-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWLnbWdqGxvlR5PXQthHOG5FYJmf1y+wIoslJodZNaZ4NTNl+6VMZhIsLORxDf22 UaoIawdCHur6DnPKBG5EXw== 0000810481-96-000003.txt : 19960402 0000810481-96-000003.hdr.sgml : 19960402 ACCESSION NUMBER: 0000810481-96-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MCNEIL REAL ESTATE FUND XXVII LP CENTRAL INDEX KEY: 0000810481 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT) [6532] IRS NUMBER: 330214387 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17173 FILM NUMBER: 96542331 BUSINESS ADDRESS: STREET 1: 13760 NOEL ROAD STREET 2: SUITE 700 LB70 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2144485800 MAIL ADDRESS: STREET 2: 13760 NOEL ROAD SUITE 700 LB 70 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHMARK PRIME PLUS L P DATE OF NAME CHANGE: 19920413 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 ------------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to_____________ Commission file number 0-17173 McNEIL REAL ESTATE FUND XXVII, L.P. - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 33-0214387 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (214) 448-5800 ----------------------------- Securities registered pursuant to Section 12(b) of the Act: None - ---------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Limited partnership - ---------------------------------------------------------- units Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 4,863,585 of the registrant's 5,273,885 limited partnership units are held by non-affiliates. The aggregate market value of units held by non-affiliates is not determinable since there is no public trading market for limited partnership units and transfers of units are subject to certain restrictions. Documents Incorporated by Reference: See Item 14, Page 43 TOTAL OF 45 PAGES PART I ITEM 1. BUSINESS - ------ -------- ORGANIZATION - ------------ McNeil Real Estate Fund XXVII, L.P. (the "Partnership"), formerly known as Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation ("Southmark") on January 16, 1987 as a limited partnership under the provisions of the Delaware Revised Uniform Limited Partnership Act to make short-term loans to affiliates of the general partner. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 30, 1992, the general partner of the Partnership was Prime Plus Corp. (the "Original General Partner"), a wholly-owned subsidiary of McNeil. The Original General Partner was purchased from Southmark by McNeil on March 13, 1991, as discussed further below. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, Dallas, Texas 75240. The sole limited partner of the Partnership was initially Southmark Depositary Corp. (the "Depositary"), a wholly-owned subsidiary of Southmark. On August 14, 1987, the Partnership registered with the Securities and Exchange Commission ("SEC") under the Securities Act of 1933 (File No. 33-11824) and commenced a public offering for sale of $100,000,000 of Depositary units. The sale of Depositary units closed on August 14, 1988, with 5,548,888 units sold at $10 each, or gross proceeds of $55,488,880 to the Partnership. The Partnership subsequently filed a Form 8-A Registration Statement with the SEC and registered its Depositary units under the Securities Exchange Act of 1934 (File No. 0-17173). The Depositary assigned the principal attributes of its aggregate limited partner interest in the Partnership to the Depositary unit holders. As further discussed, the Depositary units were subsequently converted to limited partnership units. The Depositary, Depositary units or limited partnership units are referred to herein as "Units" and the holders thereof as "Unitholders." The Units represent equity interests in the Partnership and entitle the Unitholders to participate in certain allocations and distributions of the Partnership. As of December 31, 1995, 275,003 of the Units have been repurchased pursuant to the terms of the Amended Partnership Agreement. SOUTHMARK BANKRUPTCY AND CHANGE IN GENERAL PARTNER - -------------------------------------------------- On July 14, 1989, Southmark filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Neither the Partnership, the General Partner nor the Original General Partner were included in the filing. Southmark's reorganization plan became effective August 10, 1990. Under the plan, most of Southmark's assets, which included Southmark's interests in the Original General Partner, are being sold or liquidated for the benefit of creditors. In accordance with Southmark's reorganization plan, Southmark, McNeil and various of their affiliates entered into an asset purchase agreement on October 12, 1990, providing for, among other things, the transfer of control to McNeil or his affiliates of 34 limited partnerships (including the Partnership) in the Southmark portfolio. On February 14, 1991, pursuant to the asset purchase agreement as amended on that date, McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of McNeil, acquired the assets relating to the property management and partnership administrative business of Southmark and its affiliates. On March 13, 1991, McREMI commenced management of the Partnership's properties pursuant to an assignment of the existing property management agreements from the Southmark affiliates. On March 30, 1992, the Unitholders approved a restructuring proposal that provided for (i) the replacement of the Original General Partner with the General Partner; (ii) the adoption of the Amended Partnership Agreement which (a) substantially alters the provisions of the original Partnership Agreement relating to, among other things, compensation, reimbursements of expenses, and voting rights and (b) makes Depositary unit holders direct limited partners of the Partnership; (iii) the approval of an amended property management agreement with McREMI, the Partnership's property manager; and (iv) the approval to change the Partnership's name to McNeil Real Estate Fund XXVII, L.P. Under the Amended Partnership Agreement, the Partnership began accruing an asset management fee, retroactive to March 13, 1991, which is payable to the General Partner. For a discussion of the methodology for calculating the asset management fee, see Item 13 - Certain Relationships and Related Transactions. The proposals approved at the March 30, 1992 meeting were implemented as of that date. Settlement of Claims: The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark for damages relating to improper overcharges, breach of contract and breach of fiduciary duty. The Partnership settled these claims in 1991, which totaled approximately $17,024,326, for the full amount claimed and such settlement was approved by the Bankruptcy Court. Pursuant to the settlement agreement, the Partnership released Southmark and its affiliates and the Original General Partner from any further liability in connection with the claims made with the Bankruptcy Court. In return, an affiliate of McNeil agreed to waive payment on a dollar for dollar basis in an amount equal to the settled claims against Partnership advances owed at that time. In addition, the Partnership received Southmark bankruptcy plan assets in respect to its claims which were not offset against the Partnership advances. Because the Partnership's claims against Southmark were settled for $17,024,326, the Partnership advances of $223,800 owed at that time were reduced in their entirety and the claims had a remaining balance of $16,800,526. Although the Partnership settled the claims against Southmark for the full amount claimed, the settlement agreement provided that the Partnership receive a distribution of Southmark bankruptcy plan assets based on a claim amount of approximately $9,157,000. An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April 14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in May 1995, the Partnership received in full satisfaction of its claims, $984,649 in cash, and common and preferred stock in the reorganized Southmark which was subsequently sold for $317,675. These amounts represent the Partnership's pro-rata share of Southmark assets available for Class 8 Claimants. CURRENT OPERATIONS - ------------------ General: Under the original partnership agreement, the Partnership's primary business was to make short-term nonrecourse mortgage or deed of trust loans to affiliates of the Original General Partner and to partnerships or real estate investment trusts sponsored by affiliates of the Original General Partner formed for the purpose of acquiring income-producing real properties. Due to borrower defaults and foreclosures on the properties securing all but one of these mortgages, the Partnership's business also includes ownership and operation of real estate. Since the beginning of operations and prior to the restructuring, the Partnership funded twelve mortgage loans, seven in 1987 and five in 1988, which completed the Partnership's investment of the proceeds from the sale of Units. The borrowers on the mortgage loan investments held by the Partnership were all affiliates of Southmark. During the early part of the terms of the loans, to the extent that property operations were insufficient to pay required interest, Southmark supported the borrowers with cash and the Partnership's loans were kept current. On July 14, 1989, Southmark filed for bankruptcy protection, and such support ceased and all loans went into default. In 1994, the remaining mortgage loan investment, which is secured by a mini-storage warehouse in Stone Mountain, Georgia that was sold to an unaffiliated borrower, was modified. Principal and interest payments under the modified terms have been received by the Partnership. See Item 8 - Note 5 - "Mortgage Loan Investment." In 1992, the Partnership received the proceeds from a $7,000,000 mortgage note payable secured by five of the Partnership's mini-storage warehouses located in Florida. A portion of the proceeds from the loan was used to make nonrecourse mortgage loans to affiliates of the General Partner in accordance with the Amended Partnership Agreement. The loans were secured by income-producing real estate and were either junior or senior to other indebtedness as more fully described in Item 8 - Note 6 - "Mortgage Loan Investments - Affiliates." The mortgage note payable was repaid by the Partnership in 1995 and a $5 million line of credit was obtained that will be used to fund any future loans made to affiliates of the General Partner. See Item 8 - Note 7 - "Long-Term Debt." The Partnership is engaged in the ownership, operation and management of commercial real estate and other real estate related assets. At December 31, 1995, the Partnership owned one mortgage loan investment to an unaffiliated borrower, three mortgage loan investments to affiliates of the General Partner, and ten income-producing properties as described in Item 2 - Properties. The Partnership does not directly employ any personnel. The General Partner conducts the business of the Partnership directly and through its affiliates. The Partnership reimburses affiliates of the General Partner for such services rendered in accordance with the Amended Partnership Agreement. See Item 8 - Note 2 "Transactions With Affiliates." The business of the Partnership to date has involved only one industry segment. See Item 8 - Financial Statements and Supplementary Data. The Partnership has no foreign operations. The Partnership's business is not seasonal. Business Plan: The Partnership's anticipated plan of operations for 1996 is to preserve or increase the net operating income of its properties whenever possible, while at the same time making whatever capital expenditures are reasonable under the circumstances in order to preserve and enhance the value of the Partnership's properties. The General Partner is evaluating market and other economic conditions to determine the optimum time to commence an orderly liquidation of the Partnership's properties in accordance with the terms of the Amended Partnership Agreement. The Partnership will continue to collect principal and interest payments on its mortgage loan investment to an unaffiliated borrower. Further, the Partnership may continue to make loans to affiliates in accordance with the terms of the Amended Partnership Agreement. In conjunction therewith, the General Partner will continue to explore potential avenues to enhance the value of the Units in the Partnership, which may include, among other things, asset sales or refinancings of the Partnership's properties which may result in distributions to the limited partners. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations. Competitive Conditions: Since the principal business of the Partnership is to own and operate real estate and to service notes receivable secured by real estate, the Partnership is subject to all of the risks incidental to ownership of real estate and interests therein, many of which relate to the illiquidity of this type of investment. These risks include changes in general or local economic conditions, changes in supply or demand for competing properties in an area, changes in interest rates and availability of permanent mortgage funds which may render the sale or refinancing of a property difficult or unattractive, changes in real estate and zoning laws, increases in real property tax rates and Federal or local economic controls. The illiquidity of real estate investments generally impairs the ability of the Partnership to respond promptly to changed circumstances. The Partnership competes with numerous established companies, private investors (including foreign investors), real estate investment trusts, limited partnerships and other entities (many of which have greater resources than the Partnership and the borrowers) in connection with the sale, financing and leasing of properties. The impact of these risks on the Partnership, including losses from operations and foreclosures of the Partnership's properties, is described in Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations. See Item 2 - Properties for a discussion of the competitive conditions at each of the Partnership's properties. Other Information: The environmental laws of the Federal government and of certain state and local governments impose liability on current property owners for the clean-up of hazardous and toxic substances discharged on the property. This liability may be imposed without regard to the timing, cause or person responsible for the release of such substances onto the property. The Partnership could be subject to such liability in the event that it owns properties having such environmental problems. The Partnership has no knowledge of any pending claims or proceedings regarding such environmental problems. ITEM 2. PROPERTIES - ------ ---------- The following table sets forth the real estate investment portfolio of the Partnership at December 31, 1995. All of the buildings and the land on which they are located are owned in fee. The two office buildings and Kendall Sunset Mini-Storage secure a $5 million line of credit as described more fully in Item 8 - Note 7 - "Long-Term Debt." No borrowings were outstanding under the line of credit as of December 31, 1995. The remaining properties are unencumbered by mortgage indebtedness. See also Item 8 - Note 4 - "Real Estate Investments" and Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization. In the opinion of management, the properties are adequately covered by insurance. Net Basis 1995 Date Property Description of Property Debt Property Taxes Acquired - -------- ----------- --------- -------- ------- -------- AAA Century Airport Self-Storage Inglewood, CA 567 units $2,054,531 $ - $37,053 9/90 AAA Sentry Mini-Storage N. Lauderdale, FL 803 units 472,231 - 50,942 10/90 Burbank Mini-Storage Burbank, CA 986 units 2,781,188 - 41,848 9/90 Forest Hill Mini-Storage W. Palm Beach, FL 679 units 2,040,260 - 34,678 8/90 Fountainbleau Mini-Storage Miami, FL 769 units 1,262,761 - 63,127 11/90 Kendall Sunset Mini-Storage Miami, FL 940 units 3,745,804 - 73,105 10/90 Margate Mini-Storage Margate, FL 642 units 1,256,989 - 49,035 10/90 Military Trail Mini-Storage W. Palm Beach, FL 688 units 1,991,963 - 39,724 8/90 One Corporate Center I Office Building Edina, MN 111,146 sq. ft. 4,565,247 - 180,206 12/89 One Corporate Center III Office Building Edina, MN 111,252 sq. ft. 4,806,601 - 182,130 12/89 ---------- ------- ------- $24,977,575 $ - $751,848 ========== ======= =======
- ----------------------------------------- Total: Office Buildings - 222,398 sq. ft. Mini-storage and self-storage warehouses - 6,074 units The following table sets forth the properties' occupancy rate and rent per square foot for the last five years: 1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ AAA Century Airport Occupancy Rate............ 94% 95% 82% 77% 81% Rent Per Square Foot...... $10.19 $ 8.87 $ 7.90 $ 7.95 $ 8.09 AAA Sentry Occupancy Rate............ 96% 95% 98% 84% 48% Rent Per Square Foot...... $ 7.70 $ 7.00 $ 6.17 $ 4.06 $ 2.96 Burbank Occupancy Rate............ 81% 81% 84% 76% 70% Rent Per Square Foot...... $10.29 $10.32 $ 8.74 $ 8.09 $ 7.49 Forest Hill Occupancy Rate............ 97% 99% 100% 92% 69% Rent Per Square Foot...... $ 9.82 $ 9.22 $ 8.45 $ 7.35 $ 7.13 Fountainbleau Occupancy Rate............ 97% 99% 100% 98% 68% Rent Per Square Foot...... $ 8.38 $ 8.08 $ 7.66 $ 6.12 $ 5.62 Kendall Sunset Occupancy Rate............ 95% 96% 99% 100% 81% Rent Per Square Foot...... $11.72 $11.71 $11.23 $ 9.63 $ 8.29 Margate Occupancy Rate............ 90% 100% 98% 96% 74% Rent Per Square Foot...... $ 9.90 $10.06 $ 9.55 $ 8.08 $ 6.35
1995 1994 1993 1992 1991 ------ ------ ------ ------ ------ Military Trail Occupancy Rate............ 91% 90% 91% 83% 84% Rent Per Square Foot...... $ 9.35 $ 8.46 $ 7.76 $ 7.76 $ 7.99 One Corporate Center I Occupancy Rate............ 93% 95% 99% 81% 64% Rent Per Square Foot...... $10.92 $10.34 $11.56 $ 8.28 $ 8.15 One Corporate Center III Occupancy Rate............ 97% 96% 78% 54% 34% Rent Per Square Foot...... $11.17 $11.03 $ 7.38 $ 4.09 $ 4.04
Occupancy rate represents all units leased divided by the total number of units for mini-storage properties and square footage leased divided by total square footage for other properties as of December 31 of the given year. Rent per square foot represents all revenue, except interest, derived from the property's operations divided by the leasable square footage of the property. Competitive conditions: - ---------------------- AAA Century Airport - ------------------- AAA Century Airport Self-Storage consists of three, two-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 567 units, including 10 recreational vehicle parking spaces. Each unit is individually alarmed for additional security. The property does not offer climate-controlled units. The property is located approximately two miles from the Los Angeles International Airport in Inglewood, California. Inglewood is a relatively mature area with growth to the west generated by development around the airport. There is little competition which represents a threat to the property. The property raised rental rates in 1995 and plans to increase rental rates slightly in 1996. The Partnership expects to maintain occupancy in the low to middle 90% range in 1996. AAA Sentry - ---------- AAA Sentry Mini-Storage consists of five, two-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 803 units, with 85% of these units air conditioned. The property is located in a predominately commercial area, with a mixture of single and multi-family residential properties. The property's rental rates and occupancy are currently higher than the competition in the immediate area. A rental rate increase is not planned until late 1996 since a new competing facility was recently built that may affect occupancy. Management anticipates maintaining occupancy in the middle 90% range in 1996. Burbank - ------- Burbank Mini-Storage consists of two, two-story and one, three-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 986 units, with 10 of these units being recreational vehicle parking spaces. All of the buildings have fire sprinklers, but do not offer climate-controlled environments. The property is located in the eastern quadrant of Burbank, California, just west of Interstate 5 and approximately twenty miles north of downtown Los Angeles and seven miles south of the Burbank Airport. There are two competing self-storage properties with superior visibility and highway access. Another competing property has recently been built closer to the airport that may have a negative effect on Burbank's occupancy. Due to the property's lack of air conditioning and third floor units that are far away from stairwells or elevators, an increase in occupancy is not likely. The Partnership expects to maintain occupancy in the low 80% range in 1996. Forest Hill - ----------- Forest Hill Mini-Storage consists of nine, one-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 679 units, with 20 of these units being recreational vehicle parking spaces. 35% of the units are air conditioned. The property is located in a predominately residential neighborhood in West Palm Beach, Florida consisting of single family homes and small businesses to the east and multi-family apartment communities to the south and west. The property's rental rates and occupancy are currently higher than the competition in the immediate area. Construction of two competing facilities within one mile of Forest Hill is currently being considered, which could have a negative impact on the property. The Partnership expects to maintain occupancy in the middle 90% range. An increase in rental rates is anticipated in 1996. Fountainbleau - ------------- Fountainbleau Mini-Storage consists of three, two-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 769 units. 56% of the units are air conditioned. The property is located in the central western quadrant of the Miami metroplex and is in close proximity to the Miami International Airport. The immediate neighborhood is predominately industrial with single family residential and multi-family communities further to the south and north. The tenant profile consists of local businesses and a major international moving company that leases more than 90 of the units and receives a 5% discount. The Partnership expects to maintain occupancy in the high 90% range in 1996. Surrounding vacant property is currently being marketed for future mini-storage development. If facilities are built, it could have an impact on the property's performance. Kendall Sunset - -------------- Kendall Sunset Mini-Storage consists of ten, one-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 940 units. 35% of the units are air conditioned. The property is located in a residential neighborhood at the southwestern edge of the Miami metroplex. The area is tropical in nature and is in close proximity to the Everglades and Key West. The property's rental rates and occupancy are currently higher than the competition in the immediate area. The Partnership expects to maintain occupancy in the middle 90% range in 1996. Margate Margate Mini-Storage consists of four, one-story and one, three-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 642 units, with 11 of the units being recreational vehicle parking spaces. 52% of the units are air conditioned. The property is located in a predominately commercial/retail neighborhood with single family homes and multi-family communities along the secondary streets. The property's rental rates and occupancy are currently higher than the competition in the immediate area. The development of a new self-storage facility near the property had an adverse effect on the property's occupancy at the end of 1995. However, the Partnership expects to increase occupancy slightly in 1996. Military Trail - -------------- Military Trail Mini-Storage consists of eight, one-story self-storage warehouse buildings and one apartment/leasing office. The rentable space is divided into 688 units, with 16 of the units being recreational vehicle parking spaces. 35% of the units are air conditioned. The property is located in a predominately commercial/retail neighborhood. The majority of the apartment complexes in the area are to the north with single family residences to the west. The location is the most positive feature with direct access on Military Trail, a major thoroughfare. There are two competitors in the immediate area with similar access and appearance but inferior management. The Partnership expects to maintain occupancy in the low 90% range throughout 1996. One Corporate Center I and One Corporate Center III - --------------------------------------------------- One Corporate Center I and III are six-story class "B" office buildings located in the southwest suburban Minneapolis/St. Paul metropolitan area. The buildings are two of four identical buildings located in a commercial development identified as One Corporate Center. There has been no new office development in the past three years and no new speculative construction is currently underway, so there has been a continued demand for a decreasing supply of space. Developers are currently actively seeking tenants for potential competing construction. Management will concentrate on retaining existing tenants in 1996. The properties will continue to perform capital improvements in 1996 in order to replace aging building systems and to upgrade common areas to remain competitive in the marketplace. The Partnership will continue to lease up vacancies with few concessions and higher rental rates. The Partnership expects to maintain occupancy in the middle 90% range. The following schedule shows lease expirations for each of the Partnership's commercial properties for 1996 through 2005: Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- -------- ----------- One Corporate Center I - ---------------------- 1996 9 19,772 $ 264,757 19% 1997 6 27,148 287,349 21% 1998 3 32,410 413,691 30% 1999 6 17,860 215,436 16% 2000 2 3,558 50,848 4% Thereafter - - - -
Number of Annual % of Gross Expirations Square Feet Rent Annual Rent ----------- ----------- -------- ----------- One Corporate Center III - ------------------------ 1996 7 18,915 $ 227,224 17% 1997 4 9,596 118,989 9% 1998 9 40,538 495,589 37% 1999 4 18,370 212,380 16% 2000 2 9,647 130,866 10% 2001 - - - - 2002 2 7,152 77,226 6% Thereafter - - - -
No mini-storage tenant leases 10% or more of the available rental space except for a moving company that leases approximately 12% of the units at Fountainbleau Mini-Storage on a month-to-month basis. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for each property: Nature of Business Square Footage Lease Use Leased Annual Rent Expiration - --------- -------- --------- ---------- One Corporate Center I - ---------------------- General Office 14,642 $ 200,303 1998 Bank 11,169 131,236 1999 One Corporate Center III - ------------------------ General Office 12,988 $ 158,454 1998
ITEM 3. LEGAL PROCEEDINGS - ------ ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Partnership based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young; however, the final outcome of this litigation cannot be determined at this time. 2) Robert Lewis v. McNeil Real Estate Fund XXVII, L.P. and McNeil Partners, L.P., Civil Action No. 13287 (Del. Ch.). This complaint alleged, among other things, that the General Partner caused the Partnership to loan money to affiliated partnerships at rates lower than the Partnership's cost of borrowing, which the plaintiff alleged constituted a breach of the General Partner's fiduciary duties. The complaint alleged that the affiliate loans were designed to enable the affiliated partnerships to continue in business so as to enable the General Partner to continue collecting fees from them. An answer to the complaint was filed on February 3, 1994, denying the material averments of wrongdoing and asserting affirmative defenses. In 1995, the plaintiff and the Partnership executed a Stipulation and Order of Dismissal, which dismissed the action without prejudice. 3) Helen Pasco v. McNeil Real Estate Fund XXVII, L.P., Southmark Prime Plus Corp., et al. and Does 1-50 Inclusive. This complaint alleges that several limited partnerships and funds, including the Partnership, along with McMachen, Prudential Securities, Inc. and other unidentified defendants, transmitted false and misleading information to the plaintiff which was used to entice the plaintiff into investing her money with the defendants. The complaint also alleges that the defendants misrepresented speculative, illiquid limited partnerships as safe, income-producing investments suitable for safety-conscious and conservative investors. Although the Partnership is included as a defendant, the plaintiff's allegations do not specify in what way the Partnership was involved in improper conduct. The complaint does not state, other than by broad allegations, that the Partnership acted in an improper manner with regard to the operation or management of the limited partnership. An answer was filed on behalf of the Partnership in February 1994, and there has been no further action in this matter. The ultimate outcome of this case cannot be determined at this time. For a discussion of the Southmark bankruptcy, see Item 1 - Business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------ --------------------------------------------------- None. PART II ITEM 5. MARKET FOR THE REGISTRANT'S UNITS OF LIMITED PARTNERSHIP - ------ -------------------------------------------------------- AND RELATED SECURITY HOLDER MATTERS ----------------------------------- (A) There is no established public trading market for limited partnership units, nor is one expected to develop. (B) Title of Class Number of Record Unit Holders -------------- ----------------------------- Limited partnership units 2,715 as of February 16, 1996 (C) No distributions were paid to the partners in 1995 or 1994. Distributions have been suspended since the first quarter of 1992. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 - Note 1 - "Organization and Summary of Significant Accounting Policies - Distributions." ITEM 6. SELECTED FINANCIAL DATA - ------ ----------------------- The following table sets forth a summary of certain financial data for the Partnership. This summary should be read in conjunction with the Partnership's financial statements and notes thereto appearing in Item 8. Years Ended December 31, Statements of ----------------------------------------------------------------------- Operations 1995 1994 1993 1992 1991 - ------------------ ---------- ---------- ---------- ---------- --------- Rental revenue............... $ 7,517,404 $ 7,234,070 $ 6,546,936 $ 5,220,555 $4,869,260 Interest income on mortgage loan investments........... 440,658 451,841 674,118 207,757 180,424 Write-down for permanent impairment of real estate.. - - - - (2,600,000) Income (loss) before extra- ordinary item.............. 3,268,110 1,355,563 1,306,745 (192,058) (3,512,345) Extraordinary item........... (252,402) - - - 223,800 Net income (loss)............ 3,015,708 1,355,563 1,306,745 (192,058) (3,288,545) Net income (loss) per weighted average hundred limited partnership units: Income (loss) before extra- ordinary item........... $ 60.93 $ 25.09 $ 24.00 $ (3.50) $ (63.52) Extraordinary item......... (4.71) - - - 4.05 --------- ---------- ---------- ---------- --------- Net income (loss).......... $ 56.22 $ 25.09 $ 24.00 $ (3.50) $ (59.47) ========= ========== ========== ========== ========= Distributions per weighted average hundred limited partnership units.......... $ - $ - $ - $ 4.43 $ 44.37 ========= ========== ========== ========== =========
As of December 31, ----------------------------------------------------------------------- Balance Sheets 1995 1994 1993 1992 1991 - -------------- ---------- ---------- ---------- ---------- ---------- Real estate investments, net... $24,977,575 $25,921,989 $26,674,164 $26,633,500 $26,908,727 Mortgage loan investments, net.......................... 3,597,673 4,679,929 5,718,144 4,685,107 1,667,107 Total assets................... 35,489,741 39,501,853 38,779,870 38,451,367 32,016,418 Long-term debt................. - 6,726,266 6,853,753 6,968,258 - Partners' equity............... 34,630,930 31,948,150 30,925,518 29,951,706 30,717,568
