EXHIBIT 10.5
REPLACEMENT RESERVE AGREEMENT
This REPLACEMENT RESERVE AGREEMENT ("Agreement") is made and entered into
this day of July, 1998, by and between WESTLAKE EAST ASSOCIATES LIMITED
PARTNERSHIP, an Ohio limited partnership, ("Borrower"), and NEWPORT MORTGAGE
COMPANY, L.P., a Texas limited partnership ("Lender") and its successors and
assigns.
W I T N E S S E T H:
WHEREAS, Lender has agreed to make and Borrower has agreed to accept the
Loan, which is to be evidenced by the Note and secured by the Security
Instrument encumbering the Property described on Exhibit "A" attached to, and
incorporated into, this Agreement by reference;
WHEREAS, as a condition to the closing of the Loan, Lender has required
Borrower to establish the Replacement Reserve Fund at the time of closing for
the funding of Capital Replacements throughout the Loan term; and
WHEREAS, Lender and Borrower are desirous of reducing to writing all of
their agreements regarding the Replacement Reserve Fund.
NOW, THEREFORE, for and in consideration of the Loan, the mutual promises
and covenants herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lender and Borrower
agree as follows:
1. Definitions. The following terms used in this Agreement shall have the
meanings set forth below in this Paragraph 1:
(a) "Capital Replacement" means the replacement of those items listed on
Exhibit "B" of this Agreement and such other replacements as may be
approved in writing or required by Lender.
(b) "Disbursement Period" means the interval between disbursements from
the Replacement Reserve Fund, which interval shall be no shorter than
once a
[SELECT APPLICABLE PERIOD AND INITIAL BESIDE SELECTED PERIOD]
LENDER AND BORROWER INITIALS:
month /
XX quarter. /
(c) "Jurisdiction" means the State in which the Property is located.
(d) "Loan" means the loan from Lender to Borrower in the original
principal amount of Four Million Nine Hundred Thousand Dollars
($4,900,000.00), as evidenced by the Note and secured by the Security
Instrument.
(e) "Loan Documents" means, collectively, the Note, Security Instrument
and all other instruments and documents executed in connection with
the Loan.
(f) "Minimum Disbursement Request Amount" means Five Thousand and No/100
Dollars ($5,000.00).
(g) "Note" means the promissory note from Borrower to Lender evidencing
the Loan.
(h) "Property" means the real property described on Exhibit "A" of this
Agreement.
(i) "Replacement Reserve Deposit" means the initial deposit in the amount
of Zero Dollars ($-0-) made as of the date of this Agreement, together
with the sum of Three Thousand Two Hundred Thirty Nine and No/100
Dollars ($3,239.00) per month for years one through five and Three
Thousand Seven Hundred Fifty Eight and 33/100 Dollars ($3,758.33) per
month for years six through ten to be deposited into the Replacement
Reserve Fund, as such monthly deposit amount may increase from time to
time in accordance with the schedule attached to this Agreement as
Exhibit "C".
(j) "Replacement Reserve Fund" means the account established pursuant to
this Agreement to defray the costs of Capital Replacements.
(k) "Security Instrument" means the mortgage, deed of trust, deed to
secure debt, or other similar security instrument encumbering the
Property and securing Borrower's performance of its Loan obligations.
2. Replacement Reserve Fund.
(a) Establishment; Funding. Upon the closing of the Loan, the parties
shall establish the Replacement Reserve Fund and, if required by
Lender, Borrower shall pay to Lender for deposit into the Replacement
Reserve Fund, the amount of the initial Replacement Reserve Deposit.
Commencing on the date the first installment of principal and/or
interest is due under the Note and continuing on the same day of each
successive month during the Loan term, Borrower shall pay to Lender
for deposit into the Replacement Reserve Fund the monthly Replacement
Reserve Deposit, together with its regular monthly payments of
principal and interest as required by the Note and Security
Instrument. The Replacement Reserve Fund shall be maintained and
governed in accordance with this Agreement.
(b) Investment of Deposits. Borrower and Lender agree that all moneys
deposited into the Replacement Reserve Fund shall be held by Lender in
an interest bearing account, and any interest earned on such moneys
shall be added to the principal balance of the Replacement Reserve
Fund and disbursed in accordance with the provisions of this
Agreement. Lender shall not be responsible for any losses resulting
from investment of moneys in the Replacement Reserve Fund or for
obtaining any specific level or percentage of earnings on such
investment. Lender shall be entitled to deduct from the Replacement
Reserve Fund a one time fee for establishing the Replacement Reserve
Fund in an amount not to exceed $-0-.
