PROMISSORY NOTE
$6,650,000.00 Dallas, Texas Dated Effective as of August 31, 1998
FOR VALUE RECEIVED, ROLLING HILLS FUND IX ASSOCIATES, L.P., a Texas
limited partnership ("Maker"), hereby promises to pay to the order of
NATIONSBANK, N.A., a national banking association ("Lender"), at its banking
house in the City of Dallas, Dallas County, Texas, the principal sum of SIX
MILLION SIX HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS ($6,650,000.00) (the
"Maximum Principal Amount") (or the unpaid balance of all principal advanced
against this Note, if that amount is less), together with interest on the unpaid
principal balance of this Note from day to day outstanding, as hereinafter
provided.
1. Definitions. When used in this Note, the following terms
shall have the following meanings:
(a) "Adjusted LIBOR Rate" means a rate per annum equal to the
quotient (rounded upwards, if necessary, to the next higher
one/one-hundredth [1/100] of one percent [1%]) obtained by dividing (i)
the applicable "Euro-Dollar Rate" (as such term is hereafter defined)
by (ii) 1.00 minus the "Euro-Dollar Reserve Percentage" (as such term
is hereafter defined) and increased by the amount of any impositions,
assessments or other reserves (collectively, the "Assessments") to
which Lender or any participant (a "Participant") in the Loan may be or
become subject, including, but not limited to, the cost of Federal
Deposit Insurance Corporation insurance or other insurance, and other
fees, assessments and surcharges allocable to Lender's sale of the
certificate(s) of deposit that establish the Euro-Dollar Rate with
respect to a particular Matching Funds Election; provided that the
Adjusted LIBOR Rate shall automatically be adjusted from time to time
during the term of a Matching Funds Election to account for any
fluctuations in the Euro-Dollar Reserve Percentage and the other costs
to Lender of such Assessments.
(b) "Election" means a Matching Funds Election.
(c) "Euro-Dollar Business Days" means any domestic
business day on which commercial banks are open for international
business (including dealings in U.S. dollar deposits) in London.
(d) "Euro-Dollar Reserve Percentage" means for any day during
the term of this Note, that percentage (expressed as a decimal) that is
in effect on such day, as the same is prescribed by the Board of
Governors of the Federal Reserve System (or its successor) for
determining the maximum reserve requirement for Lender or any
Participant in respect of "Euro-currency liabilities" (or in respect of
any other category of liabilities which includes deposits, by reference
to which the interest rate on a borrowing is determined, or any
category of extensions of credit or other assets which includes loans
by a non-United States office of any bank to United States residents).
(e) "Formula Rate" means the per annum interest rate,
calculated for the applicable day, equal to the "Prime Rate" (as such
term is hereafter defined) for that day, computed for the actual number
of calendar days elapsed during which the principal of this Note is
outstanding but as if each year consisted of 360 days, subject to the
controlling terms of Section 2(d) hereinbelow.
(f) "Euro-Dollar Rate" means the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of any interest
period for a term comparable to such interest period. If for any reason
such rate is not available, the term "Eurodollar Rate" shall mean the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) appearing on Reuters Screen LIBO Page as the London interbank
offered rate for deposits in U.S. dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of an interest
period for a term comparable to such interest period; provided,
however, if more than one rate is specified on Reuters Screen LIBO
Page, the applicable rate shall be the arithmetic mean of all such
rates.
(g) "Matching Funds Election" means an election by Maker to
cause the principal balance of the Loan to be segregated into a
separate account and to bear interest at the applicable "Matching Funds
Rate" rather than the "Stated Rate" (as such terms are hereafter
defined) for the term of the Election.
(h) "Matching Funds Principal" means the then-outstanding
principal balance of the Loan at the time of an effective Election.
(i) "Matching Funds Rate" means a rate one hundred
seventy-five (175) basis points (the "LIBOR Rate Adjustment") per annum
in excess of the Adjusted LIBOR Rate as it exists from time to time.
(j) "Maturity Date" means the first to occur of (i) September
1, 2001; (ii) the date on which the entity comprising the Maker ceases
to exist; or (iii) the date on which Maker makes a Disposition [as
defined in the Mortgage (hereinafter defined)] of all or any portion of
the Property (hereinafter defined), other than a Permitted Disposition.
(k) "Maximum Lawful Rate" shall have the meaning
ascribed to such term in Section 13 hereof.
(l) "Outstanding Principal Balance" means the portion of the
Maximum Principal Amount then advanced and outstanding and payable from
Maker to Lender in accordance with this Note. The Outstanding Principal
Balance shall be reduced by any Principal Reduction Payment and
interest earned on the Principal Reduction Account, as described
hereinbelow.
(m) "Past Due Rate" means, on any day, a rate per annum equal
to the lesser of (a) the Maximum Lawful Rate, or (b) the Stated Rate
plus four percent (4%) per annum computed for the actual number of
calendar days elapsed during which such a past due amount is
outstanding.
(n) "Prime Rate" means that variable rate of interest per
annum established and announced by Lender at its principal office in
Dallas, Texas from time to time as its "prime rate." Such rate is set
by Lender as a general reference rate of interest, taking into account
such factors as Lender may deem appropriate, it being understood that
it is not necessarily the lowest or best rate actually charged to any
customer or a favored rate and that Lender may make various business or
other loans at rates of interest having no relationship to that rate.
(o) "Stated Rate" means, on any day, a rate per annum equal to
and calculated on the basis of the Formula Rate. If on any day the
Stated Rate shall exceed the maximum permitted by application of the
Maximum Lawful Rate in effect on that day, the Stated Rate shall be
fixed at the maximum permitted by application of the Maximum Lawful
Rate on that day and on each day thereafter until the total amount of
interest accrued at the fixed Stated Rate on the unpaid balance of this
Note equals the total amount of interest which would have accrued if
there were no limitation by the Maximum Lawful Rate and the Stated Rate
had not been so fixed.