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------ ----------------------------------------------------------- AND RESULTS OF OPERATIONS ------------------------- FINANCIAL CONDITION - ------------------- Under the original partnership agreement, the Partnership was formed to engage in the business of making short-term nonrecourse mortgage or deed of trust loans to affiliates of the Original General Partner and to partnerships or real estate investment trusts sponsored by affiliates of the Original General Partner formed for the purpose of acquiring income-producing real properties and reinvesting the proceeds from repayment of such loans in additional affiliate loans. In 1989, the Partnership initiated foreclosure proceedings on the collateral securing each of its mortgage loan investments. The Partnership acquired two office buildings in 1989 and eight mini-storage warehouses in 1990 as a result of the foreclosures. Also in 1990, one loan was collected in full when the borrower sold the mini-storage warehouse securing the loan. The remaining mortgage loan investment, secured by a mini-storage warehouse owned by an unaffiliated limited partnership, was modified in 1994. In October 1992, the Partnership received approximately $6.5 million of net proceeds from a $7 million loan secured by five of the Partnership's mini-storage warehouses located in Florida. A portion of the proceeds were used for working capital and for general partnership purposes. The loan proceeds were also used to make such loans to affiliates in accordance with the Amended Partnership Agreement as more fully described in Item 8 - Note 6 - "Mortgage Loan Investments - Affiliates" and Item 13 - Certain Relationships and Related Transactions. The mortgage note payable was paid in full in 1995 and a $5 million line of credit was obtained that will be used to fund any future loans made to affiliates of the General Partner. See Item 8 - Note 7 - "Long-Term Debt." RESULTS OF OPERATIONS - --------------------- 1995 compared to 1994 Revenue: Total revenue increased by $1,676,557 in 1995 as compared to the prior year, primarily due to a gain on legal settlement and an increase in rental revenue and other interest income, as discussed below. Rental revenue in 1995 increased by $283,334 as compared to 1994. Rental revenue increased by approximately $65,000 and $16,000 at One Corporate Center I and III office buildings, respectively, due to an increase in rental rates in 1995. In addition, rental revenue increased at a majority of the mini-storage properties as a result of an increase in rental rates in 1995. The largest increases occurred at AAA Century Airport, AAA Sentry and Military Trail where rental revenue increased by approximately $68,000, $52,000 and $41,000, respectively. See Item 2 - Properties for a more detailed analysis of occupancy and rents per square foot. Other interest income increased by $115,445 in 1995 as compared to the prior year. The increase was primarily the result of an increase in interest rates earned on invested cash in 1995. In 1995, the Partnership received a $30,515 refund of prior years' property taxes for AAA Century Airport Mini-Storage as a result of an appeal filed on behalf of the property. In 1994, the Partnership received a $43,878 refund of prior years' property taxes for Burbank Mini-Storage. As discussed in Item 1, in 1995 the Partnership received cash and common and preferred stock in the reorganized Southmark in settlement of its bankruptcy claims against Southmark. The Partnership recognized a $1,302,324 gain as a result of this settlement. No such gain was recognized in 1994. Expenses: Total expenses decreased by $235,990 in 1995 as compared to the prior year, mainly due to a decrease in interest expense, as discussed below. Interest expense decreased by $380,381 in 1995 as compared to 1994. The decrease was due to the repayment of the Partnership's mortgage note payable in the second half of 1995, as further discussed in Item 8 - Note 7 - "Long-Term Debt." General and administrative expenses decreased by $44,076 in 1995 as compared to 1994. The decrease was due to a decrease in legal expenses in 1995. A greater amount of legal expenses were incurred in 1994 relating to a lawsuit against the borrower on the A-Quality Mini-Storage loan and a suit against the officers and directors of the Original General Partner and the Partnership's former auditors. In 1995, the Partnership recognized a $252,402 extraordinary loss incurred in connection with the repayment of its mortgage note payable as discussed in Item 8 - Note 7 - "Long-Term Debt." The loss consisted of $66,949 in prepayment penalties and a $185,453 write off of deferred borrowing costs. 1994 compared to 1993 Revenue: Total Partnership revenues increased by $77,457 in 1994 as compared to 1993. The increase was primarily due to an increase in rental revenue, partially offset by the recognition of a gain on involuntary conversion and an unusually large property tax refund received in 1993, as discussed below. Rental revenue increased by $687,134 in 1994 as compared to the previous year. The increase was primarily attributable to an increase of approximately $406,000 at One Corporate Center III Office Building due to an increase in occupancy. Rental revenue increased at all of the mini-storage properties as a result of an increase in rental rates in 1994. The largest increases occurred at Burbank, AAA Sentry and AAA Century Airport, where rental revenue increased by approximately $122,000, $61,000 and $50,000, respectively. See Item 2 - Properties for a more detailed analysis of occupancy and rents per square foot. Interest income on the Partnership's mortgage loan investment to an unaffiliated borrower (the A-Quality Mini-Storage loan) decreased by $22,648 in 1994 as compared to 1993. As discussed in Item 8 - Note 5 "Mortgage Loan Investment," this loan was modified effective January 1, 1994. Prior to the modification, interest on the note was received to the extent of excess cash flow from the property securing the loan. At that time, interest was recorded as earned by the Partnership when it was received. Under the modification, the principal balance of the loan was reduced and principal and interest are paid monthly by the borrower. One half of any excess cash flow from the property was used to reduce the principal balance of the second lien loan. Interest income on mortgage loan investments - affiliates decreased by $199,629 in 1994 as compared to the prior year. The decrease was the result of lower average loan balances outstanding in 1994 than in 1993 due to the repayment of loans at the end of 1993 and the beginning of 1994. Outstanding loans amounted to approximately $3.2 million and $4.1 million at December 31, 1994 and 1993, respectively. Other interest income increased by $156,043 in 1994 as compared to 1993. The increase was primarily the result of higher average cash balances available for short-term investment in 1994, mainly due to the repayment of loans by affiliates. The Partnership held approximately $7.2 million of cash and cash equivalents at December 31, 1994 as compared to $4.6 million at December 31, 1993. In addition, there was an increase in interest rates earned on invested cash in 1994. In 1993, the Partnership received a $358,174 refund of prior years' property taxes for One Corporate Center I and III office buildings. In 1994, the Partnership received a $43,878 refund of prior years' property taxes for Burbank Mini-Storage. In 1993, the Partnership recognized a gain on involuntary conversion of $229,147 relating to hurricane damage suffered at two of the mini-storages warehouses. (See Item 8 - Note 8 - "Gain on Involuntary Conversion"). No such gain was recorded in 1994. Expenses: Total expenses increased by $28,639 in 1994 as compared to 1993. Depreciation and amortization expense increased by $146,311 in 1994 as compared to 1993. The increase was due to the addition of depreciable capital improvements, primarily at One Corporate Center III Office Building, in 1994 and 1993. Property taxes decreased by $153,800 in 1994 as compared to 1993. The decrease was the result of a decrease in the assessed taxable value of One Corporate Center I and III Office Buildings by taxing authorities as a result of an appeal filed on behalf of the properties. Property management fees - affiliates increased by $58,385 in 1994 as compared to 1993. The increase was due to an increase in gross rental receipts in 1994, on which the fees are based. Electricity usage, resulting from an increase in occupancy at One Corporate Center III Office Building, caused an increase in utilities expense in 1994. Utilities increased by $28,209 in 1994 as compared to 1993. Other property operating expenses increased by $43,880 as compared to the same period in 1993. Approximately $24,000 of the increase was the result of One Corporate Center III amortizing a greater amount of leasing commissions in 1994, which were paid in an effort to increase the occupancy of the building. In addition, there was an increase in the cost of property insurance at all of the properties in 1994. General and administrative expenses decreased by $144,298 in 1994 as compared to 1993, mainly due to an increase in legal expenses in 1993. The majority of these expenses were attributable to a lawsuit against the borrower on the A-Quality Mini-Storage loan and a suit against the officers and directors of the Original General Partner and the Partnership's former auditors. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The Partnership generated $5,157,580 of cash through operating activities in 1995 as compared to $2,730,364 in 1994 and $1,664,105 in 1993. The increase in 1995 was mainly due to cash received in 1995 from the settlement of bankruptcy claims against Southmark as discussed in Item 1 - Southmark Bankruptcy and Change in General Partner. In addition, there was an increase in cash received from tenants and a decrease in interest paid. The increase in 1994 as compared to 1993 was mainly due to an increase in cash received from tenants. See discussion of the increase in rental revenue and the decrease in interest expense above. In 1993, the Partnership received $398,034 in net insurance proceeds from hurricane damage suffered at two of the mini-storage properties in 1992. The Partnership expended $563,333, $688,492 and $1,335,020 for capital improvements to the properties in 1995, 1994 and 1993, respectively. The Partnership made substantial improvements to its properties in 1993 in an effort to increase the properties' occupancy. In 1995 and 1994, the Partnership received $282,420 and $278,337, respectively, in payments on its mortgage loan investment to an unaffiliated borrower. As more fully discussed in Item 8 - Note 5 - "Mortgage Loan Investment," the loan was modified in 1994. Prior to the modification, interest only from the excess cash flow of the property was paid on the loan. The second lien loan was repaid in full in the third quarter of 1995. The Partnership collected (net of loans made) $972,000 and $843,135 of principal on loans to affiliates in 1995 and 1994, respectively. The Partnership made loans to affiliates (net of collections) of $1,033,037 in 1993. In 1995, the Partnership expended a total of $6,726,266 to repay in full its mortgage note payable and paid $66,949 in prepayment penalties associated with such repayment. The Partnership also paid $195,059 in deferred borrowing costs to secure a $5 million line of credit. Short-term liquidity: At December 31, 1995, the Partnership held cash and cash equivalents of $5,718,657. This balance provides a reasonable level of working capital for the Partnership's immediate needs in operating its properties. For the Partnership as a whole, management projects positive cash flow from operations in 1996. The Partnership has budgeted $586,000 for necessary capital improvements for all properties in 1996, which are expected to be funded from available cash reserves or from operations of the properties. One of the Partnership's mortgage loan investments to affiliates totaling $952,538 was repaid subsequent to December 31, 1995 (see Item 8 - Note 6 - "Mortgage Loan Investments - Affiliates"). Additional efforts to maintain and improve Partnership liquidity have included continued attention to property management activities. The objective has been to obtain maximum occupancy rates while holding expenses to levels necessary to maximize cash flows. The Partnership has made capital expenditures on its properties where improvements were expected to increase the competitiveness and marketability of the properties. In March 1996, the Partnership distributed $3,000,000 to the limited partners. Long-term liquidity: While the outlook for maintenance of adequate levels of liquidity is favorable, should operations deteriorate and present cash resources be insufficient for current needs, the Partnership would require other sources of working capital. The Partnership acquired a $5 million line of credit in 1995 that may be used for property operations. Other possible actions to resolve cash deficiencies include refinancings, deferral of capital expenditures on Partnership properties except where improvements are expected to increase the competitiveness and marketability of the properties, arranging financing from affiliates or the ultimate sale of the properties. Sales and refinancings are possibilities only, and there are at present no plans for any such sales or refinancings. The General Partner has established a revolving credit facility not to exceed $5,000,000 in the aggregate which is available on a "first-come, first-served" basis to the Partnership and other affiliated partnerships, if certain conditions are met. Borrowings under the facility may be used to fund deferred maintenance, refinancing obligations and working capital needs. There is no assurance that the Partnership will receive any funds under the facility because no amounts are reserved for any particular partnership. As of December 31, 1995, $2,662,819 remained available for borrowing under the facility; however, additional funds could become available as other partnerships repay existing borrowings. This commitment will terminate on March 30, 1997. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------ ------------------------------------------- Page Number ------ INDEX TO FINANCIAL STATEMENTS - ----------------------------- Financial Statements: Report of Independent Public Accountants....................................... 18 Balance Sheets at December 31, 1995 and 1994................................... 19 Statements of Operations for each of the three years in the period ended December 31, 1995..................................................... 20 Statements of Partners' Equity (Deficit) for each of the three years in the period ended December 31, 1995....................................... 21 Statements of Cash Flows for each of the three years in the period ended December 31, 1995..................................................... 22 Notes to Financial Statements.................................................. 24 Financial Statement Schedule - Schedule III - Real Estate Investments and Accumulated Depreciation and Amortization............................................ 34
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of McNeil Real Estate Fund XXVII, L.P.: We have audited the accompanying balance sheets of McNeil Real Estate Fund XXVII, L.P. (a Delaware limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of McNeil Real Estate Fund XXVII, L.P. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen, LLP Dallas, Texas March 21, 1996 MCNEIL REAL ESTATE FUND XXVII, L.P. BALANCE SHEETS December 31, ------------------------------ 1995 1994 ---------- ---------- ASSETS - ------ Real estate investments: Land..................................................... $ 5,387,855 $ 5,387,855 Buildings and improvements............................... 26,635,813 26,072,480 ---------- ---------- 32,023,668 31,460,335 Less: Accumulated depreciation and amortization......... (7,046,093) (5,538,346) ---------- ---------- 24,977,575 25,921,989 ---------- ---------- Mortgage loan investment.................................... 1,538,932 1,821,352 Less: Allowance for impairment............................. (177,161) (349,325) ---------- ---------- 1,361,771 1,472,027 Mortgage loan investments - affiliates...................... 2,235,902 3,207,902 Cash and cash equivalents................................... 5,718,657 7,196,410 Cash segregated for security deposits and repurchase of limited partnership units.................. 407,565 404,312 Accounts receivable......................................... 299,835 525,287 Accrued interest receivable................................. 23,978 49,373 Deferred borrowing costs, net of accumulated amortization of $48,764 and $91,612 at December 31, 1995 and 1994, respectively................. 146,295 204,366 Prepaid expenses and other assets........................... 318,163 520,187 ---------- ---------- $35,489,741 $39,501,853 ========== ========== LIABILITIES AND PARTNERS' EQUITY (DEFICIT) - ----------------------------------------- Long-term debt.............................................. $ - $ 6,726,266 Accounts payable and accrued expenses....................... 68,471 72,431 Payable to limited partners................................. 332,928 332,931 Payable to affiliates....................................... 253,044 227,189 Security deposits and deferred rental revenue............... 204,368 194,886 ---------- ---------- 858,811 7,553,703 ---------- ---------- Partners' equity (deficit): Limited partners - 10,000,000 limited partnership units authorized; 5,273,885 and 5,310,877 limited partnership units outstanding at December 31, 1995 and 1994, respectively............................................. 34,758,220 32,105,597 General Partner.......................................... (127,290) (157,447) ---------- ---------- 34,630,930 31,948,150 ---------- ---------- $35,489,741 $39,501,853 ========== ==========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF OPERATIONS For the Years Ended December 31, ----------------------------------------------- 1995 1994 1993 --------- --------- --------- Revenue: Rental revenue.......................... $7,517,404 $7,234,070 $6,546,936 Interest income on mortgage loan investment............................ 149,334 159,337 181,985 Interest income on mortgage loan investments - affiliates.............. 291,324 292,504 492,133 Other interest income................... 359,755 244,310 88,267 Property tax refund..................... 30,515 43,878 358,174 Gain on legal settlement................ 1,302,324 - - Gain on involuntary conversion.......... - - 229,147 --------- --------- --------- Total revenue......................... 9,650,656 7,974,099 7,896,642 --------- --------- --------- Expenses: Interest................................ 385,214 765,595 778,577 Depreciation and amortization........... 1,507,747 1,440,667 1,294,356 Property taxes.......................... 751,848 710,166 863,966 Personnel costs......................... 627,809 601,610 591,534 Repairs and maintenance................. 579,543 579,535 571,221 Property management fees - affiliates............................ 426,203 405,746 347,361 Utilities............................... 444,526 442,680 414,471 Other property operating expenses....... 597,611 569,077 525,197 General and administrative.............. 56,416 100,492 244,790 General and administrative - affiliates............................ 1,005,629 1,002,968 958,424 --------- --------- --------- Total expenses........................ 6,382,546 6,618,536 6,589,897 --------- --------- --------- Net income before extraordinary item....... 3,268,110 1,355,563 1,306,745 Extraordinary item......................... (252,402) - - --------- --------- --------- Net income................................. $3,015,708 $1,355,563 $1,306,745 ========= ========= ========= Net income allocable to limited partners................................ $2,985,551 $1,342,007 $1,293,678 Net income allocable to General Partner................................. 30,157 13,556 13,067 ---------- ---------- --------- Net income................................. $3,015,708 $1,355,563 $1,306,745 ========= ========= ========= Net income per weighted average hundred limited partnership units: Net income before extraordinary item.... $ 60.93 $ 25.09 $ 24.00 Extraordinary item...................... (4.71) - - --------- --------- --------- Net income................................. $ 56.22 $ 25.09 $ 24.00 ========= ========= =========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF PARTNERS' EQUITY (DEFICIT) For the Years Ended December 31, 1995, 1994 and 1993 Total General Limited Partners' Partner Partners Equity --------- ---------- ---------- Balance at December 31, 1992.............. $(184,070) $30,135,776 $29,951,706 Repurchase of 43,126 limited partnership units...................... - (332,933) (332,933) Net income................................ 13,067 1,293,678 1,306,745 -------- ---------- ---------- Balance at December 31, 1993.............. (171,003) 31,096,521 30,925,518 Repurchase of 37,408 limited partnership units...................... - (332,931) (332,931) Net income................................ 13,556 1,342,007 1,355,563 -------- ---------- ---------- Balance at December 31, 1994.............. (157,447) 32,105,597 31,948,150 Repurchase of 36,992 limited partnership units...................... - (332,928) (332,928) Net income................................ 30,157 2,985,551 3,015,708 -------- ---------- ---------- Balance at December 31, 1995.............. $(127,290) $34,758,220 $34,630,930 ======== ========== ==========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF CASH FLOWS Increase (Decrease) in Cash and Cash Equivalents For the Years Ended December 31, ----------------------------------------------- 1995 1994 1993 --------- ---------- ---------- Cash flows from operating activities: Cash received from tenants.............. $7,754,299 $ 7,316,836 $ 6,338,457 Cash paid to suppliers.................. (2,107,840) (2,308,783) (2,772,688) Cash paid to affiliates................. (1,405,977) (1,508,428) (1,327,008) Interest received....................... 336,925 339,729 259,401 Interest received from affiliates....... 316,719 280,611 495,854 Interest paid........................... (317,537) (723,313) (736,295) Property taxes paid..................... (751,848) (710,166) (951,790) Property tax refund..................... 30,515 43,878 358,174 Cash received from legal settlement..... 1,302,324 - - --------- ---------- ---------- Net cash provided by operating activities.............................. 5,157,580 2,730,364 1,664,105 --------- ---------- ---------- Cash flows from investing activities: Proceeds received from insurance company............................... - - 398,034 Additions to real estate investments.... (563,333) (688,492) (1,335,020) Proceeds from collection of mortgage loan investments...................... 282,420 278,337 - Mortgage loan investments - affiliates............................ - (1,008,000) (3,017,572) Proceeds from collection of mortgage loan investments - affiliates......... 972,000 1,851,135 1,984,535 --------- ---------- ---------- Net cash provided by (used in) investing activities.................... 691,087 432,980 (1,970,023) --------- ---------- ---------- Cash flows from financing activities: Net (increase) decrease in cash segregated for repurchase of limited partnership units............. (5,215) (87,150) 80,618 Deferred borrowing costs paid........... (195,059) - - Principal payments on mortgage note payable.......................... (6,726,266) (127,487) (114,505) Mortgage prepayment penalty paid........ (66,949) - - Repurchase of limited partnership units................................. (332,931) (332,933) (332,929) ---------- ---------- ---------- Net cash used in financing activities...... (7,326,420) (547,570) (366,816) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents........................ (1,477,753) 2,615,774 (672,734) Cash and cash equivalents at beginning of year....................... 7,196,410 4,580,636 5,253,370 ---------- ---------- ---------- Cash and cash equivalents at end of year................................. $ 5,718,657 $ 7,196,410 $ 4,580,636 ========== ========== ==========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXVII, L.P. STATEMENTS OF CASH FLOWS Reconciliation of Net Income to Net Cash Provided by Operating Activities For the Years Ended December 31, ----------------------------------------------- 1995 1994 1993 --------- --------- --------- Net income................................. $3,015,708 $1,355,563 $1,306,745 --------- --------- --------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization........... 1,507,747 1,440,667 1,294,356 Gain on involuntary conversion.......... - - (229,147) Amortization of deferred borrowing costs................................. 67,677 42,282 42,282 Allowance for impairment of mortgage loan investment.............. (172,164) (83,257) - Extraordinary item...................... 252,402 - - Changes in assets and liabilities: Cash segregated for security deposits............................ 1,962 (3,720) (11,417) Accounts receivable................... 225,452 62,607 (231,715) Accrued interest receivable........... 25,395 7,446 (47,092) Prepaid expenses and other assets.............................. 202,024 81,936 (143,586) Accounts payable and accrued expenses............................ (3,960) (97,325) (284,695) Accrued property taxes................ - - (78,855) Payable to affiliates................. 25,855 (99,714) 18,740 Security deposits and deferred rental revenue...................... 9,482 23,879 28,489 --------- --------- --------- Total adjustments................. 2,141,872 1,374,801 357,360 --------- --------- --------- Net cash provided by operating activities.............................. $5,157,580 $2,730,364 $1,664,105 ========= ========= =========
See accompanying notes to financial statements. McNEIL REAL ESTATE FUND XXVII, L.P. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - ------ ----------------------------------------------------------- Organization - ------------ McNeil Real Estate Fund XXVII, L.P. (the "Partnership"), formerly known as Southmark Prime Plus, L.P., was organized by affiliates of Southmark Corporation ("Southmark") on January 16, 1987, as a limited partnership under the provisions of the Delaware Revised Uniform Limited Partnership Act to make short-term loans to affiliates of the general partner. The general partner of the Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited partnership, an affiliate of Robert A. McNeil ("McNeil"). The General Partner was elected at a meeting of limited partners on March 30, 1992, at which time an amended and restated partnership agreement (the "Amended Partnership Agreement") was adopted. Prior to March 30, 1992, the general partner of the Partnership was Prime Plus Corp. (the "Original General Partner"), a wholly-owned subsidiary of McNeil. The Original General Partner was purchased from Southmark by McNeil on March 13, 1991. The principal place of business for the Partnership and the General Partner is 13760 Noel Road, Suite 700, Dallas, Texas 75240. The sole limited partner of the Partnership was initially Southmark Depositary Corp. (the "Depositary"), a wholly-owned subsidiary of Southmark. The Depositary assigned the principal attributes of its aggregate limited partner interest in the Partnership to the Depositary unit holders. The Depositary units were subsequently converted to limited partnership units. The Depositary, Depositary units or limited partnership units are referred to herein as "Units" and the holders thereof as "Unitholders." Under the original partnership agreement, the Partnership's primary business was to make short-term nonrecourse mortgage or deed of trust loans to affiliates of the Original General Partner and to partnerships or real estate investment trusts sponsored by affiliates of the Original General Partner formed for the purpose of acquiring income-producing real properties. Due to borrower defaults and foreclosures on the properties securing all but one of these mortgages, the Partnership's business also includes ownership and operation of real estate. In 1992, the Partnership received the proceeds from a $7 million mortgage note payable secured by five of the Partnership's mini-storage warehouses located in Florida. A portion of the proceeds from the loan was used to make nonrecourse mortgage loans to affiliates of the General Partner in accordance with the Amended Partnership Agreement. The loans were secured by income-producing real estate and were either junior or senior to other indebtedness as more fully described in Note 6 - "Mortgage Loan Investments - Affiliates." The mortgage note payable was repaid by the Partnership in 1995 and a $5 million line of credit was obtained that will be used to fund any future loans made to affiliates of the General Partner. See Note 7 - "Long-Term Debt." The Partnership is engaged in the ownership, operation and management of commercial real estate and other real estate related assets. At December 31, 1995, the Partnership owned one mortgage loan investment to an unaffiliated borrower, three mortgage loan investments to affiliates of the General Partner, and ten income-producing properties as described in Note 4 - "Real Estate Investments." Basis of Presentation - --------------------- The accompanying financial statements have been prepared in conformity with generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Real Estate Investments - ----------------------- Real estate investments are generally stated at the lower of cost or net realizable value. Real estate investments are monitored on an ongoing basis to determine if the property has sustained a permanent impairment in value. At such time, a write-down is recorded to reduce the basis of the property to its net realizable value. A permanent impairment is determined to have occurred when a decline in property value is considered to be other than temporary based upon management's expectations with respect to projected cash flows and prevailing economic conditions. Improvements and betterments are capitalized and expensed through depreciation charges. Repairs and maintenance are charged to operations as incurred. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Partnership has not adopted the principles of this statement within the accompanying financial statements; however, it is not anticipated that adoption will have a material effect on the carrying value of the Partnership's long-lived assets. Depreciation and Amortization - ----------------------------- Buildings and improvements are depreciated using the straight-line method over the estimated useful lives of the assets, ranging from 5 to 25 years. Tenant improvements are capitalized and are amortized over the terms of the related tenant lease, using the straight-line method. Mortgage Loan Investments - ------------------------- Mortgage loan investments are recorded at their original basis, net of any allowance for uncollectible amounts. Interest income is recognized as it is earned. Interest accrual is ceased at such time as management determines collection is doubtful. Cash and Cash Equivalents - ------------------------- Cash and cash equivalents include cash on hand and cash on deposit in financial institutions with original maturities of three months or less. Carrying amounts for cash and cash equivalents approximate fair value. Deferred Borrowing Costs - ------------------------ Loan fees and other related costs incurred to obtain long-term financing on real property are capitalized and amortized using a method that approximates the effective interest method over the term of the related mortgage note payable or line of credit agreement. Amortization of deferred borrowing costs is included in interest expense on the Statements of Operations. Rental Revenue - -------------- The Partnership leases its mini-storage warehouses under short-term operating leases. Lease terms generally are less than one year in duration. Rental revenue is recognized as earned. The Partnership leases its commercial properties under non-cancelable operating leases. Certain leases provide concessions and/or periods of escalating or free rent. Rental revenue is recognized on a straight-line basis over the term of the related leases. The excess of the rental revenue recognized over the contractual rental payments is recorded as accrued rent receivable and is included in accounts receivable on the Balance Sheets. Income Taxes - ------------ No provision for Federal income taxes is necessary in the financial statements of the Partnership because, as a partnership, it is not subject to Federal income tax and the tax effect of its activities accrues to the partners. Allocation of Net Income and Net Loss - ------------------------------------- The Amended Partnership Agreement provides for net income and net losses of the Partnership to be allocated 99% to the Unitholders and 1% to the General Partner. Federal income tax law provides that the allocation of loss to a partner will not be recognized unless the allocation is in accordance with a partner's interest in the partnership or the allocation has substantial economic effect. Internal Revenue Code Section 704(b) and accompanying Treasury Regulations establish criteria for allocation of Partnership deductions attributable to debt. The Partnership's tax allocations for 1995, 1994, and 1993 have been made in accordance with these provisions. Distributions - ------------- At the discretion of the General Partner, distributions to the partners are paid from cash from operations available after payment of affiliate compensation. Under the terms of the Amended Partnership Agreement, the General Partner is not entitled to distributions from operations. Cash from operations available for distribution is determined by provisions of the Amended Partnership Agreement, and differs from the amount reported as net cash provided by operating activities in the accompanying Statements of Cash Flows. Cash from operations available for distribution consists of cash received from operations of the Partnership during a given period of time less (1) operational cash disbursements during the same period of time including capital improvements, unscheduled mortgage principal reductions and repayment of Partnership advances from affiliates, (2) a reasonable allowance for reserves, contingencies and anticipated obligations as determined at the discretion of the General Partner, (3) proceeds held pending investment in affiliate loans, and (4) any monies reserved for repurchase of Units. Liquidation proceeds will be distributed when the Partnership is dissolved and wound up after taking into account all items of income, gain, loss or deduction. Distribution of liquidation proceeds will then be made to the partners with positive capital account balances. No distributions were paid to the partners in 1995, 1994 or 1993. In March 1996, the Partnership distributed $3,000,000 to the limited partners. Net Income Per Hundred Limited Partnership Units - ------------------------------------------------ Net income per one hundred Units is computed by dividing net income allocated to the limited partners by the weighted average number of Units outstanding expressed in hundreds. Per unit information has been computed based on 53,109, 53,483 and 53,914 (in hundreds) Units outstanding in 1995, 1994 and 1993, respectively. NOTE 2 - TRANSACTIONS WITH AFFILIATES - ------ ---------------------------- The Partnership pays property management fees equal to 5% of the gross rental receipts for its mini-storage warehouses and 6% of gross rental receipts for its commercial properties to McNeil Real Estate Management, Inc. ("McREMI"), an affiliate of the General Partner, for providing property management services for the Partnership's mini-storage warehouses and commercial properties and leasing services for its mini-storage warehouses. McREMI may also choose to provide leasing services for the Partnership's commercial properties, in which case McREMI will receive property management fees from such commercial properties equal to 3% of the property's gross rental receipts plus leasing commissions based on the prevailing market rate for such services where the property is located. The Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. Under the terms of the Amended Partnership Agreement, the Partnership is paying an asset management fee to the General Partner. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $30 per gross square foot for mini-storage warehouses and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. Compensation and reimbursements paid to or accrued for the benefit of the General Partner or its affiliates are as follows: For the Years Ended December 31, ----------------------------------------------- 1995 1994 1993 --------- --------- --------- Property management fees................... $ 426,203 $ 405,746 $ 347,361 Charged to general and administrative - affiliates: Partnership administration.............. 432,998 405,528 410,923 Asset management fee.................... 572,631 597,440 547,501 --------- --------- --------- $1,431,832 $1,408,714 $1,305,785 ========= ========= =========