(c) Use. Subject to the pledge and security interest and other rights of
Lender set forth in this Agreement, the Replacement Reserve Fund shall
be maintained for the payment of the costs of the Capital Replacements
identified on Exhibit B attached to this Agreement.
(d) Deferral of Deposits. Notwithstanding subsections 2(a) through (c)
above, Lender defers its right to require Borrower to make the monthly
Replacement Reserve Deposit. Lender, however, reserves the right to
require, in its reasonable discretion and upon written notice to
Borrower, at any time and from time to time, that Borrower begin
making the monthly Replacement Reserve Deposit upon the occurrence of
any of the following events:
(1) Borrower's default under the Note, Security Instrument, or any
other document delivered in connection with the Loan,
(2) the occurrence of a transfer of ownership prohibited under the
terms of the Security Instrument, or
(3) Borrower's failure to maintain the Property in a satisfactory
manner and/or in accordance with the requirements of the Security
Instrument, and Lender's determination that the estimated cost to
complete any deferred maintenance items with respect to the
Property will be greater than or equal to 5 percent of the
original principal balance of the Loan.
3. Disbursements.
(a) Requests for Disbursement. Lender shall disburse funds from the
Replacement Reserve Fund, in its sole discretion, as follows:
(i) Borrower's Request. If Borrower determines, at any time or from
time to time, that a Capital Replacement is necessary or
desirable, Borrower shall perform such Capital Replacement and
request from Lender, in writing, reimbursement for such Capital
Replacement. Borrower's request for reimbursement shall include
(A) a detailed description of the Capital Replacement performed,
together with evidence, satisfactory to Lender, that the cost of
such Capital Replacement has been paid and (B) lien waivers from
each contractor and material supplier supplying labor or
materials for such Capital Replacement, if required by Lender.
(ii) Lender's Request. If Lender shall determine, at any time or from
time to time, that Capital Replacements are necessary or
desirable, it shall so notify Borrower, in writing, requesting
that Borrower obtain and submit to Lender bids for all labor and
materials required in connection with such Capital Replacement.
Borrower shall submit such bids and a time schedule for
completing each Capital Replacement to Lender within thirty (30)
days after Borrower's receipt of Lender's notice.
(b) Conditions Precedent. Disbursement from the Replacement Reserve Fund
shall be made no more frequently than once every Disbursement Period
and, except for the final disbursement, no disbursement shall be made
in an amount less than the Minimum Disbursement Request Amount.
Disbursements shall be made only if the following conditions precedent
have been satisfied, as reasonably determined by Lender:
(i) Payment for Capital Replacement. The Capital Replacement has
been performed and/or installed on the Property in a good and
workmanlike manner with suitable materials (or in the case of a
partial disbursement, performed and/or installed on the Property
to an acceptable stage) and paid for by Borrower as evidenced by
copies of all applicable paid invoices or bills submitted to
Lender by Borrower at the time Borrower requests disbursement
from the Replacement Reserve Fund.
(ii) No Default. There shall exist no condition, event or act which
would constitute a default (with or without notice and/or lapse
of time) under this Agreement or any other Loan Document.
(iii)Representations and Warranties. All representations and
warranties of Borrower set forth in this Agreement and in the
Loan Documents are true.
(iv) Continuing Compliance. Borrower shall be in full compliance with
the provisions of this Agreement, the other Loan Documents and
any request or demand by Lender permitted hereby.
(v) No Lien Claim. No lien or claim based on furnishing labor or
materials has been filed or asserted against the Property or the
Improvements, unless Borrower has properly provided bond or other
security against loss in accordance with applicable law.
(vi) Approvals. All licenses, permits, and approvals of governmental
authorities required for the Capital Replacement as completed to
the applicable stage have been obtained.
(vii)Legal Compliance. The Capital Replacement as completed to
the applicable stage does not violate any laws, ordinance, rules
or regulations, or building lines or restrictions applicable to
the Property.
4. Right to Complete Capital Replacements. If Borrower abandons or fails to
proceed diligently with and complete any Capital Replacement in a timely
fashion or is otherwise in default under this Agreement, Lender shall have
the right (but not the obligation) to enter upon the Property and take over
and cause the completion of such Capital Replacement. Any contracts
entered into or indebtedness incurred upon the exercise of such right may
be in the name of Borrower, and Lender is hereby irrevocably appointed the
attorney in fact of Borrower, such appointment being coupled with an
interest, to enter into such contracts, incur such obligations, enforce any
contracts or agreements made by or on behalf of Borrower (including the
prosecution and defense of all actions and proceedings in connection with
the Capital Replacement and the payment, settlement or compromise of all
bills and claims for materials and work performed in connection with the
Capital Replacement) and do any and all things necessary or proper to
complete any Capital Replacement including signing Borrower's name to any
contracts and documents as may be deemed necessary by Lender. In no event
shall Lender be required to expend its own funds to complete any Capital
Replacement, but Lender may, in its sole discretion, advance such funds.
