EXHIBIT 10.6

PROMISSORY NOTE SECURED BY DEED OF TRUST

 

$11,440,000    December 19, 2008

 

1. PROMISE TO PAY. For value received, the undersigned FPA GOVERNOR PARK
ASSOCIATES, LLC a Delaware limited liability company (“Borrower”), promise(s) to
pay to the order of MIREF GOVERNOR FINANCE, LLC, a Delaware limited liability
company (“Lender”), c/o McMorgan Institutional Real Estate Fund I, LLC, 425
Market Street, Suite 1600, San Francisco, California 94105 or at such other
place as may be designated in writing by Lender, the principal sum up to ELEVEN
MILLION FOUR HUNDRED FORTY THOUSAND AND NO/100THS DOLLARS ($11,440,000) or so
much thereof as may be advanced pursuant to the terms hereof (“Loan”), with
interest thereon as specified herein. All sums owing hereunder are payable in
lawful money of the United States of America, in immediately available funds,
without offset, deduction or counterclaim of any kind.

 

2. SECURED BY DEED OF TRUST. This Note is secured by, among other things, that
Deed of Trust and Absolute Assignment of Rents and Leases and Security Agreement
(and Fixture Filing) (“Deed of Trust”) of even date herewith, identifying this
Note as an obligation secured thereby and encumbering certain real property
described therein (“Property”).

 

3. DEFINITIONS. For the purposes of this Note, the following terms shall have
the following meanings:

“Additional Advance” shall have the meaning set forth in Section 5 of Exhibit A
to this Note.

“Advance” shall mean the Initial Advance and any Additional Advance.

“Borrower’s Equity Contribution” shall mean an amount equal to the difference
between (x) the amount payable by Borrower under the Purchase Agreement on the
date of closing of the purchase and sale of the Property (as set forth in
Section 2(iii) of the Purchase Agreement), together with all additional amounts
to be paid by Borrower in order to close the transactions contemplated by the
Purchase Agreement minus (y) the Initial Advance.

“Business Day” shall mean any day other than a Saturday, Sunday, legal holiday
or other day on which commercial banks in California are authorized or required
by law to close. All references in this Note to a “day” or a “date” shall be to
a calendar day unless specifically referenced as a Business Day.

“Business Plan” shall have the meaning set forth in Section 6 of Exhibit A to
this Note.

“Cap-Ex, Leasing Costs and Interest Reserve Budget” shall mean the budget
attached hereto as Exhibit C (as such budget may be modified from time to time
with Lender’s approval, which may be given or withheld in its sole discretion).

“Debt Service” shall mean, with respect to any particular period of time,
scheduled interest payments due under the Note.

“Debt Service Coverage Ratio” shall mean the ratio, as determined by Lender, of
(a) Net Operating Income from the Property, to (b) an amount equal to the Debt
Service that would be due for the twelve (12) calendar month period immediately
following such calculation.

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“Default” shall have the meaning set forth in the Deed of Trust.

“Effective Date” shall mean the earlier of (a) the date the Deed of Trust is
recorded in the Office of the County Recorder of the county where the Property
is located and (b) the date Lender authorizes the proceeds of the Initial
Advance to be released to Borrower.

“First Extended Maturity Date” shall mean December 19, 2011.

“First Extension Term” shall mean the period beginning on December 19, 2010 and
ending on the First Extended Maturity Date.

“First Option to Extend” shall mean Borrower’s option, subject to the terms and
conditions of Section 3 of Exhibit A to this Note, to extend the term of the
Loan from the Original Maturity Date to the First Extended Maturity Date.

“Hazardous Materials Indemnity Agreement” shall mean that certain Hazardous
Materials Indemnity Agreement by Borrower and Limited Guarantor to and for the
benefit of Lender.

“Initial Advance” shall mean the initial advance under the Loan in an amount
equal to Eight Million Two Hundred Ninety Thousand and No/100 Dollars
($8,290,000.00).

“Initial Advance Disbursement Date” shall mean the date upon which the proceeds
of the Initial Advance are funded into escrow in connection with the closing of
the Loan.

“Limited Guarantor” shall mean Gregory A. Fowler, Trustee of the Gregory A.
Fowler Living Trust.

“Limited Guaranty” shall mean that certain limited guaranty by Limited Guarantor
to and for the benefit of Lender.

“Loan Documents” shall mean the documents listed in Exhibit B attached hereto
and incorporated herein by this reference.

“Maturity Date” shall mean, as applicable, either (i) the Original Maturity
Date, (ii) the First Extended Maturity Date, if the Original Maturity Date is
extended as provided for herein or (iii) the Second Extended Maturity Date, if
the First Extended Maturity Date is extended as provided for herein.