Until March 13, 1991, the Original General Partner was entitled to receive, out of cash from operations, a performance incentive fee equal to 20% of all points received by the Partnership on mortgage loans if the Unitholders received distributions of cash from operations equal to a 10% cumulative noncompounding annual return on their original capital investment. Such fees were cumulative, were accrued in the years earned and are to be paid when conditions were met. Conditions for payment have not yet been met and, at December 31, 1995 and 1994, $141,647 of amounts accrued in prior years are included in payable to affiliates on the Balance Sheets. Under the terms of the Amended Partnership Agreement, the Partnership is expressly permitted to make loans to affiliates of the General Partner, so long as such loans meet certain conditions. See Note 6 - "Mortgage Loan Investments - Affiliates" for a discussion of these transactions. Payable to affiliates at December 31, 1995 and 1994 consisted primarily of the performance incentive fee of $141,647 accrued in prior years, property management fees, Partnership general and administrative expenses, asset management fees and prepaid interest as further discussed in Note 6 - "Mortgage Loan Investments - Affiliates." Except for the performance incentive fee and prepaid interest, all accrued fees are due and payable from current operations. NOTE 3 - TAXABLE INCOME - ------ -------------- McNeil Real Estate Fund XXVII, L.P. is a partnership and is not subject to Federal and state income taxes. Accordingly, no recognition has been given to income taxes in the accompanying financial statements of the Partnership since the income or loss of the Partnership is to be included in the tax returns of the individual partners. The tax returns of the Partnership are subject to examination by Federal and state taxing authorities. If such examinations result in adjustments to distributive shares of taxable income or loss, the tax liability of the partners could be adjusted accordingly. The Partnership's net assets and liabilities for financial reporting purposes exceeded the net assets and liabilities for tax purposes by $11,258,459 in 1995, $10,569,292 in 1994 and $10,682,379 in 1993. NOTE 4 - REAL ESTATE INVESTMENTS - ------ ----------------------- The basis and accumulated depreciation of the Partnership's real estate investments at December 31, 1995 and 1994 are set forth in the following tables: Accumulated Buildings and Depreciation Net Book 1995 Land Improvements and Amortization Value ---- --------- ---------- -------- ---------- AAA Century Airport Inglewood, CA $ 361,535 $ 2,142,648 $(449,652) $ 2,054,531 AAA Sentry N. Lauderdale, FL 70,337 525,535 (123,641) 472,231 Burbank Burbank, CA 830,043 2,482,324 (531,179) 2,781,188 Forest Hill W. Palm Beach, FL 510,780 1,952,030 (422,550) 2,040,260 Fountainbleau Miami, FL 287,114 1,204,371 (228,724) 1,262,761 Kendall Sunset Miami, FL 672,756 3,889,002 (815,954) 3,745,804 Margate Margate, FL 233,575 1,297,803 (274,389) 1,256,989 Military Trail W. Palm Beach, FL 571,715 1,806,036 (385,788) 1,991,963 One Corporate Center I Edina, MN 925,000 5,477,168 (1,836,921) 4,565,247 One Corporate Center III Edina, MN 925,000 5,858,896 (1,977,295) 4,806,601 --------- ---------- ---------- ---------- $5,387,855 $26,635,813 $(7,046,093) $24,977,575 ========= ========== ========== ========== Accumulated Buildings and Depreciation Net Book 1994 Land Improvements and Amortization Value ---- --------- ---------- ----------- ---------- AAA Century Airport $ 361,535 $ 2,113,797 $ (358,173) $ 2,117,159 AAA Sentry 70,337 494,252 (87,694) 476,895 Burbank 830,043 2,468,892 (426,205) 2,872,730 Forest Hill 510,780 1,928,235 (338,769) 2,100,246 Fountainbleau 287,114 1,180,367 (171,856) 1,295,625 Kendall Sunset 672,756 3,857,005 (654,088) 3,875,673 Margate 233,575 1,261,191 (212,571) 1,282,195 Military Trail 571,715 1,753,408 (306,298) 2,018,825 One Corporate Center I 925,000 5,228,231 (1,486,109) 4,667,122 One Corporate Center III 925,000 5,787,102 (1,496,583) 5,215,519 --------- ---------- ---------- ---------- $5,387,855 $26,072,480 $(5,538,346) $25,921,989 ========= ========== ========== ==========
The Partnership leases its office buildings under non-cancelable operating leases. Future minimum rents to be received as of December 31, 1995 are as follows: 1996.................................... $2,242,000 1997.................................... 1,968,000 1998.................................... 1,157,000 1999.................................... 436,000 2000.................................... 232,000 Thereafter.............................. 125,000 --------- Total $6,160,000 Future minimum rents do not include expense reimbursements for common area maintenance, property taxes and other expenses. These expense reimbursements amounted to $130,560, $127,069 and $74,999 for the years ended December 31, 1995, 1994 and 1993, respectively. NOTE 5 - MORTGAGE LOAN INVESTMENT - ------ ------------------------ In 1987, the Partnership made a nonrecourse mortgage loan to an affiliate of Southmark secured by A-Quality Mini-Storage. The property was subsequently sold to an unaffiliated borrower subject to the Partnership's first priority mortgage loan. On August 6, 1990, the Partnership was advised that Southmark Storage Associates, the borrower on the A-Quality mortgage loan, had filed a petition for bankruptcy in the United States Bankruptcy Court of Connecticut. This action served to automatically stay foreclosure proceedings. In April 1994, the borrower and the Partnership reached a settlement concerning the loan. Under the settlement, the borrower paid the Partnership $150,000 in cash and the loan was renewed for $1,453,194 (representing the original $2,100,000 principal balance less all post bankruptcy petition payments made by the borrower) effective January 1, 1994. An additional second lien loan was executed in the amount of $134,397 at an interest rate of 6%, which was paid in full in the third quarter of 1995. Principal and interest at a rate of prime plus 2% are payable monthly on the first lien loan which matures in January 1997. Effective January 1, 1994, the Partnership adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). The impact of adopting SFAS 114 was immaterial to the Partnership's financial statements. In accordance with SFAS 114, the measure of impairment for a loan restructured in a troubled debt restructuring is based on the present value of expected future cash flows discounted at the original contractual rate. Accordingly, upon the April 1994 modification, the Partnership measured the impairment of the mortgage loan investment and determined that an allowance for impairment was still required. For the year ended December 31, 1993, there were no changes in the balance of the allowance for impairment. For the years ended December 31, 1995 and 1994, the allowance for impairment decreased by $172,164 and $83,257, respectively. The 1995 decrease in the allowance was due to the passage of time (the allowance is measured based on discounted cash flows) and the 1994 decrease was primarily due to the April 1994 modification which changed the expected future cash flows. Since the April 1994 modification, interest income has been recorded at an interest rate that equates the expected future cash flows to the mortgage loan investment balance. The expected cash flows change slightly from year to year. Additionally, any changes in the allowance for impairment that result from changes in the discount rate or passage of time are also recorded as interest income. This accounting treatment resulted in the recognition of $149,334 and $159,337 of interest income for the years ended December 31, 1995 and 1994, respectively. The effective interest rate of this interest income was 10.4% and 10.3% for 1995 and 1994, respectively. Interest income of $154,909 and $136,417 would have been recognized under the terms of the modification agreement for the years ended December 31, 1995 and 1994, respectively, if the Partnership had not adopted SFAS 114. The following sets forth the Partnership's mortgage loan investment to an unaffiliated borrower at December 31, 1995 and 1994. Mortgage Annual Monthly December 31, Lien Interest Payments/ ----------------------------- Property Position Rate % Maturity 1995 1994 - -------- --------- -------- ---------------- --------- --------- A - Quality Mini-Storage First (a)10.50 (a) 14,470 1/97 $1,538,932 $1,743,423 Second 6.00 (b) - 77,929 -------- --------- 1,538,932 1,821,352 Allowance for loss (177,161) (349,325) --------- --------- $1,361,771 $1,472,027 ========= =========
(a) Under the modification terms, interest accrues on the first mortgage loan at a rate equal to the prime lending rate of Bank of America in effect as of the first day of each calendar month plus 2%. The prime lending rate at December 31, 1995 and 1994 was 8.5%. The monthly payment is based on a 240 month amortization, which changes as the interest rate changes. (b) One half of the net cash flow of the property (after payments on the first lien loan) was payable monthly on the second lien loan. The second lien loan was paid in full in the third quarter of 1995. Based on market lending rates for mortgage loan investments with similar terms, risks and average maturities, the fair value of the mortgage loan investment was approximately $1,407,000 at December 31, 1995. The cost of the mortgage loan investment for Federal income tax purposes was $1,416,547 at December 31, 1995. On March 21, 1996, the mortgage loan investment plus accrued interest was paid in full by the borrower. NOTE 6 - MORTGAGE LOAN INVESTMENTS - AFFILIATES - ------ -------------------------------------- Under the terms of the Amended Partnership Agreement, the Partnership is expressly permitted to make nonrecourse mortgage loans to affiliates of the General Partner so long as such loans meet certain conditions, including that such loans bear interest at a rate equal to the prime lending rate of Bank of America plus 2.5%, or plus 3.5% if the loan is junior to other indebtedness. These loans are secured by income-producing real estate and may be either junior or senior to other indebtedness secured by such property. At December 31, 1995, the Partnership had outstanding loans receivable of $2,235,902, of which $1,435,902 were first priority loans and $800,000 were junior priority loans. For the year ended December 31, 1995, the Partnership recognized $291,324 of interest income related to these loans. The following sets forth the Partnership's mortgage loan investments to affiliates of the General Partner at December 31, 1995 and 1994. Loans were funded by the proceeds from the mortgage note payable entered into in October 1992 (see Note 7 - "Long-Term Debt") or other available funds. Interest only is due monthly. The monthly payment varies according to the prime lending rate. December 31, Lien Interest Payments/ ---------------------------- Property Position Rate % (a) Maturity 1995 1994 - -------- --------- ---------- ----------- ---------- --------- McNeil Pension Investment Fund, Ltd.: Brice Road Office Building First 11.00 05/98 $ 483,364 $ 483,364 McNeil Real Estate Fund X, Ltd.: Lakeview Plaza Shopping Center Second 12.00 08/97 800,000 800,000 McNeil Real Estate Fund XXI, L.P.: Suburban Plaza Shopping Center Third 12.00 05/95 - 972,000 McNeil Real Estate Fund XXVI, L.P.: Continental Plaza Office Building First 11.00 03/96 952,538 952,538 --------- --------- $2,235,902 $3,207,902 ========= =========
(a) The loans bear interest at the prime lending rate of Bank of America plus 2.5% for senior priority loans and prime plus 3.5% for junior priority loans. The prime lending rate was 8.5% at December 31, 1995 and 1994. On May 1, 1992, the Partnership agreed to loan an aggregate of $1.115 million to McNeil Pension Investment Fund, Ltd. ("McPIF"), an affiliate of the General Partner, at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by McPIF in connection with borrowings from affiliates pursuant to McPIF's partnership agreement). In 1994, 1993 and 1992, $88,000, $330,364 and $65,000, respectively, was borrowed by McPIF pursuant to this commitment. This loan is secured by a first lien on Brice Road Office Building located in Reynoldsburg, Ohio. The original loan matured in May 1995, at which time a new loan under substantially the same terms was executed. Interest on the loan is payable monthly. Principal is payable on the third anniversary date of issuance. On August 15, 1994, the Partnership agreed to loan an aggregate of $1 million to McNeil Real Estate Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by Fund X in connection with borrowings from affiliates pursuant to Fund X's partnership agreement). In 1994, $800,000 was borrowed by Fund X pursuant to this commitment. This loan is secured by a second lien on Lakeview Plaza Shopping Center located in Lexington, Kentucky. Interest on the loan is payable monthly, with principal payable on the third anniversary date of issuance. On May 1, 1992, the Partnership agreed to loan an aggregate of $972,000 at an interest rate of prime plus 3.5% to McNeil Real Estate Fund XXI, L.P. ("Fund XXI"). In 1992, $972,000 was borrowed by Fund XXI pursuant to this commitment. This loan was secured by a third lien on Suburban Plaza Shopping Center located in Knoxville, Tennessee. Interest on the loan was payable monthly. The loan was repaid in full in 1995. On March 1, 1993, the Partnership agreed to loan an aggregate of $1.536 million at an interest rate of prime plus 2.5% to McNeil Real Estate Fund XXVI, L.P. ("Fund XXVI"). In 1993, $952,538 was borrowed by Fund XXVI pursuant to this commitment. This loan was secured by a first lien on Continental Plaza Office Building located in Scottsdale, Arizona. Interest on the loan was payable monthly, with principal payable on the third anniversary date of issuance. The loan was paid in full in January 1996. In order to induce the Partnership to lend funds to the foregoing affiliates of the General Partner, the General Partner entered into agreements with the Partnership whereby the General Partner agreed to pay: (i) the difference between the interest rate required by the Partnership's Amended Partnership Agreement to be charged to affiliates (either prime plus 2.5% or prime plus 3.5%) and the interest rate actually paid by Fund X and McPIF to the Partnership (prime plus 1%), and (ii) all points (1.5% of the principal amount if a first priority security interest is obtained and 2% of the principal amount if a junior priority security interest is obtained), closing costs and expenses required to be received by the Partnership pursuant to the Partnership's Amended Partnership Agreement in connection with such affiliated financing arrangements. At December 31, 1994 and 1993, the General Partner had paid, net of repayments, $27,250 and $88,509, respectively, representing the aggregate amount of interest which would be owed for one year pursuant to this arrangement. No such interest was prepaid in 1995 since no funds were borrowed by Fund X or McPIF in 1995. In addition, the General Partner paid $27,193, $28,249 and $114,889 of interest, points, closing costs and expenses required to be received by the Partnership on all affiliate loans during 1995, 1994 and 1993, respectively. All other requirements for affiliated loans, as specified in the Partnership's Amended Partnership Agreement, were met at December 31, 1995, 1994 and 1993, in connection with these loans. A summary of activity for the mortgage loan investments from affiliates is as follows: For the Years Ended December 31, ----------------------------------------------- 1995 1994 1993 --------- ---------- ---------- Balance at beginning of year............... $3,207,902 $ 4,051,037 $ 3,018,000 Mortgage loans funded...................... - 1,008,000 3,017,572 Mortgage loans repaid...................... (972,000) (1,851,135) (1,984,535) --------- ---------- ---------- Balance at end of year..................... $2,235,902 $ 3,207,902 $ 4,051,037 ========= ========== ==========
Based on the lending rates prescribed by the Amended Partnership Agreement for affiliate mortgage loan investments, the fair value of mortgage loan investments-affiliates approximated book value at December 31, 1995. The cost of the mortgage loan investments for Federal income tax purposes is the same as the carrying amount for financial statement purposes. NOTE 7 - LONG-TERM DEBT - ------ -------------- As more fully described below, the long-term debt of the Partnership was converted from a mortgage note payable to a revolving credit agreement during 1995. The following sets forth the mortgage note payable of the Partnership at December 31, 1995 and 1994. The mortgage note payable was secured by the related real estate investments. Mortgage Annual Monthly December 31, Lien Interest Payments/ --------------------------- Property Position Rate % Maturity 1995 1994 - -------- ---------- -------- -------------- ---------- ---------- Forest Hill, Fountainbleau, Kendall Sunset, Margate, and Military Trail First (a) 10.50 $70,900 10/99 $ - $6,726,266 =========== =========
(a) In October 1992, the Partnership entered into a loan agreement to borrow an aggregate of $7 million. Principal on this loan was due and payable seven years following issuance, with interest payable annually at a rate of 10.5% per annum for the first three years and prime plus 2% thereafter. The loan was secured by certain mini-storage warehouses owned by the Partnership. McNeil personally guaranteed up to $1.75 million of the aggregate loan amount. The Partnership received net proceeds of approximately $6.5 million from the loan, the balance of the loan amount being used to defray certain closing costs and to establish an escrow account for real estate taxes. The net loan proceeds were used to make loans to various affiliates of the General Partner and to fund working capital needs. The balance of the proceeds was invested, in accordance with the terms of the Amended Partnership Agreement, in short-term interest-bearing accounts. In May 1995, the Partnership paid down its mortgage note payable by $4,628,250. In June 1995, the Partnership secured a $5 million line of credit that may be used to fund any loans made to affiliates of the General Partner as well as for working capital and general partnership purposes. In connection with obtaining the line of credit, the Partnership paid off the remaining $2,019,844 balance of its mortgage note payable. In connection with the repayments, the Partnership paid prepayment penalties of $66,949 and wrote off $185,453 of deferred borrowing costs, resulting in an extraordinary loss of $252,402 in 1995. No amounts had been received by the Partnership under the $5 million line of credit agreement as of December 31, 1995. Any borrowings under the line of credit would bear interest at prime plus one half of one percent or a LIBOR-based rate, if so elected by the Partnership. The Partnership is required to pay a commitment fee equal to one quarter of one percent per annum on any unused portion of the line of credit. Total commitment fees paid during 1995 were $3,542. The Partnership incurred loan costs of $195,059 related to the line of credit. The line of credit expires in July 1997 and is secured by One Corporate Center I and III office buildings and Kendall Sunset Mini-Storage. NOTE 8 - GAIN ON INVOLUNTARY CONVERSION - ------ ------------------------------ In September 1992, extensive hurricane damage occurred at Fountainbleau and Kendall Sunset Mini-Storage warehouses. Although repairs were substantially complete at the end of the year, reimbursements from the insurance company had not yet been fully received. In 1993, the Partnership received $398,034 from the insurance company and recognized a $229,147 gain on involuntary conversion, which represents the amount of insurance reimbursements received in excess of the basis of the properties damaged. NOTE 9 - REPURCHASE OF LIMITED PARTNERSHIP UNITS - ------ --------------------------------------- Under the provisions of both the original partnership agreement and the Amended Partnership Agreement, the Partnership is required to repurchase Units in amounts totaling up to .6% of gross proceeds per year. The repurchase amount is equal to the lesser of 90% of adjusted invested capital, or $9 per Unit. Repurchase is based on written requests from Unitholders submitted between October 1 and October 20 of each year. The requirement was first effective in 1989. In January 1996, $332,928 was used to repurchase 36,992 Units for requests submitted in 1995. In January 1995, $332,931 was used to repurchase 37,408 Units for requests submitted in 1994. In January 1994, $332,933 was used to repurchase 43,126 Units for requests submitted in 1993. NOTE 10 - GAIN ON LEGAL SETTLEMENT - ------- ------------------------ The Partnership filed claims with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "Bankruptcy Court") against Southmark Corporation ("Southmark") for damages relating to improper overcharges, breach of contract and breach of fiduciary duty. The Partnership settled these claims in 1991, which totaled approximately $17,024,326, for the full amount claimed and such settlement was approved by the Bankruptcy Court. Pursuant to the settlement agreement, the Partnership released Southmark and its affiliates and the Original General Partner from any further liability in connection with the claims made with the Bankruptcy Court. In return, an affiliate of McNeil agreed to waive payment on a dollar for dollar basis in an amount equal to the settled claims against Partnership advances owed at that time. In addition, the Partnership received Southmark bankruptcy plan assets in respect to its claims which were not offset against the Partnership advances. Because the Partnership's claims against Southmark were settled for $17,024,326, the Partnership advances of $223,800 owed at that time were reduced in their entirety and the claims had a remaining balance of $16,800,526. Although the Partnership settled the claims against Southmark for the full amount claimed, the settlement agreement provided that the Partnership receive a distribution of Southmark bankruptcy plan assets based on a claim amount of approximately $9,157,000. An Order Granting Motion to Distribute Funds to Class 8 Claimants dated April 14, 1995 was issued by the Bankruptcy Court. In accordance with the Order, in May 1995, the Partnership received in full satisfaction of its claims, $984,649 in cash, and common and preferred stock in the reorganized Southmark which was subsequently sold for $317,675. These amounts represent the Partnership's pro-rata share of Southmark assets available for Class 8 Claimants and were recorded as a gain on legal settlement on the Statements of Operations. NOTE 11 - LEGAL PROCEEDINGS - ------- ----------------- The Partnership is not party to, nor are any of the Partnership's properties the subject of, any material pending legal proceedings, other than ordinary, routine litigation incidental to the Partnership's business, except for the following: 1) HCW Pension Real Estate Fund, Ltd. et al. v. Ernst & Young, BDO Seidman et al. (Case #92-06560-A). This suit was filed on behalf of the Partnership and other affiliated partnerships (the "Affiliated Partnerships") on May 26, 1992, in the 14th Judicial District Court of Dallas County. The petition sought recovery against the Partnership's former auditors, Ernst & Young, for negligence and fraud in failing to detect and/or report overcharges of fees/expenses by Southmark, the former general partner. The former auditors initially asserted counterclaims against the Affiliated Partnerships based on alleged fraudulent misrepresentations made to the auditors by the former management of the Affiliated Partnerships (Southmark) in the form of client representation letters executed and delivered to the auditors by Southmark management. The counterclaims sought recovery of attorneys' fees and costs incurred in defending this action. The counterclaims were later dismissed on appeal, as discussed below. The trial court granted summary judgment against the Partnership based on the statute of limitations; however, on appeal, the Dallas Court of Appeals reversed the trial court and remanded for trial the Affiliated Partnerships' fraud claims against Ernst & Young. The Texas Supreme Court denied Ernst & Young's application for writ of error on January 11, 1996. The Partnership is continuing to pursue vigorously its claims against Ernst & Young; however, the final outcome of this litigation cannot be determined at this time. 2) Robert Lewis v. McNeil Real Estate Fund XXVII, L.P. and McNeil Partners, L.P., Civil Action No. 13287 (Del. Ch.). This complaint alleges, among other things, that the General Partner caused the Partnership to loan money to affiliated partnerships at rates lower than the Partnership's cost of borrowing, which the plaintiff alleges constitutes a breach of the General Partner's fiduciary duties. The complaint alleges that the affiliate loans are designed to enable the affiliated partnerships to continue in business so as to enable the General Partner to continue collecting fees from them. An answer to the complaint was filed on February 3, 1994, denying the material averments of wrongdoing and asserting affirmative defenses. In 1995, the plaintiff and the Partnership executed a Stipulation and Order of Dismissal, which dismissed the action without prejudice. 3) Helen Pasco v. McNeil Real Estate Fund XXVII, L.P., Southmark Prime Plus Corp., et al. and Does 1-50 Inclusive. This complaint alleges that several limited partnerships and funds, including the Partnership, along with McMachen, Prudential Securities, Inc. and other unidentified defendants, transmitted false and misleading information to the plaintiff which was used to entice the plaintiff into investing her money with the defendants. The complaint also alleges that the defendants misrepresented speculative, illiquid limited partnerships as safe, income-producing investments suitable for safety-conscious and conservative investors. Although the Partnership is included as a defendant, the plaintiff's allegations do not specify in what way the Partnership was involved in improper conduct. The complaint does not state, other than by broad allegations, that the Partnership acted in an improper manner with regard to the operation or management of the limited partnership. An answer was filed on behalf of the Partnership in February 1994, and there has been no further action in this matter. The ultimate outcome of this case cannot be determined at this time. McNEIL REAL ESTATE FUND XXVII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1995 Initial Cost (b) Cumulative Costs --------------------------- Write-down Capitalized Related (b) Buildings and and Permanent Subsequent Description Encumbrances Land Improvements Impairment To Acquisition - ----------- --------- --------- ---------- -------- --------- MINI-STORAGE WAREHOUSES: AAA Century Airport Inglewood, CA $ - $ 359,820 $2,040,180 $ - $ 104,183 AAA Sentry N. Lauderdale, FL - 69,890 380,110 - 145,872 Burbank Burbank, CA - 825,918 2,394,082 - 92,367 Forest Hill West Palm Beach, FL - 507,422 1,862,578 - 92,810 Fountainbleau Miami, FL - 285,854 864,146 - 341,485 Kendall Sunset Miami, FL (c) - 672,000 3,808,000 - 81,758 Margate Margate, FL - 233,101 1,156,899 - 141,378 Military Trail West Palm Beach, FL - 568,405 1,681,595 - 127,751 OFFICE BUILDINGS: One Corporate Center I Edina MN (c) - 925,000 5,250,000 (1,300,000) 1,527,168 One Corporate Center III Edina, MN (c) - 925,000 5,255,000 (1,300,000) 1,903,896 --------- --------- ---------- ---------- --------- $ - $5,372,410 $24,692,590 $(2,600,000) $4,558,668 ========= ========= ========== ========== =========
See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXVII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1995 Gross Amount at Which Carried at Close of Period ----------------------------------------------- Accumulated Buildings and Depreciation Description Land Improvements Total (a) and Amortization --------- ---------- --------- ----------- MINI-STORAGE WAREHOUSES: AAA Century Airport Inglewood, CA $ 361,535 $2,142,648 $2,504,183 $ (449,652) AAA Sentry N. Lauderdale, FL 70,337 525,535 595,872 (123,641) Burbank Burbank, CA 830,043 2,482,324 3,312,367 (531,179) Forest Hill West Palm Beach, FL 510,780 1,952,030 2,462,810 (422,550) Fountainbleau Miami, FL 287,114 1,204,371 1,491,485 (228,724) Kendall Sunset Miami, FL 672,756 3,889,002 4,561,758 (815,954) Margate Margate, FL 233,575 1,297,803 1,531,378 (274,389) Military Trail West Palm Beach, FL 571,715 1,806,036 2,377,751 (385,788) RETAIL CENTER One Corporate Center I Edina, MN 925,000 5,477,168 6,402,168 (1,836,921) One Corporate Center III Edina, MN 925,000 5,858,896 6,783,896 (1,977,295) --------- ---------- ---------- ---------- $5,387,855 $26,635,813 $32,023,668 $(7,046,093) ========= ========== ========== ==========
(a) For Federal Income tax purposes, the properties are depreciated over lives ranging from 15-25 years using ACRS or MACRS methods. The aggregate cost of real estate investments for Federal income tax purposes was $34,399,151 and accumulated depreciation was $4,896,484 at December 31, 1995. (b) The carrying values of One Corporate Center I and III Office Buildings were each reduced by $1,300,000 in 1991. (c) These properties secure a $5 million line of credit; however, no borrowings were outstanding under the line of credit at December 31, 1995. See accompanying notes to Schedule III. McNEIL REAL ESTATE FUND XXVII, LTD. SCHEDULE III REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION December 31, 1995 Date of Date Depreciable Description Construction Acquired lives (years) - ----------- ------------ -------- ------------ MINI-STORAGE WAREHOUSES: AAA Century Airport N. Lauderdale, FL 1987 09/90 5-25 AAA Sentry N. Lauderdale, FL 1987 10/90 5-25 Burbank Burbank, CA 1987 09/90 5-25 Forest Hill West Palm Beach, FL 1985 08/90 5-25 Fountainbleau Miami, FL 1987 11/90 5-25 Kendall Sunset Miami, FL 1986 10/90 5-25 Margate Margate, FL 1985 10/90 5-25 Military Trail West Palm Beach, FL 1986 08/90 5-25 OFFICE BUILDINGS: One Corporate Center I Edina, MN 1979 12/89 5-25 One Corporate Center III Edina, MN 1980 12/89 5-25
McNEIL REAL ESTATE FUND XXVII, L.P. Notes to Schedule III Real Estate Investments and Accumulated Depreciation and Amortization A summary of activity for the Partnership's real estate investments and accumulated depreciation and amortization is as follows: For the Years Ended December 31, ------------------------------------------------ 1995 1994 1993 ---------- ---------- ---------- Real estate investments: - ----------------------- Balance at beginning of year............... $31,460,335 $30,771,843 $29,436,823 Improvements............................... 563,333 688,492 1,335,020 ---------- ---------- ---------- Balance at end of year..................... $32,023,668 $31,460,335 $30,771,843 ========== ========== ========== Accumulated depreciation and amortization: Balance at beginning of year............... $ 5,538,346 $ 4,097,679 $ 2,803,323 Depreciation and amortization.............. 1,507,747 1,440,667 1,294,356 ---------- ---------- ---------- Balance at end of year..................... $ 7,046,093 $ 5,538,346 $ 4,097,679 ========== ========== ==========
PART III ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------ --------------------------------------------------------------- FINANCIAL DISCLOSURES --------------------- None. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------- -------------------------------------------------- Neither the Partnership nor the General Partner has any directors or executive officers. The names and ages of, as well as the positions held by, the officers and directors of McNeil Investors, Inc., the general partner of the General Partner, are as follows: Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Robert A. McNeil, 75 Mr. McNeil is also Chairman of the Board and Director of McNeil Real Chairman of the Estate Management, Inc. ("McREMI") which is an affiliate of the General Board and Director Partner. He has held the foregoing positions since the formation of such entity in 1990. Mr. McNeil received his B.A. degree from Stanford University in 1942 and his L.L.B. degree from Stanford Law School in 1948. He is a member of the State Bar of California and has been involved in real estate financing since the late 1940's and in real estate acquisitions, syndications and dispositions since 1960. From 1986 until active operations of McREMI and McNeil Partners, L.P. began in February 1991, Mr. McNeil was a private investor. Mr. McNeil has been a member of the international board of directors of the Salk Institute, which promotes research in improvements in health care. Carole J. McNeil 52 Mrs. McNeil is Co-Chairman, with husband Robert A. McNeil, of McNeil Co-Chairman of the Investors, Inc. Mrs. McNeil has twenty years of real estate experience, Board most recently as a private investor from 1986 to 1993. In 1982, she founded Ivory & Associates, a commercial real estate brokerage firm in San Francisco, CA. Prior to that, she was a commercial real estate agent and analyst with Marcus and Millichap in San Francisco. In 1978, Mrs. McNeil established the Escrow Training Company, California's first accredited commercial training program for title company escrow officers and real estate agents needing college credits to qualify for brokerage licenses. She began in real estate as Manager and Marketing Director of Title Insurance and Trust in Marin County, CA. Mrs. McNeil serves on the international board of directors of the Salk Institute. Other Principal Occupations and Other Name and Position Age Directorships During the Past 5 Years - ----------------- --- ------------------------------------- Donald K. Reed, 50 Mr. Reed is President, Chief Executive Officer and Director of McREMI Director, President, which is an affiliate of the General Partner. Prior to joining McREMI in and Chief Executive March 1993, Mr. Reed was President, Chief Operating Officer and Director Officer of Duddlesten Management Corporation and Duddlesten Realty Advisors, Inc., with responsibility for a management portfolio of office, retail, multi-family and mixed-use land projects representing $2 billion in asset value. He was also Chief Operating Officer, Director and member of the Executive Committee of all Duddlesten affiliates. Mr. Reed started with the Duddlesten companies in 1976 and served as Senior Vice President and Chief Financial Officer and as Executive Vice President and Chief Operating Officer of Duddlesten Management Corporation before his promotion to President in 1982. He was President and Chief Operating Officer of Duddlesten Realty Advisors, Inc., which has been engaged in real estate acquisitions, marketing and dispositions, since its formation in 1989. Ron K. Taylor 38 Mr. Taylor is a Senior Vice President of McREMI and has been in this Vice President capacity since McREMI commenced active operations in 1991. He also serves as Acting Chief Financial Officer of McREMI since the resignation of Robert C. Irvine on January 31, 1996. Mr. Taylor is primarily responsible for Asset Management functions at McREMI, including property dispositions, commercial leasing, real estate finance and portfolio management. Prior to joining McREMI, Mr. Taylor served as an Executive Vice President for a national syndication/property management company. Mr. Taylor has been involved in the real estate industry since 1983.
