EXHIBIT 10.3
[Loan No. 2342]
(NOTE: THIS PROMISSORY NOTE MAY REQUIRE A BALLOON PAYMENT AT
MATURITY)
PROMISSORY NOTE
$7,350,000 (U.S.) Houston, Texas
July 10, 2002
FOR VALUE RECEIVED, the undersigned ("Borrower") promises to pay to the
order of WASHINGTON MUTUAL BANK, FA, a federal association, at its office at
3200 Southwest Freeway, Suite 1700, Houston, Texas 77027, Attention: Commercial
Loan Servicing, or at such other place as the holder of this Note (hereinafter,
"holder") may from time to time designate in writing, the sum of SEVEN MILLION
THREE HUNDRED FIFTY THOUSAND DOLLARS ($7,350,000) in lawful money of the United
States, with interest thereon from the date of this Note until paid at the rates
set forth below, computed on monthly balances. Interest for each full calendar
month during the term of this Note shall be calculated on the basis of a 360-day
year and twelve 30-day months. Interest for any partial calendar month at the
beginning or end of the term of this Note shall be calculated on the basis of a
365- or 366-day year (as applicable) and the actual number of days in that
month.
SECTION 1. Initial Interest Rate.
The per annum interest rate hereunder (the "Note Rate") shall initially be
six and ninety-five one hundredths percent (6.95%) (the "Initial Rate").
SECTION 2. Interest Rate Adjustments.
(a) Interest Adjustment Date. Beginning on August 1, 2007 (the "Initial
Interest Adjustment Date"), and on the same day of every sixth month thereafter,
the Note Rate shall be adjusted as provided below. Any date on which the Note
Rate is to be adjusted as provided in this Note is referred to herein as the
"Interest Adjustment Date."
(b) The Adjustable Index. Beginning with the Initial Interest
Adjustment Date, the Note Rate will be based on the Adjustable Index. As used in
this Note, the term "Adjustable Index" means the LIBOR Rate, as defined below.
The most recent Adjustable Index figure available as of 11:00 a.m., London Time,
two (2) London Banking Days before each Interest Adjustment Date is referred to
in this Note as the "Current Adjustable Index." If the LTBOR Rate is no longer
available, holder shall choose a new index which is based upon comparable
information and which shall then be the Adjustable Index. Holder shall give
Borrower notice of such choice.
(i) Before each Interest Adjustment Date, holder will
calculate the new Note Rate by adding two and fifty-five one-hundredths percent
(2.55%) (the "Margin")
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to the Current Adjustable Index. Holder will then round the result of this
addition to the nearest one-thousandth of one percentage point (0.001%). Subject
to the limits stated in Section 2(b)(ii) below, this rounded amount will be the
Note Rate until the next Interest Adjustment Date. In no event during the term
of this Note shall the Note Rate increase or decrease on any Interest Adjustment
Date by more than one percent (1.00%) per annum.
(ii) Except as set forth in Section 10 below, the Note Rate
will never be greater than ten and one-half percent (10.50%) per annum (the
"Rate Limit").
(iii) If for any reason holder fails to make an adjustment to
the Note Rate or the Monthly Payment Amount as described in this Note,
regardless of any notice requirement, holder may, upon discovery of such
failure, then make such adjustment as if it had been made on time. Borrower
agrees not to hold holder responsible for any damages which may result from
holder's failure to make the adjustment and to allow holder, at its option, to
apply any excess monies which Borrower may have paid to partial prepayment of
the unpaid principal balance of this Note.
(c) Definitions. As used herein, the following terms shall have the
meanings set forth below:
"LIBOR Rate" means the rate, rounded up to the nearest one-thousandth of
one percentage point (0.001%) for deposits in United States dollars for
maturities of six (6) months which appears on Telerate Page 3750 as of the
relevant date and time of determination.
"London Banking Day" means any day (i) which is not a Saturday or Sunday
and (ii) on which commercial banks are generally open for business (including
dealings in foreign exchange and foreign currency deposits) in London, England
and dealings are carried on in the London interbank market.
"Telerate Page 3750" means the display page so designated on the Telerate
Service (or such other page as may replace that page on such service, or such
other service as may be nominated as the information vendor for the purpose of
displaying the British Bankers Association fixing of the London Interbank
Offered Rate).
(d) Increased Costs; Illegality; Unavailability of LIBOR Rate.
