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2002 Miraflores LP (LINC - DC&TC) - Replacement Promissory Note4 'i` ^` A.W. RUTAN (1880-1972) JAMES B. TUCKER. SR. (1888 -1950) Y '1 JAMES R. MOORE' JOEL D. KUPERBERG IEFFREY A. GOLDFARB MARLENE POSE JURGENSEN MARK J. AUSTIN z TAN PAUL FREDERIC MARX STEVEN A. NICHOLS F. KEVIN BRAZIL APRIL LEE WALTER AMY J. HALL fY, RICHARD A. CURNUTT THOMAS G. BROCKINGTON LAYNE H. MELZER KAREN ELIZABETH WALTER TRACEY M. QUACH i* � CKER. JOHN B. HURLBUT, JR. MICHAEL W. IMMELL THEOD D W. DAHL, 1R. TH EODORE I. WALLACE. JR_" EVRI DIKI (VICKI) DALLAS RANDALI M. BABBUSH MARY M. GREEN GREGG AMBER L. SKI HARRISON LARRY A. CERUTTI CAROL D.. MRC PATRICK D. McCALIA NATALIE SIBBALD DUNDAS ALISON M. KADIN JOHN A. HAMILZ JR. JOHN A. RAMIREZ MELISSA S. fONTES ROBERT H. MARCEREAU STEVEN W. BURT NOAM I. DUZMAN J GILBERT N. KRUGER MICHAEL F. SITZER RICHARD K. HOWELL PHILIP ). BLANCHARD . a,x JOSEPH D. CARRUTH THOMAS J. CRANE JAMES S. WEISZ TERENCE J. GALLAGHER RICHARD P. SIMS MARK B. FRAZIER DAVID H. HOCHNER DEJA M. HEMINGWAY JAMES B. O'NEAL PENELOPE PARMES A PATRICK MUNOZ JULIE W. RUSS A T T O R N E Y S A T L A W ROBERT C. BRAUN M. KATHERINE JENSON S. DANIEL HARBOTTLE DENISE L. MESTER THOMAS S. SALINGER' DUKE F. WAHLQUIST PAUL J. SIEVERS W. ANDREW MOORE DAVID C. LARSEN• RICHARD G. MONTEVIDEO JOSEPH L. MAGA, III CHARLES A. DAVENPORT, III CLIFFORD E. FRIEDEN LORI SARNER SMITH KRAIG C. KILGER JULIE DREW SCHISLER A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS MICHAEL D. RUBIN ERNEST W. KLATTE, III KENT M. CLAYTON RICHARD D. ARKO 611 ANTON BOULEVARD, FOURTEENTH FLOOR IRA G. RIVIN• KIM D. THOMPSON DAN SLATER MARK M. MALOVOS COUNSEL: IEFFREY M. ODERMAN• IAYNE TAYLOR KACER MARK BUDENSIEK NIKKI NGUYEN LE D A. HAMPEL COSTA MESA, CALIFORNIA 92626-1931 STAN WOLCOTT DAVID B. COSGROVE STEVEN J. GOON JENNIFER S. ANDERSON EDWAR JR. EDWARD D. SI B DIRECT ALL MAIL TO: POST OFFICE BOX 1950 ROBERT S. BOWER MARCIA A. FORSYTH HANS VAN LIGTEN STEPHEN A. ELLIS DOUGLAS 1. DENNINGTON TREG A. JULANDER JOHN T. BRADLEY ALLISON LEMOINE-BUI J. J LDI, I LDI, III COSTA MESA, CALIFORNIA 92628-1950 WILLIAM M. MARTICORENA MATTHEW K. ROSS TODD 0. LITFIN KAREN L. KEATING WILLIDAVI CAPL WILLIAM) CAPLAN JAMES L. MORRIS IEFFREY WERTHEIMER KERRA S. CARLSON T. LAN NGUYEN TELEPHONE 714-641 -5100 FACSIMILE 714-546-9035 MICHAEL T. HORNAK ROBERT 0. OWEN CRISTY LOMENZO PARKER LISA NEAL NICHOLAS •A PROFESSIONAL INTERNET ADDRESS www.rutan.com PHILIP D. KOHN ADAM N. VOLKERT JEFFREY T. MELCHING JENNIFER L. DHILLON CORPORATION Direct Dial: (714) 641-3437 E-mail: dslater@rutan.com April 5, 2002 John Falconer Finance Director/Treasurer City of La Quinta La Quinta City Hall 78-495 Calle Tampico La Quinta, CA 92253 Re: Miraflores - Original Replacement Promissory Note Dear John: Enclosed please find the original Replacement Promissory Note in favor the La Quinta Redevelopment Agency executed by Miraflores, L.P. in connection with the recently closed bonds. This is the only original of the Replacement Promissory Note. Please place it in the Agency's files. I will be returning to Miraflores, L.P. the original of the "original note" (i.e., the note that has been replaced) and will copy you on that transmittal. Very truly yours, RUTAN &TUCKER, LLP 6 Dan Slater Encl. cc: M. Katherine Jenson, Esq. (w/encl) 394/015610-0026 274396.01 a04/05/02 REPLACEMENT PROMISSORY NOTE $9,500,000.00 ("Loan Amount") April 1, 2002 ("Note Date") [This Replacement Promissory Note replaces that certain Promissory Note, dated December 20, 2000, by Maker in favor of Holder, in the original principal amount of ,$6, 000, 000. 00.1 FOR VALUE RECEIVED, the undersigned (herein, the "Maker") hereby promises to pay to the order of the LA QUINTA REDEVELOPMENT AGENCY, a public body, corporate and politic ("Holder" or "Agency"), at a place designated by Holder, the principal sum of NINE MILLION FIVE HUNDRED THOUSAND DOLLARS ($9,500,000.00) ("Note Amount"), plus accrued interest, or such lesser amount which shall from time to time be owing hereunder pursuant to the terms hereof. The principal sum hereof shall be disbursed pursuant to the terms and conditions set forth in that certain Affordable Housing Agreement by and between Maker's predecessor in interest and Holder, dated December 20, 2000, as amended by that certain Assignment and Assumption Agreement of Affordable Housing Agreement, dated June 11, 2001 by and between Maker and Holder, and as amended by that certain First Amendment to Affordable Housing Agreement (Senior Apartments Development), dated April 1, 2002, by and between Maker and Holder (collectively, the "AHA"), pertaining to Maker's acquisition and redevelopment of certain real property defined in the AHA as the "SA Site". Reference is also made to the following additional agreements and documents involving