<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
-------------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE
EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
----------------------------------- -------------
COMMISSION FILE NUMBER: 33-77510-C
---------------------------------------------------------
Captec Franchise Capital Partners L.P. III
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 38-3160141
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
24 Frank Lloyd Wright Drive, Lobby L, 4th Floor
P.O. Box 544, Ann Arbor, Michigan 48106-0544
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(734) 994-5505
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last year)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Not Applicable.
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: Not Applicable
Transitional Small Business Disclosure Format (check one) Yes No x
--- ---
<PAGE> 2
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Balance Sheets, March 31, 1999 and December 31, 1998...................................1
Statements of Operations for the three months
ended March 31, 1999 and 1998..........................................................2
Statement of Changes in Partners' Capital for the three months
ended March 31, 1999 ..................................................................3
Statements of Cash Flows for the three months
ended March 31, 1999 and 1998..........................................................4
Notes to Financial Statements..........................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................7
PART II OTHER INFORMATION......................................................................9
SIGNATURES..............................................................................................11
</TABLE>
i
<PAGE> 3
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
MARCH 31, DECEMBER 31,
1999 1998
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 575,878 $ 493,136
Restricted cash 86,884 153,142
Investment in property under leases:
Operating leases, net 19,682,829 19,340,098
Financing leases, net 2,576,521 1,249,313
Impaired financing leases, net 56,866 50,000
Accounts receivable 251,378 154,948
Unbilled rent, net 613,887 571,705
Due from related parties 126,279 140,948
Deferred financing costs, net 441,446 390,066
----------- -----------
Total assets $24,411,968 $22,543,356
=========== ===========
LIABILITIES & PARTNERS' CAPITAL
Liabilities:
Accounts payable and accrued expenses $ 123,020 $ 165,907
Due to related parties 79,262 36,662
Notes Payable 8,194,000 6,200,000
Security deposits held on leases 59,329 59,329
----------- -----------
Total liabilities 8,455,611 6,461,898
----------- -----------
Partners' Capital:
Limited partners' capital accounts 15,906,982 16,035,439
General partners' capital accounts 49,375 46,019
----------- -----------
Total partners' capital 15,956,357 16,081,458
----------- -----------
Total liabilities & partners' capital $24,411,968 $22,543,356
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
1
<PAGE> 4
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF OPERATIONS
for the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Operating revenue:
Rental income $543,189 $427,770
Finance income 16,200 59,216
-------- --------
Total operating revenue 559,389 486,986
-------- --------
Operating costs and expenses:
Depreciation 68,908 54,700
General and administrative 17,534 29,317
Amortization of debt issuance costs 11,319 --
Interest Expense 130,677 --
-------- --------
Total operating costs and expenses 228,438 84,017
-------- --------
Income from operations 330,951 402,969
-------- --------
Other income:
Interest income 1,902 156
Gain on sale of equipment -- 4,713
Other 2,739 1,019
-------- --------
Total other income 4,641 5,888
-------- --------
Net income 335,592 408,857
Net income allocable to general partner 3,356 4,089
-------- --------
Net income allocable to limited partners $332,236 $404,768
======== ========
Net income per limited partnership unit $ 16.64 $ 20.28
======== ========
Weighted average number of limited partnership
units outstanding 19,963 19,963
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
for the three months ended March 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Limited Limited General Total
Partners' Partners' Partners' Partners'
Units Accounts Accounts Capital
<S> <C> <C> <C> <C>
Balance, December 31, 1998 19,963 16,035,439 46,019 16,081,458
Distributions - ($23.08 per unit) -- (460,693) -- (460,693)
Net income -- 332,236 3,356 335,592
------------ ------------ ------------ ------------
Balance, March 31, 1999 19,963 $ 15,906,982 $ 49,375 $ 15,956,357
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 6
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
STATEMENT OF CASH FLOWS
for the three months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 335,592 $ 408,857
Adjustments to net income:
Depreciation 68,908 54,700
Amortization of debt issuance costs 11,319 --
Gain on sale of equipment -- (4,713)
(Increase) in unbilled rent (42,182) (11,771)
(Increase) decrease in accounts receivable (96,430) 10,825
Increase (decrease) in accounts payable and accrued expenses (42,888) 31,693
----------- -----------
Net cash provided by operating activities 234,319 489,591
----------- -----------
Cash flows from investing activities:
Purchase and construction advances of real estate
for operating leases (411,639) --
Purchase of equipment for financing leases (1,459,099) --
Principal payments on financing leases 125,026 362,831
----------- -----------
Net cash used in investing activities (1,745,712) 362,831
----------- -----------
Cash flows from financing activities:
Decrease (increase) in due from related parties 14,669 (373)
Increase (decrease) in due to related parties 42,600 (29,413)
Proceeds from issuance of notes payable 1,994,000 --
Debt issuance costs (62,699) --
Issuance of limited partnership units -- --
Offering costs -- --
Distributions to limited partners (460,693) (541,693)
Decrease in restricted cash 66,258 --
----------- -----------
Net cash provided by financing activities 1,594,135 (571,479)
----------- -----------
Net (decrease) increase in cash and cash equivalents 82,742 280,943
Cash and cash equivalents, beginning of period 493,136 553,680
----------- -----------
Cash and cash equivalents, end of period $ 575,878 $ 834,623
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
1. THE PARTNERSHIP AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:
Captec Franchise Capital Partners L.P. III (the "Partnership"), a
Delaware limited partnership, was formed on February 18, 1994 for the
purpose of acquiring income-producing commercial real properties and
equipment leased on a "triple net" or "double net" basis, primarily to
operators of national and regional chain and nationally franchised fast
food and family style restaurants, as well as other national and regional
retail chains. The general partners of the Partnership upon formation of
the Partnership were Captec Franchise Capital Corporation III (the
"Corporation"), a wholly owned subsidiary of Captec Financial Group, Inc.
("Captec"), and Patrick L. Beach, an individual, hereinafter collectively
referred to as the Sponsor. Patrick L. Beach is also the Chairman of the
Board of Directors, President and Chief Executive Officer of the
Corporation and Captec. In August, 1998 the general partnership interest
of the Partnership was acquired by Captec Net Lease Realty, Inc., an
affiliate of Captec, for $1,483,000.
The Partnership commenced a public offering of 20,000 limited partnership
interests ("Units") on August 12, 1994 and reached final funding in
August, 1996. Net proceeds after offering expenses were approximately
$17.4 million. During 1997, the Partnership repurchased a total of 37
units. At March 31, 1999, the Partnership had 19,963 units issued and
outstanding.
Allocation of profits, losses and cash distributions from operations and
cash distributions from sale or refinancing are made pursuant to the
terms of the Partnership Agreement. Profits and losses from operations
are allocated among the limited partners based upon the number of Units
owned.
The balance sheet of the Partnership as of March 31, 1999 and the
statements of operations and cash flows for the period ending March 31,
1999 and 1998 have not been audited. In the opinion of the Management,
these unaudited financial statements contain all adjustments necessary to
present fairly the financial position and results of operations and cash
flows of the Partnership for the periods then ended. Results of
operations for the interim periods are not necessarily indicative of
results for the full year.
5
<PAGE> 8
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
NOTES TO FINANCIAL STATEMENTS
2. LAND AND BUILDING SUBJECT TO OPERATING LEASES:
The net investment in operating leases as of March 31, 1999 is comprised
of the following:
<TABLE>
<S> <C>
Land $ 8,126,891
Building and improvements 11,662,240
Construction draws on properties 548,639
------------
20,337,770
Less accumulated depreciation (654,941)
------------
Total $ 19,682,829
============
</TABLE>
3. NET INVESTMENT IN FINANCING LEASES:
The net investment in financing leases as of March 31, 1999 is comprised
of the following:
<TABLE>
<S> <C>
Minimum lease payments to be received $ 3,075,764
Estimated residual value 193,101
-----------
Gross investment in financing leases 3,268,865
-----------
Less unearned income (692,344)
-----------
Net investment in financing leases $ 2,576,521
===========
</TABLE>
4. NOTES PAYABLE:
In November, 1998, the Partnership entered into a $6.2 million term note,
the proceeds of which were used to acquire additional properties. The
note has a 10 year term, is collaterized by certain properties subject to
operating leases, and bears an interest rate of 8.37% per annum.
In March, 1999, the Partnership entered into an additional $2.0 million
term note. The note also has a 10 year term, is collaterized by certain
properties subject to operating leases, and bears an interest rate of
8.5% per annum.
Debt issuance costs of approximately $453,000 in aggregate were incurred
in connection with the issuance of the notes, and will be amortized using
the straight-line method to interest expense over the 10 year term.
6
<PAGE> 9
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
When used in this discussion, the words, "intends", "anticipates",
"expects", and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks and uncertainties which
could cause actual results to differ materially from those projected. Such risks
and uncertainties include the following: (i) a tenant may default in making rent
payments, (ii) a fire or other casualty may interrupt the cash flow stream from
a property, (iii) the properties may not be able to be leased at the assumed
rental rates, (iv) unexpected expenses may be incurred in the ownership of the
properties, and (v) properties may not be able to be sold at the presently
anticipated prices and times.
As a result of these and other factors, the Partnership may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition and operating results. These forward-looking statements speak only as
of the date hereof. The Partnership undertakes no obligation to publicly release
the results of any revisions to these forward-looking statements which may be
made to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
LIQUIDITY AND CAPITAL COMMITMENTS:
The Partnership commenced the offering (the "Offering") of up to 20,000
limited partnership units ("Units") registered under the Securities Act of 1933,
as amended, by means of a Registration Statement which was declared effective by
the Securities and Exchange Commission on August 12, 1994. The Offering reached
final funding on August 12, 1996 with subscriptions for the entire 20,000 Units
and funds totaling $20,000,000. Net proceeds after offering expenses were
$17,400,000.
