EXHIBIT 10.9
PROMISSORY
NOTE
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U.S. $24,100,000.00
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December 1, 2005
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FOR VALUE RECEIVED,
and at the times hereinafter specified, RANCON REALTY FUND IV
SUBSIDIARY LLC, a Delaware limited liability company
(“Maker”), whose address is 400 South El Camino Real,
11 th Floor, San Mateo, California
94402, hereby promises to pay to the order of THE VARIABLE ANNUITY
LIFE INSURANCE COMPANY, a Texas corporation (hereinafter referred
to, together with each subsequent holder hereof, as
“Holder”), at c/o AIG Global Investment Corp., 1
SunAmerica Center, 38 th Floor, Century City, Los
Angels, California 90067-6022, or at such other address as may be
designated from time to time hereafter by any Holder, the principal
sum of TWENTY FOUR MILLION ONE HUNDRED THOUSAND AND NO/100THS
DOLLARS ($24,100,000.00), together with interest on the principal
balance outstanding from time to time, as hereinafter provided, in
lawful money of the United States of America.
By its execution and delivery of
this promissory note (this “Note”), Maker covenants and
agrees as follows:
1. Interest Rate and Payments
.
(a) The balance of principal
outstanding from time to time under this Note shall bear interest
at the rate of five and forty-six one-hundredths percent
(5.46%) per annum (the “Original Interest Rate”),
based on a three hundred sixty (360) day year composed of
twelve (12) months of thirty (30) days each; however,
interest for partial months shall be calculated by multiplying the
principal balance of this Note by the applicable interest rate
(i.e., the Original Interest Rate or the New Rate (hereinafter
defined)), dividing the product by three hundred sixty (360), and
multiplying that result by the actual number of days
elapsed.
(b) Interest only shall be payable
on the date the loan evidenced by this Note (the
“Loan”) is funded by Holder, in advance, for the period
from and including the date of funding through and including
December 31, 2005.
(c) Commencing on February 1,
2006 and on the first day of each month thereafter through and
including December 1, 2015 combined payments of principal and
interest shall be payable, in arrears, in the amount of $136,232.94
each (such amount representing an amount sufficient to fully
amortize the original principal amount of this Note over a three
hundred sixty (360) month period (the “Amortization
Period”)).
(d) The entire outstanding principal
balance of this Note, together with all accrued and unpaid interest
and all other sums due hereunder, shall be due and payable in full
on January 1, 2016 (the “Original Maturity
Date”).
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2. Holder’s Extension
Option: Net Operating Income .
(a) If Maker shall fail to pay the
outstanding principal balance of this Note and all accrued interest
and other charges due hereon at the Original Maturity Date, Holder
shall have the right, at Holder’s sole option and discretion,
to extend the term of the Loan for an additional period of five
(5) years (the “Extension Term”). If Holder elects
to extend the term of the Loan, Maker shall pay all fees of Holder
incurred in connection with such extension, including, but not
limited to, attorneys’ fees and title insurance premiums.
Maker shall execute all documents reasonably requested by Holder to
evidence and secure the Loan, as extended, and shall obtain and
provide to Holder any title insurance policy or endorsement
requested by Holder.
(b) Should Holder elect to extend
the term of the Loan as provided above, Holder shall (i) reset
the interest rate borne by the then-existing principal balance of
the Loan to a rate per annum (the “New Rate”) equal to
the greater of (A) the Original Interest Rate, or
(B) Holder’s (or comparable lenders’, if Holder is
no longer making such loans) then-prevailing interest rate for five
(5) year loans secured by properties similar to the Property
(hereinafter defined), as determined by Holder in its sole
discretion; (ii) re-amortize the then-existing principal
balance of the Loan over the remaining portion of the Amortization
Period (the “New Amortization Period”); (iii) have
the right to require Maker to enter into modifications of the
non-economic terms of the Loan Documents as Holder may request (the
‘Won-Economic Modifications”); and
(iv) notwithstanding any provision set forth in the Loan
Documents to the contrary, have the right to require Maker to make
monthly payments into escrow for insurance premiums and real
property taxes, assessments and similar governmental charges.
Hence, monthly principal and interest payments during the Extension
Term shall be based upon the New Rate, and calculated to fully
amortize the outstanding principal balance of the Loan over the New
Amortization Period.
(c) If Holder elects to extend the
term of the Loan, Holder shall advise Maker of the New Rate within
fifteen (15) days following the Original Maturity
Date.