2 Interest. As hereinafter provided, the principal balance of
this Note may be segregated into separate accounts and shall bear interest as
follows:
(a) At any time when the principal balance of this Note as is
not subject to an effective Election, such balance shall constitute one
account (the "Stated Rate Account") and shall bear interest prior to an
Event of Default or maturity at a varying rate per annum equal to the
lesser of (i) the Maximum Lawful Rate, or (ii) the Stated Rate.
(b) The principal balance of this Note which may from time to
time be subject to an effective Election shall constitute a separate
account (the "Matching Funds Account") and shall bear interest prior to
an Event of Default or maturity at a rate per annum equal to the lesser
of (i) the Maximum Lawful Rate, or (ii) the Matching Funds Rate
applicable to such Election.
(c) Any principal of, and to the extent permitted by
applicable law any interest on, this Note which is not paid when due
shall bear interest at a varying rate per annum equal to the Past Due
Rate from the date due and payable until paid.
(d) Subject always to limitation by the Maximum Lawful Rate,
interest on this Note shall be calculated on the basis of the 360-day
method, which computes a daily amount of interest for a hypothetical
year of 360 days, then multiplies such amount by the actual number of
days elapsed in an interest calculation period.
(e) Without notice to Maker or anyone else, the Prime Rate and
the Maximum Lawful Rate shall each automatically fluctuate upward and
downward as and in the amount by which the Lender's prime rate and such
maximum nonusurious rate of interest permitted by applicable law,
respectively, fluctuate, subject always to limitation of the Stated
Rate and the Past Due Rate by the Maximum Lawful Rate.
3 Payment of Principal and Interest.
(a) The entire principal balance of this Note then unpaid and
all interest then outstanding shall be due and payable on the Maturity
Date or upon any earlier termination of this Note.
(b) Accrued but unpaid interest shall be due and payable (i)
in monthly installments beginning on October 1, 1998, (ii) continuing
on the first (1st) day of each consecutive calendar month thereafter
before maturity, and (iii) at the final maturity of this Note. Maker
agrees and acknowledges that Lender has no obligation to give notice to
Maker of the amount of interest which is due and payable each month.
Maker further agrees and acknowledges that Maker is solely responsible
for, and shall not be relieved of, its obligation to pay such interest
on the first day of each month until maturity of this Note,
notwithstanding the fact that notice of such amount may not have been
sent by Lender and/or received by Maker even if Lender regularly gives
such notice.
(c) Whenever any payment shall be due under this Note on a day
which is not a "Business Day" (as such term is hereafter defined), the
date on which such payment is due shall be extended to the next
succeeding Business Day. "Business Day" means a day other than a
Saturday, Sunday or other day on which national banks in Dallas, Texas
are authorized or required to be closed.
(d) All principal, interest and other sums payable under this
Note shall be paid, not later than 2:00 o'clock p.m. (Dallas, Texas
time) on the day when due, in immediately available funds and in lawful
money of the United States of America. Funds received after 2:00
o'clock p.m. (Dallas, Texas time) shall be treated for all purposes as
having been received by Lender on the Business Day next following the
date of receipt of such funds. Any payment under this Note or under any
other "Loan Document" (as such term is hereafter defined) other than in
the required amount in good, unrestricted U.S. funds immediately
available to the holder hereof shall not, regardless of any receipt or
credit issued therefor, constitute payment until the required amount is
actually received by the holder hereof in such funds and shall be made
and accepted subject to the condition that any check or draft may be
handled for collection in accordance with the practice of the
collecting bank or banks.
(e) Except to the extent specific provisions are set forth in
this Note or another Loan Document with respect to application of
payments, all payments received by the holder hereof shall be applied,
to the extent thereof, to the "secured indebtedness" (as defined in the
Mortgage) in the order and manner which the holder hereof shall deem
appropriate, any instructions from Maker to the contrary
notwithstanding. All payments made as scheduled on this Note shall be
applied, to the extent thereof, first to accrued but unpaid interest
and the balance to unpaid principal. All prepayments on this Note shall
be applied, to the extent thereof, first to accrued but unpaid interest
which is then past due under the terms of this Note and the balance to
the remaining principal installments. Nothing herein shall limit or
impair any rights of the holder hereof to apply as provided in the Loan
Documents any past due payments, any proceeds from the disposition of
any collateral by foreclosure or other collections after an Event of
Default. Except to the extent specific provisions are set forth in this
Note or another Loan Document with respect to application of payments,
all payments received by the holder hereof shall be applied, to the
extent thereof, to the indebtedness secured by the Mortgage in such
order and manner as the holder hereof shall deem appropriate, any
instructions from Maker or anyone else to the contrary notwithstanding.
4 Prepayment. Maker may at any time pay the full amount or any
part of this Note without payment of any premium or fee; provided, however, that
if Maker prepays any portion of the Matching Funds Account prior to the
expiration of the term of the Matching Funds Election applicable to such
portion, Maker shall pay Lender the prepayment charges hereinafter described in
Section 7 hereof. All prepayments shall be applied first to accrued interest,
the balance to principal. Such prepayment charges are not a penalty but, rather,
are agreed to by Maker and Lender as representing reasonable charges for costs
incurred by Lender.