In November, 1998 the Partnership entered into a $6.2 million term
note. The Partnership entered into an additional $1.994 million term note in
March, 1999. Proceeds from the notes were used to acquire additional properties.
The notes have a 10 year term, are collaterized by certain properties subject to
operating leases, and bear interest at rates ranging from 8.37 to 8.5% per
annum.
During the three months ended March 31, 1999, the Partnership funded
$401,639, including acquisition fees, for two real estate properties under
construction. One of the construction properties was completed in March, 1999 at
a total cost of $1,338,750. At March 31, 1999, the unfunded commitment on the
remaining property under construction was $1.1 million. The Partnership also
purchased four equipment leases in the quarter for $1,459,100, including
acquisition fees.
7
<PAGE> 10
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART I - FINANCIAL INFORMATION
At March 31, 1999, the partnership had a portfolio of 16 properties
located in 10 states, with a cost of $20.3 million, including one property under
construction, and ten performing equipment leases with an original investment of
$3.7 million. As of March 31, 1999 the Partnership's investments were allocated
approximately 85% to properties and 15% to equipment. This allocation is
expected to change as additional properties and equipment are acquired. The
final asset mix allocation is expected to be at least 75%, but not more than 90%
properties and up to 25%, but not less than 10% equipment.
Once substantially all of the Partnership's funds have been applied as
intended, the Partnership expects to require limited amounts of liquid assets
since the form of lease which it intends to use for its properties and equipment
will require lessees to pay all taxes and assessments, maintenance and repairs
items (except, with respect to double net properties, costs associated with the
maintenance and repair of the exterior walls and roof of the property) and
insurance premiums, including casualty insurance. The general partners expect
that the cash flow to be generated by the Partnership's properties and equipment
will be adequate to pay operating expenses and provide distributions to Limited
Partners.
RESULTS OF OPERATIONS:
THREE MONTHS ENDED MARCH 31, 1999. During the three months ended March
31, 1999 (the "Quarter") total operating revenue increased 15% to $559,000 as
compared to $487,000 for the three months ended March 31, 1998 (the "1998
Quarter"). The increase in revenues resulted from the acquisition of additional
properties in December, 1998, offset by the impairment of two equipment
financing leases.
General and administrative expenses were approximately $69,000 for the
Quarter as compared to approximately $55,000 for the 1998 Quarter.
Interest expense in the amount of $131,000 and amortization expense of
$11,000 were incurred during the Quarter related to the notes payable issuance.
Other income declined to $4,641 in the Quarter from $5,888 in the 1998 Quarter.
As a result of the foregoing, the Partnership's net income decreased
18% to $336,000 for the Quarter as compared to $409,000 for the 1998 Quarter.
DISTRIBUTIONS. The Partnership announced first quarter distributions of
$500,000, of which $432,000 was distributed to its limited partners on April 16,
1999 and the remaining $68,000 will be distributed to those limited partners who
elected to receive distributions on a monthly basis.
8
<PAGE> 11
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
9
<PAGE> 12
CAPTEC FRANCHISE CAPITAL PARTNERS L.P. III
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein or incorporated by
reference:
Number Exhibit
4 Agreement of Limited Partnership of Registrant.
(Incorporated by reference from Exhibit B of the
final Prospectus dated August 12, 1994, as
supplemented and filed with the Securities and
Exchange Commission, S. E. C. File No. 33-77510C)
4.1 Amended Agreement of Limited Partnership of
Registrant. (Incorporated by reference to the
corresponding exhibit in the Registrant's Form 10-K
for the year ended December 31, 1998)
10.1 Promissory Note dated November 28, 1998 between
Registrant and National Realty Funding L.C.
(Incorporated by reference to the corresponding
exhibit in the Registrant's Form 10-K for the year
ended December 31, 1998)
10.2 Promissory Note dated March 30, 1999 between
Registrant and National Realty Funding L.C.
27 Financial Data Schedule
99.1 Pages 12-16 of the final Prospectus dated August 12,
1994, as supplemented. (Incorporated by reference
from the final Prospectus filed with the Securities
and Exchange Commission pursuant to Rule 424 (b)
promulgated under the Securities Act of 1933, as
amended. S.E.C. File No. 33-77510C)
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K for the first quarter ended
March 31, 1999.
10
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
By: Captec Net Lease Realty, Inc.
Managing General Partner of
Captec Franchise Capital Partners L.P. III
By: /s/ W. Ross Martin
-----------------------------------------
W. Ross Martin
Executive Vice President,
Chief Financial Officer
Date: May 14, 1999
11
<PAGE> 14
EXHIBIT INDEX
Number Exhibit
- ------ -------
4 Agreement of Limited Partnership of Registrant. (Incorporated by
reference from Exhibit B of the final Prospectus dated August 12,
1994, as supplemented and filed with the Securities and Exchange
Commission, S.E.C. File No. 33-77510C)
4.1 Amended Agreement of Limited Partnership of Registrant. (Incorporated
by reference to the corresponding exhibit in the Registrant's Form
10-K for the year ended December 31, 1998)
10.1 Promissory Note dated November 28, 1998 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrant's Form 10-K for the year
ended December 31, 1998)
10.2 Promissory Note dated March 30, 1999 between Registrant and National
Realty Funding L.C.
27 Financial Data Schedule
99.1 Pages 12-16 of the final Prospectus dated August 12, 1994, as
supplemented. (Incorporated by reference from the final Prospectus
filed with the Securities and Exchange Commission pursuant to Rule
424(b) promulgated under the Securities Act of 1933, as amended.
S.E.C. File No. 33-77510C)
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
LOAN TERMS TABLE
LENDER: National Realty Funding L.C., a Missouri limited liability company,
its successors and assigns
LOAN NO.: 6347
LENDER'S ADDRESS: 911 Main Street, Suite #1400, Kansas City, Missouri 64105
LENDER'S FACSIMILE NO.: (816) 221-8848
BORROWER: Captec Franchise Capital Partners L.P. III, a Delaware limited
partnership
BORROWER'S ADDRESS: 24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O.
Box 544, Ann Arbor, Michigan 48106-0544
BORROWER'S FACSIMILE NO.: (734) 994-1376
BORROWER'S TAX IDENTIFICATION NUMBER: 38-3160141
PROPERTY: Each real property and the improvements thereon located as
described on Schedule A attached hereto and incorporated herein by reference
(collectively referred to as the "PROPERTIES" or individually as a "PROPERTY")
NOTE DATE: March 30, 1999
ORIGINAL PRINCIPAL AMOUNT: $1,994,000.00
MATURITY DATE: April 1, 2009
INTEREST RATE: 8.50 percent (8.50%) per annum
INITIAL INTEREST PAYMENT PER DIEM: $470.81
MONTHLY PAYMENT: $17,304.40
MONTHLY INTEREST ONLY PAYMENT DATE: May 1, 1999 and on the first day of each
successive month thereafter to and including April 1, 2001
MONTHLY PAYMENT DATE: May 1, 2001 and on the first day of each successive month
thereafter
FINANCIAL STATEMENT REPORTING DEPOSIT: $85.00
DEFEASANCE LOCK-OUT PERIOD: The period of time commencing on the Note Date and
expiring on the date (the "Defeasance Lock-Out Expiration Date") which is two
(2) years and fifteen (15) days after the "startup day" within the meaning of
Section 860G(a)(9) of the Internal Revenue Code of 1986, as amended (together
with any successor statute and the related Treasury Department Regulations
including temporary regulations, the "Code") of any "real estate mortgage
investment conduit" within the meaning of Section 860D of the Code ("REMIC")
that holds this Note
PREPAYMENT CONSIDERATION: During the Defeasance Lock-Out Period, the greater of:
(a) 5% of the Outstanding Principal Balance (hereinafter defined) of the Note
which is being prepaid, or (b) the Yield Maintenance Amount (hereinafter
defined)
1. LOAN AMOUNT AND RATE. FOR VALUE RECEIVED, Borrower promises to pay to
the order of Lender, the Original Principal Amount (or so much thereof as is
outstanding from time to time, which is referred to herein as the "Outstanding
Principal Balance"), with interest on
<PAGE> 2
the unpaid Outstanding Principal Balance from the date of disbursement of the
Loan (as hereinafter defined) proceeds of this Promissory Note ("Note") at the
Interest Rate. Interest shall be calculated on the basis of a three hundred
sixty (360) day year composed of twelve (12) months of thirty (30) days each
except that interest due and payable for a period less than a full month shall
be calculated by multiplying the actual number of days elapsed in such period by
a daily rate based on a 360 day year. The loan evidenced by this Note will
sometimes hereinafter be called the "Loan". The above Loan Terms Table
(hereinafter referred to as the "Table") is a part of the Note and all terms
used in this Note that are defined in the Table shall have the meanings set
forth therein.
2. PRINCIPAL AND INTEREST PAYMENTS. Payments of principal and interest
shall be made as follows:
(a) An interest payment on the date of disbursement in an amount
calculated by multiplying the Initial Interest Payment Per Diem by the number of
days from (and including) the date of the disbursement of the Loan proceeds
through the last day of the calendar month in which the disbursement was made;
and
(b) Interest only at the Interest Rate shall be payable in arrears on the
Outstanding Principal Balance on the Monthly Interest Only Payment Date through
and including April 1, 2001; and
(c) A Monthly Payment on each Monthly Payment Date until the Maturity
Date, each of such payments to be applied: (i) to the payment of interest
computed at the Interest Rate; and (ii) the balance applied toward the reduction
of the principal balance of the Loan; and
(d) If not sooner paid, the balance of the principal amount of the Loan,
all unpaid interest thereon, and all other amounts owed to Lender pursuant to
this Note or any other Loan Document (as hereinafter defined) or otherwise in
connection with the Loan or the security for the Loan shall be due and payable
on the Maturity Date.