(i) If, due to either (A) the introduction after the date of
this Note of or any change after the date of this Note (including any change by
way of imposition or increase of reserve requirements or assessments) in or in
the interpretation of any law or regulation or (B) the compliance with any
requirement of any central bank or other governmental authority, there shall be
any increase in the cost to holder of making or maintaining loans bearing
interest at rates determined by reference to the LIBOR Rate, then Borrower shall
from time to time, upon demand by holder, pay to holder additional amounts
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sufficient to reimburse holder for all such increased costs. Holder's
determination as to the amount of such increased costs shall be conclusive and
binding absent manifest error.
(ii) If in the sole judgment of holder (A) it shall become
unlawful for holder to obtain funds in the London interbank market or to
continue to fund or maintain principal amounts bearing interest at rates
determined by reference to the LIBOR Rate; or (B) because of conditions in the
relevant money markets, the LIBOR Rate will not adequately reflect the cost to
holder of making, funding or maintaining the principal amount of this Note; or
(C) the LIBOR Rate is no longer available or is no longer calculated or reported
on a basis reasonably comparable to the basis on which it is calculated and
reported on the date of this Note, then, in any such event, holder shall choose
a new index which reasonably reflects the cost to holder of making, funding or
maintaining the principal amount of this Note, which new index shall then be the
Adjustable Index. Holder shall give Borrower notice of such choice.
(iii) For purposes of this Note, all determinations hereunder
may, in the sole discretion of holder, be made as if holder had actually funded
and maintained the principal balance hereof through the purchase of deposits
having successive terms of six (6) months each, extending from one Interest
Adjustment Date to the next, and bearing interest at a rate equal to the
Adjustable Index Rate during each such six (6)-month period.
SECTION 3. Monthly Payments.
Beginning on September 1, 2002 and on the first day of each and every
calendar month thereafter throughout the term of this Note (the "Monthly Payment
Dates"), Borrower shall make monthly payments of principal and interest (the
"Monthly Payment Amounts") to holder as follows:
(a) Beginning on September 1, 2002 through and including August 1, 2007
the Monthly Payment Amount shall be Fifty-One Thousand Seven Hundred Fourteen
and 7/lOOths Dollars ($51,714.07);
(b) The Monthly Payment Amount shall be adjusted semi-annually beginning
on September 1, 2007 and on the same day of every sixth month thereafter, to an
amount sufficient to fully repay the unpaid principal balance of this Note as of
the last day of the month immediately preceding the date of such adjustment,
together with interest at the Note Rate as adjusted on the immediately preceding
Interest Adjustment Date, by the date that is three hundred (300) months from
the first day of the first Monthly Payment Date.
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SECTION 4. Maturity.
Unless sooner repaid by Borrower, the entire unpaid principal balance of
this Note, plus all accrued but unpaid interest, and all other amounts owing
hereunder or under the Security Documents (as defined in Section 8) shall be due
and payable in full on August 1, 2012 (the "Maturity Date").
SECTION 5. Application of Payments.
Payments shall be applied: (a) first, to the payment of accrued interest;
(b) second, at the option of holder, to the payment of any other amounts owing
under this Note or secured by the Security Documents, other than accrued
interest and principal, including, but not limited to advances holder may have
made for attorneys' fees or for taxes, assessments, insurance premiums, or other
charges on any property given as security for this Note and late charges due
hereunder; and (c) third, to the reduction of principal of this Note.
SECTION 6. Prepayment.
(a) Prepayment Prior to Initial Interest Adjustment Date. Prior to the
Initial Interest Adjustment Date, Borrower may prepay its obligation under this
Note in full upon thirty (30) days' prior written notice to holder; or in part
on any Monthly Payment Date upon payment of a prepayment premium (the
"Prepayment Premium") as follows: (i) during the first Loan Year (as hereinafter
defined), the Prepayment Premium will be five percent (5.00%) of the amount
prepaid; (ii) during the second Loan Year, the Prepayment Premium will be four
percent (4.00%) of the amount prepaid; (iii) during the third Loan Year, the
Prepayment Premium will be three percent (3.00%) of the amount prepaid; (iv)
during the fourth Loan Year, the Prepayment Premium will be two percent (2.00%)
of the amount prepaid; and (v) during the fifth Loan Year, the Prepayment
Premium will be one percent (1.00%) of the amount prepaid. As used herein, "Loan
Year" shall mean each successive twelve-month period commencing with the first
day of the calendar month immediately preceding the calendar month in which the
Initial Monthly Payment Date occurs; provided, however, that the first Loan Year
shall also include any period of time between the date of this Note and such
day.