Each director shall serve until his successor shall have been duly elected and qualified. Section 16 (a) of the Securities Exchange Act of 1934 requires the Partnership's General Partner and the directors and executive offers of the General Partner (Including McNeil Investors, Inc. as the general partner of the General Partner and the officers and directors of McNeil Investors, Inc.) to file, with the Securities and Exchange Commission, reports of ownership and changes in ownership of the Partnership's Units. The Partnership is required to identify any of those persons who failed to file such reports on a timely basis. During 1995, Mrs. McNeil inadvertently failed to file on a timely basis one report relating to one transaction. In making this disclosure, the Partnership has relied solely on written representations of these and other individuals and on copies of the reports that they have filed with the Securities and Exchange Commission. ITEM 11. EXECUTIVE COMPENSATION - ------- ---------------------- No direct compensation was paid or payable by the Partnership to directors or officers (since it does not have any directors or officers) for the year ended December 31, 1995, nor was any direct compensation paid or payable by the Partnership to directors or officers of the general partner of the General Partner for the year ended December 31, 1995. The Partnership has no plans to pay any such remuneration to any directors or officers of the general partner of the General Partner in the future. See Item 13 - Certain Relationships and Related Transactions for amounts of compensation and reimbursements paid by the Partnership to the General Partner and its affiliates. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------- -------------------------------------------------------------- (A) Security ownership of certain beneficial owners. No individual or group, as defined by Section 13(d)(3) of the Securities Exchange Act of 1934, was known by the Partnership to own more than 5% of the Units, other than the General Partner, as noted in (B) below. (B) Security ownership of management. The General Partner and the officers and directors of its general partner, collectively own 410,300 limited partnership units, which represents approximately 7.78% of the outstanding limited partnership units as of February 29, 1996. (C) Change in control. None ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - ------- ---------------------------------------------- The amendments to the Partnership compensation structure included in the Amended Partnership Agreement provide for an asset management fee to replace all other forms of general partner compensation other than property management fees and reimbursements of certain costs. Through 1999, the asset management fee is calculated as 1% of the Partnership's tangible asset value. Tangible asset value is determined by using the greater of (i) an amount calculated by applying a capitalization rate of 9 percent to the annualized net operating income of each property or (ii) a value of $30 per gross square foot for mini-storage warehouses and $50 per gross square foot for commercial properties to arrive at the property tangible asset value. The property tangible asset value is then added to the book value of all other assets excluding intangible items. The fee percentage decreases subsequent to 1999. For the year ended December 31, 1995, the Partnership paid or accrued $572,631 of such asset management fees. Until March 13, 1991, the Original General Partner was entitled to receive, out of cash from operations, a performance incentive fee equal to 20% of all points received by the Partnership on mortgage loans if the Unit holders receive distributions of cash from operations equal to a 10% cumulative noncompounding annual return on their original capital investment. Such fees were cumulative and were accrued in the years earned and are to be paid when conditions are met. Conditions for payment have not yet been met and, at December 31, 1995, $141,647 of amounts accrued in prior years are included in payable to affiliates on the Balance Sheets. The Partnership pays property management fees equal to 5% of the gross rental receipts of mini-storage properties (6% for commercial) to McREMI, an affiliate of the General Partner, for providing property management services. Additionally, the Partnership reimburses McREMI for its costs, including overhead, of administering the Partnership's affairs. For the year ended December 31, 1995, the Partnership paid or accrued $859,201 of such property management fees and reimbursements. See Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 8 - Note 2 - "Transactions With Affiliates." Under the terms of the Amended Partnership Agreement, the Partnership is expressly permitted to make loans to affiliates of the General Partner, so long as such loans meet certain conditions, including that such loans bear interest at a rate of either prime of Bank of America plus 2.5% or prime plus 3.5%, depending on whether the security for such loans is first priority or junior priority. On May 1, 1992, the Partnership agreed to loan an aggregate of $1.115 million to McNeil Pension Investment Fund, Ltd. ("McPIF"), an affiliate of the General Partner, at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by McPIF in connection with borrowings from affiliates pursuant to McPIF's partnership agreement). In 1994, 1993 and 1992, $88,000, $330,364 and $65,000, respectively, was borrowed by McPIF pursuant to this commitment. This loan is secured by a first lien on Brice Road Office Building located in Reynoldsburg, Ohio. The original loan matured in May 1995, at which time a new loan under substantially the same terms was executed. Interest on the loan is payable monthly. Principal is payable on the third anniversary date of issuance. On August 15, 1994, the Partnership agreed to loan an aggregate of $1 million to McNeil Real Estate Fund X, Ltd. ("Fund X"), at an interest rate of prime plus 1% per annum (the maximum rate allowed to be incurred by Fund X in connection with borrowings from affiliates pursuant to Fund X's partnership agreement). In 1994, $800,000 was borrowed by Fund X pursuant to this commitment. This loan is secured by a second lien on Lakeview Plaza Shopping Center located in Lexington, Kentucky. Interest on the loan is payable monthly, with principal payable on the third anniversary date of issuance. On May 1, 1992, the Partnership agreed to loan an aggregate of $972,000 at an interest rate of prime plus 3.5% to McNeil Real Estate Fund XXI, L.P. ("Fund XXI"). In 1992, $972,000 was borrowed by Fund XXI pursuant to this commitment. This loan was secured by a third lien on Suburban Plaza Shopping Center located in Knoxville, Tennessee. Interest on the loan was payable monthly. The loan was repaid in full in 1995. On March 1, 1993, the Partnership agreed to loan an aggregate of $1.536 million at an interest rate of prime plus 2.5% to McNeil Real Estate Fund XXVI, L.P. ("Fund XXVI"). In 1993, $952,538 was borrowed by Fund XXVI pursuant to this commitment. This loan was secured by a first lien on Continental Plaza Office Building located in Scottsdale, Arizona. Interest on the loan was payable monthly, with principal payable on the third anniversary date of issuance. The loan was paid in full in January 1996. In order to induce the Partnership to lend funds to affiliates of the General Partner, the General Partner entered into agreements with the Partnership whereby the General Partner agreed to pay: (i) the difference between the interest rate required by the Partnership's Amended Partnership Agreement to be charged to affiliates (either prime of Bank of America plus 2.5% or 3.5%) and the interest rate actually paid by Fund X and McPIF to the Partnership (prime plus 1%), and (ii) all points (1.5% of the principal amount if a first priority security interest is obtained and 2% of the principal amount if a junior priority security interest is obtained), closing costs and expenses required to be received by the Partnership pursuant to the Partnership's Amended Partnership Agreement in connection with such affiliated financing arrangements. In 1995, the General Partner paid $27,193 of interest, points, closing costs and expenses required to be received by the Partnership on all affiliate loans during 1995. In connection with these loans, all other requirements for affiliated loans, as specified in the Partnership's Amended Partnership Agreement, were met. ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K - ------- ----------------------------------------------------------------- See accompanying Index to Financial Statements at Item 8. (A) Exhibits -------- Exhibit Number Description ------- ----------- 4.2 Amended and Restated Limited Partnership Agreement of McNeil Real Estate Fund XXVII, L.P. (incorporated by reference to the Current Report of the registrant on Form 8-K dated March 30, 1992, as filed on April 10, 1992). 10. Mutual Release and Settlement Agreement between Southmark Storage Associates Limited Partnership and McNeil Real Estate Fund XXVII, L.P. (incorporated by reference to the Quarterly Report of the registrant on form 10-Q for the period ended March 31, 1995, as filed on May 15, 1995). 10.1 Assignment of Partnership Advances dated March 13, 1991 between Prime Plus Corp. and McNeil Partners, L.P. (1) 10.2 Revolving Credit Agreement dated August 6, 1991, between McNeil Partners, L.P. and various selected partnerships, including the registrant (incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1993, as filed on March 30, 1994). 10.5 Property Management Agreement dated March 30, 1992, between McNeil Real Estate Fund XXVII, L.P. and McNeil Real Estate Management, Inc. (2) 10.6 Amendment of Property Management Agreement dated March 5, 1993, by McNeil Real Estate Fund XXVII, L.P. and McNeil Real Estate Management, Inc. (2) 10.7 Promissory Note dated October 23, 1992, between Community Bank, N.A. and McNeil Real Estate Fund XXVII, L.P. (2) 10.8 Loan Agreement dated October 23, 1992, between Community Bank, N.A. and McNeil Real Estate Fund XXVII, L.P. (2) 10.9 Guaranty Agreement dated October 23, 1992, between Community Bank, N.A. and Robert A. McNeil. (2) 10.10 Revolving Credit Loan Agreement dated June 21, 1995, between PNC Bank, National Association and McNeil Real Estate Fund XXVII, L.P. 10.11 Consolidated, Amended and Restated Revolving Credit Note dated June 21, 1995, between PNC Bank, National Association and McNeil Real Estate Fund XXVII, L.P. 11. Statement regarding computation of Net Income (Loss) per Hundred Limited Partnership Units (see Note 1 to Financial Statements). (1) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1990, as filed on March 29, 1991. (2) Incorporated by reference to the Annual Report of the registrant on Form 10-K for the period ended December 31, 1992, as filed on March 30, 1993. (B) Reports on Form 8-K. There were no reports on Form 8-K filed by the Partnership during the quarter ended December 31, 1995. McNEIL REAL ESTATE FUND XXVII, L.P. A Limited Partnership SIGNATURE PAGE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. McNEIL REAL ESTATE FUND XXVII, L.P. By: McNeil Partners, L.P., General Partner By: McNeil Investors, Inc., General Partner April 1, 1996 By: /s/ Robert A. McNeil - ---------------------------- --------------------------------------- Date Robert A. McNeil Chairman of the Board and Director Principal Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. April 1, 1996 By: /s/ Donald K. Reed - ---------------------------- --------------------------------------- Date Donald K. Reed President and Director of McNeil Investors, Inc. April 1, 1996 By: /s/ Ron K. Taylor - ---------------------------- --------------------------------------- Date Ron K. Taylor Acting Chief Financial Officer of McNeil Investors, Inc. April 1, 1996 By: /s/ Carol A. Fahs - ---------------------------- --------------------------------------- Date Carol A. Fahs Chief Accounting Officer of McNeil Real Estate Management, Inc.
EX-27 2
5 12-MOS DEC-31-1995 DEC-31-1995 5,718,657 0 323,813 0 0 0 32,023,668 (7,046,093) 35,489,741 0 0 0 0 0 0 35,489,741 7,517,404 9,650,656 0 0 5,997,332 0 385,214 0 0 3,268,110 0 (252,402) 0 3,015,708 0 0
EX-99 3 REVOLVING CREDIT LOAN AGREEMENT THIS REVOLVING CREDIT LOAN AGREEMENT is dated as of June 21, 1995, and is made by and between McNEIL REAL ESTATE FUND XXVII, L.P., a Delaware limited partnership (the "Borrower"), and PNC BANK, NATIONAL ASSOCIATION (the "Lender"). WITNESSETH: WHEREAS, the Borrower has requested the Lender to provide a revolving credit facility to the Borrower in a principal amount not to exceed $5,000,000; and WHEREAS, the revolving credit facility shall be used for the purposes of providing funds and Letters of Credit (as hereinafter defined) to the Borrower for (i) making capital improvements to the Properties (as hereinafter defined), (ii) making loans to Affiliates (as hereinafter defined) of Borrower in accordance with the terms of Borrower's partnership agreement, and (iii) Borrower's repayment of that certain mortgage loan made by the Community Bank, N.A., now known as Bank Midwest, to Borrower in the original principal amount of $7,000,000, and (iv) other general corporate purposes not to include the payment of distributions; and WHEREAS, the Lender is willing to provide such credit upon the terms and conditions hereinafter set forth. NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows: ARTICLE I CERTAIN DEFINITIONS ------------------- 1.01 Certain Definitions. In addition to words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings, respectively, unless the context hereof clearly requires otherwise: Affiliate as to any Person shall mean any other person which directly or indirectly controls, is controlled by, or is under common control with such person. Control, as used herein, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, including the power to elect a majority of the directors or trustees of a corporation or trust, as the case may be. Agreement shall mean this Revolving Credit Loan Agreement as the same may be supplemented or amended from time to time including all schedules and exhibits hereto. Appraisal shall mean a written appraisal prepared by an independent MAI appraiser engaged by Lender at Borrower's sole cost and expense prepared in compliance with all applicable regulatory requirements, being also subject to the Lender's customary independent appraisal requirements. Assignment of Management Agreements shall mean the three (3) Assignment of Management Agreements of even date herewith, with respect to each of the Collateral Pool, executed and delivered by Borrower to Lender, as the same may be amended, supplemented, reviewed or replaced from time to time. Authorized Officer shall mean those persons designated by written notice to the Lender from the Borrower, authorized to execute notices, reports and other documents required hereunder. The Borrower may amend such list of persons from time to time by giving written notice of such amendment to the Lender. Borrower shall mean McNeil Real Estate Fund XXVII, L.P., a Delaware limited partnership. Borrowing Date shall mean the date for the making of an advance of the Revolving Credit Loan or the renewal or conversion thereof to the same or a differentInterest Rate Option, which must be a Pittsburgh Business Day. Borrowing Tranche shall mean (i) advances of the Revolving Credit Loan to which a LIBO-Rate Option applies by reason of the selection of, conversion to or renewal of such Interest Rate Option on the same day and having the same Interest Period, and (ii) advances of the Revolving Credit Loan to which the Prime Rate Option applies by reason of the selection of or conversion to such Interest Rate Option. Closing Date shall mean the date of this Agreement. Closing Fee shall have the meaning assigned to that term in Section 2.02(a) hereof. Collateral Pool shall mean collectively, the three (3) Properties listed on Exhibit B attached hereto as Properties (A)(1), (A)(2) and (A)(3) subject to the rights of Lender pursuant to the terms of this Agreement to select, substitute, add or release the Other Properties listed on Exhibit B attached hereto for inclusion in or exclusion from, as the case may be, the Collateral Pool. Commitment Fee shall have the meaning assigned to that term in Section 2.02(b) hereof. Consequential Loss shall mean an amount equal to the present value (as determined by Lender) of the product of (a) the positive difference resulting from subtracting the interest rate for the LIBO-Rate Option which would be applicable to a similarly sized Borrowing Tranche determined on the day of prepayment for a period of time commencing on the date of prepayment and terminating on the last day of the Interest Period for the Borrowing Tranche being prepaid from the interest rate for the LIBO-Rate Option actually in effect for the Borrowing Tranche being prepaid; and (b) the amount of the prepayment; and (c) a fraction with a numerator equal to the number of days remaining in the Interest Period of the Borrowing Tranche being prepaid and a denominator of 360. Any certificate of Lender delivered to Borrower setting forth the amount of Consequential Loss as provided herein shall show the calculations required to determine such Consequential Loss and shall be conclusive and binding, absent manifest error, as to such amount and determination. Consolidated Net Worth for any period of determination shall mean the Borrower's net worth as determined and consolidated in accordance with GAAP. Covenants shall have the meaning ascribed to such term in Section 7.02(a) hereof. Default Rate shall have the meaning ascribed to such term in Section 3.01(b) hereof. Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful money of the United States of America. Environmental Complaint shall mean any written complaint setting forth a cause of action for personal or property damage or equitable relief, order, notice of violation, citation issued pursuant to any Environmental Laws by an Official Body, subpoena or other written notice of any type relating to, arising out of, or issued pursuant to any of the Environmental Laws or any Environmental Conditions, as the case may be. Environmental Conditions shall mean any conditions of the environment, including, without limitation, the work place, the ocean, natural resources (including flora or fauna), soil, surface water, ground water, any actual or potential drinking water supply sources, substrata or the ambient air, relating to or arising out of, or caused by the use, handling, storage, treatment, recycling, generation, transportation, release, spilling, leaking, pumping, emptying, discharging, injecting, escaping, leaching, disposal, dumping, threatened release or other management or mismanagement of Regulated Substances resulting from the use of, or operations on, the Properties. Environmental Indemnification Agreements shall mean the three (3) Hazardous Materials Certificate and Indemnity Agreements of even date herewith, with respect to each of the Properties comprising the Collateral Pool, executed and delivered by Borrower to Lender as the same may be amended, supplemented, renewed or replaced from time to time. Environmental Laws shall mean all federal, state, local and foreign laws and regulations, including permits, orders, judgments, consent decrees issued, or entered into, pursuant thereto, relating to pollution or protection of human health or the environment or employee safety in the work place. Environmental Report shall mean a written report of the review and inspection of the Properties prepared by an environmental consultant acceptable to Lender and engaged by Borrower at Borrower's sole cost and expense. ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. Event of Default shall mean any of the Events of Default described in Article VIII of this Agreement. Financing Statements shall mean the UCC-1 Financing Statements of even date herewith, with respect to each of the Properties comprising the Collateral Pool, executed and delivered to Lender, as the same may be amended, supplemented, renewed or replaced from time to time. GAAP shall mean generally accepted accounting principles as are in effect from time to time, and applied on a consistent basis both as to classification of items and amounts. Governmental Authority shall mean any foreign governmental authority, the United States of America, any State of the United States and any political subdivision of any of the foregoing and any agency, department, commission, board, bureau or court which has jurisdiction over the Lender or the Borrower or their respective assets or property, including the amounts due hereunder. Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including, without limiting the generality of the foregoing, any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business. Historical Statements shall have the meaning assigned to that term in Section 5.01(9) (g) (A). Indebtedness shall mean as to any Person at any time, any and all indebtedness, obligations or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of such Person for or in respect of: (i) borrowed money, (ii) amounts raised under or liabilities in respect of any note purchase or acceptance credit facility, (iii) reimbursement obligations under any letter of credit, currency swap agreement, interest rate swap, cap, collar or floor agreement or other interest rate management device, (iv) any other transaction (including without limitation forward sale or purchase agreements, capitalized leases and conditional sales agreements) having the commercial effect of a borrowing of money entered into by such Person to finance its operations or capital requirements (but not including trade payables and accrued expenses incurred in the ordinary course of business which are not represented by a promissory note or other evidence of indebtedness and which are not more than thirty (30) days past due), or (v) any Guaranty of Indebtedness for borrowed money. Interbank Market Rate shall mean, for each Interest Period, the rate of interest per annum (expressed as a percentage rounded, if necessary, to the next highest 1/100th of 1%) quoted at approximately 11:00 o'clock a.m. London time on the date two (2) LIBO Business Days prior to the first day of the applicable Interest Period for the offering by Lender to prime banks in the Interbank Eurodollar market in London, England, of deposits in U.S. dollars for a period of time equal to and commencing on the first day of such Interest Period and equal or comparable to the length of such Interest Period and in an amount equal or comparable to the Borrowing Tranche to which such Interest Period applies. Interest Expense for any period of determination, shall mean total interest expense, whether paid, accrued or capitalized (including the interest component of capitalized leases), of the Borrower for such period determined and consolidated in accordance with GAAP. Interest Expense Coverage Ratio shall mean the ratio of Net Operating Income Interest Expense. Interest Period shall mean the term during which any LIBO-Rate Option will apply, such period to be 1, 2, 3, 6, 9, or 12 months, as Borrower may elect. Interest Rate Option shall mean the Prime Rate Option or the LIBO-Rate Option. Internal Revenue Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect. Kendall Property shall mean that certain Collateral Pool Property known as Kendall Sunset Self-Storage located in the City of Miami, Dade County, Florida. Law shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order, injunction, writ, decree or award of any Official Body. Lease Assignments shall mean the three (3) Assignment of Leases and Rents of even date herewith, with respect to each of the Properties comprising the Collateral Pool, executed and delivered by the Borrower to the Lender, as the same may be amended, supplemented, renewed or replaced from time to time. Letters of Credit shall have the meaning assigned to that term in Section 2.07(a). Letter of Credit Fee shall have the meaning assigned to that term in Section 2.0 (7)(b). Letter of Credit Outstanding shall mean at any time the sum of (i) the aggregate undrawn face amount of outstanding Letters of Credit and (ii) the aggregate amount of all unpaid and outstanding Reimbursement Obligations. LIBO Business Day shall mean a day on which transactions in U.S. dollars are conducted in the Interbank Eurodollar Market in London, England at 11:00 o'clock a.m. London time and on which Lender is open to conduct normal banking business in Pittsburgh, Pennsylvania, but not including any Saturday or Sunday. LIBO-Based Rate shall mean interest at a rate per annum equal to two percent (2%) above the LIBO-Rate. LIBO-Rate shall be calculated (based on a year of 360 days and actual days elapsed), for each Interest Period, by dividing the Interbank Market Rate with respect to such Interest Period by the remainder of 100% minus the LIBO Reserve Requirement in effect for the Lender on the date two (2) LIBO Business Days prior to the first day of such Interest Period, and rounding such quotient upward, if necessary, to the next highest 1/100th of 1%, and may be determined pursuant to the following formula: Interbank Market Rate LIBO-Rate = 100% - LIBO Reserve Requirement Each determination by Lender of its LIBO-Rate or of any Interbank Market Rate, in the absence of manifest error, shall be conclusive and binding. LIBO-Rate Option shall have the meaning assigned to that term in Section 3.01 (a). LIBO Reserve Requirement shall mean, for Lender and for computation of each of its LIBO-Rates, that percentage (expressed as a decimal fraction) which is in effect on the date two (2) LIBO Business Days prior to the first day of the Interest Period applicable to such LIBO-Rate, as specified by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirement (including, without limitation, basic, supplemental, marginal and emergency reserves) under Regulation D with respect to "Eurocurrency Liabilities" as defined in Regulation D rounded, if necessary, to the next highest 1/100th of 1%. Each determination by Lender of a LIBO Reserve Requirement, in the absence of manifest error, shall be conclusive and binding. Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including but not limited to any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing). Loan to Value shall mean the collective loan to value ratio expressed as a percentage, with respect to the Collateral Pool, as determined by the most recent Appraisals of the Collateral Pool. Loan Documents shall mean this Agreement, the Note, the Mortgages, the Financing Statements, the Environmental Indemnification Agreements, the Lease Assignments, the Assignment of Management Agreements, the Negative Pledges, and any other instruments, certificates or documents delivered or contemplated to be delivered hereunder or thereunder or in connection herewith or therewith, as the same may be supplemented or amended from time to time in accordance herewith or therewith, and Loan Document shall mean any of the Loan Documents. Loan Request shall mean a request for advances of the Revolving Credit Loan made in accordance with Section 2.04 hereof or a request to select, convert to or renew a LIBO-Rate Option in accordance with Section 3.02 hereof. Loans shall mean collectively and Loan shall mean separately all advances of the Revolving Credit Loan or any advance of the Revolving Credit Loan. Major Leases shall mean leases of any or all of the Properties under which the respective tenants occupy in excess of 7,500 square feet of rental space in the applicable Property. Material Adverse Change shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement or any other Loan Document, (b) is or could reasonably be expected to be material and adverse to the business, properties, assets, financial condition, results of operations or prospects of the Borrower, Partner, (c) impairs materially or could reasonably be expected to impair materially the ability of the Borrower or any of its Affiliate to duly and punctually pay or perform its Indebtedness, or (d) impairs materially or could reasonably be expected to impair materially the ability of the Lender, to the extent permitted, to enforce its legal remedies pursuant to this Agreement or any other Loan Document. Maturity Date shall have the meaning ascribed to such term in Section 3.03 hereof. Month, with respect to an Interest Period, shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. The last day of a calendar month shall be deemed to be such numerically corresponding day for such calendar month (i) if there is no such numerically corresponding day in such calendar month, or (ii) if the first day of such Interest Period is the last Business Day of a calendar month. Mortgages shall mean the three (3) Mortgage and Security Agreements of even date herewith, with respect to the Collateral Pool, executed and delivered by Borrower to the Lender, as the same may be amended, supplemented, renewed or replaced from time to time. Negative Pledge Agreements shall mean the seven (7) Negative Pledge Agreements of even date herewith with respect to each of the Other Properties executed and delivered by the Borrower to the Lender, as the same may be amended, supplemented, renewed or replaced from time to time. Net Operating Income shall mean Operating Income less Operating Expenses. OCC I shall mean that certain Collateral Pool Property known as One Corporate Center I located in the City of Edina, Hennepin County, Minnesota. OCC III shall mean that certain Collateral Pool Property known as One Corporate Center III located in the City of Edina, Hennepin County, Minnesota. Obligation shall mean any obligation or liability of Borrower to the Lender, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Revolving Credit Note, the Letters of Credit or any other Loan Document. Official Body shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. Operating Expenses shall mean all expenses (determined in accordance with GAAP) incurred in the normal course of owning, using and operating the Properties (excluding depreciation and amortization and debt service on any indebtedness of Borrower, including, without limitation, the Revolving Credit Note), and shall include but not be limited to maintenance fees, real estate taxes and insurance premiums, expenses related to the repair and maintenance of the Properties, expenses related to the management (excluding tenant finish costs, commercially reasonable brokerage commissions payable to third parties as the same are required pursuant to leases approved in writing by Lender and capital expenditures and partnership expenses incurred in accordance with Borrower's partnership agreement, excluding the payment of distributions.) Operating Income shall mean the gross income and revenues (determined in accordance with GAAP) derived in any manner whatsoever from the operation of the Properties, including, but not limited to, rents (fixed, minimum, guaranteed, additional, overage, percentage, participation, or any other type or kind), fees, charges (including, without limitation, escalation or contribution charges) or any other income or revenues generated from the use or occupancy of all or any part of the Properties, or for any services, equipment or furnishings provided in connection with such use or occupancy, including, without limitation, forfeited deposits, utility income, and reimbursement for Operating Expenses; provided, however, that "Operating Income" shall specifically exclude any unearned income (such as dividends and interest), proceeds from hazard insurance or condemnation awards (except to the extent that such hazard insurance and/or condemnation awards are paid as reimbursement for rental obligations or business interruption) and security deposits (except to extent