3. SECURITY FOR NOTE. This Note is secured by first deeds of trust,
mortgages, or deeds to secure debt (which are herein collectively referred to as
the "SECURITY INSTRUMENTS" or individually as a "SECURITY INSTRUMENT")
encumbering each Property. This Note, the Security Instruments, and all other
documents and instruments evidencing and/or securing this Note whether now or
hereafter executed by Borrower or others in connection with or related to the
Loan, including any assignments of leases and rents, other assignments, security
agreements, financing statements, guaranties, indemnity agreements (including
environmental indemnity agreements), letters of credit, or completion/repair,
debt service, tenant finish/leasing commissions, earn-out or other
escrow/holdback or similar agreements or arrangements, together with all
amendments, modifications, substitutions or replacements thereof, are sometimes
herein collectively referred to as the "LOAN DOCUMENTS" or individually as a
"LOAN DOCUMENT". All amounts that are now or in the future become due and
payable under this Note, the Security Instruments, or any other Loan Document,
including any Prepayment Consideration (as hereinafter defined) and all
applicable expenses, costs, charges, and fees will be referred to herein as the
"DEBT." The remedies of Lender as provided in this Note, any other Loan
2
<PAGE> 3
Document, or under applicable law shall be cumulative and concurrent, may be
pursued singularly, successively, or together at the sole discretion of Lender,
and may be exercised as often as an occasion shall occur. The failure to
exercise any right or remedy shall not be construed as a waiver or release of
the right or remedy respecting the same or any subsequent default.
4. FINANCIAL STATEMENT REPORTING DEPOSIT; REBATE OF DEPOSIT. In addition
to and concurrently with each interest only payment and with each Monthly
Payment, Borrower shall also pay to Lender a constant monthly amount equal to
the Financial Statement Reporting Deposit. On the first day of the fourteenth
(14th) month following the date of the initial disbursement of funds under this
Note (the "Disbursement Date"), and on an annual basis thereafter during the
term of this Note, Lender shall remit to Borrower a portion of the Financial
Statement Reporting Deposit then held by Lender in an amount equal to the
aggregate amount of the Financial Statement Reporting Deposit actually received
by Lender during the twelve (12) month period ending upon the immediately prior
annual anniversary of the Disbursement Date (the "Annual Compliance Period")
provided that no Event of Default (as hereinafter defined), including any
failure by Borrower to strictly comply with the financial reporting requirements
set forth in the Security Instruments, is currently existing or has occurred in
the Annual Compliance Period.
5. PAYMENTS. All amounts payable hereunder shall be payable in lawful
money of the United States of America to Lender at Lender's Address or such
other place as the holder hereof may designate in writing. Each payment made
hereunder shall be made in immediately available funds and must state the
Borrower's Loan Number. If any payment of principal or interest on this Note is
due on a day other than a Business Day (as hereinafter defined), such payment
shall be made on the next succeeding Business Day, and such extension of time
shall be included in computing interest in connection with such payment. Any
payment on this Note received after 2:00 o'clock p.m. (CST or other applicable
current time in Kansas City, Missouri) shall be deemed to have been made on the
next succeeding Business Day. All amounts due under this Note shall be payable
without set off, counterclaim, or any other deduction whatsoever. All payments
from Borrower to Lender following the occurrence and during the continuance of
an Event of Default shall be applied in such order and manner as Lender elects
in its sole discretion in reduction of costs, expenses, charges, disbursements
and fees payable by Borrower hereunder or under any other Loan Document, in
reduction of interest due on unpaid principal, or in reduction of principal.
Lender may, without notice to Borrower or any other person, accept one or more
partial payments of any sums due or past due hereunder from time to time while
an uncured Event of Default exists hereunder, after Lender accelerates the
indebtedness evidenced hereby, and/or after Lender commences enforcement of its
remedies under any Loan Document or applicable law, without thereby waiving any
Event of Default, rescinding any acceleration, or waiving, delaying, or
forbearing in the pursuit of any remedies under the Loan Documents. Lender may
endorse and deposit any check or other instrument tendered in connection with
such a partial payment without thereby giving effect to or being bound by any
language purporting to make acceptance of such instrument an accord and
satisfaction of the indebtedness evidenced hereby. As used herein, the term
"Business Day" shall mean a day upon which commercial banks are not authorized
or required by law to close in Kansas City, Missouri.
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6. LATE CHARGE. If any sum payable under this Note or any other Loan
Document is not received by Lender by close of business on the fifth (5th) day
after the date on which it was due, Borrower shall pay to Lender an amount (the
"Late Charge") equal to the lesser of (a) five percent (5%) of the full amount
of such sum or (b) the maximum amount permitted by applicable law in order to
help 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. Any such Late Charge shall be secured by the Security
Instruments and other Loan Documents. The collection of any Late Charge shall be
in addition to, and shall not constitute a waiver of or limitation of, a default
or Event of Default hereunder or a waiver of or limitation of any other rights
or remedies that Lender may be entitled to under any Loan Document or applicable
law.
7. DEFAULT RATE. Upon the occurrence and during the continuance of an
Event of Default (including the failure of Borrower to make full payment on the
Maturity Date), Lender shall be entitled to receive and Borrower shall pay
interest on the Outstanding Principal Balance at the rate of four percent (4%)
per annum above the Interest Rate ("Default Rate") but in no event greater than
the maximum rate permitted by applicable law. Interest shall accrue and be
payable at the Default Rate from the occurrence of an Event of Default until all
Events of Default have been fully cured. Such accrued interest, if not paid on
demand, shall be added to the Outstanding Principal Balance, and interest shall
accrue on such accrued interest at the Default Rate until fully paid. Such
accrued interest shall be secured by the Security Instruments and other Loan
Documents. Borrower agrees that Lender's right to collect interest at the
Default Rate is given for the purpose of compensating Lender at reasonable
amounts for Lender's added costs and expenses that occur as a result of
Borrower's default and that are difficult to predict in amount, such as
increased general overhead, concentration of management resources on problem
loans, and increased cost of funds. Lender and Borrower agree that Lender's
collection of interest at the Default Rate is not a fine or penalty, but is
intended to be and shall be deemed to be reasonable compensation to Lender for
increased costs and expenses that Lender will incur if there occurs an Event of
Default hereunder. Collection of interest at the Default Rate shall not be
construed as an agreement or privilege to extend the Maturity Date or to limit
or impair any rights and remedies of Lender under any Loan Documents. If
judgment is entered on this Note, interest shall continue to accrue
post-judgment at the greater of (a) the Default Rate or (b) the applicable
statutory judgment rate.
8. COLLECTION EXPENSES. Borrower shall pay on demand, in addition to the
principal and interest due, all reasonable expenses of protecting the security
for this Note and all expenses of enforcement and collection, including costs
for title insurance searches and endorsements, retention of collection agents,
court costs and litigation expenses in connection with any proceedings of any
nature, including appellate and bankruptcy proceedings, and all reasonable
attorneys' fees and expenses, whether incurred as part of or separately from any
formal legal proceedings.
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9 PREPAYMENT; DEFEASANCE.
(A) PREPAYMENT.
(i) RESTRICTIONS. Voluntary prepayment of this Note is prohibited
except during the last ninety (90) days of the term when prepayment may be made
in whole, but not in part, without payment of any premium or penalty, on any
Monthly Payment Date. However, if (a) the tenant of any Property (each a
"TENANT") shall validly exercise its purchase option to acquire such Property in
accordance with the terms of its lease (each a "PURCHASE OPTION") at any time
prior to the Defeasance Lock-out Expiration Date, (b) Borrower complies in all
respects with the applicable provisions of this Section 9(a), and (c) as of the
Prepayment Date (as hereinafter defined), no Event of Default exists and no
event exists that, with the passage of time, giving of notice, or modification
or termination of the automatic stay of Section 362 of the Bankruptcy Code, may
become an Event of Default ("Default"), Borrower shall be permitted and is
hereby obligated to prepay the Loan in part but not in whole. Each such
prepayment shall be deemed a "PURCHASE OPTION PREPAYMENT", and the entire amount
payable by Tenant under such lease to exercise its Purchase Option (the
"PURCHASE PRICE") shall be paid directly to Lender for application by Lender as
hereinafter provided. Notwithstanding anything to the contrary contained herein,
Borrower shall use best efforts to cause such Purchase Option Prepayments to
occur during the first twenty (20) calendar days of any month during the term of
this Note.
(ii) NOTICE. Borrower shall give written notice to Lender specifying
the date on which a Purchase Option Prepayment shall be made (the "PREPAYMENT
DATE"). Borrower shall cause Lender to receive this notice not more than sixty
(60) days and not less than (30) days prior to the Prepayment Date. If the
Purchase Option is exercised, the amount of the Purchase Option Prepayment shall
be due and payable on the Prepayment Date, unless (a) an event shall occur
outside of Borrower's control that prevents the Purchase Option Prepayment, or
(b) Borrower has elected not to consummate the transaction which would result in
the Purchase Option Prepayment. If such an event shall occur, the Note, Security
Instruments and Loan Documents shall continue in full force and effect as if the
notice of prepayment had not been given.
(iii) PREPAYMENT CONSIDERATION. The entire Purchase Price shall be
used to make the Purchase Option Prepayment and pay the Prepayment Consideration
attributable thereto. Borrower acknowledges that the amount to be allocated as
between the Prepayment Consideration and the Purchase Option Prepayment cannot
be determined until on or about the Prepayment Date. Lender shall determine in
its sole discretion the amount of the Purchase Option Prepayment to be applied
to the Outstanding Principal Balance and the amount to be applied to the
Prepayment Consideration, which shall be computed in accordance with the Table
and Section 9(a)(iv) hereof. Borrower acknowledges that the Prepayment
Consideration is a bargained for consideration and not a penalty, and Borrower
recognizes that Lender will incur substantial additional costs and expenses in
the event of a Purchase Option Prepayment and that the Prepayment Consideration
compensates Lender for such costs and expenses and the loss of Lender's
investment opportunity for the principal amount being prepaid during the period
from the Prepayment Date until the Maturity Date. Borrower agrees that Lender
shall not, as a
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condition to receiving any Prepayment Consideration, be obligated to actually
reinvest the amount prepaid in any treasury obligation or in any other manner
whatsoever.
