Leases, any Lease Guaranties or under or by reason of this
Assignment and from any and all claims and demands whatsoever, including the
defense of any such claims or demands which may be asserted against Lender by
reason of any alleged obligations and undertakings on its part to perform or
discharge any of the terms, covenants or agreements contained in the Leases or
any Lease Guaranties. Should Lender incur any such liability, the amount
thereof, including costs, expenses and reasonable attorneys' fees, shall be
secured by this Assignment and by the Security Instrument and the Other Security
Documents and Borrower shall reimburse Lender therefor immediately upon demand
and upon the failure of Borrower so to do Lender may, at its option, declare all
sums secured by this Assignment and by the Security Instrument and the Other
Security Documents immediately due and payable. This Assignment shall not
operate to place any obligation or liability for the control, care, management
or repair of the Property upon Lender, nor for the carrying out of any of the
terms and conditions of the Leases or any Lease Guaranties; nor shall it operate
to make Lender responsible or liable for any waste committed on the Property by
the tenants or any other parties, or for any dangerous or defective condition of
the Property, including without limitation the presence of any Hazardous
Substances (as defined in the Security Instrument), or for any negligence in the
management, upkeep, repair or control of the Property resulting in loss or
injury or death to any tenant, licensee, employee or stranger.
4.2 NO MORTGAGEE IN POSSESSION. Nothing herein contained shall be
construed as constituting Lender a "mortgagee in possession" in the absence of
the taking of actual possession of the Property by Lender. In the exercise of
the powers herein granted Lender, no liability shall be asserted or enforced
against Lender, all such liability being expressly waived and released by
Borrower.
4.3 FURTHER ASSURANCES. Borrower will, at the cost of Borrower, and
without expense to Lender, do, execute, acknowledge and deliver all and every
such further acts, conveyances, assignments, notices of assignments, transfers
and assurances as Lender shall, from time to time, require for the better
assuring, conveying, assigning, transferring and confirming unto Lender the
property and rights hereby assigned or intended now or hereafter so to be, or
which Borrower may be or may hereafter become bound to convey or assign to
Lender, or for carrying out the intention or facilitating the performance of the
terms of this Assignment or for filing, registering or recording this Assignment
and, on demand, will execute and deliver and hereby authorizes Lender to execute
in the name of Borrower to the extent Lender may lawfully do so, one or more
financing statements, chattel mortgages or comparable security instruments, to
evidence more effectively the lien and security interest hereof in and upon the
Leases.
5. MISCELLANEOUS PROVISIONS
5.1 CONFLICT OF TERMS. In case of any conflict between the terms of this
Assignment and the terms of the Security Instrument, the terms of the Security
Instrument shall prevail.
5.2 NO ORAL CHANGE. This Assignment and any provisions hereof may not be
modified, amended, waived, extended, changed, discharged or terminated orally,
or by any act or failure to act on the part of Borrower or Lender, but only by
an agreement in writing signed by the party against whom the enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
5.3 CERTAIN DEFINITIONS. Unless the context clearly indicates a contrary
intent or unless otherwise specifically provided herein, words used in this
Assignment may be used interchangeably in singular or plural form and the word
"Borrower " shall mean "each Borrower and any subsequent owner or owners of the
Property or any part thereof or interest therein," the word "Lender" shall mean
"Lender and any subsequent holder of the Note," the word "Note" shall mean "the
Note and any other evidence of indebtedness secured by the Security Instrument,"
the word "person" shall include an individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, and any other
entity, the word "Property" shall include any portion of the Property and any
interest therein, the phrases "attorneys' fees", "legal fees" and "counsel fees"
shall include any and all attorneys', paralegal and law clerk fees and
disbursements, including, but not limited to, fees and disbursements at the
pre-trial, trial and appellate levels incurred or paid by Lender in protecting
its interest in the Property, the Leases and the Rents and enforcing its rights
hereunder, and the word "Debt" shall mean the principal balance of the Note with
interest thereon as provided in the Note and the Security Instrument and all
other sums due pursuant to the Note, the Security Instrument, this Assignment
and the Other Security Documents; whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
5.4 AUTHORITY. Borrower represents and warrants that it has full power
and authority to execute and deliver this Assignment and the execution and
delivery of this Assignment has been duly authorized and does not conflict with
or constitute a default under any law, judicial order or other agreement
affecting Borrower or the Property.