the same have been forfeited). Other Properties shall mean the seven (7) Properties listed on Exhibit B attached hereto as Properties (B) 4-10, subject to the rights of Lender pursuant to the terms of this Agreement to select, substitute, add or release any or all of the Other Properties for inclusion in or exclusion from, as the case may be, the Collateral Pool. PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor. Partner shall mean McNeil Partners, L.P., a Delaware limited partnership, being the sole general partner in Borrower. Permitted Liens shall mean: (i) Liens for taxes, assessments, or similar charges, incurred in the ordinary course of business and which are not yet due and payable; (ii) Pledges or deposits made in the ordinary course of business to secure payment of workmen's compensation, or to participate in any fund in connection with workmen's compensation, unemployment insurance, old-age pensions or other social security programs; (iii) Liens of mechanics, materialmen, warehousemen, carriers, or other like Liens, securing obligations incurred in the ordinary course of business that are not yet due and payable and Liens of landlords securing obligations to pay lease payments that are not yet due and payable or in default; (iv) Good faith pledges or deposits made in the ordinary course of business to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases, not in excess of the aggregate amount due thereunder, or to secure statutory obligations, or surety, appeal, indemnity, performance or other similar bonds required in the ordinary course of business; (v) Encumbrances consisting of zoning restrictions, easements or other restrictions on the use of real property, none of which materially impairs the use of such property or the value thereof, and none of which is violated in any material respect by existing or proposed structures or land use; (vi) Liens, security interests and mortgages in favor of the Lender; (vii) Capital and operating leases in the ordinary course of Borrower's business; (viii) Purchase Money Security Interests in the ordinary course of Borrower's business; and (ix) The following, (A) if the validity or amount thereof is being contested in good faith by appropriate and lawful proceedings diligently conducted so long as levy and execution thereon have been stayed and continue to be stayed or (B) if a final judgment is entered and such judgment is discharged within thirty (30) days of entry, and in either case they do not affect the Property or, in the aggregate, materially impair the ability of the Borrower to perform its obligations hereunder or under the other Loan Documents: (1) Claims or Liens for taxes, assessments or charges due and payable and subject to interest or penalty, provided that the Borrower maintains such reserves or other appropriate provisions as shall be required by GAAP and pays all such taxes, assessments or charges forthwith upon the commencement of proceedings to foreclose any such Lien; (2) Claims, Liens or encumbrances upon, and defects of title to, real or personal property, other than the Properties including any attachment of personal or real property other than the Properties or other legal process prior to adjudication of a dispute on the merits; or (3) Claims or Liens of mechanics, materialmen, warehousemen, carriers, or other statutory nonconsensual Liens. Person shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity. Pittsburgh Business Day shall mean a day that the Lender is open to conduct normal banking business in Pittsburgh, Pennsylvania, but not including any Saturday or Sunday. Potential Default shall mean any event or condition which with notice, passage of time or a determination by the Lender, or any combination of the foregoing, would constitute an Event of Default. Prime-Based Rate shall mean, with respect to advances of the Revolving Credit Loan comprising any Borrowing Tranche to which the Prime Rate Option applies, interest at a rate per annum (based on a year of 360 days and actual days elapsed) equal to one-half of one percent (1/2%) above the Prime Rate. Prime Rate shall mean the interest rate announced from time to time by the Lender at its Principal Office as its "prime rate." Borrower acknowledges that the Prime Rate is not necessarily the lowest interest rate charged by the Lender on other credit and that such term does not imply or indicate that the interest rate designated from time to time by the Lender as its "prime rate" is equal to or lower than other credit extended by the Lender. Each interest rate referred to and determined by reference to the Prime Rate shall change automatically from time to time, effective as of the effective date of each change in the Prime Rate. Prime Rate Option shall have the meaning assigned to that term in Section 3.01(a) hereof. Principal Office shall mean the main banking office of the Lender in Pittsburgh, Pennsylvania. Properties shall mean the ten (10) parcels of real property owned by Borrower as set forth on Exhibit B attached hereto. Property shall mean any of the Properties. Purchase Money Security Interest shall mean Liens upon tangible personal property securing loans to the Borrower or deferred payments by the Borrower for the purchase of such tangible personal property. Regulated Substances shall mean any substance, including without limitation Solid Waste, the generation, manufacture, processing, distribution, treatment, storage, disposal, transport, recycling, reclamation, use, reuse or other management or mismanagement of which is regulated by the Environmental Laws. Regulation D shall mean Regulation D of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. Regulation K shall mean Regulation K of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation relating to reserve requirements applicable to member banks of the Federal Reserve System. Reimbursement Obligation shall have the meaning assigned to such term in Section 2.07(c)(i). Revolving Credit Commitment shall mean as to Lender, at any time, an amount not to exceed Five Million Dollars ($5,000,000). Revolving Credit Loan shall mean all advances of the Revolving Credit Loan made by the Lender to the Borrower pursuant to Section 2.03 hereof. Revolving Credit Note shall mean the Consolidated, Amended and Restated Revolving Credit Note of the Borrower of even date herewith in the principal amount not to exceed $5,000,000 evidencing the Revolving Credit Loan together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part. Revolving Facility Usage shall mean at any time the sum of the dollar amount of the Revolving Credit Loan outstanding and the Letter of Credit Outstandings. Solid Waste shall mean any garbage, refuse or sludge from any waste treatment plant, water supply treatment plant or air pollution control facility generated by activities on the Property, and any unpermitted release into the environment or the work place of any material as a result of activities on the Property, including without limitation, baghouse dust, dross, scrap and used Regulated Substances. Subsidiary of any Person at any time shall mean (i) any corporation or trust of which 50% or more (by number of shares or number of votes) of the outstanding capital stock or shares of beneficial interest normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, or any partnership of which such Person is a general partner or of which 50% or more of the partnership interests is at the time directly or indirectly owned by such Person or one or more of such Person's Subsidiaries, and (ii) any corporation, trust, partnership or other entity which is controlled or capable of being controlled by such Person or one or more of such Person's Subsidiaries. Title Policy shall mean a title insurance policy issued by a title insurance company acceptable to Lender, pursuant to which said title insurance company will issue an ALTA 1970 Lender's policy of title insurance, or, if such form of policy is not authorized in the state in which the Property is located, a form of Lender's policy of title insurance acceptable to Lender, insuring a Mortgage in the principal sum secured thereby, and such portion thereof as shall be advanced from time to time, as a first lien upon fee simple title to the Property, and all appurtenances thereto (including such easements and appurtenances as may be required by Lender), subject only to the exceptions as may be approved in writing by Lender, with endorsements thereto as to such matters as Lender may designate and as shall by available in the state where the particular Property is located. Uniform Commercial Code shall mean the Uniform Commercial Code as in effect on the date hereof in the Commonwealth of Pennsylvania, provided, however, that if by reasons of mandatory provisions of Law, the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect on or after the date hereof in any other jurisdiction, "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to the availability of such remedy. 1.02 Interpretation. Unless the context of this Agreement otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole, "or" has the inclusive meaning represented by the phrase "and/or," and "including" has the meaning represented by the phrase "including without limitation." References in this Agreement to "determination" of or by the Lender shall be deemed to include good faith estimates by the Lender (in the case of quantitative determinations) and good faith beliefs by the Lender (in the case of qualitative determinations). Whenever the Lender is granted the right herein to act in its sole discretion or to grant or withhold consent such right shall be exercised in good faith. The words "hereof," "herein," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. The section and other headings contained in this Agreement and the Table of Contents preceding this Agreement are for reference purposes only and shall not control or affect the construction of this Agreement or the interpretation thereof in any respect. Section, subsection, schedule and exhibit references are to this Agreement unless otherwise specified. 1.03 Accounting Principles. Except as otherwise provided in this Agreement, all computations and determinations as to accounting or financial matters and all financial statements to be delivered pursuant to this Agreement shall be made and prepared in accordance with GAAP (including principals of consolidation where appropriate), and all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. ARTICLE II REVOLVING CREDIT FACILITY ------------------------- 2.01 Revolving Credit Commitment. Subject to the terms and conditions hereof and relying upon the representations and warranties herein set forth, the Lender agrees to make advances of the Revolving Credit Loan to the Borrower at any time or from time to time on or after the Closing Date to, but not including, the Maturity Date in an outstanding aggregate principal amount not to exceed at any one time the Lender's Revolving Credit Commitment. Within such limits of time and amount and subject to the other provisions of this Agreement, the Borrower may borrow, repay and reborrow portions of the Revolving Credit Loan from time to time pursuant to this Section 2.01. The Lender shall have no obligation to make advances of the Revolving Credit Loan hereunder on or after the Maturity Date. 2.02 Loan Fees. (a) Closing Fee. The Borrower agrees to pay to the Lender as consideration for the Lender's Revolving Credit Commitment, a nonrefundable fee (the "Closing Fee") in the amount of $50,000, to be due and payable on or before the Closing Date. (b) Commitment Fee. Accruing from the date hereof until the Maturity Date, the Borrower agrees to pay to the Lender as consideration for such Lender's Revolving Credit Commitment hereunder, a nonrefundable commitment fee (the "Commitment Fee") equal to one-quarter of one percent (1/4%) per annum (computed on the basis of a year of 360 days and actual days elapsed) on the average daily difference between the amount of such Bank's Revolving Credit Commitment as the same may be constituted from time to time and the Revolving Facility Usage. All Commitment Fees shall be payable in arrears on the first Business Day of each calendar quarter after the date hereof and on the Maturity Date or upon acceleration of the Revolving Credit Note. 2.03 Revolving Credit Loan Requests. Except as otherwise provided herein, the Borrower may from time to time prior to the Maturity Date request the Lender to make advances of the Revolving Credit Loan, or renew or convert the Interest Rate Option applicable to existing Revolving Credit Loans, by the delivery to the Lender, not later than 12:00 noon Pittsburgh time (i) two (2) Business Days prior to the proposed Borrowing Date with respect to the advances of a portion of the Revolving Credit Loan to which the LIBO-Rate Option applies or the conversion to or the renewal of the LIBO-Rate Option for any advance of the Revolving Credit Loan; and (ii) one (1) Business Day prior to either the proposed Borrowing Date with respect to the advance of a portion of the Revolving Credit Loan to which the Prime Rate Option applies or the last day of the preceding Interest Period with respect to the conversion to the Prime Rate Option for any advance of the Revolving Credit Loan, of a duly completed request therefor substantially in the form of Exhibit C hereto or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a "Loan Request"), it being understood that the Lender may rely on the authority of any person making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify (i) the proposed Borrowing Date; (ii) the aggregate amount of the proposed advances of the Revolving Credit Loan comprising the Borrowing Tranche, which shall not be less than $100,000 for advances of the Revolving Credit Loan to which the LIBO-Rate Option applies and not more than the maximum amount available for advances of the Revolving Credit Loan to which the Prime Rate Option applies; (iii) whether the LIBO-Rate Option or Prime Rate Option shall apply to the proposed advances of the Revolving Credit Loan comprising the Borrowing Tranche; and (iv) in the case of advances of the Revolving Credit Loan to which the LIBO-Rate Option applies, an appropriate Interest Period for the proposed advance of the Revolving Credit Loan comprising the Borrowing Tranche. 2.04 Making Advances of the Revolving Credit Loan. The Lender shall, after approval by it of a Loan Request pursuant to Section 2.03, fund such advances of the Revolving Credit Loan to the Borrower in U.S. Dollars and immediately available funds at the Principal Office prior to 2:00 P.M. Pittsburgh time on the Borrowing Date. 2.05 Revolving Credit Note. The obligation of the Borrower to repay the aggregate unpaid principal amount of all advances of the Revolving Credit Loan made to it by the Lender, together with interest thereon, shall be evidenced by the Revolving Credit Note. 2.06 Use of Proceeds. The proceeds of the Revolving Credit Loan shall be used for the purposes of providing funds and Letters of Credit to the Borrower for (i) making capital improvements to the Properties, (ii) making loans to Affiliates of Borrower in accordance with the terms of Borrower's partnership agreement, and (iii) Borrower's repayment of that certain mortgage loan made by the Community Bank, N.A., now known as Bank Midwest, to Borrower in the original principal amount of $7,000,000, and (iv) other general corporate purposes not to include the payment of distributions. 2.07 Letter of Credit Subfacility. (a) Issuance of Letters of Credit. Borrower may request the issuance of a letter of credit (a "Letter of Credit") on behalf of itself by delivering to the Lender a completed application and agreement for letters of credit in such form as the Lender may specify from time to time by no later than 10:00 A.M. Pittsburgh time at least five(5) Pittsburgh Business Days, or such shorter period as may be agreed to by the Lender, in advance of the proposed date of issuance. Subject to the terms and conditions hereof, the Lender will issue a Letter of Credit provided that each Letter of Credit shall (A) have a maximum maturity of twelve(12) months from the date of issuance and(B)in no event expire later than one Pittsburgh Business Day prior to the Maturity Date. In no event shall the Letter of Credit Outstandings exceed, at any one time, $1,000,000, or the Revolving Facility Usage exceed, at any one time, the Revolving Credit Commitment. (b) Letter of Credit Fees. The Borrower shall pay to the Lender a fee (the "Letter of Credit Fee") equal to two percent (2%) per annum, which fee shall be computed on the daily average Letter of Credit Outstandings and shall be payable quarterly in arrears commencing with the first Pittsburgh Business Day of each April, July, October and January following issuance of each Letter of Credit and on the Maturity Date. (c) Disbursements, Reimbursement. (i) Borrower shall be obligated to reimburse Lender for all amounts which Lender is required to advance pursuant to the Letters of Credit (the "Reimbursement Obligation") in accordance with the terms hereof. Such amounts advanced shall become, at the time the amounts are advanced, Revolving Credit Loans from the Lender. Such Revolving Credit Loans shall bear interest at the rate applicable under the Prime Rate Option unless the Borrower elects to have a different Interest Rate Option apply to such Revolving Credit Loans pursuant to and in accordance with the provisions contained in, Section 3.01. (ii) The Lender will notify the Borrower of each demand or presentment for payment or other drawing under each Letter of Credit. (d) Documentation. Borrower agrees to be bound by the terms of the Lender's application and agreement for Letters of Credit and the Lender's written regulations and customary practices relating to Letters of Credit, each of which gave been provided to Borrower in writing though such interpretation may be different from the Borrower's own. In the event of a conflict between such application or agreement and this Agreement, this Agreement shall govern. It is understood and agreed that, except in the case of gross negligence or willful misconduct, the Lender shall not be liable for any error, negligence and/or mistakes, whether of omission or commission, in following Borrower's instructions or those contained in the Letters of Credit or any modifications, amendments or supplements thereto. (e) Determinations to Honor Drawing Requests. In determining whether to honor any request for drawing under any Letter of Credit by the beneficiary thereof, the Lender shall be responsible only to determine that the documents and certificates required to be delivered under such Letter of Credit have been delivered and that they comply on their face with the requirements of such Letter of Credit. (f) Nature of Reimbursement Obligations. The obligation of the Borrower to reimburse the Lender upon a draw under Letter of Credit pursuant to this Section 2.07 shall be absolute unconditional, and irrevocable and shall be performed strictly in accordance with the terms of this Section under all circumstances. (g) Indemnity. In addition to amounts payable as provided in Section 9.02, the Borrower hereby agrees to protect, indemnify, pay and save harmless the Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which the Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit, other than as a result of the gross negligence or willful misconduct of the Lender as determined by a final judgment of a court of competent jurisdiction or (ii) the failure by the Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or governmental authority (all such acts or omissions herein called "Governmental Acts"). 2.08 Extension by Lender of the Maturity Date. Upon or promptly after delivery by the Borrower of the annual financial statements to be provided under Section 7.04, the Borrower may request a one-year extension of the Maturity Date by written notice to the Lender, and the Lender agrees to respond to the Borrower's request for an extension within ninety (90) days following receipt of the request; provided, however, that (i) the failure of the Lender to respond within such time period shall not in any manner constitute an extension of the Maturity Date, (ii) together with its request for extension for any year, Borrower shall deliver to Lender a non-refundable extension fee of $6,250, and (iii) at the time Lender receives Borrower's request for an extension, Lender may at its discretion order Appraisals of the Collateral Pool, which Appraisals shall be satisfactory to Lender in all respects and shall be performed at Borrower's sole cost and expense. Lender shall use reasonable efforts to request or obtain updates of existing Appraisals in lieu of new Appraisals whenever practical. ARTICLE III INTEREST RATES -------------- 3.01 General Interest Provisions. (a) The Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Revolving Credit Loan from the date hereof until the Maturity Date on outstanding balances of principal at a fluctuating rate per annum (computed on the basis of a year of 360 days and actual days elapsed) equal to the Prime Based Rate, such interest rate to change automatically from time-to-time effective as of the effective date of a change in the Prime Based Rate (the "Prime Rate Option"), except as Borrower shall have elected the LIBO-Rate pursuant to Paragraph 3.02 hereof (the "LIBO-Rate Option"). During any period in which Lender is no longer obligated to accept or implement Loan Requests in accordance with Section (g) of Paragraph 3.02 hereof, or in which any Borrowing Tranche to which the LIBO-Rate Option applies would be terminable in accordance with Section (h) or Section (i) of Paragraph 3.02 hereof, the outstanding balance of the Revolving Credit Loan shall bear interest at the Prime Based Rate. In the absence of an election in accordance with Section (a) of paragraph 3.02 hereof for a new Borrowing Tranche to which the LIBO-Rate Option applies at the end of each Interest Period applicable to a Borrowing Tranche to which the LIBO-Rate Option applies, the amount allocated to such Borrowing Tranche shall become subject to the Prime Based Rate. (b) Upon the occurrence of an Event of Default, any principal, interest, fee or other amount payable hereunder shall bear interest for each day thereafter until paid in full (before and after judgment) at a rate per annum which shall be equal to four percent (4%) above the Prime Rate (the "Default Rate"). The Borrower acknowledges that such increased interest rate reflects, among other things, the fact that such Loans or other amounts have become a substantially greater risk given their default status and that the Lender is entitled to additional compensation for such risk. (c) If any interest, principal, Consequential Loss or other charge payable hereunder shall become overdue in excess of ten (10) days, a "late charge" by way of damages shall be due and payable upon demand. Borrower recognizes that default by Borrower in making the payments herein agreed to be paid when due will result in Lender incurring additional expense in servicing the Revolving Credit Loan and such delinquent payment and in loss to Lender of the use of money due. Borrower agrees that such damages for such detriment caused shall be difficult to ascertain. Borrower therefore agrees that a sum equal to five percent (5%) of each payment more than ten (10) days in arrears is a reasonable estimate of and a liquidated amount of such damages to Lender, which sum Borrower agrees to pay on demand. This charge shall be in addition to, and not in lieu of, any other remedy Lender may have and any reasonable fees and charges of any agents or attorneys Lender may employ on any default hereunder. (d) Each Interest Rate Option referred to herein shall be calculated on the principal balance hereof to which such rate is applicable from time to time, based on a year of 360 days and actual days elapsed in each calendar year. (e) Interest on the unpaid outstanding principal balance of the Revolving Credit Loan at the respective interest rates applicable thereto shall be due and payable on the first (1st) day of each calendar month following the first full month after the Closing Date and on the Maturity Date or earlier payment in full hereof. 3.02 LIBO-Based Rate Interest. (a) LIBO-Based Rate Elections. At any time prior to the Maturity Date, Borrower may elect to have the LIBO-Rate apply to a portion of the outstanding unpaid principal amount of the Revolving Credit Loan for a specified Interest Period by delivering to Lender a Loan Request pursuant to paragraph 2.03 hereof; provided that in no event may Borrower elect an Interest Period which extends beyond the Maturity Date pursuant to Paragraph 3.03 hereof. (b) Rates, Quotes and Business Days List. If the Borrower requests quotes of the LIBO-Based Rate for different Interest Periods being considered by the Borrower, the Lender will use reasonable efforts to promptly provide such quotes to the Borrower and if the Borrower requests a list of the LIBO Business Days in any calendar month, the Lender will use reasonable efforts to promptly provide such list. However, any such quotes provided shall be representative only and shall not be binding on the Lender, nor shall they be determinative, directly or indirectly, of any LIBO-Based Rate or any component of any such rate, nor will the Borrower's failure to receive or the Lender's failure to provide any requested quote or quotes either (i) excuse or extend the time for performance of any of the Borrower's obligations or for exercise of any of the Borrower's rights, options or elections, or (ii) impose any duty or liability on the Lender; and any such list provided shall be understood to identify only those calendar days which the Lender believes in good faith at the time such list is prepared will be the Business Days for the month in question. The Lender shall have no liability for any failure to provide, delay in providing, error or mistake in omission from, any such quote or list. (c) Interest on Borrowing Tranches Subject to a LIBO-Rate Option. Each Borrowing Tranche subject to LIBO-Rate Option shall bear interest on its unpaid principal balance during the Interest Period applicable to it at the LIBO-Rate in effect on the date two (2) LIBO Business Days prior to the first day of the applicable Interest Period for such Borrowing Tranche. Each determination of a LIBO-Based Rate by the Lender, in the absence of manifest error, shall be conclusive and binding. (d) Limitation on Option to Elect LIBO-Rate. Notwithstanding any other provision hereof, Borrower may not elect the LIBO-Based Rate when an Event of Default or a Potential Default has occurred and is continuing. (e) Limitation on Number and Amount of Borrowing Tranches Subject to a LIBO-Rate Option. The Borrower may allocate the outstanding principal balance of the Revolving Credit Loan to separate Borrowing Tranches with each Borrowing Tranche being subject to a different LIBO-Based Rate or the Prime Based Rate, provided, however, that (i) no more than four (4)such Borrowing Tranches subject to a LIBO-Based Rate Option shall be in existence at any one time, and (ii) the minimum amount allocated to each Borrowing Tranche subject to a LIBO-Rate Option shall be $100,000. (f) Computation of Interest. Interest payable with respect to each Borrowing Tranche subject to a LIBO-Rate Option shall be calculated on the basis of the actual days elapsed in a year consisting of 360 days. (g) Inadequacy of Borrowing Tranche Pricing. If with respect to an Interest Period for any prospective Borrowing Tranche subject to a LIBO-Rate Option, the Lender determines (which determination, in the absence of manifest error, shall be conclusive and binding) that: (i) for any reason, the Lender is unable, through its customary general practices, to quote an offer to prime banks in the Interbank Eurodollar market in London, England for U.S. dollar deposits in the appropriate amounts for the appropriate period; or (ii) by reason of circumstances affecting the Interbank Eurodollar market in London, England, generally, the offer of Lender to accept deposits in U.S. dollars (in the applicable amounts) will not be accepted in the Interbank Eurodollar market for such Interest Period; or (iii) the LIBO-Rate will not adequately and fairly reflect the cost to the Lender of the establishment or maintenance of that Borrowing Tranche subject to a LIBO-Rate Option for such Interest Period, and the Lender gives notice thereof to the Borrower; then the obligation of the Lender to accept or implement Loan Requests for Borrowing Tranches subject to a LIBO-Rate Option shall be suspended, until the Lender notifies the Borrower that the circumstances giving rise to such suspension no longer exist. (h) Borrowing Tranches Subject to a LIBO-Rate Option Unlawful. If, after the date hereof, the adoption of any applicable Law, rule or regulation or any change in applicable Law, rule or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof or compliance by the Lender with any request or directive (whether or not having the force of law) of any such Governmental Authority, shall make it unlawful or impossible for the Lender to establish any Borrowing Tranche Subject to a LIBO-Rate Option or to comply with its obligations in connection with the maintenance of any Borrowing Tranche Subject to a LIBO-Rate Option, the commitment of the Lender to accept or implement any Loan Request intended to establish any Borrowing Tranche subject to a LIBO-Rate Option shall be automatically canceled and terminated and if it shall then be unlawful or impossible as a result thereof for the Lender to permit or participate in the continuation of any then-existing Borrowing Tranches subject to a LIBO-Rate Option, all Borrowing Tranches subject to a LIBO-Rate Option then outstanding shall forthwith terminate upon notice being given by the Lender to the Borrower and the Borrower shall pay to the Lender promptly upon demand a cash amount equal to (a) all interest due with respect to such Borrowing Tranches as of the date of such termination, (b) all Consequential Loss, plus (c) the amount required to compensate the Lender for all reasonable additional costs and expenses, if any, which it incurred in connection with the Borrowing Tranches subject to a LIBO-Rate Option as a result of such change in applicable Law or regulations or in the interpretation thereof or as a result of the Lender's compliance with any such request or directive of any such Governmental Authority. The Lender will promptly notify the Borrower of any event of which it has knowledge which will make it unlawful or impossible to establish or maintain Borrowing Tranches subject to a LIBO-Rate Option. (i) Increased Cost of Borrowing Tranches Subject to a LIBO-Rate Option. If the adoption of any applicable Law, rule or regulation or any change after the date hereof, in any applicable Law, rule or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or compliance by the Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority shall: (i) subject the Lender (or make it apparent that it is subject) to any tax (including without limitation any U.S. interest equalization or other tax, however named), levy, impost, duty, charge, fee (collectively "Taxes"), or any deduction or withholding for any Taxes on or from any payment due from the Borrower with respect to any Borrowing Tranche subject to a LIBO-Rate Option, other than income and franchise taxes of the United States and its political subdivisions imposed on the Lender; (ii) change the basis of taxation of payments due from the Borrower to the Lender under any Borrowing Tranche subject to a LIBO-Rate Option (other than by a change in the rate of taxation of the overall net income of Lender); (iii) impose, modify, increase or deem applicable any reserve requirement (but excluding that portion of any reserve requirement included in the calculation of the LIBO Reserve Requirement as the case may be), special deposit requirement or similar requirement (including, but not limited to, state Law requirements, Regulation D and Regulation K) imposed or deemed applicable by any Governmental Authority charged with the interpretation or administration of such requirements or deemed applicable against foreign assets held by or against loans made by the Lender or against any other funds, obligations or other property owned or held by the Lender; (iv) affect the amount of capital required to be maintained by the Lender or any corporation controlling the Lender and the Lender determines the amount of capital required is increased by or based upon the existence of the indebtedness evidenced hereby; or (v) impose on the Lender any other condition regarding any Borrowing Tranche subject to a LIBO-Rate Option; and the result of any of the foregoing is to increase (by an amount deemed by the Lender to be material) the cost to the Lender of establishing, maintaining or renewing any such Borrowing Tranche subject to a LIBO-Rate Option, as the case may be, or to reduce the amount of principal or interest or other sum received or receivable by the Lender (by an amount deemed by the Lender to be material), then upon ten (10) days written notice from the Lender to the Borrower, the Borrower shall pay to the Lender, from time to time as specified by the Lender, such additional amount or amounts as will compensate the Lender for such increased cost or reduced receipts or receivables. The Lender's determination of the amount of any such increase in cost or reduction in amounts received or receivable, in the absence of manifest error, shall be conclusive and binding. The Lender will promptly notify the Borrower of any event of which it has knowledge which will entitle the Lender to compensation pursuant to this subsection. If the Lender demands compensation under this Section (i), Borrower may at any time, upon at least two (2) LIBO Business Days' prior notice to Lender, (a) give notice to the Lender that it is canceling such Borrowing Tranches subject to a LIBO-Rate Option, whereupon each Borrowing Tranche so canceled shall terminate and the Borrower shall be obligated to pay the Lender upon demand an amount equal to all Consequential Loss, if any, resulting therefrom, and (b) convert such Borrowing Tranches subject to a LIBO-Rate Option to the Prime Based Rate. Any certificate of the Lender delivered to the Borrower setting forth the determination of any additional amounts payable pursuant to this Section (i) shall be conclusive and binding, absent manifest error, as to such determination and amount. 