Maker and Holder and/or pertaining to the Site: (i) Replacement Deed of Trust And Security Agreement With Assignment of Rents and Agreements, by and between Maker as borrower, Holder as beneficiary, and Stewart Title Company, as Trustee, dated April 1, 2002, and recorded on or about April 3, 2002, as Instrument No . c2&VR— /%/ TS , in the Office of the Riverside County Recorder ("Agency Deed of Trust"). The Agency Deed of Trust partially secures repayment of this Note. (ii) Regulatory Agreement and Declaration of Covenants, Conditions, and Restrictions, dated December 20, 2000, by and between Maker and Holder, for the benefit of Holder, and recorded on January 26, 2001, as Instrument No. 2001- 035561 in the Office of the Riverside County Recorder ("Agency Regulatory Agreement"). All of the foregoing listed documents are referred to herein collectively as the "Agency Agreements." The Agency Agreements are incorporated herein as though fully set forth. Except as otherwise provided herein, the defined terms used in this Note shall have the same meaning as set forth in the AHA. 394/015610-0026 270365.04 a03/28/02 1. Purpose of Loan. The loan evidenced by this Note is a loan for the purpose of acquisition and development of the SA Site in accordance with the AHA. The indebtedness evidenced by this Note is and shall be subordinate in right of payment to the prior payment in full of the indebtedness evidenced by (i) a Multifamily Note in the principal amount of $5,000,000 (including any addenda, the "Variable Rate Note") and (ii) a Multifamily Note in the principal amount of $3,000,000 (including any addenda, the "Fixed Rate Note"; together with the Variable Rate Note, the "Senior Note"), each issued by Maker, and payable to Holder as assigned to Wells Fargo Bank, National Association, as Trustee and Fannie Mae, as their interests may appear (collectively, the "Senior Lender"), or order, to the extent and in the manner provided in that certain Subordination Agreement, dated as of April 1, 2002, between the Holder of this Note, the Senior Lender and the Maker of this Note (the "Subordination Agreement"). The deed of trust securing this Note is and shall be subject and subordinate in all respects to the liens, terms, covenants and conditions of the Multifamily Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing securing the Senior Note, as more fully set forth in the Subordination Agreement. The rights and remedies of the Holder and each subsequent holder of this Note under the deed of trust securing this Note are subject to the restrictions and limitations set forth in the Subordination Agreement. Each subsequent holder of this Note shall be deemed, by virtue of such holder's acquisition of the Note, to have agreed to perform and observe all of the terms, covenants and conditions to be performed or observed by the Subordinate Lender under the Subordination Agreement. 2. Principal Amount. The principal amount of this Loan shall be NINE MILLION FIVE HUNDRED THOUSAND DOLLARS ($9,500,000.00). Simple interest shall accrue on the outstanding principal amount at THREE PERCENT (3%). 3. Term of Note, Repayment. 3.1 Maker shall be obligated to repay the principal amount of this Note and the accrued interest, without set off or deduction, by paying to Holder, each calendar year in which there is positive Cash Flow (as the term "Cash Flow" is defined in Section 3.1.1), SEVENTY FIVE PERCENT (75%) of that calendar year's Cash Flow. Each such yearly payment shall be due not later than the April 1" that follows the end of each such calendar year, or, if such April 1" is a Saturday, Sunday, or legal holiday, the payment shall be due the next succeeding business day. 3.1.1 For purposes of this Section 3.1, the term "Cash Flow" means: (A) all income derived by Maker from the Site including, without limitation, all tenant rent, all rental subsidy payments made by governmental agencies, and income from any source related to Maker's owning, leasing, maintenance, and operation of the Site and Improvements ("Gross Income"); less (B) (i) expenses actually and reasonably incurred by Maker in owning, leasing, operating, maintaining, and repairing the Site (excluding insurance proceeds and any costs or expenses paid or reimbursed by third parties), including without limitation, insurance, taxes, maintenance and repair expenses for the Site, services to the residents specified in Developer's application to the Tax Credit Allocation Committee, capital improvements not funded from the Capital Replacement Reserve (the Capital Replacement Reserve shall be the first source of funds used by Maker for capital improvements to the Site), management costs, an annual Issuer Fee paid to Holder of one eighth of a percent (0.125%) of the outstanding balance on the Senior Note 394/015610-0026 270365.04 