(d) In addition to the required
monthly payments of principal and interest set forth above,
commencing on the first day of the second month following the
Original Maturity Date and continuing on the first day of each
month thereafter during the Extension Term (each an
“Additional Payment Date”), Maker shall make monthly
payments to Holder in an amount equal to all Net Operating Income
(hereinafter defined) attributable to the Property for the calendar
month ending on the last day of the month that is two months
preceding each such Additional Payment Date. For example, assuming
the Original Maturity Date is January 1, then Net Operating
Income for the period from January 1 through January 31
shall be payable to Holder on March 1; Net Operating Income
for the period from February 1 through February 28 shall
be payable to Holder on April 1, and so on.
(e) Holder shall deposit all such
Net Operating Income received from Maker into an account or
accounts maintained at a financial institution chosen by Holder or
its servicer in its sole discretion (the “Deposit
Account”) and all such funds shall be invested in a manner
acceptable to Holder in its sole discretion. All interest,
dividends and earnings credited to the Deposit Account shall be
held and applied in accordance with the terms hereof.
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(f) On the third Additional Payment
Date and on each third Additional Payment Date thereafter, Holder
shall apply all Excess Funds (hereinafter defined), if any, to
prepayment of amounts due under this Note, without premium or
penalty.
(g) As security for the repayment of
the Loan and the performance of all other obligations of Maker
under the Loan Documents, Maker hereby assigns, pledges, conveys,
delivers, transfers and grants to Holder a first priority security
interest in and to: all Maker’s right, title and interest in
and to the Deposit Account; all rights to payment from the Deposit
Account and the money deposited therein or credited thereto
(whether then due or in the future due and whether then or in the
future on deposit); all interest thereon; any certificates,
instruments and securities, if any, representing the Deposit
Account; all claims, demands, general intangibles, choses in action
and other rights or interests of Maker in respect of the Deposit
Account; any monies then or at any time thereafter deposited
therein; any increases, renewals, extensions, substitutions and
replacements thereof; and all proceeds of the foregoing.
(h) From time to time, but not more
frequently than monthly, Maker may request a disbursement (a
“Disbursement”) from the Deposit Account for capital
expenses, tenant improvement expenses, leasing commissions and
special contingency expenses. Holder may consent to or deny any
such Disbursement in its sole discretion.
(i) Upon the occurrence of any Event
of Default (hereinafter defined) (i) Maker shall not be
entitled to any further Disbursement from the Deposit Account; and
(ii) Holder shall be entitled to take immediate possession and
control of the Deposit Account (and all funds contained therein)
and to pursue all of its rights and remedies available to Holder
under the Loan Documents, at law and in equity.
(j) All of the terms and conditions
of the Loan shall apply during the Extension Term, except as
expressly set forth above, and except that no further extensions of
the Loan shall be permitted.
(k) For the purposes of the
foregoing:
(i) “Excess Funds” shall
mean, on any Additional Payment Date, the amount of funds then
existing in the Deposit Account (including any Net Operating Income
due on the applicable Additional Payment Date), less an amount
equal to the sum of three regularly scheduled payments of principal
and interest due on this Note;
(ii) “Net Operating
Income” shall mean, for any particular period of time, Gross
Revenue for the relevant period, less Operating Expenses for the
relevant period; provided, however, that if such amount is equal to
or less than zero (0), Net Operating Income shall equal zero
(0);
(iii) “Gross Revenue”
shall mean all payments and other revenues (exclusive, however, of
any payments attributable to sales taxes) received by or on behalf
of Maker from all sources related to the ownership or operation of
the Property, including, but not limited to, rents, room charges,
parking fees, interest, security deposits (unless required to be
held in a segregated account), business interruption
insurance
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proceeds, operating expense
pass-through revenues and common area maintenance charges, for the
relevant period for which the calculation of Gross Revenue is being
made; and
(iv) “Operating
Expenses” shall mean the sum of all ordinary and necessary
operating expenses actually paid by Maker in connection with the
operation of the Property during the relevant period for which the
calculation of Operating Expenses is being made, including, but not
limited to, (a) payments made by Maker for taxes and insurance
required under the Loan Documents, and (b) monthly debt
service payments as required under this Note.
3. Budgets During Extension
Term .
(a) Within fifteen (15) days
following the Original Maturity Date and on or before
December 1 of each subsequent calendar year, Maker shall
deliver to Holder a proposed revenue and expense budget for the
Property for the remainder of the calendar year in which the
Original Maturity Date occurs or the immediately succeeding
calendar year (as applicable). Such budget shall set forth
Maker’s projection of Gross Revenue and Operating Expenses
for the applicable calendar year, which shall be subject to
Holder’s reasonable approval. Once a proposed budget has been
reviewed and approved by Holder, and Maker has made all revisions
requested by Holder, if any, the revised budget shall be delivered
to Holder and shall thereafter become the budget for the Property
hereunder (the “Budget”) for the applicable calendar
year. If Maker and Holder are unable to agree upon a Budget for any
calendar year, the budgeted Operating Expenses (excluding
extraordinary items) provided in the Budget for the Property for
the preceding calendar year shall be considered the Budget for the
Property for the subject calendar year until Maker and Holder agree
upon a new Budget for such calendar year.