3.03 Maturity. The entire outstanding principal balance due under the Revolving Credit Loan, together with all unpaid interest at the aforesaid rate or rates, shall be payable on the date that is twenty-four (24) months following the Closing Date, unless accelerated upon an Event of Default or sooner terminated under the terms hereof or terminated by Borrower upon payment of the outstanding principal balance of the Revolving Credit Loan and payment of all Reimbursement Obligations and termination of all Letters of Credit, together with all unpaid interest and fees which are due and payable as of the date of termination (including but not limited to the Commitment Fee accruing through and including the termination date) and upon written notice to Lender, or extended as provided in Section 2.08 hereof (the date determined in accordance herewith shall be called the "Maturity Date"). 3.04 Interest Periods. At any time when the Borrower shall select, convert to or renew a LIBO-Rate Option, the Borrower shall notify the Lender thereof at least two (2) Pittsburgh Business Days prior to the effective date of LIBO-Rate Option by delivering a Loan Request. The notice shall specify an Interest Period during which such Interest Rate Option shall apply, provided, that: (a) any Interest Period which would otherwise end on a date which is not a LIBO Business Day shall be extended to the next succeeding LIBO Business Day unless such LIBO Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding LIBO Business Day; (b) any Interest Period which begins on the last day of calendar month for which there is no numerically corresponding day in the subsequent calendar month during which such Interest Period is to end shall end on the last LIBO Business Day of such subsequent month; (c) advances of the Revolving Credit Loan to which the LIBO-Rate Option applies, for each Interest Period shall not be less than $100,000; (d) the Borrower shall not select, convert to or renew an Interest Period for any portion of the Revolving Credit Loan that would end after the Maturity Date; and (e) in the case of the renewal of a LIBO-Rate Option at the end of an Interest Period, the first day of the new Interest Period shall be the last day of the preceding Interest Period, without duplication in payment of interest for such day. 3.05 Selection of Interest Rate Options. If the Borrower fails to select an Interest Period in accordance with the provisions of Section 3.02 in the case of renewal of a portion of the Revolving Credit Loan to which a LIBO-Rate Option applies, the Borrower shall be deemed to have converted such portion of the Revolving Credit Loan to the Prime Rate Option otherwise available with respect to the Revolving Credit Loan, commencing upon the last day of that Interest Period. If an Event of Default shall occur and be continuing, the Lender may in its discretion limit the Borrower to the Prime Rate Option hereunder. ARTICLE IV PAYMENTS -------- 4.01 Payments. All payments and repayments to be made in respect of principal, interest, the Commitment Fee, the Letter of Credit Fee, or other fees or amounts due from the Borrower hereunder shall be payable prior to 1:00 p.m. (Pittsburgh time) on the date when due without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived by the Borrower, and without setoff, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue. Such payments shall be made to the Lender at the Principal Office in U.S. Dollars and in immediately available funds. 4.02 Repayments. The Borrower may repay portions of the Revolving Credit Loan in full or part from time to time. Any portion of the Revolving Credit Loan subject to the Prime Based Rate may be repaid without penalty; provided, however, that Borrower shall also pay all accrued and unpaid interest. Any repayments shall be allocated, pro tanto, to the Borrowing Tranches subject to the Prime Based Rate; to the extent there are no remaining Revolving Credit Loan funds outstanding in any Borrowing Tranche subject to the Prime Based Rate, such repayment shall be allocated to Borrowing Tranches subject to the LIBO-Based Rate as selected by Borrower. In the event that any repayment shall be applied against a Borrowing Tranche subject to the LIBO-Based Rate, Borrower will be responsible for any sums due under paragraphs 3.01 above and for the payment of any Consequential Loss. ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ 5.01 Representations and Warranties. The Borrower represents and warrants to the Lender as follows: (a) Organization and Qualification. The Borrower is a limited partnership, duly organized, validly existing and in good standing under the Laws of its jurisdiction of organization; the Borrower has the lawful power to own or lease its properties and to engage in the business it presently conducts or proposes to conduct; and the Borrower is duly licensed or qualified and in good standing in each jurisdiction where the property owned or leased by it or the nature of the business transacted by it makes such licensing or qualification necessary. (b) Power and Authority. The Borrower has full power to enter into, execute, deliver and carry out this Agreement and the other Loan Documents to which it is a party, to incur the Indebtedness contemplated by the Loan Documents and to perform its obligations under the Loan Documents to which it is a party and all such actions have been duly authorized by all necessary proceedings on its part. (c) Validity and Binding Effect. This Agreement has been and each other Loan Document will have been duly and validly executed and delivered by the Borrower. This Agreement delivered by the Borrower pursuant to the provisions hereof will constitute, legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms, except to the extent that enforceability of any of the foregoing Loan Documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar Laws affecting the enforceability of creditors' rights generally or limiting the right of specific performance. (d) No Conflict. Neither the execution and delivery of this Agreement or the other Loan Documents by the Borrower nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of the other organizational documents of the Borrower or (ii) of any Law or of any material agreement or instrument or order, writ, judgment, injunction or decree to which the Borrower is a party or by which it is bound or to which it is subject, or result in the creation or enforcement of any Lien, charge or encumbrance whatsoever upon any property (now or hereafter acquired) of the Borrower (other than Liens granted under the Loan Documents). (e) Litigation. There are no actions, suits, proceedings or investigations pending or, to the knowledge of the Borrower, threatened against the Borrower at law or equity before any Official Body which individually or in the aggregate may result in any Material Adverse Change. The Borrower is not in violation of any order, writ, injunction or any decree of any Official Body which may result in any Material Adverse Change. (f) Title to Properties. The Borrower has good and marketable fee simple title to all the Properties, assets and other rights which it purports to own or which are reflected as owned on its books and records, free and clear of all Liens and encumbrances except Permitted Liens, and subject to the terms and conditions of the applicable leases. All leases of property are in full force and effect without the necessity for any consent which has not previously been obtained upon consummation of the transactions contemplated hereby. (g) Financial Statements. (A) Historical Statements. The Borrower has delivered to the Lender copies of its audited consolidated year-end financial statements for and as of the end of the three fiscal years ended December, 1993 (the "Annual Statements"). In addition, the Borrower has delivered to the Lender copies of its unaudited consolidated interim financial statements for the fiscal year to date and as of the end of the fiscal quarter ended September 30, 1994 (the "Interim Statements") (the Annual and Interim Statements being collectively referred to as the "Historical Statements"). The Historical Statements were compiled from the books and records maintained by the Borrower's management, are correct and complete and fairly represent the consolidated financial condition of the Borrower as of their dates and the results of operations for the fiscal periods then ended subject (in the case of the Interim Statements) to normal year-end audit adjustments. (B) Accuracy of Financial Statements. The Borrower has no liabilities, contingent or otherwise, or forward or long-term commitments that are not disclosed in the Historical Statements or in the notes thereto, and except as disclosed therein there are no unrealized or anticipated losses from any commitments of the Borrower which may cause a Material Adverse Change. (h) Intentionally omitted. (i) Margin Stock. The Borrower does not engage or intends to engage principally, or as one of its important activities, in the business of extending credit for the purpose, immediately, incidentally or ultimately, of purchasing or carrying margin stock (within the meaning of Regulation U). No part of the proceeds of the Revolving Credit Loan has been or will be used, immediately, incidentally or ultimately, to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock or to refund Indebtedness originally incurred for such purpose, or for any purpose which entails a violation of or which is inconsistent with the provisions of the regulations of the Board of Governors of the Federal Reserve System. The Borrower does not hold or intend to hold margin stock in such amounts that more than 25% of the reasonable value of the assets of the Borrower is or will be represented by margin stock. (j) Full Disclosure. Neither this Agreement nor any other Loan Document, nor any certificate, statement, agreement or other documents furnished to the Lender in connection herewith or therewith, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein, in light of the circumstances under which they were made, not misleading. There is no fact known to the Borrower which is likely to result in a Material Adverse Change with respect to the business, property, assets, financial condition, results of operations or prospects of the Borrower, which has not been set forth in the Agreement or in the certificates, statements, agreements or other documents furnished in writing to the Lender prior to or at the date hereof in connection with the transactions contemplated hereby. (k) Taxes. All federal, state, local and other tax returns required to have been filed with respect to the Borrower have been filed and payment or adequate provision has been made for the payment of all taxes, fees, assessments and other governmental charges which have or may become due pursuant to said returns or to assessments received except to the extent that such taxes, fees, assessments and other charges are being contested in good faith by appropriate proceedings diligently conducted and for which such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made. There are no agreements or waivers extending the statutory period of limitations applicable to any federal income tax return of the Borrower for any period. (l) Consents and Approvals. Except for the filing of the Financing Statements, the Mortgages, the Lease Assignments and the Negative Pledge Agreements in the state and county filing offices, no consent, approval, exemption, order or authorization of, or a registration or filing with any Official Body or any other person is required by any Law or any agreement in connection with the execution, delivery and carrying out of this Agreement and the other Loan Documents by the Borrower. (m) No Event of Default; Compliance with Instruments. No event has occurred and is continuing and no condition exists or will exist after giving effect to the borrowings to be made on the Closing Date under the Loan Documents which constitutes an Event of Default or Potential Default. The Borrower is not in violation of (i) any term of its organizational documents or (ii) any material agreement or instrument to which it is a party or by which it or any of its properties may be subject or bound where such violation would constitute a Material Adverse Change. (n) Patents, Trademarks, Copyrights, Licenses, Etc. The Borrower owns or possesses all the material patents, trademarks, service marks, trade names, copyrights, licenses, registrations, franchises, permits and rights necessary to own and operate its properties and to carry on its business as presently conducted and planned to be conducted by the Borrower, without known conflict with the rights of others. (o) Mortgage Liens. The Liens to be granted to the Lender pursuant to the Mortgages, constitute valid first priority Liens under applicable Law. All such action as will be necessary or advisable to establish each such Lien of the Lender and its priority as described in the preceding sentence will be taken at or prior to the time required for such purpose, and there will be as of the date of execution, delivery and recording of the Mortgages no necessity for any further action in order to protect, preserve and continue such Liens and such priority. (p) Insurance. All insurance policies and other bonds to which the Borrower is a party, are valid and in full force and effect. No notice has been given or claim made and no grounds exist to cancel or avoid any of such policies or bonds or to reduce the coverage provided thereby. Such policies and bonds provide adequate coverage from reputable and financially sound insurers in amounts sufficient to insure the assets and risks of the Borrower in accordance with prudent business practice in the industry of the Borrower. (q) Compliance with Laws. The Borrower in compliance in all material respects with all applicable Laws (other than Environmental Laws which are specifically addressed in subsection (t)) in all jurisdictions in which the Borrower is presently or will be doing business except where the failure to do so would not constitute a Material Adverse Change. (r) Investment Companies. The Borrower is not an "investment company" registered or required to be registered under the Investment Company Act of 1940 or under the "control" of an "investment company" as such terms are defined in the Investment Company Act of 1940 and shall not become such an "investment company" or under such "control." (s) Employee Benefit Plans. The Borrower is not an "employer" with respect to, nor does it maintain or contribute to, any "employee benefit plan", as such terms are defined in ERISA ss.ss. 3(5) and 3(3), respectively (t) Environmental Matters. (i) The Borrower has not received any Environmental Complaint from any Official Body or private person alleging, with respect to the Properties, that the Borrower, or any prior or subsequent owner of any of the Properties is a potentially responsible party under the Comprehensive Environmental Response, Cleanup and Liability Act, 42 U.S.C. ss. 9601, et seq., and the Borrower has no reason to believe that such an Environmental Complaint might be received. There are no pending or, to the Borrower's knowledge, threatened Environmental Complaints with respect to any of the Properties relating to the Borrower or, to the Borrower's knowledge, any prior or subsequent owner of any of the Properties pertaining to, or arising out of, any Environmental Conditions. (ii) Except for conditions, violations or failures which individually and in the aggregate are not reasonably likely to result in a Material Adverse Change, to the best of Borrower's knowledge, there are no circumstances at, on or under any of the Properties that constitute a breach of or non-compliance with any of the Environmental Laws, and there are no past or present Environmental Conditions at, on or under any of the Properties or, to the Borrower's knowledge, at, on or under adjacent property, that prevent compliance with the Environmental Laws at any of the Properties. (iii) To the best of Borrower's knowledge, the Properties and any structures, improvements, equipment, fixtures, activities or facilities thereon or thereunder do not contain or use Regulated Substances except in compliance with Environmental Laws. There are no processes, facilities, operations, equipment or any other activities at, on or under any of the Properties, or, to the Borrower's knowledge, at, on or under adjacent property, that currently result in the release or threatened release of Regulated Substances on to any of the Properties, except to the extent that such releases or threatened releases are not a breach of or otherwise not a violation of the Environmental Laws, or are not likely to result in a Material Adverse Change. (iv) To the best of Borrower's knowledge, there are no underground storage tanks, or underground piping associated with such tanks, used for the management of Regulated Substances at, on or under any of the Properties that do not have a full operational secondary containment system in place and are not in compliance with all Environmental Laws, and there are no abandoned underground storage tanks or underground piping associated with such tanks, previously used for the management of Regulated Substances at, on or under any of the Properties that have not been either abandoned in place, or removed, in accordance with the Environmental Laws. (v) The Borrower has all material permits, licenses, authorizations and approvals necessary under the Environmental Laws for the conduct of the business of the Borrower as presently conducted. The Borrower has submitted all material notices, reports and other filings required by the Environmental Laws to be submitted to an Official Body which pertain to past and current operations on any of the Properties. (vi) Except for violations which individually and in the aggregate are not likely to result in a Material Adverse Change, all past (from the date of Borrower's ownership) and present on-site generation, storage, processing, treatment, recycling, reclamation or disposal of Solid Waste at, on, or under any of the Properties and all off-site transportation, storage, processing, treatment, recycling, reclamation or disposal of Solid Waste has been done in accordance with the Environmental Laws. 5.02 Updates to ExhibitsSchedules. Should any of the information or disclosures provided on any of the exhibits attached hereto become outdated or incorrect in any material respect, the Borrower shall promptly provide the Lender in writing with such revisions or updates to such exhibits as may be necessary or appropriate to update or correct same; provided, however that no exhibits shall be deemed to have been amended, modified or superseded by any such correction or update, nor shall any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such schedule be deemed to have been cured thereby, unless and until the Lender, in its sole and absolute discretion, shall have accepted in writing such revisions or updates to such exhibit. ARTICLE VI CONDITIONS OF LENDING --------------------- The obligation of Lender to make any advance of the Revolving Credit Loan and to issue Letters of Credit hereunder is subject to the performance by the Borrower of its obligations to be performed hereunder at or prior to the making of any such advance of the Revolving Credit Loan or issuance of such Letters of Credit and to the satisfaction of the following further conditions: 6.01 First Advance of the Revolving Credit Loan. On the Closing Date: (a) The representations and warranties of the Borrower contained in Article V hereof shall be true and accurate on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein), and the Borrower shall have performed and complied with all covenants and conditions hereof; no Event of Default or Potential Default under this Agreement shall have occurred and be continuing or shall exist; and there shall be delivered to the Lender a certificate of the Borrower, dated the Closing Date and signed by an Authorized Officer of the Borrower, to each such effect; (b) There shall be delivered to the Lender a certificate dated the Closing Date signed by an Authorized Officer of Borrower, certifying as appropriate as to: (i) all action taken by the Borrower in connection with this Agreement and the other Loan Documents; (ii) the names of the officer or officers authorized to sign this Agreement and the other Loan Documents and the true signatures of such officer or officers and specifying the Authorized Officers permitted to act on behalf of the Borrower for purposes of this Agreement and the true signatures of such officers, on which the Lender may conclusively rely; and (iii) copies of its organizational documents, as in effect on the Closing Date and copies of the organizational documents of the Partner and the general partner of the Partner, certified by the appropriate state official where such documents are filed in a state office together with certificates from the appropriate state officials as to the continued existence and good standing of the Borrower in each state where organized or qualified to do business. (c) All Loan Documents required to be executed and delivered to the Lender on the Closing Date shall have been duly executed and delivered to the Lender. (d) There shall be delivered to the Lender a written opinion of (i) Barbara Smith, in-house attorney for Borrower, (ii) Campbell and Levine, (iii) Oppenheimer, Wolffe, Donnelly and (iv) Broad and Cassell, counsel for the Borrower (who may rely on the opinions of such other counsel as may be acceptable to the Lender), dated the Closing Date and in form and substance satisfactory to the Lender and its counsel: (i) as to the matters set forth in Exhibit A, subsection (i) attached hereto; and (ii) as to such other matters incident to the transactions contemplated herein as the Lender may reasonably request. (e) All legal details and proceedings in connection with the transactions contemplated by the Agreement and the other Loan Documents shall be in form and substance satisfactory to the Lender and counsel for the Lender, and the Lender shall have received all such other counterpart originals or certified or other copies of such documents and proceedings in connection with such transactions, in form and substance satisfactory to the Lender and said counsel, as the Lender or said counsel may reasonably request. (f) The Borrower shall pay or cause to be paid to the Lender to the extent not previously paid the Closing Fee, all other commitment and other fees accrued through the Closing Date and the costs and expenses for which the Lender is entitled to be reimbursed. (g) All material consents required to effectuate the transactions contemplated hereby shall have been obtained. (h) No Material Adverse Change in the Borrower shall have occurred; prior to the Closing Date, there shall be no material change in the management of the Borrower; and there shall be delivered to Lender a certificate dated the Closing Date and signed by the Chief Executive Officer of the Borrower to each such effect. (i) The making of the Revolving Credit Loan shall not contravene any Law applicable to the Borrower or the Lender. (j) No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any court, governmental agency or legislative body to enjoin, restrain or prohibit, or to obtain damages in respect of this Agreement or the consummation of the transactions contemplated hereby or which, in the Lender's sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or any of the other Loan Documents. (k) As conditions precedent to Lender's obligation to close the Revolving Credit Loan and to disburse any of the proceeds of the Loan, Borrower will at least fifteen (15) days prior to the Closing Date (unless otherwise set forth below or waived in writing by Lender) furnish to Lender at Borrower's sole cost and expense the items set forth on Exhibit A attached hereto, all of which shall be in form and content satisfactory to Lender and its counsel. 6.02 Each Additional Advance of the Revolving Credit Loan. At the time of making any advance of the Revolving Credit Loan or issuing any Letter of Credit, other than advances of the Revolving Credit Loan made or Letters of Credit issued on the Closing Date hereunder and after giving effect to the proposed borrowings: the representations and warranties of the Borrower contained in Article V hereof shall be true on and as of the date of such additional advance of the Revolving Credit Loan or Letter of Credit with the same effect as though such representations and warranties had been made on and as of such date (except representations and warranties which expressly relate solely to an earlier date or time, which representations and warranties shall be true and correct on and as of the specific dates or times referred to therein) and the Borrower shall have performed and complied with all covenants and conditions hereof; no Event of Default or Potential Default shall have occurred and be continuing or shall exist; the advances of the Revolving Credit Loan or issuance of such Letter of Credit shall not contravene any Law applicable to the Borrower or Lender; and the Borrower shall have delivered to the Lender a duly executed and completed Loan Request or application for a Letter of Credit as the case may be. ARTICLE VII COVENANTS --------- 7.01 Affirmative Covenants. The Borrower covenants and agrees that until payment in full of all advances of the Revolving Credit Loan and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitment, the Borrower shall comply at all times with the following affirmative covenants: (a) Preservation of Existence, etc. The Borrower shall maintain its existence as a limited partnership and its license or qualification and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary. (b) Payment of Liabilities, Including Taxes, etc. The Borrower shall, duly pay and discharge all liabilities to which it is subject or which are asserted against it, promptly as and when the same shall become due and payable, including all Taxes, assessments and governmental charges upon it or any of its properties, assets, income or profits, prior to the date on which penalties attach thereto, except to the extent that such liabilities, including Taxes, assessments or charges, are being contested in good faith and by appropriate and lawful proceedings diligently conducted and for which such reserve or other appropriate provisions, if any, as shall be required by GAAP shall have been made, but only to the extent that failure to discharge any such liabilities would not result in any additional liability which would adversely affect to a material extent the financial condition of the Borrower which would affect the Properties, provided that, the Borrower will pay all such liabilities forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor. (c) Maintenance of Insurance. The Borrower shall, insure its properties and assets, including the Properties, against loss or damage by fire and such other insurable hazards as such assets are commonly insured (including fire, extended coverage, property damage, workers' compensation, public liability and business interruption insurance) and against other risks (including errors and omissions) in such amounts as similar properties and assets are insured by prudent companies in similar circumstances carrying on similar businesses, and with reputable and financially sound insurers all as reasonably determined by Lender. The Borrower shall deliver (x) the evidence of insurance as set forth in Section (f) of Exhibit A attached hereto with respect to the Properties on or before the Closing Date and periodically thereafter at the request of Lender an original Accord Form 27 Evidence of Insurance signed by the Borrower's independent insurance broker describing and certifying as to the existence of the insurance on the Properties required to be maintained by this Agreement and the other Loan Documents and (y) from time to time a summary schedule indicating all insurance then in force with respect to the Borrower. Such evidence or insurance shall provide that no cancellation or change in the insurance policies applicable to the Properties shall be effective until at least thirty (30) days after receipt by Lender of written notice of such cancellation or change from the insurer. In the event that the Mortgages on any of the Other Properties shall be recorded, the insurance provisions contained in such Mortgages shall be deemed to supersede the insurance covenants contained in this Agreement with respect to the Other Properties. The Borrower shall notify the Lender promptly of any occurrence causing a material loss or decline in value of the Properties and the estimated (or actual, if available) amount of such loss or decline. (d) Maintenance of the Properties, Other Real Properties and Leases. The Borrower shall maintain in good repair, working order and condition (ordinary wear and tear excepted) in accordance with the general practice of other businesses of similar character and size, the Properties and all other real property useful or necessary to its business, and from