(iv) YIELD MAINTENANCE AMOUNT. The "YIELD MAINTENANCE AMOUNT" (as the
term is used in the Table and elsewhere in this Note) shall mean the excess of:
(A) the present value, as of the Prepayment Date, of each of the then remaining
scheduled payments of principal and interest payable under this Note from the
Prepayment Date through the Maturity Date (including any balloon payment)
determined by: (1) subtracting from each then remaining scheduled payment of
principal and interest the amount of principal and interest that is still
scheduled to be paid on the due date thereof following the Purchase Option
Prepayment; and (2) discounting such payments (using simple discounting) at the
Discount Rate (hereinafter defined); over (B) the amount of principal being
prepaid. The term "DISCOUNT RATE" shall mean the rate that, when compounded
monthly, is equivalent to the Treasury Rate (hereinafter defined) when
compounded semi-annually. The term "TREASURY RATE" shall mean the yield
calculated by the linear interpolation of the yields, as reported in Federal
Reserve Statistical Release H.15-Selected Interest Rates under the heading U.S.
Government Securities/Treasury Constant Maturities for the week ending prior to
the Prepayment Date, of U.S. Treasury constant maturities with maturity dates
(one longer and one shorter) most nearly approximating the Maturity Date. (If
Release H.15 is no longer published, Lender shall select a comparable
publication to determine the Treasury Rate.)
(v) Borrower shall provide to Lender on or before the Prepayment
Date:
(a) an opinion satisfactory to Lender in its sole discretion of
a qualified valuation expert satisfactory to Lender in its sole
discretion, stating, among other things but without substantive
qualification, that (1) the loan-to-value ratio of the Loan and all of
the collateral for the Loan under the Loan Documents will not in such
expert's opinion change significantly as a result of the Purchase
Option Prepayment and partial release and any other transactions that
occur pursuant to the provisions of this Section 9(a); and (2)
immediately after the occurrence of such transaction the fair market
value of the collateral that secures the Loan will be at least equal
to eighty percent (80%) of the amount of the Loan; and
(b) an opinion of counsel for Borrower satisfactory to Lender
in its sole discretion, delivered to Lender by counsel satisfactory to
Lender in its sole discretion, stating, among other things but without
substantive qualification, that (1) neither the Purchase Option
Prepayment nor any other transaction that occurs pursuant to the
provisions of this Section 9(a) has caused or will cause the Loan
(including for this purpose the Loan Documents) to cease to be a
"qualified mortgage" within the meaning of Section 860G of the Code,
either under the provisions of Treasury Regulation Sections
1.860G-2(a)(8) or 1.860G-2(b) (as such regulations may be amended or
superseded from time to time) or under any other provision of the Code
or otherwise, and (2) each of any REMIC or any other entity that holds
this Note will not cease to be qualified as a REMIC or as such
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<PAGE> 7
other type of entity as a result of the Purchase Option Prepayment
and/or any other transaction that occurs pursuant to the provisions of
this Section 9(a).
(vi) Borrower shall pay all costs and expenses including reasonable
attorneys' fees incurred by Lender or its servicers or other agent(s) in
connection with any Purchase Option Prepayment and related transactions,
including review of the foregoing opinions and any court costs and litigation
expenses incurred in connection with any attempted revocation or nullification
of the exercise of any Purchase Option by a Tenant.
(vii) It shall be an event of default under this Note (a "PURCHASE
OPTION PREPAYMENT DEFAULT") if (a) Borrower fails to strictly comply with all of
the requirements of the preceding clauses (i) through (vi) of this Section 9(a)
on or before the Prepayment Date, (b) the disposition of a Property pursuant to
the exercise of any Purchase Option is consummated (whether in accordance with
the terms of the lease, by order of any court or otherwise), and (c) Lender
receives or is required to receive the Purchase Price. If a Purchase Option
Prepayment Default shall occur, Lender may declare the entire Debt, including
the principal balance of the Loan (deducting therefrom the amount of the
Purchase Price actually received by Lender, which shall be applied to the
Outstanding Principal Balance), all accrued interest, and all costs, expenses,
charges and fees payable under any Loan Document, together with any applicable
Default Prepayment Consideration (which shall be calculated on the entire
Outstanding Principal Balance without deduction for the amount of the Purchase
Price), immediately due and payable.
(B) DEFEASANCE.
(i) FULL DEFEASANCE. Provided that as of the Release Date (as
hereinafter defined) the Debt has not been accelerated, no Default or Event of
Default exists, Borrower may cause the release of the Properties from the liens
of the Security Instruments and the other Loan Documents (a "FULL DEFEASANCE")
on any Monthly Payment Date following the Defeasance Lock-out Expiration Date
upon Borrower's satisfaction of the following conditions:
(A) Borrower shall provide Lender not less than thirty (30) days
prior written notice specifying a Monthly Payment Date (such Date, or
any extended date upon which Borrower and Lender may mutually agree is
referred to herein as the "RELEASE DATE") on which the Full Defeasance
transaction is to be consummated;
(B) On the Release Date Borrower shall pay in full all
accrued and unpaid interest and all other sums due under this Note and
under the other Loan Documents up to the Release Date, including all
costs and expenses including attorneys' fees incurred by Lender or its
servicers or other agent(s) or to or on behalf of any rating agencies
in connection with such release and related transactions (including
the review of the proposed Defeasance Collateral and the preparation
of the Defeasance Security Agreement (as hereinafter defined) and
related documentation) together with a defeasance processing fee in an
amount equal to one-half of one percent (0.5%) of the then Outstanding
Principal Balance but in no event less than (A) $10,000 or greater
than (B) $20,000; and
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<PAGE> 8
(C) Borrower shall deliver the following, all of which must be
satisfactory to Lender in its sole discretion, at or prior to the
release of the Properties and substitution of the Defeasance
Collateral:
(1) Direct, non-callable and non-redeemable securities
evidencing an obligation to pay principal and interest in a full
and timely manner that are direct obligations of the United
States of America for the payment of which its full faith and
credit is pledged ("GOVERNMENT SECURITIES") in amounts sufficient
to pay all scheduled principal and interest payments required
under this Note (the "DEFEASANCE COLLATERAL"), which securities
provide for payments prior, but as close as possible, to the
Business Day prior to each successive Monthly Payment Date
occurring after the Release Date, with each such payment being
equal to or greater than the amount of the corresponding Monthly
Payment required to be made hereunder for the balance of the term
hereof plus the amount required to be paid on the Maturity Date
(the "SCHEDULED DEFEASANCE PAYMENTS"), 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 satisfactory to Lender in its sole discretion
(including such instruments as may be required by the depository
institution or other entity 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 (as hereinafter defined) a valid,
first priority lien and security interest therein in favor of
Lender in conformity with all applicable state and federal laws
governing granting of such security interest;
(2) any and all agreements, certificates, opinions,
documents or instruments required by Lender in its sole
discretion in connection with the Full Defeasance including (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"), and (b) any and all
agreements, certificates, opinions, documents, or instruments
required by Lender in its sole discretion that affect or relate
in any way to the maintenance by any REMIC that holds this Note
of its qualification and status for tax purposes as a REMIC
(collectively "REMIC QUALIFICATION DOCUMENTS");
(3) a certificate of Borrower certifying that (a) all of
the requirements set forth in this Section 9(b) have been
satisfied, (b) the transactions that are being carried out
pursuant to this Section 9(b) (including specifically the release
of the lien of the Security Instrument) are being effected to
facilitate the disposition of the Property or any other customary
commercial transaction and not as part of an arrangement to
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<PAGE> 9
collateralize a REMIC offering with obligations that are not real
estate mortgages, and (c) the amounts of the Defeasance
Collateral comply with all the requirements of this Section
including the requirement that the Defeasance Collateral shall
generate monthly amounts equal to or greater than the Scheduled
Defeasance Payments;
(4) an opinion of counsel for Borrower satisfactory to
Lender in its sole discretion, delivered to Lender by counsel
satisfactory to Lender in its sole discretion, stating, among
other things but without substantive qualification, that (a)
Lender has a valid, duly perfected, first priority security
interest in the Defeasance Collateral and that the Defeasance
Security Agreement is enforceable against Borrower in accordance
with its terms, (b) neither the Full Defeasance nor any other
transaction that occurs pursuant to the provisions of this
Section 9(b) has caused or will cause the Loan (including for
this purpose the Loan Documents) to cease to be a "qualified
mortgage" within the meaning of Section 860G of the Code, either
under the provisions of Treasury Regulation Sections
1.860G-2(a)(8) or 1.860G-2(b) (as such regulations may be amended
or superseded from time to time) or under any other provision of
the Code or otherwise, and (c) each of any REMIC or any other
entity that holds this Note will not cease to be qualified as a
REMIC or as such other type of entity as a result of the Full
Defeasance and/or any other transaction that occurs pursuant to
the provisions of this Section 9(b);
(5) a certificate and opinion delivered by an independent
certified public accounting firm acceptable to Lender in its sole
discretion (a) certifying that the amounts of the Defeasance
Collateral comply with all the requirements of this Section
including the requirement that the Defeasance Collateral shall
generate monthly amounts equal to or greater than the Scheduled
Defeasance Payments; (b) setting forth the change in the yield of
the Loan that results from the Full Defeasance and any other
transactions that occur pursuant to the provisions of this
Section 9(b), including supporting computations which shall be
made in a manner that is consistent with the provisions of
Treasury Regulation Sections 1.1001-3(e)(1) and (2), and (c)
opining that such change has not constituted or caused and will
not constitute or cause a significant modification of the Loan
(including for this purpose the Loan Documents) under such
provisions of the regulations;
(6) written confirmation from the rating agencies that
have rated any of the securities issued by any REMIC that holds
this Note to the effect that the Full Defeasance will not result
in a downgrading, withdrawal or qualification of the respective
ratings in effect immediately prior to such Full Defeasance for
any rated securities then outstanding, and if required by any
rating agency or Lender, a non-consolidation opinion
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<PAGE> 10
with respect to the Defeasance Obligor (as hereinafter defined)
in form and substance satisfactory to Lender and such rating
agency; and
(7) Borrower shall (unless otherwise agreed to in writing
by Lender in its sole discretion), at Borrower's sole expense,
assign all of its obligations under this Note, together with the
Defeasance Collateral, to a successor entity ("DEFEASANCE
OBLIGOR") designated by Borrower and approved by Lender in its
sole discretion that is a single purpose, bankruptcy remote
entity as determined by Lender in its sole discretion. The
Defeasance Obligor shall execute an assumption agreement pursuant
to which it shall assume Borrower's obligations under this Note,
the Loan Documents, and the Defeasance Security Agreement. As
conditions to such assignment and assumption, Borrower shall (a)
deliver to Lender an opinion of counsel satisfactory to Lender in
its sole discretion, delivered to Lender by counsel satisfactory
to Lender in its sole discretion, stating, among other things,
that such assumption agreement has been duly authorized and is
enforceable against Borrower and the Defeasance Obligor in
accordance with its terms, that the Note, the Defeasance Security
Agreement and the other Loan Documents, as so assumed, have been
duly authorized and are enforceable against the Defeasance
Obligor in accordance with their respective terms, and that the
delivery of the Defeasance Collateral to the Defeasance Obligor
does not constitute a fraudulent transfer, preferential payment,
or other voidable transfer under applicable bankruptcy law,
subject only to such reasonable and customary conditions,
limitations, exceptions and assumptions as are reasonably
satisfactory to Lender, and (b) pay all costs and expenses
including attorneys' fees incurred by Lender or its servicer or
other agent(s) in connection with such assignment and assumption
(including the review of the proposed transferee and the
preparation of the assumption agreement and related
documentation). Upon such assumption, Borrower shall be relieved
of its obligations under this Note, the Defeasance Security
Agreement and the other Loan Documents, other than those
obligations which are specifically intended to survive the
payment of this Note and the termination, satisfaction or
assignment of this Note, the Defeasance Security Agreement or the
other Loan Documents or the exercise of Lender's rights and
remedies under any of such documents and instruments.