(b) During the Extension Term, Maker
shall operate the Property in accordance with the Budget for the
applicable calendar year, and the total of expenditures relating to
the Property exceeding one hundred and five percent (105%) of
the aggregate of such expenses set forth in the Budget for the
applicable time period shall not be treated as Operating Expenses
for the purposes of calculating “Net Operating Income,”
without the prior written consent of Holder except for emergency
expenditures which, in the Maker’s good faith judgment, are
reasonably necessary to protect, or avoid immediate danger to, life
or property.
4. Reports During Extension
Term .
(a) During the Extension Term, Maker
shall deliver to Holder all financial statements reasonably
required by Holder to calculate Net Operating Income, including,
without limitation, a monthly statement to be delivered to Holder
concurrently with Maker’s payment of Net Operating Income
that sets forth the amount of Net Operating Income accompanying
such statement and Maker’s calculation of Net Operating
Income for the relevant calendar month. Such statements shall be
certified by an executive officer of Maker or Maker’s
manager, managing member or general partner (as applicable) as
having been prepared in accordance with the terms hereof and to be
true, accurate and complete in all material respects.
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(b) In addition, on or before
February 1 of each calendar year during the Extension Term,
Maker shall submit to Holder an annual income and expense statement
for the Property which shall include the calculation of Gross
Revenue, Operating Expenses and Net Operating Income for the
preceding calendar year and shall be accompanied by Maker’s
reconciliation of any difference between the actual aggregate
amount of the Net Operating Income for such calendar year and the
aggregate amount of Net Operating Income for such calendar year
actually remitted to Holder. All such statements shall be certified
by an executive officer of Maker or Maker’s manager, managing
member or general partner (as applicable) as having been prepared
in accordance with the terms hereof and to be true, accurate and
complete in all material respects. If any such annual financial
statement discloses any inconsistency between the calculation of
Net Operating Income and the amount of Net Operating Income
actually remitted to Holder, Maker shall immediately remit to
Holder the amount of any underpayment of Net Operating Income for
such calendar year or, in the event of an overpayment by Maker,
such amount may be withheld from any subsequent payment of Net
Operating Income required hereunder.
(c) Holder may notify Maker within
ninety (90) days after receipt of any statement or report
required hereunder that Holder disputes any computation or item
contained in any portion of such statement or report. If Holder so
notifies Maker, Holder and Maker shall meet in good faith within
twenty (20) days after Holder’s notice to Maker to
resolve such disputed items. If, despite such good faith efforts,
the parties are unable to resolve the dispute at such meeting or
within ten (10) days thereafter, the items shall be resolved
by an independent certified public accountant designated by Holder
within fifteen (15) days after such ten (10) day period.
The determination of such accountant shall be final. All fees of
such accountant shall be paid by Maker. Maker shall remit to Holder
any additional amount of Net Operating Income found to be due for
such periods within ten (10) days after the resolution of such
dispute by the parties or the accountant’s determination, as
applicable. The amount of any overpayment found to have been made
for such periods may be withheld from any required future
remittance of Net Operating Income.
(d) Maker shall at all times keep
and maintain full and accurate books of account and records
adequate to reflect correctly all items required in order to
calculate Net Operating Income.
5. Loan Prepayment
.
(a) During the first two
(2) years after the date of this Note, Maker shall have no
right to prepay all or any part of this Note.
(b) At any time
after the second (2 nd ) anniversary of the date
of this Note, Maker shall have the right to prepay the full
principal amount of this Note and all accrued but unpaid interest
hereon as of the date of prepayment, and Maker shall, subject to
the terms and conditions set forth in that certain Loan and Partial
Release Agreement of even date herewith by and between Maker and
Holder (the “Loan Agreement”), be permitted to make one
or more principal reduction payments in the amount of the Allocated
Release Price in connection with a Permitted Release (as such terms
are defined in the Loan Agreement), provided, in each case, that
(i) Maker gives not less than thirty (30) days’
prior written notice to Holder of Maker’s
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election to prepay this Note, and
(ii) Maker pays a prepayment premium to Holder (A) in the
case of prepayment in full, in an amount equal to the greater of
one percent (1%) of the outstanding principal balance of this
Note or the Present Value of this Note (hereinafter defined), less
the amount of principal being prepaid, calculated as of the
prepayment date, and (B) in the case of a partial prepayment
in connection with a Permitted Release, in an amount equal to the
percentage that such Allocated Release Price so applied to this
Note bears to the entire then-existing principal balance of this
Note, multiplied by the prepayment premium that would be due if
this Note were prepaid in full on such date. In c