time to time, the Borrower will make or cause to be made all appropriate repairs, renewals or replacements thereof. (e) Maintenance of Patents, Trademarks, Etc. The Borrower shall maintain in full force and effect all patents, trademarks, trade names, copyrights, licenses, franchises, permits and other authorizations necessary for the ownership and operation of the Properties and Borrower's business if the failure so to maintain the same would constitute a Material Adverse Change. (f) Visitation Rights. The Borrower shall permit any of the officers or authorized employees or representatives of the Lender to visit and inspect any of the Properties examine and make excerpts from its books and records and discuss its business affairs, finances and accounts with its officers, all in such detail and at such times and as often as the Lender may reasonably request, provided that Lender shall provide the Borrower with reasonable notice prior to any visit or inspection. (g) Keeping of Records and Books of Account. The Borrower shall maintain and keep proper books of record and accounts which enable the Borrower to issue financial statements in accordance with the GAAP and as otherwise required by applicable Laws of any Official Body having jurisdiction over the Borrower, and in which full, true and correct entries shall be made in all material respects of all its dealings and business and financial affairs. (h) Intentionally omitted. (i) Compliance with Laws. The Borrower shall comply with all applicable Laws, including all Environmental Laws, in all respects provided that it shall not be deemed to be a violation of this Section 7.01(i) if any failure to comply with any Law would not result in fines, penalties, remediation costs other similar liabilities or injunctive relief which in the aggregate would constitute a Material Adverse Change. (j) Use of Proceeds. The Borrower will use the proceeds of the Revolving Credit Loan only for lawful purposes in accordance with Sections 2.06 hereof as applicable and such uses shall not contravene any applicable Law or any other provision hereof. (k) Further Assurances. The Borrower shall, from time to time, at its expense, faithfully preserve and protect the Lender's Liens on the Collateral Pool and, if applicable, on the Other Properties, as a continuing first priority perfected Liens, subject only to Permitted Liens, and shall do such other acts and things as the Lender in its sole discretion may deem necessary or advisable from time to time in order to preserve, perfect and protect the Liens granted under the Loan Documents, if applicable, and to exercise and enforce its rights and remedies thereunder with respect to the Properties. (l) Subordination of Intercompany Loans, Other Loans and Advances to the Borrower. The Borrower shall cause any intercompany Indebtedness, loans or advances owed by the Borrower to any Affiliate to be subordinated on terms satisfactory to the Lender. (m) Execution and Delivery of the Loan Documents With Respect to the Other Properties. At any time during the term of the Revolving Credit Loan: (i) upon the breach by Borrower of the Covenants (as hereinafter defined) set forth in Section 7.02(a)(ii) or 7.02(a)(v) (with respect to the sale of any of the Properties comprising the Collateral Pool without Lender's prior written consent) below; or (ii) upon the occurrence of any other Event of Default under this Agreement or any of the other Loan Documents, In addition to all other rights and remedies available to Lender under this Agreement and the other Loan Documents, Borrower shall execute and deliver to Lender, within thirty (30) days after demand by Lender, the following Loan Documents with respect to any of the Other Properties as Lender in its sole discretion shall require: (A) a Mortgage together with the Financing Statements; (B) a Lease Assignment; (C) an Environmental Indemnification Agreement; and (D) an Assignment of Management Agreement. All Loan Documents executed and delivered to Lender pursuant to this Section 7.01(m) shall be in substantially the same form as the Loan Documents executed and delivered to Lender on the Closing Date with respect to the Properties comprising the Collateral Pool. Upon the execution and delivery to Lender of the Loan Documents referred to above, Lender shall thereupon be entitled to record such Loan Documents. Borrower covenants and agrees that prior to the recording of such Loan Documents, Lender shall be entitled to obtain at Borrower's expense an Appraisal, Environmental Report, title report and a commitment for title insurance with respect to the applicable Property or Properties. Simultaneously with such recording, Borrower shall deliver to Lender, or Lender may obtain, a Title Policy with respect to such Property or Properties, and Borrower shall pay any and all recording fees, title insurance premiums, mortgage taxes and other such charges in connection with Lender's recordation of such Loan Documents. Notwithstanding the foregoing or anything else to the contrary contained herein, Borrower agrees that during the term of the Revolving Credit Loan Lender shall have the right at any time in its sole discretion, following the occurrence of an Event of Default beyond any applicable grace or cure periods, to select, substitute, add or release any of the Properties for inclusion in or exclusion from the Collateral Pool. 7.02 Loan Agreement Covenants. (a) The Borrower covenants and agrees that until payment in full of all advances of the Revolving Credit Loan and interest thereon, expiration or termination of all Letters of Credit, satisfaction of all of Borrowers other obligations hereunder and termination of the Revolving Credit Commitment, the Borrower shall comply at all times with the following Covenants (hereinafter collectively referred to as the "Covenants"): (i) Borrower shall maintain a Consolidated Net Worth of no less than $25,000,000; (ii) the Loan to Value of the Collateral Pool shall not exceed forty percent (40%); (iii) in any calendar quarter during the term of the Revolving Credit Loan the Interest Expense Coverage Ratio will never be less than 3 to 1; (iv) Borrower shall not incur any additional Indebtedness other than refinancings of existing Mortgage Indebtedness limited to the outstanding balance thereof and amounts currently available and committed under an inter-Affiliate Line of Credit; (v) Borrower shall not sell, convey or otherwise transfer any of the Properties, without Lender's prior written consent, which consent shall not be unreasonably withheld, provided that all terms and conditions of this Agreement and the other Loan Documents continue to be met. (b) Consequences of Covenant Violations. Borrower covenants and agrees that the following shall be available to Lender in the event of Borrower's violation of the Covenants set forth in 7.02(a)(i - v) above: (i) as previously described in Section 7.01(m) above, upon a violation of the covenants set forth in Sections 7.02(a)(ii) above or 7.02(a)(v) (with respect to the sale of any of the Properties comprising the Collateral Pool without Lender's prior written consent) Borrower shall execute and deliver to Lender, and Lender shall be entitled to record, the Loan Documents with respect to any of the Other Properties as Lender in its sole discretion may elect; (ii) Lender may declare an Event of Default under this Agreement; (iii) no further advances of the Revolving Credit Loan shall be made except as approved by Lender in its sole discretion. Notwithstanding the foregoing, in the event that Lender's consent shall be obtained with respect to the sale, conveyance or other transfer of any of the Properties comprising the Collateral Pool, as an additional condition precedent to such sale, Borrower shall provide alternative collateral acceptable to the Lender in its sole discretion. 7.03 Negative Covenants. The Borrower covenants and agrees that until payment in full of all advances of the Revolving Credit Loan and interest thereon, satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitment, the Borrower shall comply with the following negative covenants: (a) Liquidations, Mergers, Consolidations, Acquisitions. The Borrower shall not dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person. (b) Liens. Borrower shall not at any time create, incur, assume or suffer to exist any Lien on any of its property or assets, tangible or intangible, now owned or hereafter acquired, or agree or become liable to do so, except Permitted Liens. (c) Guaranties. Borrower shall not at any time, directly or indirectly, become or be liable in respect of any Guaranty, or assume, guarantee, become surety for, endorse or otherwise agree, become or remain directly or contingently liable upon or with respect to any obligation or liability of any other Person. (d) Loans and Investments. Borrower shall not at any time make or suffer to remain outstanding any loan or advance to, or purchase, acquire or own any stock, bonds, notes or securities of, or any partnership interest (whether general or limited) in, or any other investment or interest in, or make any capital contribution to, any other Person, or agree, become or remain liable to do any of the foregoing, except: (i) trade credit extended on usual and customary terms in the ordinary course of business; (ii) advances to employees to meet expenses incurred by such employees in the ordinary course of business; (iii) loans, advances and investments in Affiliates of Borrower, only in accordance with the terms of Borrower's partnership agreement. (iv) repurchase of partnership units of the Borrower by Borrower in accordance with terms of Borrower's partnership agreement. (e) Dividends and Related Distributions. Borrower shall not use any of the proceeds of the Revolving Credit Loan to make or pay any dividend or other distribution of any nature (whether in cash, property, securities or otherwise) on account of or in respect of its partnership interests or on account of the purchase, redemption, retirement or acquisition of its partnership interests. (f) Liquidations, Mergers, Consolidations, Acquisitions. Borrower shall not dissolve, liquidate or wind-up its affairs, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any other Person. (g) Partnerships and Joint Ventures. The Borrower shall not become or agree to become a general or limited partner in any general or limited partnership or a joint venturer in any joint venture. (h) Continuation of or Change in Business. The Borrower shall not engage in any business other than the acquisition, ownership, management and leasing of commercial real estate, substantially as conducted and operated by the Borrower during the present fiscal year, and the Borrower shall not permit any material change in such business. (i) Intentionally omitted. (j) Changes in Organizational Documents. The Borrower shall not amend in any respect its organizational documents without providing at least thirty (30) calendar days' prior written notice to the Lender and, in the event such change would be adverse to the Lender as determined by the in its sole discretion, obtaining the prior written consent of the Lender. Notwithstanding the foregoing, Lender has acknowledged and consented to the acquisition by Robert A. McNeil (or a company in which Robert A. McNeil maintains a controlling interest) of all or a portion of the limited partnership interests of Borrower at any time during the term of the Loan. 7.04 Reporting Requirements. The Borrower covenants and agrees that until payment in full of the Revolving Credit Loan and interest thereon, expiration or termination of all Letters of Credit satisfaction of all of the Borrower's other obligations hereunder and termination of the Revolving Credit Commitment, the Borrower will furnish or cause to be furnished to the Lender: (a) As soon as available, but in no event later than one hundred twenty (120) days of the end of each calendar year, annual audited balance sheets, statements of income, Partner's equity and statement of cash flow for Borrower. Such annual statements shall be prepared in accordance with GAAP and shall be certified by an independent certified public accountant of recognized standing chosen by Borrower and satisfactory to Lender. (b) At the time the audited financial statements described in paragraph (a) above are due, management letters, if any, prepared by such independent certified public accountant for Borrower. (c) As soon as available, but in no event later than forty-five (45) days after the end of each calendar quarter, balance sheets and statements of income, Partner's equity and cash flow for Borrower. Such unaudited quarterly statements shall be prepared in accordance with GAAP and shall be certified by an Authorized Officer of Borrower or by an officer of Borrower who is also a certified public accountant. (d) As soon as available, but in no event later than forty-five (45) days after the end of each calendar quarter, with respect to the Properties comprising the Collateral Pool and no later than forty-five (45) days after the end of each calendar year with respect to the Other Properties, income and expense statements and rent rolls with respect to the Properties in form and substance acceptable to Lender. (e) As soon as available, but in no event later than forty-five (45) days after payment due date, copies of all real estate tax receipts. (f) As soon as available, but in no event later than forty-five (45) days after the end of each quarter, the calculation of an Authorized Officer or by an officer of Borrower who is also a certified public accountant of Borrower (i) evidencing that Borrower has complied with the financial covenants contained in Sections 7.02(a) hereof and (ii) certifying that the restrictions on partnership distributions contained in Section 7.03 hereof have not been violated. (g) As soon as available, but in no event later than one hundred and twenty (120) days after the end of each calendar year, the calculation of an Authorized Officer or by an officer of Borrower who is also a certified public accountant of Borrower evidencing that Borrower has complied with the financial covenants contained in Sections 7.02(a)________ hereof. (h) Within five (5) Business Days after the filing thereof, copies of all financial reporting statements filed with the Securities Exchange Commission, including, without limitation, all 10-K and 10-Q statements. (i) Such other information and reports as reasonably requested by Lender. (j) Notice of Default. Promptly after any officer of Borrower has learned of the occurrence of an Event of Default or Potential Default, a certificate signed by an Authorized Officer of the Borrower setting forth the details of such Event of Default or Potential Default and the action which the Borrower proposes to take with respect thereto. (k) Notice of Litigation. Promptly after the commencement thereof, notice of all actions, suits, proceedings or investigations before or by any Official Body or any other person against the Borrower which relate to the Properties, involve a claim or series of claims which if adversely determined would constitute a Material Adverse Change with respect to the Borrower. (l) Certain Events. Written notice to the Lender within the time limits set forth in Section 7.03(j), any amendment to the organizational documents of the Borrower; and (m) Intentionally Omitted. (n) Title Searches, Environmental Audits and Appraisals. (i) Subject to the limitations set forth in the next sentence, Lender may request, and Borrower shall deliver within thirty (30) days of such request, title searches and environmental audits of the Properties comprising the Collateral Pool by consultants satisfactory to Lender. Prior to an Event of Default or a Conditional Default, any such title searches will be requested no more than once each year during the term of the Revolving Credit Loan; after an Event of Default or a Conditional Default, and, in the case of an environmental audit, at any time that Lender acting in good faith has reason to believe that there has been a violation of any of the Environmental Indemnification Agreements with respect to the Properties comprising the Collateral Pool, such title searches and environmental audits may be requested at any time in Lender's reasonable discretion. All of the foregoing shall be in form and substance satisfactory to Lender. Borrower shall be responsible for all costs of any such title searches and environmental audits. Lender shall use reasonable efforts to request or obtain updates of existing reports in lieu of new reports whenever practical. (ii) In the absence of an Event of Default no more than once each calendar year, but at any time during the term of the Revolving Credit Loan following an Event of Default, Lender may cause an Appraisal of the Properties to be prepared at Borrower's sole cost and expense, which Appraisal will be in form and substance acceptable to Lender and performed by a licensed real estate appraiser engaged by Lender. Lender shall use reasonable efforts to request or obtain updates of existing Appraisals in lieu of new Appraisals whenever practical. ARTICLE VIII DEFAULT ------- 8.01 Events of Default. An Event of Default shall mean the occurrence or existence of any one or more of the following events or conditions (whatever the reason therefor and whether voluntary, involuntary or effected by operation of Law): (a) The Borrower shall fail to pay any principal of the Revolving Credit Loan including the payment due at maturity or shall fail to pay any interest on amounts advanced under the Revolving Credit Loan or any other amount owing hereunder or under the other Loan Documents within ten (10) days after such principal, interest or other amount becomes due in accordance with the terms hereof or thereof; (b) Any representation or warranty made at any time by the Borrower herein or by the Borrower in any other Loan Document, or in any certificate, other instrument or statement furnished pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material respect as of the time it was made or furnished; (c) The Borrower shall default in the observance or performance of the covenant contained in Section 7.01(m), any Covenant contained in Section 7.02(a)(i - v) or any covenant contained in Section 7.03 hereof; (d) The Borrower shall default in the observance or performance of any other covenant, condition or provision hereof or of any other Loan Document and such default shall continue unremedied for a period of ten (10) days after any officer of the Borrower becomes aware of the occurrence thereof (such grace period to be applicable only in the event such default can be remedied by corrective action of the Borrower as determined by the Lender in its sole discretion); provided, however, if such default cannot be cured within ten (10) days Borrower shall have such longer time as may be reasonably necessary but not to exceed sixty (60) days from the date of the occurrence of the Event of Default, provided that Borrower commences such cure within said ten (10) day period and diligently prosecutes such cure to completion; (e) Any final judgments or orders for the payment of money shall be entered against the Borrower by a court having jurisdiction in the premises which judgment is not discharged, vacated, bonded or stayed pending appeal within a period of thirty (30) days from the date of entry; (f) Any of the Loan Documents shall cease to be legal, valid and binding agreements enforceable against the party executing the same or such party's successors and assigns (as permitted under the Loan Documents) in accordance with the respective terms thereof or shall in any way be terminated (except in accordance with its terms) or become or be declared ineffective or inoperative or shall in any way be challenged or contested or cease to give or provide the respective Liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; (g) There shall occur any material uninsured damage to or loss, theft or destruction of the Properties or any of the Properties is attached, seized, levied upon or subjected to a writ or distress warrant, or comes within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors and the same is not cured within thirty (30) days thereafter; (h) A notice of lien or assessment is filed of record with respect to any of the Properties by the United States, or any department, agency or instrumentality thereof, or by any state, county, municipal or other governmental agency, including, without limitation, the Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any time or times hereafter to any one of these becomes payable and the same is not paid within thirty (30) days after the same becomes payable; (i) The Borrower ceases to be solvent or admits in writing its inability to pay its debts as they mature; (j) The Borrower ceases to conduct its business as contemplated or the Borrower is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business and such injunction, restraint or other preventive order is not dismissed within thirty (30) days after the entry thereof; (k) A proceeding shall have been instituted in a court having jurisdiction in the premises seeking a decree or order for relief in respect of the Borrower in an involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of the Borrower for any substantial part of its property, or for the winding-up or liquidation of its affairs, and such proceeding shall remain undismissed or unstayed and in effect for a period of thirty (30) consecutive days or such court shall enter a decree or order granting any of the relief sought in such proceeding; or (l) The Borrower shall commence a voluntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, shall consent to the entry of an order for relief in an involuntary case under any such law, or shall consent to the appointment or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or other similar official) of itself or for any substantial part of its property or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action in furtherance of any of the foregoing. 8.02 Consequences of Event of Default. (a) If an Event of Default specified under subsections (a) through (k) of Section 8.01 hereof shall occur and be continuing, the Lender shall be under no further obligation to make advances of the Revolving Credit Loan or issue Letters of Credit hereunder and the Lender may, (i) by written notice to the Borrower, declare the unpaid principal amount of the Revolving Credit Note then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lender hereunder and thereunder to be forthwith due and payable, and the same shall thereupon become and be immediately due and payable to the Lender without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived and (ii) require the Borrower to, and the Borrower shall thereupon, deposit in a non-interest bearing account with the Lender, as cash collateral for its Obligations under the Loan Documents, an amount equal to the maximum amount currently or at any time thereafter available to be drawn on all outstanding Letters of Credit, and the Borrower hereby pledges to the Lender, and grants to the Lender a security interest in, all such cash as security for such Obligations. Upon the curing of all existing Events of Default to the satisfaction of the Lender, Lender shall return such cash collateral to the Borrower; and (b) If an Event of Default specified under subsections (m) or (n) of Section 8.01 hereof shall occur, the Banks shall be under no further obligations to make advances of the Revolving Credit Loan hereunder and the unpaid principal amount of the Revolving Credit Note then outstanding and all interest accrued thereon, any unpaid fees and all other Indebtedness of the Borrower to the Lender hereunder and thereunder shall be immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; and (c) If an Event of Default shall occur and be continuing, Lender (which for purposes of this provision only shall mean only PNC Bank, National Association) and any branch, subsidiary or affiliate of Lender anywhere in the world shall have the right, in addition to all other rights and remedies available to it, without notice to the Borrower, to set-off against and apply to the then unpaid balance of all advances of the Revolving Credit Loan and all other Obligations of the Borrower hereunder or under any other Loan Document any debt owing to, and any other funds held in any manner for the account of, the Borrower by Lender or by such branch, subsidiary or affiliate, including, without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by the Borrower for its own account (but not including funds held in custodian or trust accounts) with Lender or such branch, subsidiary or affiliate. Such right shall exist whether or not Lender shall have made any demand under this Agreement or any other Loan Document, whether or not such debt owing to or funds held for the account of the Borrower is or are matured or unmatured and regardless of the existence or adequacy of any collateral, Guaranty or any other security, right or remedy available to the Lender; and (d) If an Event of Default shall occur and be continuing, and whether or not the Lender shall have accelerated the maturity of the Revolving Credit Loan of the Borrower pursuant to any of the foregoing provisions of this Section 8.02, the Lender, if owed any amount with respect to the Note, may proceed to protect and enforce its rights by suit in equity, action at law and/or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Agreement or the Revolving Credit Note, including as permitted by applicable Law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of the Lender; and (e) From and after the date on which the Lender has taken any action pursuant to this Section 8.02 and until all Obligations of the Borrower have been paid in full, any and all proceeds received by the Lender from any sale or other disposition of the Properties, or any part thereof, or the exercise of any other remedy by the Lender, shall be applied as follows: (i) first, to reimburse the Lender for reasonable out-of-pocket costs, expenses and disbursements, including without limitation reasonable attorneys' fees and legal expenses, incurred by the Lender in connection with realizing on the Properties or collection of any obligations of the Borrower under any of the Loan Documents, including advances made by the Lender for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, the Properties, including without limitation, advances for taxes, insurance, repairs and the like and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale or other realization on, the Properties; (ii) second, to the repayment of all Indebtedness then due and unpaid of the Borrower to the Lender incurred under this Agreement or any of the Loan Documents, whether of principal, interest, fees, expenses or otherwise, in such manner as the Lender may determine in its discretion; and (iii) the balance, if any, as required by Law. (f) In addition to all of the rights and remedies contained in this Agreement or in any of the other Loan Documents (including the Mortgages), the Lender shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law. The Lender may, exercise all post-default rights granted to the Lender under the Loan Documents or applicable Law. 8.03 Notice of Sale. Subject to the provisions of applicable Law, any notice required to be given by the Lender of a sale, lease, or other disposition of the Properties or any other intended action by the Properties, if given ten (10) days prior to such proposed action, shall constitute commercially reasonable and fair notice thereof to the Borrower. 8.04 Sale of Properties. In the exercise of the rights and remedies granted to Lender pursuant to this Agreement and the other Loan Documents with respect to the Properties comprising the Collateral Pool and the Other Properties, Lender agrees that should it be entitled to sell or otherwise dispose of any of the Properties, by foreclosure or otherwise, it shall first proceed against OCC I, OCC III and the Kendall Property, either simultaneously or in any such order Lender shall deem appropriate, provided, however, that, in the event an Appraisal of OCC I, OCC III, and the Kendall Property(as performed pursuant to the direction of Lender at Borrower's sole cost and expense) indicates a collective appraised value (less the amount of any Liens having priority over the Mortgages on OCC I, OCC III or the Kendall Property) of less that $6,000,000 Lender shall have the right to proceed against all the Properties in any order without limitation. To the extent that such Appraisal indicates a collective value in excess of $6,000,000 and any sale or other disposition of the Collateral Pool Properties described above is inadequate to fully compensate Lender for amounts owing under this Agreement and the other Loan Documents, Lender shall then be entitled to proceed against the Other Properties and exercise all rights and remedies available to it pursuant to this Agreement and the other Loan Documents, provided that (I) nothing herein contained with respect to the order in which Lender may exercise remedies with respect to the Properties, shall be construed to prohibit Lender from obtaining a judgment lien on any of the Other Properties (should Borrower fail to execute and deliver to Lender the Loan Documents with respect to the Other Properties as required by Section 7.01(m) of this Agreement) provided further that, Lender shall not execute on any judgment lien obtained with respect to the Other Properties until it has first proceeded against OCC I, OCC III and the Kendall Property as set forth above and (ii) in the exercise of its rights and remedies with respect to the Properties pursuant to this Agreement and the other Loan Documents, Lender shall not sell or otherwise dispose of any two or more of the Properties as an integrated unit. ARTICLE IX MISCELLANEOUS ------------- 9.01 No Implied Waivers; Cumulative Remedies; Writing Required. No course of dealing and no delay or failure of the Lender in exercising any right, power, remedy or privilege under this Agreement or any other Loan Document shall affect any other or future exercise thereof or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of the Lender under this Agreement and any other Loan Documents are cumulative and not exclusive of any rights or remedies which it would otherwise have. Any waiver, permit, consent or approval of any kind or character on the part of the Lender of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 9.02 Reimbursement and Indemnification of the Lender by the Borrower; Taxes. The Borrower agrees unconditionally upon demand to pay or reimburse to Lender and to save Lender harmless against (i) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements (including, but not limited to, fees and expenses of counsel, appraisers and consultants, as applicable, for Lender), incurred by Lender (a) in connection with the administration and interpretation of this Agreement, and other instruments and documents to be delivered hereunder, (b) relating to any amendments, waivers or consents pursuant to the provisions hereof, (c) in connection with the enforcement of this Agreement or any other Loan Document, or collection of amounts due hereunder or thereunder or the proof and allowability of any claim arising under this Agreement or any other Loan Document, whether in bankruptcy or receivership proceedings or otherwise, and (d) in any workout, restructuring or in connection with the protection, preservation, exercise or enforcement of any of the terms hereof or of any rights hereunder or under any other Loan Document or in connection with any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender, in its capacity as such, in any way relating to or arising out of this Agreement or any other Loan Documents or any action taken or omitted by Lender hereunder or thereunder, [provided that the Borrower shall not be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements if the same results from Lender's gross negligence or willful misconduct The Borrower agrees unconditionally to pay all stamp, document, transfer, recording, mortgage or filing taxes or fees and similar impositions now or hereafter determined by the Lender to be payable in connection with this Agreement, the Mortgages or any other Loan Document, and the Borrower agrees unconditionally to save the Lender harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or impositions. 