5.5 INAPPLICABLE PROVISIONS. If any term, covenant or condition of this
Assignment is held to be invalid, illegal or unenforceable in any respect, this
Assignment shall be construed without such provision.
5.6 DUPLICATE ORIGINALS; COUNTERPARTS. This Assignment may be executed in
any number of duplicate originals and each such duplicate original shall be
deemed to be an original. This Assignment may be executed in several
counterparts, each of which counterparts shall be deemed an original instrument
and all of which together shall constitute a single Assignment. The failure of
any party hereto to execute this Assignment, or any counterpart hereof, shall
not relieve the other signatories from their obligations hereunder.
5.7 CHOICE OF LAW. This Assignment shall be governed, construed, applied
and enforced in accordance with the laws of the state in which the Property is
located and the applicable laws of the United States of America.
5.8 TERMINATION OF ASSIGNMENT. Upon payment in full of the Debt and the
delivery and recording of a satisfaction or discharge of Security Instrument
duly executed by Lender, this Assignment shall become and be void and of no
effect.
5.9 NOTICES. All notices or other written communications hereunder shall
be deemed to have been properly given (i) upon delivery, if delivered in person
or by facsimile transmission with receipt acknowledged by the recipient thereof,
(ii) one (1) Business Day (hereinafter defined) after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed to Borrower or Lender at their addresses set forth in the Security
Instrument or addressed as such party may from time to time designate by written
notice to the other parties. For purposes of this Section 5.9, the term
"Business Day" shall mean a day on which commercial banks are not authorized or
required by law to close in New York, New York.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
5.10 WAIVER OF TRIAL BY JURY. BORROWER HEREBY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR
INDIRECTLY TO THE LOAN EVIDENCED BY THE NOTE, THE APPLICATION FOR THE LOAN
EVIDENCED BY THE NOTE, THIS ASSIGNMENT, THE NOTE, THE SECURITY INSTRUMENT OR THE
OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS,
EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
5.11 SUBMISSION TO JURISDICTION. With respect to any claim or action
arising hereunder, Borrower (a) irrevocably submits to the nonexclusive
jurisdiction of the courts of the State in which the Property is located, the
State of New York and the United States District Court located in the Borough of
Manhattan in New York, New York and the county in which the Property is located,
and appellate courts from any thereof, and (b) irrevocably waives any objection
which it may have at any time to the laying on venue of any suit, action or
proceeding arising out of or relating to this Assignment brought in any such
court, irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
5.12 LIABILITY. If Borrower consists of more than one person, the
obligations and liabilities of each such person hereunder shall be joint and
several. This Assignment shall be binding upon and inure to the benefit of
Borrower and Lender and their respective successors and assigns forever.
5.13 HEADINGS, ETC. The headings and captions of various paragraphs of
this Assignment are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
5.14 NUMBER AND GENDER. Whenever the context may require, any pronouns
used herein shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns and pronouns shall include the plural and vice
versa.
5.15 SOLE DISCRETION OF LENDER. Wherever pursuant to this Assignment (a)
Lender exercises any right given to it to approve or disapprove, (b) any
arrangement or term is to be satisfactory to Lender, or (c) any other decision
or determination is to be made by Lender, the decision of Lender to approve or
disapprove, all decisions that arrangements or terms are satisfactory or not
satisfactory and all other decisions and determinations made by Lender, shall be
in the sole and absolute discretion of Lender and shall be final and conclusive,
except as may be otherwise expressly and specifically provided herein.
5.16 COSTS AND EXPENSES OF BORROWER. Wherever pursuant to this Assignment
it is provided that Borrower pay any costs and expenses, such costs and expenses
shall include, but not be limited to, legal fees and disbursements of Lender,
whether of retained firms, the reimbursement of the expenses for in-house staff
or otherwise.
5.17 EXCULPATION. Borrower's obligations under this Assignment are subject
to the provisions of paragraph 55 of the Security Instrument, and such
provisions are incorporated herein by reference.
6. SPECIAL CALIFORNIA PROVISIONS
6.1 INCONSISTENCIES. In the event of any inconsistencies between the
terms and conditions of this Article 6 and any other terms of this Assignment,
the terms and conditions of this Article 6 shall control and be binding.
6.2 Section 1.2 is renamed "THE LOAN". The words "This Assignment is made
in consideration of that certain loan made by Lender to Borrower evidenced by
the Note and" are deleted from the first sentence of Section 1.2 and replaced
with the words "The Note is".