5 Mortgage. This Note has been issued in connection with and is
secured by, among other things, a certain Mortgage, Assignment of Rents and
Leases, Security Agreement and Fixture Filing of even date herewith executed by
Maker for the benefit of Lender, covering and affecting certain property (the
"Property") located in Louisville, Kentucky, more fully described therein
(which, as it may have been or may be amended, restated, modified or
supplemented from time to time, herein called the "Mortgage"). Lender is
entitled to the benefits of and security provided for in the Mortgage. This
Note, the Mortgage, any guaranty executed in connection therewith and any other
document now or hereafter evidencing, securing, guaranteeing or executed in
connection with the loan currently evidenced by this Note are, as the same have
been or may be amended, restated, modified or supplemented from time to time,
herein sometimes called individually a "Loan Document" and together the "Loan
Documents." Terms used herein with initial capital letters and not defined
herein, if any, have the meanings given them in the Mortgage. Any notice
required or which any party desires to give under this Note shall be given and
effective as provided in the Mortgage.
6 Matching Funds Election.
(a) From time to time during the term of the Loan, so long as
no Event of Default has occurred and is continuing, Maker may elect to
cause the then-outstanding principal amount of the Loan to bear
interest at the Matching Funds Rate rather than the Stated Rate;
provided, however, that (i) Maker may not exercise an Election at any
time when the Matching Funds Rate would exceed the Maximum Lawful Rate,
(ii) no more than one Election may be in force at any time, and (iii)
such Election must include the entire outstanding principal of the
Loan. Upon the effective date of the Election, the Loan shall bear
interest prior to an Event of Default or maturity from the effective
date of the Election to the end of the term of the Election at the
Matching Funds Rate applicable on the effective date of the Election;
provided that the Matching Funds Rate shall be adjusted from time to
time during the term of the Election in accordance with any
fluctuations in the Adjusted LIBOR Rate caused solely by fluctuations
in the Euro-Dollar Reserve Percentage and the Assessments referenced in
Section l(a)(ii) hereinabove.
(b) Maker shall inform Lender when Maker wishes to exercise an
Election, and Lender shall advise Maker as to the then applicable
Matching Funds Rates and the available periods for which Maker may
exercise the Election. To exercise the Election, Maker shall advise
Lender by 1:00 p.m. (Dallas, Texas time) at least three (3) days prior
to the desired effective date of the Election of (i) the desired
effective date of the election and (ii) the desired term of the
Election, which term shall be a 30, 60, 90 day period, provided that
the term of an Election for the Adjusted LIBOR Rate must not end on a
day other than a Euro-Dollar Business Day, and no Election may end on a
day that is later than the stated maturity date of this Note. The
Election shall become effective three (3) Euro-Dollar Business Days
following the date of Maker's advising Lender of the particular terms
of the Election. On or before the effective date of the Election, Maker
shall execute and deliver to Lender a written confirmation of (i) the
amount of the Matching Funds Principal, (ii) the term of the Election
and (iii) the initial Matching Funds Rate applicable to the Election.
(c) Maker may not extend an Election beyond the original term
thereof at the Matching Funds Rate applicable during the original term.
However, at the end of the term of an Election, Maker may make an
additional Election to cause the Matching Funds Principal to bear
interest at the Matching Funds Rate applicable on the day of the
expiration of the prior Election for the term of the new Election by so
advising Lender three (3) Euro-Dollar Business Days before the
expiration of the prior Election, and giving to Lender a written
confirmation by the effective date of the new Election in the manner
specified above accompanied by the payment of an additional fee if any
is required by this Note. Otherwise, upon the expiration of the prior
Election, the Matching Funds Principal shall bear interest prior to an
Event of Default or maturity at the Stated Rate.
(d) Notwithstanding any other provision of this Note, if (i)
any change in applicable law, rule or regulation or in the
interpretation or administration thereof shall make it unlawful for
Lender to issue certificates of deposit or impair or restrict Lender's
ability to do so for terms and at rates which permit Lender to respond
to an Election by obtaining funds at the Adjusted LIBOR Rate, or (ii)
Lender reasonably determines that by reason of circumstances affecting
the Interbank euro-dollar market generally, either adequate or
reasonable means do not exist for ascertaining the Adjusted LIBOR Rate
for any period, or (iii) Lender reasonably determines that it is
impracticable for Lender to obtain funds against which to match
Matching Funds Principal in connection with an Election (by purchasing
U.S. Dollars in the Interbank euro-dollar market); then, in any of the
foregoing instances, Maker's right to make any further Elections or to
continue any Elections then in force shall be suspended for the
duration of such illegality or impairment or restriction.
7 Prepayment of Matching Funds Principal. If Maker prepays the
Matching Funds Principal prior to the expiration of the term of the Matching
Funds Election applicable thereto, Maker shall pay Lender a prepayment fee in an
amount calculated as follows:
D x (A-B) x C
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360
A = the 360-day interest yield (as of the beginning of the term of the
applicable Matching Funds Election and expressed as a decimal) on a U.S.
Government Treasury bill, note or bond (a "Treasury Obligation") selected by
Lender in Lender's reasonable discretion and having, as of the beginning of the
term of the applicable Election, a remaining term until its maturity
approximately equal to the term of the Election.
B = the 360-day interest yield (as of the Business Day immediately
preceding the prepayment date and expressed as a decimal) on a Treasury
Obligation selected by Lender in Lender's reasonable discretion and having, as
of the Business Day preceding the prepayment date, a term approximately equal to
the unexpired term of the term of the applicable Matching Funds Election.
C = the number of calendar days from the date of prepayment to the date
on which the applicable Matching Funds Election would have expired but for the
prepayment.
D = the amount of the Matching Funds Principal that is being prepaid.
The amount so determined shall then be discounted to its present value as of the
date of prepayment; the interest rate used to compute such discount shall be the
rate used in item B in the above formula. In no event shall the result of A-B be
less than 0.00.
The Treasury Obligation selected by Lender shall be from among those
included in the over the counter quotations supplied to The Wall Street Journal
by the Federal Reserve Bank of New York City based on transactions of $1,000,000
or more.