(D) Upon compliance with the requirements of this Section,
Lender shall release the Properties from the liens of the Security
Instruments and the other Loan Documents, and the Defeasance
Collateral shall constitute collateral which shall secure this Note
and all other obligations under the Loan Documents. Lender will, at
Borrower's expense, execute and deliver any agreements reasonably
requested by Borrower to release the liens of the Security Instruments
from the Properties. Borrower, pursuant to the Defeasance Security
Agreement,
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shall authorize and direct that the payments received from Defeasance
Collateral be made directly to Lender and applied to satisfy the
obligations of Borrower under this Note.
(E) Upon the release of the Properties in accordance with this
Section 9(b), Borrower shall have no further right to prepay this
Note. Borrower shall pay any revenue, documentary stamp or intangible
taxes or any other tax or charge due in connection with the transfer
of this Note or otherwise required to accomplish the agreements of
this Section.
(F) If any notice of Full Defeasance is given pursuant to
Section 9(b)(i)(A), Borrower shall be required to defease the Loan on
the Release Date (unless such notice is revoked by Borrower prior to
the Release Date in which event Borrower shall immediately reimburse
Lender for any and all reasonable costs and expenses incurred by
Lender in connection with Borrower's giving of such notice and
revocation).
(G) At Borrower's request, Lender may agree in its sole
discretion that Lender or its servicer or other agent, acting on
Borrower's behalf as Borrower's agent and attorney-in-fact, shall
purchase the Defeasance Collateral that Borrower is required to
deliver to Lender pursuant to Section 9(b)(i)(C)(1). If such an
agreement is made then Borrower shall deposit with Lender or Lender's
servicer or other agent, as directed by Lender or Lender's agent(s),
on or prior to the Release Date a sum of money sufficient to purchase
the Defeasance Collateral. By making such deposit Borrower shall
thereby appoint Lender or Lender's servicer or other agent as
Borrower's agent and attorney-in-fact, with full power of
substitution, for the purpose of purchasing the Defeasance Collateral
with the funds so provided and delivering the Defeasance Collateral to
Lender pursuant to Section 9(b)(i)(C)(1).
(H) Notwithstanding any release of the Security Instrument or
any Full Defeasance hereunder, the Defeasance Obligor shall, and
hereby agrees to be, bound by and obligated under Sections 3.1
(Payment of Debt), 7.2 (Further Acts Etc.), 7.4(a) (Estoppel
Certificates), 11.2 (Application of Proceeds), 11.7 (Other Rights
Etc.) and 14.2 (Marshalling and Other Matters) and Article 13
(Indemnification) of the Security Instrument; provided, however, that
all references therein to "PROPERTY" or "PERSONAL PROPERTY" shall be
deemed to refer only to the Defeasance Collateral delivered to Lender.
(ii) PARTIAL DEFEASANCE. If any Tenant shall have validly exercised
its Purchase Option to acquire a Property after the Defeasance Lock-out
Expiration Date, Borrower may cause the release of such Property from the lien
of the Security Instrument encumbering such Property and the other Loan
Documents and substitute collateral as provided herein (a "PARTIAL DEFEASANCE")
on any Monthly Payment Date following the Defeasance Lock-Out
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Expiration Date provided that, as of the Release Date, the Debt has not been
accelerated, no Default or Event of Default exists, and upon satisfaction of the
following conditions:
(A) Immediately available funds shall have been wired to
Lender's servicing agent or other designee (the "SERVICER") or, if
there is no Servicer, Lender or Lender's designee (Servicer, Lender,
or Lender's designee being herein sometimes referred to for this
purpose as the "DEFEASANCE AGENT") in an amount (the "PROCEEDS") equal
to the greater of (1) the Purchase Price of such Property, net of
closing costs, or (2) the net present value as determined by the
Defeasance Agent in its sole discretion, using the weighted average
yield of the Government Securities purchased pursuant to Section
9(b)(ii)(B) as the discount rate to compute such value, of the partial
defeasance principal amount set forth on Schedule B attached hereto
attributable to the Property that is the subject of the Purchase
Option (the "PARTIAL DEFEASANCE PRINCIPAL AMOUNT") together with
interest thereon at the Interest Rate from the Release Date to the
Maturity Date;
(B) Borrower hereby appoints Defeasance Agent as Borrower's
agent and attorney-in-fact to utilize all Proceeds (or as much of the
Proceeds as is possible) to purchase Government Securities, which
securities provide for payments ("PARTIAL SCHEDULED DEFEASANCE
PAYMENTS") that replicate as closely as possible (ie. are made in the
same proportions as) the scheduled payments due under -- this Note for
the balance of the term hereof including the amount (adjusted to
reflect any Purchase Option Prepayments received by Lender prior to
the Defeasance Lock-Out Expiration Date) required to be paid on the
Maturity Date, all as determined by the Defeasance Agent in its sole
discretion (all such Government Securities are hereinafter referred to
as the "PARTIAL DEFEASANCE COLLATERAL"). If the Defeasance Agent
determines in its sole discretion that all Proceeds cannot be used to
purchase Partial Defeasance Collateral, then such excess Proceeds
shall be delivered to Borrower. Each Government Security included in
the Partial Defeasance Collateral shall be duly endorsed by the holder
thereof as directed by Lender or accompanied by a written instrument
of transfer in form and substance satisfactory to Lender in its sole
discretion (including such instruments as may be required by the
depository institution or other entity 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 a valid, first priority lien and security interest therein
in favor of Lender in conformity with all applicable state and federal
laws governing granting of such security interest.