(b) Prepayment On or After the Initial Interest Adjustment Date. On or
after the Initial Interest Adjustment Date, Borrower may prepay its obligation
under this Note in full upon thirty (30) days' prior written notice to holder,
or in part on any Monthly Payment Date without payment of a Prepayment Premium.
(c) Provisions Applicable to All Prepayments. Borrower expressly waives
any right to prepay this Note except as provided in this Section 6. Therefore,
if the maturity of this Note is accelerated for any reason, including, without
limitation, the occurrence of any event of default hereunder or under the Deed
of Trust (as defined in Section 8), including without limitation Section 4.13 of
the Deed of Trust, or any other document that evidences or secures the repayment
of this Note, then any subsequent tender of
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payment of this Note, including any redemption following foreclosure of the Deed
of Trust, shall constitute an evasion of the restrictions on prepayment set
forth herein and shall be deemed a voluntary prepayment. Accordingly, holder may
impose as a condition to accepting any such tender, and may bid at any sheriff's
or trustee's sale under the Deed of Trust, and/or include in any complaint for
judicial foreclosure or for any claim in bankruptcy, as part of the indebtedness
evidenced by this Note and secured by the Deed of Trust, the Prepayment Premium
that would have otherwise been payable hereunder for prepayment of this Note
occurring on the date of such acceleration. The Prepayment Premium will not be
payable for prepayment of this Note occurring as a result of the application of
insurance and condemnation proceeds to the reduction of the unpaid principal
balance of this Note.
Borrower acknowledges that: (i) it is a knowledgeable real estate investor,
(ii) it fully understands the effect of the above waiver, (iii) the making of
the loan evidenced by this Note at the interest rates set forth above is
sufficient consideration for such waiver, and (iv) holder would not make the
loan evidenced by this Note without such waiver.
Borrower acknowledges that any statement made by holder setting forth the
amount of the Prepayment Premium shall only be binding upon holder if such
statement is made in writing and that the amount of the Prepayment Premium set
forth in such statement is subject to change and is valid only for the date of
such statement.
Borrower hereby expressly waives any right it may have under California
Civil Code 2954.10 to prepay this Note, in whole or in part, without prepayment
charge, upon acceleration of the Maturity Date of this Note, and agrees that if
for any reason a prepayment of any or all of this Note is made, whether
voluntarily or upon or following any acceleration of the Maturity Date of this
Note by holder, Borrower shall pay the Prepayment Premium calculated pursuant to
this Section 6. By signing this provision in the space provided below, Borrower
hereby declares and agrees that holder's agreement to make the loan evidenced by
this Note at the Note Rate and for the term set forth in this Note constitutes
adequate consideration, given individual weight by Borrower, for this waiver and
agreement.
REGAN HOLDING CORP., a California
corporation
By /s/ G. Steven Taylor
------------------------------------------
G. Steven Taylor, Chief Financial Officer
SECTION 7. Late Charge.
If any amount payable hereunder is paid more than ten (10) days after the
due date thereof, Borrower promises to pay a late charge of five percent (5%) of
the delinquent amount as liquidated damages for the extra expense in handling
past due payments.
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SECTION 8. Security.
This Note is secured by a deed of trust, security agreement, assignment of
leases and rents, and fixture filing (the "Deed of Trust") of even date herewith
and executed by Borrower, encumbering real property located in Sonoma County,
California, and by an assignment of leases and rents (the "Assignment of Leases
and Rents") made by Borrower as assignor in favor of holder as assignee. The
Deed of Trust, the Assignment of Leases and Rents and any and all other
documents securing this Note are collectively referred to as the "Security
Documents," provided, however, that "Security Documents" specifically shall not
mean and shall not include the certificate and indemnity agreement regarding
hazardous substances being delivered concurrently herewith to holder by Borrower
(the "Indemnity Agreement"). The real property and the other collateral provided
for in the Security Documents are collectively referred to as the "Property."
SECTION 9. Notice and Opportunity to Cure Defaults.