It is expressly understood that all provisions of this Note, including
but not limited to the provisions regarding the charging of interest at a
Matching Funds Rate for the term of an Election, are subject to the provisions
hereof limiting the amount of interest contracted for, charged, received or
collected hereunder to the maximum amount permitted under applicable law.
8 Loan Limitation. Notwithstanding anything in this Agreement
to the contrary, the amount of the Loan, at the time of the initial disbursement
of the proceeds of the Loan, shall not exceed an amount equal to the lesser of
the following: (i) the amount equal to sixty percent (60%) of the fair market
value of the Mortgaged Property, as reflected in an appraisal acceptable to
Lender; or (ii) the amount which would allow a Debt Coverage Ratio (hereinafter
defined) of not less than 1.40 to 1.00, as calculated in accordance with the
other terms and provisions therefor as herein required. In calculating the debt
service coverage ratio specified above, the calculation shall be based on annual
(or, if applicable, annualized) Net Operating Income (hereinafter defined) and
applicable debt service for the corresponding annual (or annualized) period
(being all principal and interest payments required or anticipated, if
annualized, pursuant to the Note). As used herein, the following terms shall
have the following meanings:
(a) "Operating Expenses" for each such applicable annual
period shall mean all reasonable expenses in an amount equal to the
greater of (i) that amount equal to the product of the number of units
contained on the Mortgaged Property multiplied by $3,400.00 per unit,
or (ii) those amounts actually incurred and paid by Owner with respect
to the ownership, operation, management, leasing and occupancy of the
Mortgaged Property determined on a cash basis, except as otherwise
specified herein, including, but not limited to, any and all of the
following (but without duplication of any item):
(i) ad valorem taxes calculated on an accrual basis
(and not on the cash basis) of accounting for the calendar
period; such accrual accounting for ad valorem taxes shall be
based upon taxes actually assessed for the current calendar
year, or if such assessment for the current year has not been
made, then until such assessment has been made (and with any
retroactive adjustments for prior calendar months as may
ultimately be needed when the actual assessments has been
made), ad valorem taxes for the calendar period shall be
estimated to be an amount equal to one hundred percent (100%)
of the assessment for the immediately preceding calendar
period;
(ii) foreign, U.S., state and local sales,
use or other taxes (except for taxes measured by net income);
(iii) special assessments or similar charges
against the Mortgaged Property;
(iv) costs of utilities, air conditioning and
heating for the Mortgaged Property to the extent not paid by
lessees or tenants;
(v) maintenance and repair costs for the Mortgaged
Property, including the replenishment of any reserve
account(s) required by Lender pursuant to the Loan Documents
and assuming, at a minimum, an annual capital expenditure of
$300 per unit;
(vi) the greater of actual management fees under any
management agreement for the Property or an assumed annual
management fee of four percent (4%) of the annual Gross Income
of the Property;
(vii) all salaries, wages and other benefits to
"on-site" employees of Owner or its property manager
(excluding all salaries, wages and other benefits of officers
and supervisory personnel, and other general overhead expenses
of Owner and its property manager) employed in connection with
the leasing, maintenance and management of the Mortgaged
Property;
(viii) insurance premiums calculated on an accrual
basis (and not on the cash basis) of accounting for the
calendar period; such accrual accounting for insurance
premiums shall be based upon the insurance premiums for the
Mortgaged Property which was last billed to Owner, adjusted to
an annualized premium if necessary, and multiplied by one
hundred percent (100%);
(ix) costs, including leasing commissions,
advertising and promotion costs, to obtain new leases or to
extend or renew existing leases, and the costs of work
performed and materials provided to ready tenant space in the
Property for new or renewal occupancy under leases;
(x) outside accounting and audit fees and costs and
administrative expenses in each case reasonably incurred by
Owner in connection with the direct operation and management
of the Mortgaged Property;
(xi) any payments, and any related interest thereon,
to lessees or tenants of the Mortgaged Property with respect
to security deposits or other deposits required to be paid to
tenants but only to the extent any such security deposits and
related interest thereon have been previously included in
Gross Income; and
(xii) to the extent not included in any other
Operating Expense category, the sums actually paid by Owner
into any tax accounts or other reserve account(s) for the time
period in question and approved by Lender.
Notwithstanding anything to the contrary as being included in the definition of
Operating Expenses, there shall be excluded from Operating Expenses the
following: (i) depreciation and any other non-cash deduction allowed to Owner
for income tax purposes; (ii) any compensation or fees paid to leasing agents,
brokers or other third parties or affiliates of Owner which are in excess of
reasonable and necessary compensation or fees which would be payable to
unrelated third parties in arms' length transactions for similar services in the
area in which the Mortgaged Property is located; (iii) all salaries, wages and
other benefits to "off-site" employees and all other general "off-site" overhead
expenses of Owner, its property manager or other professional manager of the
Mortgaged Property; (iv) any and all payments of ad valorem taxes for either
real or personal property (except for the accrual amount allowed pursuant to
subpart (i) above); (v) any and all payments of insurance premiums (except for
the accrual amount allowed pursuant to subpart (viii) above); (vi) the initial
funding of the reserve account and any subsequent replenishment thereof up to or
exceeding the amount required pursuant to the Loan Documents; (vii) any and all
principal, interest or other costs paid under or with respect to the Loan, and
the subordinate loans or with respect to any other financings with respect to
the Mortgaged Property, whether unsecured or secured by all or any portion of
the Mortgaged Property; and (viii) capital improvements (only to the extent not
paid from any reserve account).