“Maximum Loan Amount” shall mean an amount equal to Eleven Million Four Hundred
Forty Thousand and No/100 Dollars ($11,440,000.00)

“Net Operating Income” shall mean the annualized amount of (i) all rents from
approved, executed leases, and all other revenues and income, derived from the
Property and expected to be received for the first 90 days of the extension
period in question, less (ii) all estimated ordinary and necessary operating
expenses applicable to the Property for the first 90 days of the extension
period in question (including, but not limited to, estimated expenses for
utilities, administration, cleaning, landscaping, security, repairs and
maintenance, ground rent payments, if any, management fees, fully assessed (or
estimated fully assessed) real estate and other taxes and assessments and
insurance premiums, but excluding from any such expenses any deductions for
federal, state and other income taxes, debt service, depreciation or
amortization of capital expenditures [including leasing commissions, tenant
improvements, and other leasing costs] and other similar non-cash items).

 

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“Note Rate” shall mean a fixed rate of seven percent (7.0%) per annum.

“Operating Expenses” shall mean all reasonable operating expenses of the
Property, including, without limitation, those for maintenance, repairs, annual
taxes or payments in lieu of taxes, insurance (but not the cost of terrorism
insurance), utilities and other annual expenses (but not capital expenses) that
are standard and customary for properties similar to the Property, and which are
set forth in the Approved Annual Budget. Operating Expenses for this purpose
shall not include any interest or principal payments on the Loan or any
allowance for depreciation.

“Option to Extend” shall mean, collectively, the First Option to Extend and the
Second Option to Extend.

“Original Maturity Date” shall mean December 19, 2010.

“Purchase Agreement” shall mean that certain Real Estate Purchase and Sale
Agreement dated as of September 9, 2008 between McMorgan Institutional Real
Estate Fund I, LLC as predecessor-in interest to MIREF Governor Park, LLC
(“Seller”), as seller, and Fowler Property Acquisitions, LLC, as predecessor-in
interest to FPA Governor Park Associates, LLC (“Buyer”), as buyer, as modified
by that certain extension notice by Buyer to Seller dated as of September 19,
2008 and as further modified by that certain First Amendment to Real Estate
Purchase and Sale Agreement dated as of October 23, 2008 between Seller and
Buyer.

“Release Parcel” shall have the meaning set forth in the Deed of Trust.

“Second Extended Maturity Date” shall mean December 19, 2012.

“Second Extension Term” shall mean the period beginning on December 19, 2011 and
ending on the Second Extended Maturity Date.

“Second Option to Extend” shall mean Borrower’s option, subject to the terms and
conditions of Section 3 of Exhibit A to this Note, to extend the term of the
Loan from the First Extended Maturity Date to the Second Extended Maturity Date.

 

4. INTEREST; PAYMENTS.

 

  4.1. Interest. Interest on the outstanding principal balance of this Note
shall accrue at the Note Rate (except as otherwise provided in Section 6.2
below).

 

  4.2. Payments.

 

  a.

Interest accrued on this Note shall be due and payable in arrears on the first
day of each month commencing with the first day of the second full month
following the Initial Advance Disbursement Date. Interest shall be calculated on
the basis of a 360-day year and charged on the basis of actual days elapsed for
any whole or partial month in which interest is being calculated. Interest for
the balance of the Month in which the closing of the Loan occurs (including the
day on which the Loan closes) shall be paid at the closing of the Loan.
Principal, all accrued interest and all other amounts due under this Note,
including the Exit Fee, shall be due and payable on

 

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the Maturity Date (except as otherwise expressly provided in the Loan
Documents). Except as otherwise specifically provided in this Note or the other
Loan Documents, all payments and deposits due under the Loan Documents shall be
made to Lender not later than 12:00 noon, California time, on the day on which
such payment or deposit is due. Any funds received by Lender after such time
shall, for all purposes, be deemed to have been received on the next succeeding
Business Day.

 

  b. Lender will pay Debt Service due and payable under the Loan by funding
advances of interest directly to Lender, with the amount of each such advance to
be added to the outstanding principal balance of the Loan and with interest to
accrue thereon from the time of such advance; provided that, Lender shall not be
obligated to make any such advance of interest (and Borrower shall pay such
amounts from Borrower’s own funds): (i) if there is a Default under the Note,
the Deed of Trust, or any of the other Loan Documents, or (ii) to the extent the
disbursement of such amount would cause (A) the amount specified as the
“Carry/Interest Reserve” amount on the Cap-Ex, Leasing Costs and Interest
Reserve Budget to be exceeded, or (B) the aggregate principal balance of the
Loan to exceed the Maximum Loan Amount. The advance provisions of Section 5.1 of
Exhibit A shall not be applicable to this Section 4.2(b).