(C) Borrower shall have provided Lender with not less than
thirty (30) days prior written notice specifying the Release Date on
which the Partial Defeasance transaction is to be consummated;
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(D) On the Release Date, Borrower shall have paid in full all
accrued and unpaid interest and all other sums due under this Note and
under the other Loan Documents up to the Release Date, including all
costs and expenses including reasonable attorneys' fees incurred by
Lender or the Defeasance Agent or to or on behalf of any rating
agencies in connection with such release and related transactions
(including the review of the proposed Partial Defeasance Collateral
and the preparation of the Defeasance Security Agreement and related
documentation) together with a defeasance processing fee in an amount
equal to one-half of one percent (0.5%) of the portion of the
Outstanding Principal Balance being defeased, but in no event less
than (A) $10,000 or greater than (B) $20,000; and
(E) Defeasance Agent shall have obtained, as Borrower's agent
and on Borrower's behalf at Borrower's sole cost and expense, the
following, all of which must be satisfactory to Lender in its sole
discretion, at or prior to the release of any Property and
substitution of the Partial Defeasance Collateral:
(1) any and all agreements, certificates, opinions or
documents required by Lender in its sole discretion in connection
with the Partial Defeasance including a Defeasance Security
Agreement and any REMIC Qualification Documents;
(2) a certificate certifying that (a) all of the
requirements set forth in this Section 9(b)(ii) have been
satisfied, (b) the transactions that are being carried out
pursuant to this Section 9(b)(ii) (including specifically the
release of the lien of any Security Instrument) are being
effected to facilitate the disposition of one or more of the
Properties or any other customary commercial transaction and not
as part of an arrangement to collateralize a REMIC offering with
obligations that are not real estate mortgages, and (c) the
amounts of the Partial Defeasance Collateral comply with all the
requirements of this section including, the requirement that the
Partial Defeasance Collateral shall generate monthly amounts
equal to or greater than the Partial Scheduled Defeasance
Payments required to be paid under this Note through the Maturity
Date;
(3) an opinion of counsel for Borrower satisfactory to
Lender in its sole discretion, delivered to Lender by counsel
satisfactory to Lender in its sole discretion, stating, among
other things but without substantive qualification, that (a)
Lender has a valid, duly perfected, first priority security
interest in the Partial Defeasance Collateral and that the
Defeasance Security Agreement is enforceable against Borrower in
accordance with its terms, (b) neither the Partial Defeasance nor
any other transaction that occurs pursuant to the provisions of
this Section 9(b)(ii) has caused or will cause the Loan
(including for this purpose the Loan Documents) to cease to be a
"qualified mortgage" within the meaning of
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Section 860G of the Code, either under the provisions of Treasury
Regulation Sections 1.860G-2(a)(8) or 1.860G-2(b) (as such
regulations may be amended or superseded from time to time) or
under any other provision of the Code or otherwise, and (c) each
of any REMIC or any other entity that holds this Note will not
cease to be qualified as a REMIC or as such other type of entity
as a result of the Partial Defeasance and/or any other
transaction that occurs pursuant to the provisions of this
Section 9(b)(ii);
(4) a certificate and opinion delivered by an independent
certified public accounting firm acceptable to Lender in its sole
discretion (a) certifying that the amounts of the Partial
Defeasance Collateral comply with all the requirements of this
Section including the requirement that the Partial Defeasance
Collateral shall generate monthly amounts equal to or greater
than the Partial Scheduled Defeasance Payments; and (b) setting
forth the change in the yield of the Loan that results from any
Partial Defeasance and any other transactions that occur pursuant
to the provisions of this Section 9(b)(ii), including supporting
computations which shall be made in a manner that is consistent
with the provisions of Treasury Regulation Sections
1.1001-3(e)(1) and (2), and opining that such change has not
constituted or caused and will not constitute or cause a
significant modification of the Loan (including for this purpose
the Loan Documents) under such provisions of the regulations;
(5) written confirmation from the rating agencies that
have rated any of the securities issued by any REMIC that holds
this Note to the effect that no Partial Defeasance will result in
a downgrading, withdrawal or qualification of the respective
ratings in effect immediately prior to such Partial Defeasance
for any rated securities then outstanding, and if required by any
rating agency or Lender, a non-consolidation opinion with respect
to the Defeasance Obligor in form and substance satisfactory to
Lender and such rating agency; and
(6) Defeasance Agent, as Borrower's agent and
attorney-in-fact, shall cause Borrower, at Borrower's sole
expense, to assign an undivided interest in the Note equal to the
percentage obtained by dividing the Partial Defeasance Principal
Amount by the original principal amount of the Loan (the "PARTIAL
DEFEASANCE PORTION") together with the Partial Defeasance
Collateral, to the Defeasance Obligor. The Defeasance Obligor
shall execute an assumption agreement pursuant to which it shall
assume Borrower's obligations under this Note with respect to the
Partial Defeasance Portion and the Defeasance Security Agreement.
As conditions to such assignment and assumption, Defeasance Agent
shall obtain for Lender, at Borrower's sole expense and on
Borrower's behalf, an opinion of counsel satisfactory to Lender
in its sole discretion delivered
14
<PAGE> 15
by counsel satisfactory to Lender in its sole discretion stating,
among other things, that such assumption agreement has been duly
authorized and is enforceable against Borrower and the Defeasance
Obligor in accordance with its terms, that the Note and the
Defeasance Security Agreement, as so assumed, have been duly
authorized and are enforceable against the Defeasance Obligor in
accordance with their respective terms, and that the delivery of
the Partial Defeasance Collateral to the Defeasance Obligor does
not constitute a fraudulent transfer, preferential payment, or
other voidable transfer under applicable bankruptcy law, subject
only to such reasonable and customary conditions, limitations,
exceptions and assumptions as are reasonably satisfactory to
Lender. Borrower shall be solely responsible for paying all
reasonable costs and expenses including attorneys' fees incurred
by Lender or Defeasance Agent or other agent(s) in connection
with such assignment and assumption (including the review of the
proposed transferee and the preparation of the assumption
agreement and related documentation).
(F) Upon compliance with the requirements of this
Section 9(b)(ii), Lender shall release the Property involved in the
Partial Defeasance from the lien of the Security Instrument
encumbering such Property, and the Partial Defeasance Collateral shall
constitute a portion of the collateral securing this Note. Lender
will, at Borrower's expense, execute and deliver any agreements
reasonably requested by Borrower or Defeasance Agent to release the
lien of the Security Instrument from such Property. Borrower, pursuant
to the Defeasance Security Agreement, shall authorize and direct that
the payments received from the Partial Defeasance Collateral be made
directly to Lender and applied to partially satisfy the obligations of
Borrower under this Note. Upon determination of the Partial Scheduled
Defeasance Payments, the portion of the Monthly Payment payable from
sources other than Partial Defeasance Collateral shall be adjusted by
subtracting the monthly Partial Scheduled Defeasance Payment from the
amount of the Monthly Payment, and Borrower shall thereafter be
required on each Monthly Payment to pay on each Monthly Payment Date
such portion of the Monthly Payment from sources of funds other than
the Partial Defeasance Collateral.
(G) Borrower shall pay any revenue, documentary stamp or
intangible taxes or any other tax or charge due in connection with the
transfer of the Partial Defeasance Interest in this Note or otherwise
required to accomplish the agreements of this Section.
(H) If any notice of Partial Defeasance is given pursuant to
Section 9(b)(ii)(C), Defeasance Agent shall be required to defease all
or any portion of the Loan on a Release Date (unless such notice is
revoked by Borrower prior to such Release Date in which event Borrower
shall immediately reimburse Lender and Defeasance Agent for any and
all reasonable costs and expenses
15
<PAGE> 16
incurred by Lender or Defeasance Agent in connection with Borrower's
giving of such notice and revocation).
(I) Borrower hereby irrevocably appoints Defeasance Agent as
Borrower's agent and attorney-in-fact, which appointment is coupled
with an interest and with full power of substitution, for the purpose
of purchasing the Defeasance Collateral with the Proceeds and
delivering the Partial Defeasance Collateral to Lender pursuant to
Sections 9(b)(ii)(A) and (B). Borrower hereby ratifies and confirms
all acts done or omitted to be done by Defeasance Agent under the
authority of such power of attorney.
(J) Notwithstanding any release of any Security Instrument
or any Partial Defeasance hereunder, the Defeasance Obligor shall, and
hereby agrees to be, bound by and obligated under Sections 3.1
(Payment of Debt), 7.2 (Further Acts Etc.), 7.4(a) (Estoppel
Certificates), 11.2 (Application of Proceeds), 11.7 (Other Rights
Etc.) and 14.2 (Marshalling and Other Matters) and Article 13
(Indemnification) of the Security Instruments; provided, however (a)
all references therein to "PROPERTY" or "PERSONAL PROPERTY" shall be
deemed to refer only to the Partial Defeasance Collateral delivered to
Lender, and (b) the Defeasance Obligor shall be only obligated to pay
a portion of the Debt equal to the Partial Defeasance Portion.
(K) It shall be an event of default under this Note (a "PARTIAL
DEFEASANCE DEFAULT") if (a) Borrower fails to strictly comply with all
of the requirements of the preceding clauses (A) through (J) of this
Section 9(b)(ii) on or before the Release Date, (b) the disposition of
a Property pursuant to the exercise of any Purchase Option is
consummated (whether in accordance with the terms of the lease, by
order of any court, or otherwise), and (c) Lender receives or is
required to receive the Purchase Price. If a Partial Defeasance
Default shall occur, Lender may declare the entire Debt, including the
principal balance of the Loan (deducting therefrom the amount of the
Purchase Price actually received by Lender, which shall be applied to
the Outstanding Principal Balance), all accrued interest, and all
costs, expenses, charges and fees payable under any Loan Document,
together with any applicable Default Prepayment Consideration (which
shall be calculated on the entire Outstanding Principal Balance
without deduction for the amount of the Purchase Price), immediately
due and payable.
(C) DEFAULT PREPAYMENT. If a Default Prepayment (as hereinafter defined)
occurs, such Default Prepayment shall be deemed to be a voluntary prepayment
under this Note and in such case the applicable Default Prepayment Consideration
(as hereinafter defined) shall be due and payable to Lender in connection with
such Default Prepayment. The Default Prepayment Consideration shall be secured
by all security and collateral for the Loan and shall be added to the
Outstanding Principal Balance for all purposes including accrual of interest,
judgment on the Note, foreclosure (whether through power of sale, judicial
proceeding, or otherwise), redemption, and bankruptcy (including pursuant to
Section 506 of the United States Bankruptcy Code). The
16
<PAGE> 17
term "DEFAULT PREPAYMENT" shall mean a prepayment of the principal amount of
this Note made after occurrence of a Default or Event of Default under any
circumstances including a prepayment in connection with reinstatement of any
Security Instrument provided by statute under foreclosure proceedings or
exercise of power of sale, any statutory right of redemption exercised by
Borrower or any other party having a statutory right to redeem or prevent
foreclosure or power of sale, any sale in foreclosure or under exercise of a
power of sale or otherwise (including pursuant to a credit bid made by Lender in
connection with such sale), or any other collection action by Lender.