a03/28/02 -2- (which shall be paid prior to the payment of any partnership management fee or any general partner or managing general partner asset management fee), a general partner or managing general partner asset management fee not to exceed one and a quarter percent (1.25%) of Gross Income, a partnership management fee not to exceed Ten Thousand Dollars ($10,000) per calendar year, developer fees, reasonable accounting and legal fees, and cost of debt service on loans secured by deeds of trust which are recorded against the Site with a higher priority than the Agency Deed of Trust, and any loans with a lower priority than the Agency Deed of Trust if such loans are approved in advance by the Agency; (ii) the net amount of deposits, if any, into the Capital Replacement Reserve; and (iii) a property management fee which shall not exceed six percent (6%) of the Gross Income generated by the Site and Improvements. Cash Flow shall be calculated on an accrual basis without regard to any carry-over of profit or loss from any prior calendar year. 3.1.2 For purposes of Section 3.1.1, the term "Capital Replacement Reserve" means an amount equal to the higher of $200 per unit per year as of the year 2001 increasing annually by the percentage increase in the Consumer Price Index published by the United States Department of Labor, Bureau of Labor Statistics, for Urban Wage Earners and Clerical Workers, Los Angeles -Long Beach -Anaheim Average, All Items (1984=100), or such replacement reserves as are required by the lender under a superior mortgage or the State of California Tax Credit Allocation Committee. The Capital Replacement Reserve shall be the first source of funds used by Maker for capital improvements to the Site. 3.2 Notwithstanding the foregoing, all unpaid principal and all accrued but unpaid interest on this Note shall be due and payable on the fifty-fifth (55th) anniversary date of the Certificate of Completion, as defined in the AHA (the "Maturity Date"). 3.3 Any payments made by Maker in payment of this Note shall be applied in the following order: (i) first to the interest then accrued and due on the unpaid principal balance under this Note, (ii) second to reduction of the principal balance of this Note. 3.4 This Note may be prepaid in whole or in part at any time without penalty. 4. Default; Cross -Default; Acceleration. 4.1 In addition to Maker's failure to timely perform the requirements of this Note, Maker shall also be in default of this Note if Maker, without the prior written approval of Holder, which approval may be given or withheld in Holder's sole and absolute discretion, refinances any outstanding loan or note secured by the Site for an amount greater than the sum (i) the then - outstanding principal balance of such secured loan(s) or note(s), plus (ii) the reasonable costs of such refinance transaction, which shall not include loan points or origination fees greater than two percent (2%) of the then -outstanding principal balance of such secured loan(s) or note(s). Notwithstanding the foregoing, Maker shall not be in default of this Note and need not seek approval of Holder in refinancing any outstanding loan or note secured by the Site if all net proceeds from such refinance are applied against the unpaid balance of this Note and the debt service arising from such refinance does not reduce Cash Flow. 394/015610-0026 270365.04 a03/28/02 3 4.2 Default by Maker of this Note or of any of the Agency Agreements, shall constitute a default of this Note and all of the Agency Agreements. 4.3 In the event of a default of this Note or a default of any of the Agency Agreements by Maker, which default has not been cured within the cure period applicable to such default, Holder may, at its option, declare this Note and the entire obligations hereby evidenced immediately due and payable and collectible then or thereafter as Holder may elect, regardless of the date of maturity, and notice of the exercise of said option is hereby expressly waived by Maker. 4.4 The limited partner of Maker for the Project shall have the same rights as the Holder set forth in this Section 4. 5. Collection Costs; Attorneys' Fees. If, because of any event of default under this Note or any of the Agency Agreements, any attorney is engaged by Holder to enforce of defend any provision of this instrument, whether or not suit is filed hereon, then Maker shall pay upon demand reasonable attorneys' fees, expert witness fees and all costs so incurred by Holder together with interest thereon until paid at the applicable rate of interest payable hereunder, as if such fees and costs had been added to the principal owing hereunder. 