6.3 The word "other" is hereby deleted from Section 3.2 entitled "OTHER
REMEDIES" and Section 3.3 entitled "OTHER SECURITY" wherever it shall appear in
the body of such paragraphs, except where it is capitalized and used in a
defined term.
6.4 Section 5.7 Entitled "CHOICE OF LAW" is hereby deleted in its entirety
and the following is substituted therefor:
THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS ASSIGNMENT SHALL
BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE
INTERNAL LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICTS-OF-LAW RULES AND PRINCIPALS OF SUCH STATE (EXCEPT SECTION 5-
1401 OF THE GENERAL OBLIGATIONS LAW). ASSIGNOR AND ASSIGNEE FURTHER
ACKNOWLEDGE, AGREE AND STIPULATE THAT THE STATE OF NEW YORK HAS A
SUBSTANTIAL RELATIONSHIP TO THE PARTIES INVOLVED IN THIS TRANSACTION
AND TO THE UNDERLYING TRANSACTIONS SECURED BY THIS ASSIGNMENT.
NOTWITHSTANDING THE FOREGOING, THE PARTIES FURTHER AGREE THAT:
(a) THE PROCEDURES GOVERNING THE ENFORCEMENT BY BENEFICIARY AND
TRUSTEE OF PROVISIONAL REMEDIES AGAINST ASSIGNOR DIRECTLY RELATING TO
THE PROPERTY ENCUMBERED HEREBY, INCLUDING, BY WAY OF ILLUSTRATION BUT
NOT LIMITATION, ANY SUCH ACTIONS FOR REPLEVIN, FOR CLAIM AND DELIVERY
OF PROPERTY, OR FOR THE APPOINTMENT OF A RECEIVER, SHALL BE GOVERNED
BY THE LAWS OF THE STATE OF CALIFORNIA; AND
(b) CALIFORNIA LAW SHALL APPLY TO THE EXTENT, BUT ONLY TO THE
EXTENT, NECESSARY IN ORDER TO CREATE, PERFECT AND FORECLOSE THE
SECURITY INTERESTS AND ASSIGNMENT OF RENTS AND LEASES ARISING UNDER
THIS ASSIGNMENT; PROVIDED, HOWEVER, THAT NOTHING IN THIS SECTION SHALL
IN ANY EVENT BE CONSTRUED TO PROVIDE THAT THE SUBSTANTIVE LAW OF THE
STATE OF CALIFORNIA SHALL APPLY TO THE OBLIGATIONS AND INDEBTEDNESS
SECURED BY THIS ASSIGNMENT, WHICH ARE AND SHALL CONTINUE TO BE
GOVERNED BY THE SUBSTANTIVE LAW OF THE STATE OF NEW YORK.
6.5 The words "additional security" are hereby deleted whenever they shall
appear in this Assignment.
THIS ASSIGNMENT, together with the covenants and warranties therein
contained, shall inure to the benefit of Lender and any subsequent holder of the
Security Instrument and shall be binding upon Borrower, its heirs, executors,
administrators, successors and assigns and any subsequent owner of the Property.
IN WITNESS WHEREOF, Borrower has executed this instrument as of the day and
year first above written.
VMS APARTMENT PORTFOLIO ASSOCIATES II, a
California general partnership
By: G P SERVICES XIX, INC., a South Carolina
corporation, its general partner
By: /s/ Leigh Watters
Name: Leigh Watters
Title: Vice President
ACKNOWLEDGEMENT
STATE OF New York )
)
COUNTY OF New York
I, the undersigned, a Notary Public of the County and State aforesaid,
certify that Leigh A. Watters, who is known to me, acknowledged before me that
he is Vice President, of GP Services XIX, Inc., a South Carolina corporation,
that by authority duly given and as the act of the corporation in its capacity
as a general partner in and on behalf of VMS Apartment Portfolio Associates II,
a California general partnership, signed the foregoing conveyance, and that
being informed of the contents of the conveyance he in his capacity as such
officer of the Corporation, executed the same voluntarily on behalf of the
Partnership on the day the same bears date.
Given under my hand this the 31st day of December, 1997.
/s/ Lucesita A. Lombillo
Notary Public
Name: Lucesita A. Lombillo
Notary Public, State of New York
No. 31-5066748
Qualified in Queens County
Commission Expires September 30, 1998
EXHIBIT A
Legal Description of Property