Classification and treatment of Lender's claim pursuant to a plan of
reorganization in bankruptcy shall also be deemed to be a Default Prepayment
hereunder. The "DEFAULT PREPAYMENT CONSIDERATION" (as the term is used in this
Note) shall mean the present value, as of the date of the occurrence of the
Default, of the remaining scheduled payments of principal and interest from the
date of the occurrence of the Default through the Maturity Date (including any
balloon payment), which shall be determined by discounting such payments (using
simple discounting) at the Discount Rate less the amount of principal being
prepaid.
10. MAXIMUM RATE PERMITTED BY LAW. All agreements in this Note and all
other Loan Documents are expressly limited so that in no contingency or event
whatsoever, whether by reason of acceleration of maturity of the indebtedness
evidenced hereby or otherwise, shall the amount agreed to be paid hereunder for
the use, forbearance, or detention of money exceed the highest lawful rate
permitted under applicable usury laws. If, from any circumstance whatsoever,
fulfillment of any provision of this Note or any other Loan Document at the time
performance of such provision shall be due shall involve exceeding any usury
limit prescribed by law that a court of competent jurisdiction may deem
applicable hereto, then, ipso facto, the obligations to be fulfilled shall be
reduced to allow compliance with such limit, and if, from any circumstance
whatsoever, Lender shall ever receive as interest an amount that would exceed
the highest lawful rate, the receipt of such excess shall be deemed a mistake
and shall be canceled automatically or, if theretofore paid, such excess shall
be credited against the principal amount of the indebtedness evidenced hereby to
which the same may lawfully be credited, and any portion of such excess not
capable of being so credited shall be refunded immediately to Borrower.
11. EVENTS OF DEFAULT; ACCELERATION OF AMOUNT DUE. Lender may in its sole
discretion, without notice to Borrower, declare the entire Debt, including the
principal balance of the Loan, all accrued interest, and all costs, expenses,
charges and fees payable under any Loan Document, together with any applicable
Default Prepayment Consideration, immediately due and payable, and Lender shall
have all remedies available to it at law or equity for collection of the amounts
due, if any of the following (the "EVENTS OF DEFAULT") occurs and continues
beyond any applicable cure period:
(a) Borrower fails to make full and punctual payment of any amount payable
on a monthly basis hereunder, under any Security Instrument, or under any other
Loan Document, which failure is not cured on or before the fifth (5th) day after
the date of written notice from Lender to Borrower of such failure;
17
<PAGE> 18
(b) Borrower fails to make full payment of the Debt when due, whether on
the Maturity Date, upon acceleration or prepayment, or otherwise, following the
expiration of any applicable grace period provided in the Security Instrument or
any other Loan Document;
(c) Borrower fails to make full and punctual payment of any Late Charges,
costs and expenses due hereunder, or any other sum of money required to be paid
hereunder (other than any payment described in subclauses (a) and (b)
immediately above) or under the Security Instruments or any other Loan Document
which failure is not cured on or before the twentieth (20th) day after Lender's
written notice to Borrower that such payment is required; or
(d) a Prepayment Purchase Option Default or a Partial Defeasance Default
shall occur; or
(e) an Event of Default occurs under any Security Instrument or any other
Loan Document.
12. TIME OF ESSENCE. Time is of the essence with regard to each provision
contained in this Note.
13. TRANSFER AND ASSIGNMENT. This Note may be freely transferred and
assigned by Lender. Borrower's right to transfer its rights and obligations with
respect to the Debt, and to be released from liability under this Note, shall be
governed by the Security Instruments.
14. AUTHORITY OF PERSONS EXECUTING NOTE. Borrower warrants and represents
that the persons or officers who are executing this Note and the other Loan
Documents on behalf of Borrower have full right, power and authority to do so,
and that this Note and the other Loan Documents constitute valid and binding
documents, enforceable against Borrower in accordance with their terms, and that
no other person, entity, or party is required to sign, approve, or consent to,
this Note.
15. SEVERABILITY. The terms of this Note are severable, and should any
provision be declared by a court of competent jurisdiction to be invalid or
unenforceable, the remaining provisions shall, at the option of Lender, remain
in full force and effect and shall in no way be impaired.
16. BORROWER'S WAIVERS. Borrower and all others liable hereon hereby waive
presentation for payment, demand, notice of dishonor, protest, and notice of
protest, notice of intent to accelerate, and notice of acceleration, stay of
execution and all other suretyship defenses to payment generally. No release of
any security held for the payment of this Note, or extension of any time periods
for any payments due hereunder, or release of collateral that may be granted by
Lender from time to time, and no alteration, amendment or waiver of any
provision of this Note or of any of the other Loan Documents, shall modify,
waive, extend, change, discharge, terminate or affect the liability of Borrower
and any others that may at any time be liable for the payment of this Note or
the performance of any covenants contained in any of the Loan Documents.
18
<PAGE> 19
17. GOVERNING LAW. This Note has been delivered to and accepted by Lender
in the State of Missouri, and shall be governed and construed generally
according to the laws of the State of Missouri without regard to the conflicts
of law provisions thereof ("GOVERNING STATE").
18. JURISDICTION AND VENUE. BORROWER HEREBY CONSENTS TO PERSONAL
JURISDICTION IN THE GOVERNING STATE AND IN EACH JURISDICTION IN WHICH ANY
PROPERTY IS LOCATED (EACH A "SITUS STATE"). VENUE OF ANY ACTION BROUGHT TO
ENFORCE THIS NOTE OR ANY OTHER LOAN DOCUMENT OR ANY ACTION RELATING TO THE LOAN
OR THE DEBT OR THE RELATIONSHIPS CREATED BY OR UNDER THE LOAN DOCUMENTS
("ACTION") SHALL, AT THE ELECTION OF LENDER, BE IN (AND IF ANY ACTION IS
ORIGINALLY BROUGHT IN ANOTHER VENUE, THE ACTION SHALL AT THE ELECTION OF LENDER
BE TRANSFERRED TO) EITHER A STATE OR FEDERAL COURT OF APPROPRIATE JURISDICTION
LOCATED IN THE GOVERNING STATE OR IN EACH SITUS STATE. BORROWER HEREBY CONSENTS
AND SUBMITS TO THE PERSONAL JURISDICTION OF THE STATE COURTS OF THE GOVERNING
STATE AND EACH SITUS STATE AND OF FEDERAL COURTS LOCATED IN THE GOVERNING STATE
AND EACH SITUS STATE IN CONNECTION WITH ANY ACTION AND HEREBY WAIVES ANY AND ALL
PERSONAL RIGHTS UNDER THE LAWS OF ANY OTHER STATE TO OBJECT TO JURISDICTION
WITHIN SUCH STATE FOR PURPOSES OF ANY ACTION. Borrower hereby waives and agrees
not to assert, as a defense to any Action or a motion to transfer venue of any
Action, (i) any claim that it is not subject to such jurisdiction, (ii) any
claim that any Action may not be brought against it or is not maintainable in
those courts or that this Note or any of the other Loan Documents may not be
enforced in or by those courts, or that it is exempt or immune from execution,
(iii) that the Action is brought in an inconvenient forum, or (iv) that the
venue for the Action is in any way improper.
19. NOTICES. Any notice required or permitted to be given hereunder must
be in writing and given (a) by depositing same in the United States mail,
addressed to the party to be notified, postage prepaid and registered or
certified with return receipt requested; (b) by delivering the same in person to
such party; (c) by transmitting a facsimile copy to the correct facsimile phone
number of the intended recipient (with a second copy sent by registered or
certified regular mail); or (d) by depositing the same into the custody of a
nationally recognized overnight delivery service addressed to the party to be
notified. In the event of mailing, notices shall be deemed effective three (3)
days after posting; in the event of overnight delivery, notices shall be deemed
effective on the next Business Day following deposit with the delivery service;
in the event of personal service or facsimile transmissions, notices shall be
deemed effective when delivered. For purposes of notice, the addresses of the
parties shall be as set forth in the Table. From time to time either party may
designate another address than the address set forth for all purposes of this
Note by giving the other party no less than ten (10) days' advance notice of
such change of address in accordance with the notice provisions hereof.
20. AVOIDANCE OF DEBT PAYMENTS. To the extent that any payment to Lender
and/or any payment or proceeds of any collateral received by Lender in reduction
of the Debt is subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be
19
<PAGE> 20
repaid to a trustee, to Borrower (or Borrower's successor) as a debtor in
possession, or to a receiver or any other party under any bankruptcy law, state
or federal law, common law or equitable cause, then the portion of the Debt
intended to have been satisfied by such payment or proceeds shall remain due and
payable hereunder, be evidenced by this Note, and shall continue in full force
and effect as if such payment or proceeds had never been received by Lender
whether or not this Note has been marked "paid" or otherwise cancelled or
satisfied and/or has been delivered to Borrower, and in such event Borrower
shall be immediately obligated to return the original Note to Lender and any
marking of "paid" or other similar marking shall be of no force and effect.