Any funds advanced shall be added to the outstanding balance of the Loan,
secured by the Security Instrument and payable to Lender by Borrower in
accordance with the provisions of the Security Instrument pertaining to the
protection of Lender's security and advances made by Lender. Borrower
waives any and all claims it may have against Lender for materials used,
work performed or resultant damage to the Property.
5. Inspection. Lender or any agent of Lender may periodically inspect any
Capital Replacement in process and upon completion during normal business
hours or at any other reasonable time. Lender shall be entitled to deduct
from the Replacement Reserve Fund reasonable fees for performing any such
inspection, which fee shall not exceed $500.00 per inspection. If Lender,
in its sole discretion, retains a professional inspection engineer or other
qualified third party to inspect any Capital Replacement, Lender also shall
be entitled to deduct from the Replacement Reserve Fund an amount
sufficient to pay all reasonable fees and expenses charged by such third
party inspector.
6. Insufficient Account. If Borrower requests disbursement from the
Replacement Reserve Fund for a Capital Replacement in accordance with this
Agreement in an amount which exceeds the amount on deposit in the
Replacement Reserve Fund, Lender shall disburse to Borrower only the amount
on deposit in the Replacement Reserve Fund. All additional amounts
required in connection with any such Capital Replacement shall be paid by
Borrower from Borrower's own funds.
7. Security Agreement. Borrower hereby conveys, pledges, transfers and grants
to Lender a security interest pursuant to the Uniform Commercial Code of
the Jurisdiction or any other applicable law in and to all money in the
Replacement Reserve Fund, as same may increase or decrease from time to
time, for the purpose of securing Borrower's obligations under this
Agreement and to further secure Borrower's obligations under the Note,
Security Instrument and other Loan Documents.
8. Post Default. If Borrower defaults in the performance of its obligations
under this Agreement or under the Note, Security Instrument or any other
Loan Document, Lender and its successors and assigns shall have all
remedies available to them under Article 9 of the Uniform Commercial Code
of the Jurisdiction and under any other applicable law and, in addition,
may retain all money in the Replacement Reserve Fund, including interest,
and in Lender's discretion, may apply such amounts, without restriction and
without any specific order of priority, to the payment of any and all
indebtedness or obligations of Borrower set forth in the Note, Security
Instrument or any other Loan Document, including, but not limited to,
principal, interest, taxes, insurance, reasonable attorneys' fees actually
incurred and/or repairs to the Property.
9. Termination. If not sooner terminated by written concurrence of the
parties, this Agreement shall terminate upon the payment in full of the
Loan and all indebtedness incurred in connection therewith and upon such
termination, Lender shall pay to Borrower all funds remaining in the
Replacement Reserve Fund.
10. No Amendment. Nothing contained in this Agreement shall be construed to
amend, modify, alter, change or supersede the terms and provisions of the
Note, Security Instrument or any other Loan Document; and, if there is a
conflict between the terms and provisions of this Agreement and those of
the Note, Security Instrument, or any other Loan Document then the terms
and provisions of the Note, Security Instrument or such other Loan Document
shall control.
11. Release; Indemnity.
(a) Release. Borrower covenants and agrees that, in performing any of its
duties under this Agreement, neither Lender nor its successors and
assigns shall be liable for any losses, costs or damages which may be
incurred by any of them as a result of such performance, except for
any losses, costs or damages arising out of the willful misconduct or
gross negligence of such party.
(b) Indemnity. Borrower hereby agrees to indemnify and hold harmless
Lender and its successors and assigns from and against any and all
losses, claims, damages, liabilities and expenses including, without
limitation, reasonable attorneys' fees and disbursements, which may be
imposed or incurred by any of them in connection with this Agreement.
12. Choice of Law. This Agreement shall be construed and enforced in
accordance with the laws of the Jurisdiction.
13. Successors and Assigns. Borrower acknowledges and agrees that Lender, at
its option, may assign or otherwise transfer the Loan and any or all Loan
Documents including, but not limited to, this Agreement, to other parties
subsequent to the execution of this Agreement. This Agreement shall be
binding upon the respective successors and assigns of Borrower and Lender.