(b) "Gross Income" for each such applicable annual period
shall mean rentals, revenues and other recurring forms of
consideration, received by, or paid to or for the account of or for the
benefit of, Owner resulting from or attributable to the operation,
leasing and occupancy of the Mortgaged Property determined on a cash
basis (except as specified herein) and using for all calculations
hereunder the greater of (i) actual vacancy of the Mortgaged Property
at the time of such calculation or (ii) a vacancy factor of seven
percent (7%), including, but not limited to, the following:
(i) rents by any lessees or tenants of the
Mortgaged Property;
(ii) proceeds received by or for the benefit of
Owner in connection with any rental loss or business
interruption insurance with respect to the Mortgaged Property;
(iii) any other fees or rents collected by, for
or on behalf of Owner with respect to the leasing and
operating the Mortgaged Property; and
(iv) interest, if any, earned by Owner on security
and other type deposits of and advance rentals paid by, any
lessees or tenants of the Mortgaged Property.
Notwithstanding anything included within the above definition of Gross Income,
there shall be excluded from Gross Income the following: (i) any security or
other deposits of lessees and tenants (even when applied to sums due under
leases); (ii) rents and receipts received by or for the benefit of Owner with
respect to services provided by Owner to lessees relating to the Mortgaged
Property; (iii) the proceeds of any financing or refinancing with respect to all
or any part of the Mortgaged Property which has been previously approved in
writing by Lender; (iv) the proceeds of any sale or other capital transaction
(excluding leases for occupancy purposes only) of all or any portion of the
Mortgaged Property; (v) any insurance or condemnation proceeds paid with respect
to the Mortgaged Property to the extent such proceeds are available and are used
to restore or rebuild the Mortgaged Property as may be permitted in accordance
with the terms of the Mortgage, except for rental loss or business interruption
insurance; (vi) any insurance and condemnation proceeds applied in reduction of
the principal of the Note in accordance with the terms of the Loan Documents;
and (vii) any Collateral Account Payment (hereinafter defined) on deposit with
Lender in the Collateral Account (hereinafter defined); provided, however,
nothing set forth herein shall in any manner imply Lender's consent to a sale,
refinancing or other capital transaction.
(c) "Net Operating Income" for the applicable annual period
shall mean all Gross Income for such annual period less all Operating
Expenses for such corresponding annual period, as determined or
approved by Lender.
(d) "Debt Coverage Ratio" means the ratio of (i) Net Operating
Income from the Property for any calendar month in question, as
verified to Lender, to (ii) the greater of (A) the amount of principal
and interest that would be due monthly on a promissory note with an
outstanding principal balance equal to the Outstanding Principal
Balance and an obligation of Maker to pay equal monthly installments of
principal and interest calculated by amortizing the Outstanding
Principal Balance over twenty-five (25) years at a rate of interest
equal to the higher of (1) nine percent (9%) per annum or (2) the per
annum rate equal to the Treasury Note Rate plus 250 basis points, or
(B) the actual monthly interest payment due under the Note for the
calendar month in question. In determining the Outstanding Principal
Balance for the purposes of this Section 8 of the Note, no monies
deposited in any Accounts (hereinafter defined) or any interest earned
thereon shall be considered to reduce the Outstanding Principal Balance
unless and until such deposits and interest have actually been applied
to the Loan in accordance with Section 9 of this Note. As used herein,
the term "Treasury Note Rate" means the latest Treasury Constant
Maturity Series yields reported, as of the first day of the calendar
month in question, in the Federal Reserve Statistical Release H.15
(519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to seven (7)
years. Such implied yield shall be determined, if necessary, by (i)
converting U.S Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (ii) interpolating
linearly between reported yields.
9 Additional Financial Covenants.
(a) Maker shall establish an interest bearing principal
reduction account (the "Principal Reduction Account") with Lender.
Concurrently herewith, Maker shall execute and deliver to Lender a
"Security Agreement" (herein so called) granting to Lender a security
interest in the Principal Reduction Account and the Collateral Account
(hereinafter defined; the Principal Reduction Account and the
Collateral Account are sometimes hereinafter collectively referred to
as the "Accounts"), including all monies deposited in the Accounts at
any time and all interest earned thereon. On September 30, 1998, Maker
shall deposit into the Principal Reduction Account monies, which shall
not include any proceeds of the loan evidenced by the Note, in an
amount equal to two and one-half percent (2.50%) of the Outstanding
Principal Balance (the "Principal Reduction Payment"). On each of
December 31, 1998, March 31, June 30, September 30 and December 31
1999, and March 31, June 30, September 30, and December 31, 2000, and
March 31, June 30, 2001 Maker shall deposit into the Principal
Reduction Account a Principal Reduction Payment equal to one and 25/100
percent (1.25%) of the Outstanding Principal Balance. Interest earned
on deposits in the Principal Reduction Account may be used as a part of
the next-due Principal Reduction Payment. Provided there has been no
Event of Default (as hereinafter defined), then (i) on each of January
15, 1999, January 15, 2000 and January 15, 2001, as applicable, Lender
shall apply all sums then on deposit in the Principal Reduction Account
(together with all interest earned thereon that has not already been
used as part of a Principal Reduction Payment) to the Loan to reduce
the amount of the Outstanding Principal Balance on the Note and (ii)
all Principal Reduction Payments made in the year 2001 and interest
earned thereon will be applied to reduce the Outstanding Principal
Balance on the Note at the end of the Term; provided, however, if an
Event of Default has occurred, then upon any such Event of Default,
Lender may exercise all remedies available to Lender under the Security
Agreement or any other Loan Document, including using the funds on
deposit in the Principal Reduction Account and all interest thereon at
Lender's discretion for any purpose permitted under the Loan Documents.