Any provision of this Note or the Security Documents seemingly to the
contrary notwithstanding, holder agrees not to exercise any of the remedies for
default permitted hereunder or under the Security Documents unless and until:
(a) If the default consists of the violation of a covenant to pay money
(other than the covenant to repay the balance due hereunder at maturity), holder
has given Borrower at least ten (10) days' written notice of such default and
such default has not been cured within such ten (10) day period; or
(b) If the default consists only of a violation of any provision of
this Note or the Security Documents other than a covenant to pay money or a
covenant to obtain or renew insurance policies or pay insurance premiums as
required by the Deed of Trust unless and until holder has given Borrower thirty
(30) days' written notice of such default and such default has not been cured
within such thirty (30) day period, provided that if the default is one which
can be cured, but for causes beyond the reasonable control of Borrower cannot
with due diligence be cured within such thirty (30) day period, such thirty (30)
day period shall be deemed extended for such time as is necessary to cure the
default (but in no event longer than sixty (60) days from the date of default)
if Borrower gives notice of its intent to cure or cause such default to be cured
prior to the expiration of said thirty (30) day period, and thereafter proceeds
promptly with and prosecutes with all due diligence all steps necessary to cure
the same.
Nothing contained in this Section 9 shall be construed as imposing any
obligation on holder other than to postpone the exercise of its remedies for
default until the expiration of the applicable grace period, if any, specified
herein. Failure to give opportunity to cure defaults in the manner herein
provided shall not in any way invalidate or prohibit holder from exercising any
of the remedies for default permitted hereunder or under the Security Documents
(other than to prohibit holder from proceeding further until the applicable
grace
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period, if any, for the curing of such default has expired), or give rise to
liability for damages suffered by Borrower or any other party on account of such
failure.
The provisions of subparagraph (a) of this Section 9 shall not affect
Borrower's liability for late charges under Section 7 with respect to any
payment that is more than ten (10) days past due.
SECTION 10. Default; Remedies.
If default is made in the payment of any amount payable hereunder when due
or in the keeping of any covenant of the Security Documents, then, at the option
of holder, the entire indebtedness evidenced hereby shall become immediately due
and payable. Upon default, and without notice or demand, all amounts owed under
this Note, including all accrued but unpaid interest, shall thereafier bear
interest at a variable rate, adjusted at the times at which the Note Rate would
otherwise have been adjusted pursuant to Section 2, of five percent (5%) per
annum above the Note Rate which would have been applicable from time to time had
there been no default (the "Default Rate") until such default is cured. Failure
to exercise any option granted to holder hereunder shall not waive the right to
exercise the same in the event of any subsequent default. Interest at the
Default Rate shall commence to accrue upon default under this Note, including
the failure to pay this Note at maturity.
SECTION 11. Attorneys' Fees.
In the event of any default under this Note, or in the event that any
dispute arises relating to the interpretation, enforcement, or performance of
this Note, holder shall be entitled to collect from Borrower on demand all fees
and expenses incurred in connection therewith, including but not limited to fees
of attorneys, accountants, appraisers, environmental inspectors, consultants,
expert witnesses, arbitrators, mediators, and court reporters. Without limiting
the generality of the foregoing, Borrower shall pay all such costs and expenses
incurred in connection with: (a) arbitration or other alternative dispute
resolution proceedings, trial court actions, and appeals; (b) bankruptcy or
other insolvency proceedings of Borrower, any guarantor or other party liable
for any of the obligations of this Note or any party having any interest in any
security for any of those obligations; (c) judicial or nonjudicial foreclosure
on, or appointment of a receiver for, any property securing this Note; (d)
postjudgment collection proceedings; (e) all claims, counterclaims,
cross-claims, and defenses asserted in any of the foregoing whether or not they
arise out of or are related to this Note or any security for this Note; (f) all
preparation for any of the foregoing; and (g) all settlement negotiations with
respect to any of the foregoing.
SECTION 12. Sale, Transfer or Encumbrance of Property.
The Deed of Trust contains the following provision (in such provision,
the term "Trustor" means Borrower and "Beneficiary" means holder):
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4.13 Sale, Transfer, or Encumbrance of Property. Trustor shall not,
without the prior written consent of Beneficiary, sell, transfer or otherwise
convey the Property or any interest therein, further encumber the Property or
any interest therein, cause or permit any change in the entity, ownership or
control of Trustor (including without limitation the revocation or tennination
of a trust whose trustee(s) are the Trustor hereunder) or agree to do any of the
foregoing without first repaying in full the Note and all other sums secured
hereby.
Consent to any one such occurrence shall not be deemed a waiver of the
right to require consent to any future occurrences.