Borrower may not assign its rights, interests or obligations under this
Agreement without first obtaining Lender's prior written consent.
14. Attorneys' Fees. In the event that Lender or its successors or assigns
shall engage the services of an attorney at law to enforce the provisions
of this Agreement against Borrower, then Borrower shall pay all costs of
such enforcement, including any reasonable attorneys' fees actually
incurred.
15. Compliance with Laws; Insurance Requirements.
(a) Compliance with Laws. All Capital Replacements shall comply with all
applicable laws, ordinances, rules and regulations of all governmental
authorities having jurisdiction over the Property and applicable
insurance requirements including, without limitation, applicable
building codes, special use permits, environmental regulations, and
requirements of insurance underwriters.
(b) Insurance Requirements. In addition to any insurance required under
the Loan Documents, Borrower shall provide or cause to be provided
workers' compensation, builder's risk (if required by Lender), and
public liability insurance and other insurance required under
applicable law in connection with any of the Capital Replacements.
All such policies which can be endorsed with standard mortgage clauses
making losses payable to Lender or its assigns shall be so endorsed.
The originals of such policies shall be deposited with Lender.
16. Remedies Cumulative. In the event of Borrower's default under this
Agreement, Lender may exercise all or any one or more of its rights and
remedies available under this Agreement, at law or in equity. Such rights
and remedies shall be cumulative and concurrent, and may be enforced
separately, successively or together, and Lender's exercise of any
particular right or remedy shall not in any way prevent Lender from
exercising any other right or remedy available to Lender. Lender may
exercise any such remedies from time to time as often as may be deemed
necessary by Lender.
17. Determinations by Lender. In any instance where the consent or approval of
Lender may be given or is required, or where any determination, judgment or
decision is to be rendered by Lender under this Agreement, the granting,
withholding or denial of such consent or approval and the rendering of such
determination, judgment or decision shall be made or exercised by Lender
(or its designated representative) at its sole and exclusive option and in
its sole and absolute discretion.
18. Completion of Capital Replacements. Lender's disbursement of moneys from
the Replacement Reserve Fund or other acknowledgment of completion of any
Capital Replacement in a manner satisfactory to Lender shall not be deemed
a certification by Lender that the Capital Replacement has been completed
in accordance with applicable building, zoning or other codes, ordinances,
statutes, laws, regulations or requirements of any governmental authority
or agency. Borrower shall at all times have the sole responsibility for
insuring that all Capital Replacements are completed in accordance with all
such governmental requirements.
19. No Agency or Partnership. Nothing contained in this Agreement shall
constitute Lender as a joint venturer, partner or agent of Borrower, or
render Lender liable for any debts, obligations, acts, omissions,
representations or contracts of Borrower.
20. Entire Agreement. This writing, together with references to this Agreement
contained in the Security Instrument, constitutes the entire agreement of
the parties relative to the Replacement Reserve Fund. Any modification or
amendment of this Agreement shall be ineffective unless in writing and
signed by Lender and Borrower.
ATTACHED EXHIBITS. The following Exhibits are attached to this Agreement:
|X | Exhibit A Property Description (required)
|X | Exhibit B Capital Replacements (required)
|X | Exhibit C Replacement Reserve Deposit (required)
[X ] Exhibit D Modifications to Agreement
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
BORROWER:
WESTLAKE EAST ASSOCIATES LIMITED PARTNERSHIP,
an Ohio limited partnership
By: Fox Strategic Housing Income Partners, a California
limited partnership, General Partner
By: Fox Partners VIII, a California general
partnership, Managing General Partner
By: Fox Capital Management Corporation, a
California corporation, Managing Partner
By:/s/ Robert D. Long, Jr.
Robert D. Long, Jr., Vice President
Borrower's Social Security or Taxpayer Identification
No._______________________________
LENDER:
NEWPORT MORTGAGE COMPANY, L.P.,
a Texas limited partnership
By: DUSCO, INC., a Texas corporation,
General Partner
By:/s/ Jeffrey S. Juster
Jeffrey S. Juster, President
EXHIBIT A
Property Description
EXHIBIT B
Capital Replacements
EXHIBIT C
Replacement Reserve Deposit
The following amounts shall be paid to Lender by Borrower each month in
accordance with the provisions of Paragraph 2(a) for deposit into the
Replacement Reserve Fund subject to the provisions of Paragraph 2(d):
From: September 1, 1998 to August 1, 2003 $3,239.00
From: September 1, 2003 until the Loan is paid in full: $3,758.33