 

  4.3 Application of Payments. In the absence of a Default, all payments paid by
Borrower to Lender in connection with the obligations of Borrower under this
Note and under the other Loan Documents shall be applied in the following order
of priority: (a) to amounts, other than principal and interest, due to Lender
pursuant to this Note or the other Loan Documents; (b) to accrued but unpaid
interest on this Note; and (c) to the unpaid principal balance of this Note.
Borrower irrevocably waives the right to direct the application of any and all
payments at any time hereafter received by Lender from or on behalf of Borrower,
and Borrower irrevocably agrees that, after the occurrence of a Default, Lender
shall have the continuing exclusive right to apply any and all such payments
against the then due and owing obligations of Borrower in such order of priority
as Lender may deem advisable.

 

5. LOAN FEE; EXIT FEE.

 

  5.1. Loan Fee. Borrower shall pay to Lender, at Loan closing, a loan fee (the
“Loan Fee”) in the amount of One Hundred Fourteen Thousand and No/100 Dollars
($114,000.00). The Loan Fee shall be deemed earned upon payment and shall not be
subject to reduction or be refundable under any circumstances.

 

  5.2. Exit Fee. On the Maturity Date or such earlier date on which all amounts
owing by Borrower to Lender under this Note or the other Loan Documents become
due and payable, by acceleration or otherwise (and upon any earlier prepayment
of all or any portion of the Loan, including, without limitation, any payment
resulting from voluntary prepayment, any condemnation or casualty or in
connection with the release of any Release Parcel), Borrower shall pay to Lender
an exit fee (the “Exit Fee”) in the amount of one percent (1.0%) of the
outstanding principal balance of the Loan that is repaid. The Exit Fee shall be
paid to Lender concurrently with any payment of the outstanding principal
balance of the Loan (or any portion thereof), whenever such payment shall occur.
The Exit Fee shall be deemed earned as of the date hereof and shall not be
subject to reduction nor be refundable under any circumstances.

 

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6. LATE CHARGE; DEFAULT RATE.

 

  6.1. Late Charge. If all or any portion of any payment or deposit required
hereunder (other than the payment due on the Maturity Date) is not paid or
deposited on or before the tenth (10th) day following the day on which such
payment or deposit is due, Borrower shall pay a late or collection charge, as
liquidated damages, equal to five percent (5.0%) of the amount of such unpaid
payment or deposit. Borrower acknowledges that Lender will incur additional
expenses as a result of any late payments or deposits hereunder, which expenses
would be impracticable to quantify, and that Borrower’s payments under this
Section 5.1 are a reasonable estimate of such expenses.

 

  6.2. Default Rate. Commencing upon a Default and continuing until such Default
shall have been cured by Borrower and following the Maturity Date (whether
occurring by acceleration or otherwise) all sums owing on this Note shall bear
interest until paid in full at a rate equal to the lesser of (i) thirteen
percent (13.0%) per annum and (ii) the maximum rate of interest permitted by
applicable law (“Default Rate”).

 

7. MAXIMUM RATE PERMITTED BY LAW. Neither this Note nor any of the other Loan
Documents shall require the payment or permit the collection of any interest or
any late payment charge in excess of the maximum rate permitted by law. If any
such excess interest or late payment charge is provided for under this Note or
any of the other Loan Documents or if this Note or any of the other Loan
Documents shall be adjudicated to provide for such excess, neither Borrower nor
Borrower’s successors or assigns shall be obligated to pay such excess, and the
right to demand the payment of any such excess shall be and hereby is waived,
and this provision shall control any other provision of this Note or any of the
other Loan Documents. If Lender shall collect amounts which are deemed to
constitute interest and which would increase the effective interest rate to a
rate in excess of the maximum rate permitted by law, all such amounts deemed to
constitute interest in excess of the maximum legal rate shall, upon such
determination, at the option of Lender, be returned to Borrower or credited
against the outstanding principal balance of this Note.

 

8. ACCELERATION. If (a) any Default shall occur and be continuing; or (b) any
other event or condition shall occur which, under the terms of the Deed of Trust
or any other Loan Document, gives rise to a right of acceleration of sums owing
under this Note after the expiration of any applicable notice and cure periods,
then Lender, at its sole option, shall have the right to declare all sums owing
under this Note immediately due and payable; provided, however, that if the Deed
of Trust or any other Loan Document provides for the automatic acceleration of
payment of sums owing under this Note, all sums owing under this Note shall be
automatically due and payable in accordance with the terms of the Deed of Trust
or such other Loan Document.

 

9. BORROWER’S LIABILITY.

 

  9.1. Limitation. Except as otherwise provided in this Section 9, Lender’s
recovery against Borrower under this Note and the other Loan Documents shall be
limited solely to the Property and the “Collateral” (as defined in the Deed of
Trust).

 

  9.2.