6. Waivers by Maker. Maker and all endorsers, guarantors and persons liable or to become liable on this Note waive presentment, protest and demand, notice of protest, demand and dishonor and nonpayment of this Note and any and all other notices or matters of a like nature, and consent to any and all renewals and extensions near the time of payment hereof and agree further that at any time and from time to time without notice, the terms of payment herein may be modified or the security described in any documents securing this Note released in whole or in part, or increased, changed or exchanged by agreement between Holder and any owner of the premises affected by said documents securing this Note, without in any way affecting the liability of any party to this Note or any persons liable or to become liable with respect to any indebtedness evidenced hereby. 7. Severability. The unenforceability or invalidity of any provision or provisions of this Note as to any persons or circumstances shall not render that provision or those provisions unenforceable or invalid as to any other provisions or circumstances, and all provisions hereof, in all other respects, shall remain valid and enforceable. 8. Modifications. Neither this Note nor any term hereof may be waived, amended, discharged, modified, changed or terminated orally; nor shall any waiver of any provision hereof be effective except by an instrument in writing signed by Maker and Holder. No delay or omission on the part of Holder in exercising any right hereunder shall operate as a waiver of such right or of any other right under this Note. 9. No Waiver by Holder. No waiver of any breach, default or failure of condition under the terms of this Note shall be implied from any failure of the Holder of this Note to take, or any delay be implied from any failure by the Holder in taking action with respect to such breach, default or failure from any prior waiver of any similar or unrelated breach, default or failure. 394/015610-0026 270365.04 a03/28/02 `f 10. Us u . Notwithstanding any provision in this Note, the total liability for payment in the nature of interest shall not exceed the limit imposed by applicable laws of the State of California. 11. Nonassignability. Maker may not transfer, assign, or encumber this Note in any manner without the prior, express, written authorization of Holder, which may be given or withheld by Holder in Holder's sole and absolute discretion. It shall be deemed reasonable for Holder to refuse authorization for any reason or no stated reason. Holder may freely transfer, assign, or encumber Holder's interest in this Note in any manner, at Holder's sole discretion. 12. Governing Law. This Note has been executed and delivered by Maker in the State of California and is to be governed and construed in accordance with the laws thereof. 13. Time of Essence. Time is of the essence in the performance of the obligations and provisions set forth in this Note. 14. Non -Recourse. Notwithstanding anything to the contrary herein contained, (i) the liability of Maker shall be limited to its interest in the Site and any rents, issues, and profits arising from the Site and, in addition, with respect to any obligation to hold and apply insurance proceeds, proceeds of condemnation or other monies hereunder, any such monies received by it to the extent not so applied in accordance with the terms of this Note; (ii) no other assets of Maker shall be affected by or subject to being applied to the satisfaction of any liability which Maker may have to Holder or to another person by reason of this Note; and (iii) any judgment, order, decree or other award in favor of Holder shall be collectible only out of, or enforceable in accordance with, the terms of this Note by termination or other extinguishment of Maker's interest in the Site. Notwithstanding the foregoing, it is expressly understood and agreed that the aforesaid limitation on liability shall in no way restrict or abridge Maker's continued personal liability for: (A) fraud or willful or grossly negligent misrepresentation made by Maker in connection with this Note or any of the Agency Agreements; (B) misapplication of (a) proceeds of insurance and condemnation or (b) rent received by Maker under rental agreements entered into for any portion of the Site; (C) the retention by Maker of all advance rentals and security deposits of tenants not refunded to or forfeited by such tenants; (D) the indemnification undertakings of Maker under the Agency Agreements; and (E) material waste by Maker with respect to the Site. lend — signature page follows] 394/015610-0026 270365.04 a03/28/02 -5- IN WITNESS WHEREOF, Maker has executed this Note as of the date and year first above written. "Maker" MIRAFLORES, L.P., a California limited partnership By: LILAC HOUSING CORPORATION, a California nonprofit public benefit corporation, its Managing General Partner wo ter L. Johnson, its President 394/015610-0026 L 270365.04 a03/28/02 -6-