21. NONRECOURSE. Lender shall not be entitled to recover any deficiency
judgment against Borrower or any general partner or limited partner of Borrower
on this Note, provided, however, the foregoing shall not be interpreted to: (a)
impair or affect the right of Lender to enforce any of its rights or remedies
(other than any right to a deficiency judgment) provided for in any of the Loan
Documents or under applicable law in full accordance with the terms thereof
including but not limited to the right of Lender to name Borrower or any general
partner of Borrower as a party defendant in any action or suit for specific
performance, foreclosure, or sale (or similar remedy) under the Security
Instrument, or any other Loan Document; (b) impair or affect the validity or
enforceability of any guaranty, indemnity agreement (including but not limited
to any environmental indemnity agreement), letter of credit, or other similar
third party agreement or undertaking made in connection with this Note, the
Security Instrument, or any other Loan Document; (c) impair or affect Lender's
right to offset any and all amounts outstanding under any of the Loan Documents
against any claim or amount that may be asserted against Lender by Borrower or
any partners, members, shareholders, or other owners of legal or beneficial
interests in Borrower; (d) affect the validity or enforceability of or impair
the right of Lender to bring suit and obtain specific performance or personal,
recourse judgment to enforce the liability of Borrower or any other person or
entity to the extent of, and Borrower hereby agrees to be personally liable for,
any loss, damage, cost, expense, liability, or claim incurred by or made against
Lender (including all attorneys' fees and expenses and other collection and
litigation expenses) arising out of or in connection with any of the following:
(i) Borrower or any affiliate, agent, or employee of Borrower
misappropriates any rents or other Property income or collateral proceeds
including but not limited to insurance or condemnation proceeds or awards;
(ii) Borrower or any affiliate, agent, or employee of Borrower fails
to apply or pay over any tenant security deposits or other refundable
deposits in accordance with the terms of the applicable lease or other
agreement or the Security Instrument or any other Loan Document;
(iii) Borrower or any affiliate, agent, or employee of Borrower
receives rents or other payments from tenants more than one month in
advance and fails to apply them in accordance with the Loan Documents;
20
<PAGE> 21
(iv) following the occurrence and during the continuance of an Event
of Default, Borrower or any affiliate, agent, or employee of Borrower
(including Borrower in its capacity as a debtor or debtor in possession in
a bankruptcy proceeding) fails either to apply rents or other Property
income, whether collected before or after such Event of Default, to the
ordinary, customary, and necessary expenses of operating the Property or,
upon demand, to deliver such rents or other Property income to Lender;
(v) waste is committed on the Property during a period while
Borrower or any affiliate, agent, or employee of Borrower is in possession
thereof ("waste" meaning the diminution in the Property's value resulting
from Borrower's negligent or willful failure to manage, maintain, repair
and otherwise operate the Property in a commercially reasonable manner);
(vi) any damage to the Property or the Lender is caused as a result
of the intentional misconduct or gross negligence of Borrower or any
affiliate, agent, or employee of Borrower;
(vii) any Property is removed in violation of the terms of the Loan
Documents;
(viii) Borrower fails, in accordance with the terms of the Loan
Documents, to maintain insurance or to pay taxes, assessments, or other
liens or claims that could create liens affecting the Property (unless
Lender is escrowing funds therefor and fails to make such payments or has
taken possession of the Property following an Event of Default, has
received all rents from the Property applicable to the period for which
such insurance, taxes or other items are due, and thereafter fails to make
such payments);
(ix) there is any fraud or material misrepresentation by Borrower or
any of its affiliates, any guarantor, any indemnitor or any agent,
employee, or other person with actual or apparent authority to make
statements or representations on behalf of Borrower, any affiliate of
Borrower, or any guarantor or indemnitor ("apparent authority" meaning such
authority as the principal knowingly or negligently permits the agent to
assume, or which he holds the agent out as possessing); or
(x) Borrower fails, following the occurrence and during the
continuance of an Event of Default, to deliver to Lender on demand all
security deposits, books and records relating to the Property and in the
possession or control of Borrower or any affiliate, agent, or employee of
Borrower.
Nothing herein shall be deemed to constitute a waiver by Lender of any right
Lender may have under Sections 506(a), 506(b), 1111(b) or any other provision of
the United States Bankruptcy Code to file a claim for the full amount of the
Debt (as defined in the Security Instrument) or to require that all collateral
shall continue to secure all of the Debt.
22. MISCELLANEOUS. Neither this Note nor any of the terms hereof may be
terminated, amended, supplemented, waived or modified orally, but only by an
instrument in writing executed by the party against which enforcement of the
termination, amendment, supplement,
21
<PAGE> 22
waiver or modification is sought. If Borrower consists of more than one person
or entity, then the obligations and liabilities of each person or entity shall
be joint and several. As used in this Note, (i) the terms "include", "including"
and similar terms shall be construed as if followed by the phrase "without being
limited to," (ii) words of masculine, feminine, or neuter gender shall mean and
include the correlative words of the other genders, and words importing the
singular number shall mean and include the plural number, and vice versa, (iii)
all captions to the Sections hereof are used for convenience and reference only
and in no way define, limit or describe the scope or intent of, or in any way
affect, this Note, (iv) no inference in favor of, or against, Lender or Borrower
shall be drawn from the fact that such party has drafted any portion hereof or
any other Loan Document, and (v) the words "Lender" and "Borrower" shall include
their respective successors, assigns, heirs, personal representatives, executors
and administrators. In the event of a conflict between or among the terms,
covenants, conditions or provisions of the Loan Documents, the term(s),
covenant(s), condition(s) and/or provision(s) that Lender may elect to enforce
from time to time so as to enlarge the interest of Lender in its security,
afford Lender the maximum financial benefits or security for the Debt, and/or
provide Lender the maximum assurance of payment of the Debt in full shall
control. BORROWER ACKNOWLEDGES AND AGREES THAT IT HAS BEEN PROVIDED WITH
SUFFICIENT AND NECESSARY TIME AND OPPORTUNITY TO REVIEW THE TERMS OF THIS NOTE,
THE SECURITY INSTRUMENT, AND EACH OF THE LOAN DOCUMENTS, WITH ANY AND ALL
COUNSEL IT DEEMS APPROPRIATE, AND THAT NO INFERENCE IN FAVOR OF, OR AGAINST,
LENDER OR BORROWER SHALL BE DRAWN FROM THE FACT THAT EITHER SUCH PARTY HAS
DRAFTED ANY PORTION HEREOF, OR THE SECURITY INSTRUMENT, OR ANY OF THE LOAN
DOCUMENTS.
23. WAIVER OF COUNTERCLAIM AND JURY TRIAL. BORROWER HEREBY KNOWINGLY
WAIVES THE RIGHT TO ASSERT ANY COUNTERCLAIM, OTHER THAN A COMPULSORY
COUNTERCLAIM, IN ANY ACTION OR PROCEEDING BROUGHT AGAINST BORROWER BY LENDER OR
ITS AGENTS. ADDITIONALLY, BORROWER AND LENDER HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE ANY RIGHT THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION BASED ON THE LOAN OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THE
LOAN, THIS NOTE, THE SECURITY INSTRUMENT, OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN), OR
ACTION OF BORROWER OR LENDER. THIS PROVISION IS A MATERIAL INDUCEMENT FOR
LENDER'S MAKING OF THE LOAN.
24. LOAN DOCUMENTS. Notwithstanding anything to the contrary contained
herein or in the Loan Documents to the contrary, the term "Loan Documents" shall
not include any Environmental Indemnity Agreement executed by Borrower to Lender
with respect to the Property located in Washington.
22
<PAGE> 23
Intending to be fully bound, Borrower has executed this Note effective
as of the day and year first above written.
BORROWER: CAPTEC FRANCHISE CAPITAL PARTNERS
L.P. III, a Delaware limited partnership
By: CAPTEC NET LEASE REALTY, INC., a
Delaware corporation, its General Partner
By: Gary A. Bruder
-------------------------------------
Name: Gary A. Bruder
-----------------------------------
Title: Vice President
----------------------------------
23
<PAGE> 24
Pay to the order of National Realty Finance L.C., a Missouri limited
liability company, without recourse.
NATIONAL REALTY FUNDING L.C., a Missouri
limited liability company
By:
---------------------------------------
Print Name:
------------------------------
Print Title:
------------------------------
Pay to the order of , without recourse.
----------------------------------
NATIONAL REALTY FINANCE L.C., a Missouri
limited liability company
By:
---------------------------------------
Print Name:
------------------------------
Print Title:
------------------------------
24
<PAGE> 25
STATE OF Michigan )
--------- ) ss.
COUNTY OF Washtenaw )
----------
On this 26th day of March, 1999, before me, MARCIA O. NELGEBAUER, a Notary
Public in and for said state, personally appeared Gary A. Bruder, Vice President
of Captec Net Lease Realty, Inc., a Delaware corporation, general partner of
Captec Franchise Capital Partners L.P. III, a Delaware limited partnership,
known to be the person who executed the within instrument on behalf of said
limited partnership and acknowledge to me that he executed the same for the
purposes therein stated.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal, the day and year last above written.
/s/ Marcia O. Nelgebauer
----------------------------------------
MARCIA O. NELGEBAUER MARCIA O. NELGEBAUER
Notary Public, Washtenaw County, MI
My Commission Expires, June 12, 2002
----------------------------------------
(Type, print or stamp the Notary's name
below his or her signature.)
My Commission Expires:
- --------------------
25
<PAGE> 26
SCHEDULE A
LOCATION OF REAL PROPERTY COLLATERAL
1. Taco Bell, 45590 Gratiot Avenue, Macomb, Michigan 48042.
2. Jack-in-the-Box, 160th & Meridian East, Puyallup, Washington.
3. Tony Roma's, 4521 Southside Boulevard, Jacksonville, Florida 32216.
26
<PAGE> 27
SCHEDULE B
CAPTEC III
Allocated Loan Partial Defeasance
Name/Address Amount Principal Amount(1)
- ------------ -------------- -------------------
Taco Bell $372,333.00 $465,416.00
45590 Gratiot Avenue
Macomb, Michigan 48042
- ---------------
(1) 125% of Allocated Loan Amount
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 662762
<SECURITIES> 0
<RECEIVABLES> 991544
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1654306
<PP&E> 22971157
<DEPRECIATION> (654941)
<TOTAL-ASSETS> 24411968
<CURRENT-LIABILITIES> 261611
<BONDS> 8194000
0
0
<COMMON> 0
<OTHER-SE> 15956357
<TOTAL-LIABILITY-AND-EQUITY> 24411968
<SALES> 559389
<TOTAL-REVENUES> 564030
<CGS> 0
<TOTAL-COSTS> 86442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141996
<INCOME-PRETAX> 335592
<INCOME-TAX> 0
<INCOME-CONTINUING> 335592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335592
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