(b) Maker shall provide to Lender, on a monthly basis, the
financial and operating information required by the Mortgage. If, at
the end of any quarter of a calendar year, such data indicates that the
Debt Coverage Ratio for the Property is less than 1.40 to 1.00, then
Lender shall so notify Maker and, within five (5) business days of such
notice, Maker (i) shall establish with Lender a collateral account (the
"Collateral Account") and (ii) shall deposit into the Collateral
Account sufficient funds, which shall not include any proceeds of the
loan evidenced by the Note, such that if such funds were to be applied
to reduce the Outstanding Principal Balance, the Debt Coverage Ratio
would return to a ratio equal to or greater than 1.40 to 1.00 (the
"Collateral Account Payment"). A Collateral Account Payment shall not
be applied to reduce the Outstanding Principal Balance, but, unless an
Event of Default has occurred, shall be held by Lender pursuant to the
terms of the Security Agreement and this Note. If the Debt Coverage
Ratio for the Property at the end of the next calendar year quarter (or
any subsequent quarter) is equal to or greater than 1.40 to 1.00, then
within twenty (20) days after Lender's determination of such ratio,
Lender shall refund to Maker any Collateral Account Payment then on
deposit in the Collateral Account. If during any subsequent quarter of
a calendar year the Debt Coverage Ratio is again less than 1.40 to
1.00, Maker shall make an additional Collateral Account Payment in an
amount such that if such Collateral Account Payment were to be applied
to reduce the Outstanding Principal Balance, the Debt Coverage Ratio
would return to a ratio equal to or greater than 1.40 to 1.00;
provided, however, that so long as no Event of Default has occurred,
any funds then being held in the Collateral Account shall be applied to
reduce the amount of such subsequent Collateral Account Payment. The
Security Agreement shall also grant to Lender a security interest in
all funds deposited in the Collateral Account and all interest earned
thereon. If an Event of Default has occurred, Lender may exercise all
remedies available to Lender under the Security Agreement, including
using the funds in the Collateral Account and all interest thereon at
Lender's discretion for any purpose permitted under the Loan Documents.
If no Event of Default has occurred, upon the end of the Term or
earlier payment in full to Lender of the Outstanding Principal Balance
under this Note, any monies then on deposit in the Collateral Account
and any interest earned thereon shall, at Maker's election, (i) be
applied to reduce such Outstanding Principal Balance or (ii) be paid by
Lender to Maker.
10 Events of Default. The occurrence of any one of the following
shall be a default under this Note ("Event of Default"):
(a) Any principal and interest payment and any other sum of
money due under this Note, including any Earnings Deposit, any
Principal Reduction Payment or any obligation involving the payment of
money by Maker under the Loan Documents is not paid within five (5)
days after written notice from Lender that such payment is due;
provided that such five (5) day grace period shall not be applicable to
sums due and payable at the Maturity Date or upon prepayment, by
acceleration or otherwise; or
(b) The Debt Coverage Ratio for the Property falls below 1.25
to 1.00; or
(c) The occurrence of any other default, breach or Event of
Default (however such term is defined therein or whether or not such
term is defined) under any Loan Document and such default or Event of
Default is not cured within any applicable notice and cure periods
provided therein.
Any Event of Default under this Note shall constitute a default
(however such term is defined therein or whether or not such term is defined
therein) under each of the Loan Documents, and any default, breach, or event of
default (however such term is defined therein or whether or not such term is
defined therein) under any of the Loan Documents shall constitute an Event of
Default under this Note and under each of the Loan Documents. Upon the
occurrence of an Event of Default, the holder hereof shall have the right to
declare the unpaid principal balance and accrued but unpaid interest on this
Note at once due and payable (and upon such declaration, the same shall be at
once due and payable), to foreclose any liens and security interests securing
payment hereof and to exercise any of its other rights, powers and remedies
under this Note, under any other Loan Document, or at law or in equity.
11 No Waiver by Holder. Neither the failure by the holder hereof
to exercise, nor delay by the holder hereof in exercising, the right to
accelerate the maturity of this Note or any other right, power or remedy upon
any Event of Default shall be construed as a waiver of such Event of Default or
as a waiver of the right to exercise any such right, power or remedy at any
time. No single or partial exercise by the holder hereof of any right, power or
remedy shall exhaust the same or shall preclude any other or further exercise
thereof, and every such right, power or remedy may be exercised at any time and
from time to time. All remedies provided for in this Note and in any other Loan
Document are cumulative of each other and of any and all other remedies existing
at law or in equity, and the holder hereof shall, in addition to the remedies
provided herein or in any other Loan Document, be entitled to avail itself of
all such other remedies as may now or hereafter exist at law or in equity for
the collection of the indebtedness owing hereunder, and the resort to any remedy
provided for hereunder or under any such other Loan Document or provided for by
law or in equity shall not prevent the concurrent or subsequent employment of
any other appropriate remedy or remedies. Without limiting the generality of the
foregoing provisions, the acceptance by the holder hereof from time to time of
any payment under this Note which is past due or which is less than the payment
in full of all amounts due and payable at the time of such payment, shall not
(i) constitute a waiver of or impair or extinguish the rights of the holder
hereof to accelerate the maturity of this Note or to exercise any other right,
power or remedy at the time or at any subsequent time, or nullify any prior
exercise of any such right, power or remedy, or (ii) constitute a waiver of the
requirement of punctual payment and performance, or a novation in any respect.
12 Collection of Costs. If any holder of this Note retains an
attorney in connection with any Event of Default or at maturity or to collect,
enforce, or defend this Note or any other Loan Document in any lawsuit or in any
probate, reorganization, bankruptcy or other proceeding, or if Maker sues any
holder in connection with this Note or any other Loan Document and does not
prevail, then Maker agrees to pay to each such holder, in addition to principal
and interest, all reasonable costs and expenses incurred by such holder in
trying to collect this Note or in any such suit or proceeding, including
reasonable attorneys' fees, which shall include the reasonable fees and costs
incurred in connection with the appeal of any judgment.