9.03 Holidays. Whenever any payment or action to be made or taken hereunder shall be stated to be due on a day which is not a LIBO Business Day, such payment or action shall be made or taken on the next following LIBO Business Day (except as provided in Section 3.04 with respect to Interest Periods), and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action. 9.04 Funding by Branch, Subsidiary or Affiliate. (a) Notional Funding. Lender shall have the right from time to time, without notice to the Borrower, to deem any branch, subsidiary or affiliate (which for the purposes of this Section 9.04 shall mean any corporation or association which is directly or indirectly controlled by or is under direct or indirect common control with any corporation or association which directly or indirectly controls Lender) of Lender to have made, maintained or funded any Loan to which a LIBO-Rate Option applies at any time, provided that immediately following (on the assumption that a payment were then due from the Borrower to such other office) and as a result of such change the Borrower would not be under any greater financial obligation pursuant to Section 3.02(i) hereof than it would have been in the absence of such change. Notional funding offices may be selected by Lender without regard to Lender's actual methods of making, maintaining or funding advances of the Revolving Credit Loan or any sources of funding actually used by or available to such Bank. (b) Actual Funding. Lender shall have the right from time to time to make advances of or maintain the Revolving Credit Loan by arranging for a branch, subsidiary or affiliate of Lender to make advances of or maintain the Revolving Credit Loan subject to the last sentence of this Section 9.04. If Lender causes a branch, subsidiary or affiliate to make advances of or maintain any part of the Revolving Credit Loan hereunder, all terms and conditions of this Agreement shall, except where the context clearly requires otherwise, be applicable to such part of the Revolving Credit Loan to the same extent as if advances of the Revolving Credit Loan were made or maintained by Lender but in no event shall Lender's use of such a branch, subsidiary or affiliate to make advances of the Revolving Credit Loan or maintain any part of the Revolving Credit Loan hereunder cause Lender or such branch, subsidiary or affiliate to incur any cost or expenses payable by the Borrower hereunder or require the Borrower to pay any other compensation to Lender (including, without limitation, any expenses incurred or payable pursuant to Section 3.02(i) hereof) which would otherwise not be incurred. 9.05 Notices. All notices, requests, demands, directions and other communications (collectively "Notices") given to or made upon any party hereto under the provisions of this Agreement shall be by telephone or in writing (including telex or facsimile communication) unless otherwise expressly permitted hereunder and shall be delivered or sent by telex or facsimile to the respective parties at the addresses and numbers set forth under their respective names on the signature pages hereof or in accordance with any subsequent unrevoked written direction from any party to the others. All notices shall, except as otherwise expressly herein provided, be effective as set forth in the Mortgage. 9.06 Severability. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 9.07 Governing Law. This Agreement shall be deemed to be a contract under the Laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed and enforced in accordance with the Laws of the Commonwealth of Pennsylvania without regard to its conflict of Laws principles. 9.08 Prior Understanding. This Agreement supersedes all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments. 9.09 Duration; Survival. All representations and warranties of the Borrower contained herein or made in connection herewith shall survive the making of the Revolving Credit Loan and issuance of the Letters of Credit and shall not be waived by the execution and delivery of this Agreement, any investigation by the Lender, the making of the Revolving Credit Loan, issuance of the Letters of Credit or payment in full of the Revolving Credit Loan. All covenants and agreements of the Borrower contained in Sections 7.01, 7.02 and 7.03 herein shall continue in full force and effect from and after the date hereof so long as the Borrower may borrow or reborrow or request Letters of Credit hereunder and until termination of the Revolving Credit Commitment and expiration and termination of all Letters of Credit. All covenants and agreements of the Borrower contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Revolving Credit Note, Article IV and Section 9.02 hereof, shall survive payment in full of the Revolving Credit Loan, expiration and termination of the Letters of Credit and termination of the Revolving Credit Commitment. 9.10 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the Lender and the Borrower and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights and obligations hereunder or any interest herein. The Lender may, at its own cost, make assignments of or sell participations in all or any part of the Revolving Credit Commitment and the Revolving Credit Loan made by it to one or more banks or other entities upon notice to Borrower and upon Borrower's approval, such approval not to be unreasonably withheld. 9.11 Confidentiality. The Lender agrees to keep confidential all information obtained from the Borrower which is nonpublic and confidential or proprietary in nature (including any information the Borrower specifically designates as confidential), except as provided below, and to use such information only in connection with its capacity under this Agreement and for the purposes contemplated hereby. The Lender shall be permitted to disclose such information (i) to outside legal counsel, accountants and other professional advisors who need to know such information in connection with the administration and enforcement of this Agreement, subject to agreement of such persons to maintain the confidentiality thereof, (ii) assignees and participants as contemplated by Section 9.10, subject to agreement by such persons to maintain the confidentiality thereof, (iii) to the extent requested by any bank regulatory authority or, with notice to the Borrower, as otherwise required by applicable Law or by any subpoena or similar legal process, or in connection with any investigation or proceeding arising out of the transactions contemplated by this Agreement, (iv) if it becomes publicly available other than as a result of a breach of this Agreement or becomes available from a source not subject to confidentiality restrictions, or (v) the Borrower shall have consented to such disclosure. 9.12 Counterparts. This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 9.13 Lender's Consent. Except as otherwise provided in the Loan Documents, whenever the Lender's consent is required to be obtained under this Agreement or any of the other Loan Documents as a condition to any action, inaction, condition or event, the Lender shall be authorized to give or withhold such consent in its sole and absolute discretion and to condition its consent upon the giving of additional collateral, the payment of money or any other matter. 9.14 Exceptions. The representations, warranties and covenants contained herein shall be independent of each other and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law. 9.15 CONSENT TO FORUM; WAIVER OF JURY TRIAL. THE BORROWER HEREBY IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS OF ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESSES PROVIDED FOR IN SECTION 9.05 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF. THE BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. THE BORROWER AND LENDER HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE PROPERTY TO THE FULL EXTENT PERMITTED BY LAW. IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement as of the day and year first above written. WITNESS/ATTEST: McNEIL REAL ESTATE FUND XXVII, L.P., a Delaware limited partnership By: McNEIL PARTNERS, L.P., a Delaware limited partnership, its general partner By: McNEIL INVESTORS, INC., a Delaware corporation, its general partner s/s Mary Kay Schwartz By: s/s Donald K. Reed - ------------------------------- --------------------------- Title: President ------------------- Address for Notices: McNeil Real Estate Fund XXVII, L.P. 13760 Noel Road, Suite 700 Dallas, Texas 75240 Telecopier No. (214)448-5711 Attn: Donald K. Reed Telephone No. (214)448-5800 PNC BANK, NATIONAL ASSOCIATION, a national banking association By: --------------------------- Title: ------------------------ Address for Notices: One PNC Plaza, 19th Floor Fifth Avenue and Wood Street Real Estate Banking Pittsburgh, PA 15265 Telecopier No. (412) 762-6500 Attention: Theron D. Imbrie Telephone No. (412) 762-4464__
EXHIBIT A ITEMS TO BE SUPPLIED (a) (i) new Appraisals of each of the Properties comprising the Collateral Pool, subject to Lender's review and approval, from an MAI-designated appraiser engaged by Lender at Borrower's sole cost and expenses; and (ii) Borrower's most recent existing Appraisals of each of the Other Properties, which shall be subject to Lender's review and approval; (b) (i) current surveys of each of the Properties comprising the Collateral Pool, certified by a registered surveyor approved by Lender, such certifications to be addressed to Lender and the title company issuing Lender's title insurance policies and (A) to show the location and area covered by all building lines affecting the respective Properties, the location and area of all easements encumbering and/or benefiting the respective Properties, the relation of the respective Properties to public thoroughfares for access purposes, the location of all physical conditions on the respective Properties, the location of all improvements located on the respective Properties and any encroachments of such improvements or other physical conditions upon any easements, building lines or property boundary lines, and (B) to state whether the respective Properties or any portion thereof is located in any federally designated flood prone area, and if so, to locate on the survey such portion of the respective Properties so designated; (ii) Borrower's most recent existing as-built surveys of each of the Other Properties, which shall be subject to Lender's review and approval; (c) a legal description of each of the Properties comprising the Collateral Pool and the Other Properties and all easements, compatible with the above-mentioned surveys and sufficient for the purpose of the Mortgages and the Negative Pledge Agreements, as applicable; (d) evidence in such form as Lender may require of (i) satisfactory subdivision and zoning for the Properties comprising the Collateral Pool; (ii) the valid issuance of all necessary permits, licenses and approvals to occupy and operate the Properties comprising the Collateral Pool, including, without limitation, all certificates of occupancy and all other permits, licenses and approvals required under federal, state or local Laws or regulations with respect to subdivision, zoning, safety, building, occupancy, fire protection, environmental, energy and similar matters; and (iii) satisfactory soils compaction conditions, structural, and sub-surface support reports for the Properties comprising the Collateral Pool; (e) evidence in such form as Lender may require, including Environmental Reports with respect to the Properties comprising the Collateral Pool and also including, without limitation, engineering, subsurface soils reports, environmental assessment reports, reports and clearances from governmental agencies, chain of title searches and certifications of Borrower that the Properties comprising the Collateral Pool are free from all hazardous waste and all other materials regulated by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Resource Conservation Recovery Act, as amended, or by any other federal, state or local law, statute, regulation, ordinance, code or order; (f) evidence in such form as Lender may require (including the Accord Form 27 Evidence of Insurance and evidence of payment of premiums) that all types of hazard insurance (including loss of rents, malicious mischief insurance and flood insurance if in a federal flood prone area) available with respect to the Properties comprising the Collateral Pool, public liability and property damage insurance with respect to the Properties comprising the Collateral Pool, insurance are in force and will continue in force so long as the Revolving Credit Loan or any Letters of Credit are outstanding (the Accord Form 27 Evidence of Insurance for such insurance to be for a period of at least twelve (12) months, in form, in amounts and with companies satisfactory to Lender, and, with respect to the Properties comprising the Collateral Pool, all such hazard policies shall have attached to them mortgagee, loss payee and additional insured clauses, as applicable, in favor of Lender); (g) (i) with respect to the Properties comprising the Collateral Pool, title insurance binders, together with specimen policies issued by title insurance companies acceptable to Lender (the "Title Companies"), pursuant to which said title insurance companies will, on the Closing Date, be irrevocably committed to issue an ALTA 1970 lender's policy of title insurance insuring the Mortgages in the principal sum secured thereby and such portion thereof as shall be advanced from time to time as a first lien upon fee simple title to the respective Properties and all appurtenances thereto (including such easements and appurtenances as may be required by Lender), subject only to such exceptions as may be approved in writing by Lender, with endorsements thereto as to such matters as Lender may designate including, without limitation, contiguity of the Land with all easements and public roads, and compliance with Laws governing zoning, subdivision and land use, together with such reinsurance and direct access agreements as Lender shall, in its discretion, require; (ii) with respect to the Other Properties, title reports on each of the Other Properties, prepared by a Title Company which report shall be dated no earlier than thirty (30) days prior to the Closing Date [and such additional assurance from the Title Company as Lender shall require that if a Mortgage were recorded the Title Company would issue a Title Policy insuring the lien of the Mortgage in the principal amount secured thereby; (h) Evidence in such form as Lender may require of payment of all real estate taxes and municipal claims for the Properties comprising the Collateral Pool; (i) an opinion or opinions of counsel acceptable to Lender and its counsel (including local counsel) to be delivered on the Closing Date in form and scope reasonably satisfactory to Lender to the effect (in addition to other matters which Lender may reasonably require to be favorably addressed) that (i) Borrower is duly organized, validly existing and in good standing under the Laws of the jurisdiction of its formation; (ii) Borrower is duly qualified to do business in the jurisdiction in which the Properties are located and Borrower has all requisite power and authority to operate the Properties and to enter into, perform and consummate all aspects of the transactions contemplated hereby; (iii) all Loan Documents and other documents to be executed by or on behalf of Borrower have been duly executed and are valid and binding upon and enforceable against the parties thereto (other than Lender) in accordance with the respective terms of each, except as the same may be limited by bankruptcy, insolvency and similar Laws affecting the rights of creditors generally; (iv) to the best knowledge of counsel after due and diligent investigation and inquiry, there is no action, proceeding or investigation pending or threatened (or any basis therefor) which questions the validity of the Revolving Credit Loan or the transactions contemplated hereby or the ability of Borrower from performing its obligations under the Loan Documents; (v) to the best knowledge of counsel after due and diligent investigation and inquiry, the performance of and compliance with the provisions hereof and the other documents referred to herein will not result in or be in conflict with or constitute a default under any agreement, instrument, document, decree, order or any federal, state or local Law, statute, rule, regulation or ordinance applicable to or affecting Borrower; (vi) no consent, approval, order or authorization of, or registration or filing with, any governmental or public body or authority is required in connection with the acceptance hereof, the Revolving Credit Loan or the matters contemplated hereby; (vii) the Revolving Credit Loan shall not violate the usury or other Laws of the Commonwealth of Pennsylvania or any other jurisdiction relating to the maximum rate of interest; (viii) that the Properties comprising the Collateral Pool are in compliance with all applicable Laws relating to zoning, use and subdivision and that the permits, licenses and approvals referred to in (d)(ii) have been obtained; (j) a copy of the limited partnership agreements of Borrower and the Partner, certified as of the Closing Date by the general partner of each entity in a manner designated by Lender, and in addition, a copy of the filed certificates of limited partnership, certified as of a recent date by the Secretary of State of the respective jurisdictions in which Borrower and Partner were formed; (k) if the general partner of the Partner is a corporation, a copy of the articles of incorporation, bylaws and resolutions of such entity, such articles of incorporation to be certified as of a recent date by the Secretary of State of the jurisdiction in which such entity was formed, and such bylaws and resolutions to be certified as of the Closing Date by the secretary of such entity; (l) if the general partner of the Partner is a corporation, good standing certificates with respect to such entity, such certificates to be of a recent date and to be made by the Secretary of State of the jurisdiction in which such entity was formed; (m) a certificate, to be dated as of the Closing Date of the Partner of Borrower as to the incumbency of officers and partners; (n) rent rolls setting forth all of the tenants and other occupants of portions of the Properties comprising the Collateral Pool (the "Tenants") and summarizing the terms of their respective leases (the "Leases"); (o) copies of any and all Major Leases, with respect to the Properties comprising the Collateral Pool; (p) estoppel letters from all Tenants under Major Leases, with respect to each of the Properties comprising the Collateral Pool, which letters shall confirm that no defaults exist under the terms of the respective Leases, and such other information as shall be required by Lender; (q) subordination, non-disturbance and attornment agreements from all Tenants under Major Leases with respect to each of the Properties comprising the Collateral Pool, which agreements shall subordinate the Leases to the Lien of the respective Mortgages; (r) copies of any and all Management Agreements with respect to the Properties comprising the Collateral Pool; (s) notices to tenants regarding the consummation of the Revolving Credit Loan as may be contemplated pursuant to the Major Leases; (t) such other instruments and documents as Lender shall reasonably require to evidence and secure the Revolving Credit Loan and to comply with the provisions hereof and the requirements of regulatory authorities to which Lender is subject, all of which shall be satisfactory in form, content and substance to Lender. EX-99 4 CONSOLIDATED, AMENDED AND RESTATED REVOLVING CREDIT NOTE (City of Miami, Dade County, Florida) $5,000,000 Dated: June 21, 1995 Pittsburgh, Pennsylvania FOR VALUE RECEIVED, MCNEIL REAL ESTATE FUND XXVII, L.P., a Delaware limited partnership ("Borrower"), promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION, a national banking association or any subsequent holder hereof ("Lender") at its principal offices located at One PNC Plaza, 19th Floor, Fifth Avenue and Wood Street, Real Estate Banking, Pittsburgh, Pennsylvania 15265 (or at such other place or places as Lender may designate) the lesser of (i) the principal sum of $5,000,000, or (ii) the aggregate unpaid principal balance of all advances of the Revolving Credit Loan (as hereinafter defined) made by Lender to Borrower pursuant to Section 2.01 of the Revolving Credit Loan Agreement (as hereinafter defined), plus interest thereon at the interest rates specified, in Section 2.01 of that certain Revolving Credit Loan Agreement (the "Loan Agreement") of even date herewith executed by Borrower and Lender, in accordance with the terms and conditions of this Consolidated, Amended and Restated Revolving Credit Note (the "Note"). This Note is secured, inter alia, by (i) a Mortgage, Assignment of Rents, Security Agreement and Financing Statement dated as of October 23, 1992 in favor of Community Bank, N.A., the predecessor in interest to Bank Midwest, N.A. ("Midwest"), as assigned by Midwest to Lender by Assignment of Note, Mortgage and Related Documents dated June 22, 1995, and modified by a Notice of Future Advance and Mortgage Modification Agreement executed by Borrower and Lender dated of even date herewith and as modified THIS NOTE CONSOLIDATES, AMENDS, REPLACES AND RESTATES (1) THAT CERTAIN PROMISSORY NOTE OF BORROWER IN FAVOR OF COMMUNITY BANK, N.A., THE PREDECESSOR IN INTEREST TO BANK MIDWEST, N.A. ("MIDWEST"), DATED OCTOBER 23, 1992 IN THE ORIGINAL PRINCIPAL AMOUNT OF $7,000,000, AS ASSIGNED BY MIDWEST TO PNC BANK, NATIONAL ASSOCIATION (THE "ORIGINAL NOTE") AND (2) THAT CERTAIN FUTURE ADVANCE REVOLVING PROMISSORY NOTE OF BORROWER TO PNC BANK, NATIONAL ASSOCIATION DATED OF EVEN DATE HEREWITH IN THE PRINCIPAL AMOUNT OF $3,000,000 (THE "FUTURE ADVANCE NOTE"). THE ORIGINAL NOTE AND THE FUTURE ADVANCE NOTE ARE ATTACHED HERETO. THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL CONTROL THE OBLIGATIONS OF BORROWER WITH RESPECT TO THE INDEBTEDNESS EVIDENCED BY THE ORIGINAL NOTE AND THE FUTURE ADVANCE NOTE. THIS NOTE DOES NOT EVIDENCE ANY INDEBTEDNESS OF BORROWER IN EXCESS OF THE ORIGINAL NOTE AND THE FUTURE ADVANCE NOTE CONSOLIDATED, AMENDED, REPLACED AND RESTATED HEREBY. ALL REQUIRED INTANGIBLE AND DOCUMENTARY STAMP TAXES HAVE BEEN PAID IN CONNECTION WITH THE ORIGINAL NOTE AND THE FUTURE ADVANCE NOTE. further by an Amended and Restated Mortgage and Security Agreement dated of even date herewith executed by Borrower and Lender (collectively, the "Mortgage"); and (ii) an Amended and Restated Assignment of Leases and Rents of even date herewith executed by Borrower and Lender, all encumbering property located in Dade County, Florida. To the extent not inconsistent or in conflict with the provisions of this Note, all of the terms, definitions, conditions and covenants of the Mortgage are expressly made a part of this Note by reference in the same manner and with the same effect as if set forth herein at length, and any holder of this Note is entitled to the benefits of and remedies provided in the Mortgage. The Original Note and the Future Advance Note are hereby consolidated, amended and restated as follows: FOR VALUE RECEIVED, the undersigned, McNEIL REAL ESTATE FUND XXVII, L.P., a Delaware limited partnership (herein called the "Borrower"), whose address is 13760 Noel Road, Suite 700, Dallas, Texas 75240, hereby promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION (the "Lender") the lesser of (i) the principal sum of Five Million U.S. dollars (U.S. $5,000,000), or (ii) the aggregate unpaid principal balance of all advances of the Revolving Credit Loan made by the Lender to the Borrower pursuant to Section 2.01 of the Revolving Credit Loan Agreement dated as of the date hereof between the Borrower and the Lender (the "Loan Agreement"), payable on the Maturity Date. All capitalized terms used herein shall, unless otherwise defined herein, have the same meanings given to such terms in the Loan Agreement. The borrower shall pay interest on the unpaid principal balance hereof from time to time outstanding from the date hereof at the rate or rates per annum specified by the Borrower pursuant to Article III of, or as other wise provided in, the Loan Agreement. Upon the occurrence of an Event of Default under the Loan Agreement, following the expiration of any applicable grace period, the Borrower shall pay interest on the entire principal amount of the then outstanding advances of the Revolving Credit Loan evidenced by this Revolving Credit Note at a rate per annum (based on a year of 360 days and actual days elapsed) equal to four percent (4%) above the Prime Rate (the "Default Rate"). Such interest rate will accrue before and after any judgment has been entered and shall continue until the date paid. Borrower shall pay to Lender, upon demand, a late payment charge equal to five percent (5%) of the amount of any payment not received within ten (10) days of the date such payment is due. Subject to the provisions of the Loan Agreement, interest on this Revolving Credit Note will be payable on the first Business Day of each calendar month after the date hereof up to and including the Maturity Date. If any payment or action to be made or taken hereunder shall be stated to be or become due on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action. Subject to the provisions of the Loan Agreement, payments of both principal and interest shall be made without setoff, counterclaim or other deduction of any nature at the office of the Lender located at One PNC Plaza, 19th Floor, Real Estate Banking, Fifth Avenue and Wood Street, Pittsburgh, Pennsylvania 15265, in lawful money of the United States of America in immediately available funds, which may include payment by check drawn on a lending institution located within the United States of America. This Revolving Credit Note is the Revolving Credit Note referred to in, and is entitled to the benefits of, the Loan Agreement and other Loan Documents, including the representations, warranties, covenants, conditions, security interests or Liens contained or granted therein. The Loan Agreement among other things contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for prepayment, in certain circumstances, on account of principal hereof prior to maturity upon the terms and conditions therein specified. The Borrower waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Revolving Credit Note and the Loan Agreement except as may be otherwise expressly set forth therein. This Revolving Credit Note shall bind the Borrower and its successors and assigns, and the benefits hereof shall inure to the benefit of the Lender and its successors and assigns. All references herein to the "Borrower" and the "Lender" shall be deemed to apply to the Borrower and the Lender, respectively, and their respective successors and assigns. WARRANT OF ATTORNEY TO ENTER JUDGMENT BY CONFESSION. (i) THE BORROWER ACKNOWLEDGES THAT (a) IT HAS READ AND UNDERSTANDS, AFTER CONSULTATION WITH ITS COUNSEL, THAT THE PROVISIONS OF PARAGRAPH (ii) BELOW COULD ENABLE THE LENDER TO OBTAIN A JUDGMENT AGAINST THE BORROWER AND COMMENCE EXECUTION PROCEEDINGS THAT RESULT IN THE SEIZURE OF ASSETS OF THE BORROWER, IN EITHER CASE, WITHOUT THE BORROWER HAVING THE BENEFIT OF PRIOR NOTICE OR A HEARING; AND (b) THE BORROWER NEVERTHELESS KNOWINGLY AND VOLUNTARILY AGREES TO SUCH POSSIBLE CONSEQUENCES AND THE PROVISIONS OF PARAGRAPH (ii) BELOW. (ii) FOLLOWING THE OCCURRENCE OF AN EVENT OF DEFAULT BORROWER DOES HEREBY EMPOWER ANY ATTORNEY OF ANY COURT OF RECORD AND, WITH OR WITHOUT A COMPLAINT OR DECLARATION FILED, CONFESS A JUDGMENT OR JUDGMENTS AGAINST BORROWER AND IN FAVOR OF LENDER OR LENDER'S SUCCESSORS OR ASSIGNS IN ANY COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA FOR THE UNPAID PRINCIPAL BALANCE HEREOF, AND ALL INTEREST HEREON, TOGETHER WITH COSTS OF SUIT AND AN ATTORNEY'S COMMISSION OF 10% FOR COLLECTION. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND MAY BE EXERCISED FROM TIME TO TIME AND AS OFTEN AS LENDER OR ITS SUCCESSORS OR ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE. ANY SUCH JUDGMENT SHALL BE FULLY ENFORCEABLE UP TO THE AMOUNT DUE FROM BORROWER AT THE TIME ENFORCEMENT OF THE JUDGMENT IS SOUGHT, PLUS AN ATTORNEY'S COMMISSION OF 10% FOR COLLECTION. BORROWER HEREBY FOREVER WAIVES AN RELEASES ANY AND ALL ERRORS IN SAID PROCEEDINGS, WAIVES STAY OF EXECUTION, STAY, CONTINUANCE OR ADJOURNMENT OF SALE ON EXECUTION, THE RIGHT TO PETITION TO SET ASIDE OR ORDER A RESALE, THE RIGHT TO EXCEPT TO THE SHERIFF'S SCHEDULE OF PROPOSED DISTRIBUTION, THE RIGHT OF INQUISITION AND EXTENSION OF TIME OF PAYMENT, AND AGREES TO CONDEMNATION OF ANY PROPERTY LEVIED UPON BY VIRTUE OF ANY EXECUTION ISSUED ON ANY SUCH JUDGMENT, AND BORROWER SPECIFICALLY WAIVES ALL EXEMPTIONS FROM LEVY AND SALE OF ANY PROPERTY THAT NOW IS OR MAY HEREAFTER BE EXEMPT UNDER ANY EXISTING OR FUTURE LAWS OF THE UNITED STATES OF AMERICA OR THE COMMONWEALTH OF PENNSYLVANIA OR OF ANY OTHER JURISDICTION. Borrower agrees that this Revolving Credit Note shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania (without giving effect to Pennsylvania's principles of conflicts of law). Borrower agrees that the Courts of Common Pleas of Allegheny County, Pennsylvania and the United States District Court for the Western District of Pennsylvania shall have exclusive jurisdiction and venue with respect to all actions by or against Borrower under or pursuant to this Revolving Credit Note and hereby consents to the jurisdiction of such courts and to service of process, effective upon receipt by personal service, overnight express delivery or registered or certified mail to Borrower at the address given in the first paragraph hereof. Borrower shall promptly notify Lender in writing of any change in Borrower's address. BORROWER WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON OR RELATED TO THE SUBJECT MATTER OF THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS RELATED TO ANY OF THE LOAN DOCUMENTS. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY BORROWER AND BORROWER ACKNOWLEDGES THAT NEITHER LENDER NOR ANY PERSON ACTING ON BEHALF OF LENDER HAS OR HAVE MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. BORROWER FURTHER ACKNOWLEDGES THAT BORROWER HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT BORROWER HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL. BORROWER AGREES THAT THE OBLIGATIONS EVIDENCED BY THIS NOTE ARE EXEMPTED TRANSACTIONS UNDER THE TRUTH-IN-LENDING ACT, 15 U.S.C. SECTION 1061, ET SEQ. This is a sealed instrument. Borrower has executed this consolidated, Amended and Restated Revolving Credit Note as of the day and year first above written. McNEIL REAL ESTATE FUND XXVII, L.P., a Delaware limited partnership By: McNeil Partners, L.P., a Delaware limited partnership, its general partner By: McNeil Investors, Inc., a Delaware Corporation, its general partner By: s/s Donald K. Reed ---------------------------- Name: Donald K. Reed ---------------------------- Title: President ---------------------------- -----END PRIVACY-ENHANCED MESSAGE-----