In each instance in which a sale, transfer or other conveyance of the
Property occurs without simultaneous repayment in full of all indebtedness
secured hereby, and regardless of whether Beneficiary's consent thereto is
given, waived or denied or whether Beneficiary elects to accelerate the matunty
date of the Note, Trustor and its successors shall be jointly and severally
liable to Beneficiary for the payment of a transfer fee (the "Transfer Fee") of
one percent (1.00%) of the unpaid principal balance of the Note as of the date
of such sale, transfer or other conveyance. Such fee shall be payable on demand,
shall bear interest from ten (10) days after such demand to and including the
date of collection at the Default Rate (as defined in the Note), and shall be
secured by this Trust Deed. Beneficiary's waiver of such fee in whole or in part
for any one sale, transfer or other conveyance shall not preclude the imposition
thereof in any other transaction.
Notwithstanding the foregoing, and subject to the further provisions of
this paragraph, Beneficiary's consent will not be required, and the one percent
(1.00%) Transfer Fee will not be imposed, for (a) the transfer of not more than
fifty percent (50%) in the aggregate during the term of the Note of shares of
stock of Trustor; provided that transfers of shares upon the death of a
shareholder and transfers of shares for estate planning purposes into and from
trusts shall not be included in the calculation of the foregoing fifty percent
(50%) limit; or (b) transfers of shares pursuant to and following Trustor's
registration of any equity securities under the Securities Act of 1933 as
amended; provided, in all such cases described in clauses (a) and (b) of this
paragraph, that (i) unless Beneficiary otherwise consents, such consent not to
be unreasonably withheld, Lynda L. Regan or her estate and/or one or more
trusts to which she may have transferred shares of stock in Trustor for estate
planning purposes shall at all times own at least ten percent of the issued and
outstanding capital stock of Trustor; and (ii) none of the persons or entities
liable for the repayment of the Note is released from such liability.
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SECTION 13. Miscellaneous.
(a) Every person or entity at any time liable for the payment of the
indebtedness evidenced hereby waives all taking of formal collection steps,
including, but not limited to, presentment for payment, demand, and notice of
nonpayment, protest, dishonor or acceleration of this Note. Every such person or
entity further hereby consents to any extension of the time of payment hereof or
other modification of the terms of payment of this Note, the release of all or
any part of the security herefor, or the release of any party liable for the
payment of the indebtedness evidenced hereby at any time and from time to time
at the request of anyone now or hereafter liable therefor. Any such extension or
release may be made without notice to any of such persons or entities and
without discharging their liability. All payments required to be made under this
Note, the Security Documents, the Indemnity Agreement and the other documents,
instruments and agreements entered into in connection therewith (collectively,
the "Loan Documents") shall be made without offset or deduction of any kind.
(b) Each person or entity who signs this Note is jointly and severally
liable for the full repayment of the entire indebtedness evidenced hereby and
the full performance of each and every obligation contained in the Security
Documents.
(c) The headings to the various sections have been inserted for
convenience of reference only and do not define, limit, modify, or expand the
express provisions of this Note.
(d) Time is of the essence under this Note and in the performance of
every term, covenant, and obligation contained herein.
(e) This Note is made with reference to and is to be construed in
accordance with the laws of the State of California.
(f) Each married person who executes this Note as a Borrower agrees
that recourse hereunder can be had to his or her separate property as well as
the assets of his or her marital community.
(g) This Note and the other Loan Documents constitute the final
expression of the entire agreement of the parties with respect to the
transactions set forth therein. No party is relying on any oral agreement or
other understanding not expressly set forth in the Loan Documents. The Loan
Documents may not be amended or modified except by means of a written document
executed by the party sought to be charged with such amendment or modification.
(h) In the event holder at any time discovers that this Note or the
Security Instrument or any of the other Loan Documents contains an error caused
by a clerical mistake, calculation error, computer error, printing error or
similar error, Borrower shall, upon notice from holder, re-execute any such Loan
Document as necessary to correct any such error(s),
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and Borrower shall also not hold holder responsible for any damage suffered by
Borrower resulting from any such error. In addition, if any of the Loan
Documents are lost, stolen, mutilated or destroyed, Borrower shall execute and
deliver to holder on holder's request a duplicate of such Loan Document
identical in form and content, and which will be identical in effect for all
purposes, provided holder delivers to Borrower an indemnification agreement in
favor of Borrower protecting Borrower from any damages arising from such
re-execution.
[END OF TEXT]
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DATED as of the day and year first above written.
REGAN HOLDING CORP., a California
corporation
By /s/ G. Steven Taylor
------------------------------------------
G. Steven Taylor, Chief Financial Officer
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