13 Interest Provisions.
(a) Savings Clause. It is expressly stipulated and agreed to
be the intent of Maker and Lender at all times to comply strictly with
the applicable Texas law governing the Maximum Lawful Rate or amount of
interest payable on this Note or the Related Indebtedness (or
applicable United States federal law to the extent that it permits
Lender to contract for, charge, take, reserve or receive a greater
amount of interest than under Texas law). If the applicable law is ever
judicially interpreted so as to render usurious any amount (i)
contracted for, charged, taken, reserved or received pursuant to this
Note, any of the other Loan Documents or any other communication or
writing by or between Maker and Lender related to the transaction or
transactions that are the subject matter of the Loan Documents, (ii)
contracted for, charged or received by reason of Lender's exercise of
the option to accelerate the maturity of this Note and/or Related
Indebtedness, or (iii) Maker will have paid or Lender will have
received by reason of any voluntary prepayment by Borrower of this Note
and/or Related Indebtedness, then it is Maker's and Lender's express
intent that all amounts charged in excess of the Maximum Lawful Rate
shall be automatically cancelled, ab initio, and all amounts in excess
of the Maximum Lawful Rate theretofore collected by Lender shall be
credited on the principal balance of this Note and/or the Related
Indebtedness (or, if this Note and all Related Indebtedness have been
or would thereby be paid in full, refunded to Maker), and the
provisions of this Note and the other Loan Documents immediately be
deemed reformed and the amounts thereafter collectible hereunder and
thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit
the recovery of the fullest amount otherwise called for hereunder and
thereunder; provided, however, if this Note has been paid in full
before the end of the stated term of this Note, then Maker and Lender
agree that Lender shall, with reasonable promptness after Lender
discovers or is advised by Maker that interest was received in an
amount in excess of the Maximum Lawful Rate, either refund such excess
interest to Maker and/or credit such excess interest against this Note
and/or any Related Indebtedness then owing by Maker to Lender. Maker
hereby agrees that as a condition precedent to any claim seeking usury
penalties against Lender, Maker will provide written notice to Lender,
advising Lender in reasonable detail of the nature and amount of the
violation, and Lender shall have sixty (60) days after receipt of such
notice in which to correct such usury violation, if any, by either
refunding such excess interest to Maker or crediting such excess
interest against this Note and/or any Related Indebtedness then owing
by Maker to Lender. All sums contracted for, charged or received by
Lender for the use, forbearance or detention of any debt evidenced by
this Note and/or any Related Indebtedness shall, to the extent
permitted by applicable law, be amortized or spread, using the
actuarial method, throughout the stated term of this Note and/or any
Related Indebtedness (including any and all renewal and extension
periods) until payment in full so that the rate or amount of interest
on account of this Note and/or any Related Indebtedness does not exceed
the Maximum Lawful Rate from time to time in effect and applicable to
this Note and/or any Related Indebtedness for so long as debt is
outstanding. In no event shall the provisions of Chapter 346 of the
Texas Finance Code (which regulates certain revolving credit loan
accounts and revolving triparty accounts) apply to this Note and/or any
Related Indebtedness. Notwithstanding anything to the contrary
contained herein or in any of the other Loan Documents, it is not the
intention of Lender to accelerate the maturity of any interest that has
not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
(b) Definitions. As used herein, the term "Maximum Lawful
Rate" shall mean the maximum lawful rate of interest which may be
contracted for, charged, taken, received or reserved by Lender in
accordance with the applicable laws of the State of Texas (or
applicable United States federal law to the extent that it permits
Lender to contract for, charge, take, receive or reserve a greater
amount of interest than under Texas law), taking into account all
Charges (as herein defined) made in connection with the transaction
evidenced by this Note and the other Loan Documents. As used herein,
the term "Charges" shall mean all fees, charges and/or any other things
of value, if any, contracted for, charged, received, taken or reserved
by Lender in connection with the transactions relating to this Note and
the other Loan Documents, which are treated as interest under
applicable law. As used herein, the term "Related Indebtedness" shall
mean any and all debt paid or payable by Maker to Lender pursuant to
the Loan Documents or any other communication or writing by or between
Maker and Lender related to the transaction or transactions that are
the subject matter of the Loan Documents, except such debt which has
been paid or is payable by Maker to Lender under the Note.
(c) Ceiling Election. To the extent that Lender is relying on
Chapter 1D of the Texas Credit Title to determine the Maximum Lawful
Rate payable on this Note and/or this Note and/or the Related
Indebtedness, Lender will utilize the weekly ceiling from time to time
in effect as provided in such Chapter 1D, as amended. To the extent
United States federal law permits Lender to contract for, charge, take,
receive or reserve a greater amount of interest than under Texas law,
Lender will rely on United States federal law instead of such Chapter
1D for the purpose of determining the Maximum Lawful Rate.
Additionally, to the extent permitted by applicable law now or
hereafter in effect, Lender may, at its option and from time to time,
utilize any other method of establishing the Maximum Lawful Rate under
such Chapter 1D or under other applicable law by giving notice, if
required, to Maker as provided by applicable law now or hereafter in
effect.
14 Joint and Several Liability. If more than one person or
entity executes this Note as Maker, all of said parties shall be jointly and
severally liable for payment of the indebtedness evidenced hereby. Maker and all
sureties, endorsers, guarantors and any other party now or hereafter liable for
the payment of this Note in whole or in part, hereby severally (i) waive demand,
presentment for payment, notice of dishonor and of nonpayment, protest, notice
of protest, notice of intent to accelerate, notice of acceleration and all other
notice (except only for any notices which are specifically required by this Note
or any other Loan Document), filing of suit and diligence in collecting this
Note or enforcing any of the security therefor; (ii) agree to any substitution,
subordination, exchange or release of any such security or the release of any
party primarily or secondarily liable hereon; (iii) agree that the holder hereof
shall not be required first to institute suit or exhaust its remedies hereon
against Maker or others liable or to become liable hereon or to enforce its
rights against them or any security therefor; (iv) consent to any extension or
postponement of time of payment of this Note for any period or periods of time
and to any partial payments, before or after maturity, and to any other
indulgences with respect hereto, without notice thereof to, any of them; and (v)
submit (and waive all rights to object) to non-exclusive personal jurisdiction
in the State of Texas, and venue in Dallas County, Texas, for the enforcement of
any and all obligations under the Loan Documents.
15 Amendments. This Note may not be changed, amended or modified
except in a writing expressly intended for such purposes and executed by the
party against whom enforcement of the change, amendment or modification is
sought.
16 Purpose of Loan. The loan evidenced by this Note is made
solely for business purposes and is not for personal, family, household or
agricultural purposes.
17 Participation. The holder of this Note may, from time to time,
sell or offer to sell the loan evidenced by this Note, or interests therein, to
one or more assignees or participants and is hereby authorized to disseminate
any information it now has or hereafter obtains pertaining to the loan evidenced
by this Note including, without limitation, any security for this Note and
credit information on Maker, any of its principals and any guarantor of this
Note to any assignee or participant or prospective assignee or prospective
participant, the holder's affiliates including NationsBanc Montgomery
Securities, Inc. in the case of Lender, any regulatory body having jurisdiction
over the holder, and to any other parties as necessary or appropriate in
holder's reasonable judgment. Maker shall execute, acknowledge and deliver any
and all instruments reasonably requested by Lender in connection therewith, and
to the extent, if any, specified in any such assignment or participation, such
companies, assignee(s), and participant(s) shall have the rights and benefits
with respect to this Note and the other Loan Documents as such person(s) would
have had if such person(s) had been Lender hereunder.
18 Successors and Assigns. The terms, provisions, covenants
and conditions of this Note shall be binding upon Maker and the heirs, devisees,
representatives, successors and assigns of Maker.
19 Governing Law. THIS NOTE, AND ITS VALIDITY, ENFORCEMENT
AND INTERPRETATION, SHALL BE GOVERNED BY LAWS OF THE STATE OF TEXAS (WITHOUT
REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL
LAW. MAKER HEREBY ACKNOWLEDGES THAT ITS BUSINESS OFFICE IS IN DALLAS COUNTY,
TEXAS, AND THAT THE NOTE IS PAYABLE IN DALLAS COUNTY, TEXAS; THEREFORE, MAKER
HEREBY CONFIRMS AND AGREES THAT ALL LEGAL ACTIONS INVOLVING THE VALIDITY OR
ENFORCEMENT OF THIS NOTE (INCLUDING, BUT NOT LIMITED TO, ANY BANKRUPTCY
PROCEEDINGS INVOLVING MAKER) SHALL HAVE JURISDICTION AND VENUE IN DALLAS COUNTY,
TEXAS.
20 Time of Essence. Time shall be of the essence in this Note
with respect to all of Maker's obligations hereunder.
21 Captions. The paragraph headings used in this Note are
for convenience of reference only and shall not affect the meaning or
interpretation of this Note.
22 Limited Recourse. Subject to the exceptions and
qualifications described below, Maker shall not be personally liable for the
payment of the indebtedness evidenced by or created or arising under this Note
and any judgment or decree in any action brought to enforce the obligation of
Maker to pay such indebtedness shall be enforceable against Maker only to the
extent of its interest in the Mortgaged Property (as defined in the Mortgage)
and any such judgment or decree shall not be subject to execution upon or be a
lien upon the assets of Maker other than its interest in such Mortgaged
Property. The foregoing limitation of personal liability shall be subject to the
following exceptions and qualifications:
(a) Maker shall be fully and personally liable for the
following: (i) failure to pay taxes, assessments and any other
charges which could result in liens against any portion of the
Mortgaged Property; (ii) fraud or material misrepresentation;
(iii) retention by Maker of any payments, rental income or
other funds arising with respect to any of the Mortgaged
Property which, under the terms of the Loan Documents, should
have been paid to Lender; (iv) all insurance proceeds,
condemnation awards or other similar funds or payments
attributable to the Mortgaged Property which, under the terms
of the Loan Documents, should have been paid to Lender; (v)
failure to protect and maintain the Mortgaged Property in
accordance with the terms of the Loan Documents; and (vi) the
failure of the Loan Documents to constitute a first and prior
lien, assignment, pledge or security interest in or upon the
Mortgaged Property, subject only to the matters permitted by
the Loan Documents.
(b) Nothing contained in this paragraph shall affect or limit the
ability of the holder hereof to enforce any of its rights or
remedies with respect to the Mortgaged Property.
(c) Nothing contained in this paragraph shall affect or limit the
rights of the holder hereof to proceed against any person or
entity, including Maker, any partner in Maker or any other
party, with respect to the enforcement of any guarantees of
payment, guarantees of performance and completion, hazardous
materials indemnification agreements or other similar rights.
23 Statute of Frauds Notice. THE LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OR
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, Maker has duly executed this Note effective as of
the date first above written.
MAKER:
ROLLING HILLS FUND IX ASSOCIATES, L.P.,
a Texas limited partnership
By: McNeil Rolling Hills Fund IX Corp.,
a Texas corporation,
its general partner
By: /s/ Ron K. Taylor
Name: Ron K. Taylor
Title: President