Exceptions. Notwithstanding the foregoing limitation of liability, Borrower
shall be personally liable for, and shall defend, indemnify and hold harmless
Lender, its directors, officers, partners, members, employees, successors and
assigns from and against, all actual losses, damages, liabilities, claims,
actions, judgments, court costs and legal and other expenses sustained by
Lender, or its directors, officers, partners, members, employees, successors and
assigns

 

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(including, without limitation, reasonable attorneys’ fees and expenses) caused
by or relating to any of the following: (i) waste to or of the Property or the
Collateral, (ii) gross negligence, fraud, material misrepresentation or
intentional misconduct by Borrower; (iii) failure to apply insurance proceeds to
the restoration of the Property or the Collateral, or failure to apply insurance
proceeds or maintain insurance in accordance with the terms of the Loan
Documents; (iv) failure to apply tenant security deposits or condemnation
proceeds in accordance with the terms of the Loan Documents; (v) failure after
Lender has declared a monetary event of default to pay to Lender all rents,
income and profits of and from the Property and the Collateral, net of
reasonable and customary operating expenses; (vi) breach of or failure to
perform under the environmental representations, warranties, covenants or
indemnifications agreed to in the Hazardous Materials Indemnity;
(vii) destruction or removal of fixtures or personal property securing the Loan
from the Property, unless replaced by items of equal value; (viii) breaches of
representations or covenants contained in the Loan Documents relating to
compliance with terrorism or money laundering laws, including Executive Order
No. 13224 on Terrorist Financing, effective September 24, 2001 (the “Executive
Order”) and Public Law 107-56, known as the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (the “Patriot Act”); (ix) willful or grossly negligent violation of
applicable law, (x) failure to pay property taxes, assessments or charges which
may create liens senior to the lien of the Deed of Trust on all or any portion
of the Property or Collateral; and (xi) failure of Borrower to pay all amounts
payable under the Loan Documents in full, together with reasonable attorney’s
fees, if (A) Borrower transfers or encumbers the Property or Collateral or any
portion thereof in contravention of the Loan Documents, (B) Borrower files a
voluntary petition under Chapter 11 of the Bankruptcy Code, or an involuntary
bankruptcy or insolvency proceeding is commenced against Borrower and not
dismissed within ninety (90) days of filing, (C) Borrower, Guarantor or an
affiliate thereof challenges the enforceability of the Loan Documents or
(D) Borrower violates in any material respect the requirements set forth in
Section 5.3 of the Deed of Trust.

 

  9.3. No Release or Impairment. Nothing contained in Section 9.1 shall be
deemed to release, affect or impair the indebtedness evidenced by this Note or
the obligations of Borrower under, or the liens and security interests created
by the Loan Documents, or Lender’s rights to enforce its remedies under this
Note and the other Loan Documents, including, without limitation, the right to
pursue any remedy for injunctive or other equitable relief, or any suit or
action in connection with the preservation, enforcement or foreclosure of the
liens, mortgages, assignments and security interests which are now or at any
time hereafter security for the payment and performance of all obligations under
this Note or the other Loan Documents.

 

  9.4. Prevail and Control. The provisions of this Section 9 shall prevail and
control over any contrary provisions elsewhere in this Note or the other Loan
Documents.

 

10. MISCELLANEOUS.

 

  10.1. Joint and Several Liability. If this Note is executed by more than one
person or entity as Borrower, the obligations of each such person or entity
shall be joint and several. No person or entity shall be a mere accommodation
maker, but each shall be primarily and directly liable hereunder.

 

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  10.2. Waiver of Presentment. Except as otherwise provided in any other Loan
Document, Borrower hereby waives presentment, demand, notice of dishonor, notice
of default or delinquency, notice of intent to accelerate, notice of
acceleration, notice of nonpayment, notice of costs, expenses or losses and
interest thereon, and notice of interest on interest and late charges.

 

  10.3. Delay In Enforcement. No previous waiver or failure or delay by Lender
in acting with respect to the terms of this Note or the Deed of Trust shall
constitute a waiver of any breach, default or failure of condition under this
Note, the Deed of Trust or the obligations secured thereby. A waiver of any term
of this Note, the Deed of Trust or of any of the obligations secured thereby
must be made in writing signed by Lender, shall be limited to the express terms
of such waiver, and shall not constitute a waiver of any subsequent obligation
of Borrower. The acceptance at any time by Lender of any past-due amount shall
not be deemed to be a waiver of the right to require prompt payment when due of
any other amounts then or thereafter due and payable.

 

  10.4. Time of the Essence. Time is of the essence with respect to every
provision hereof.

 

  10.5. Governing Law. In all respects, including, without limiting the
generality of the foregoing, matters of construction, validity, enforceability
and performance, this Note, the Deed of Trust and the other Loan Documents and
the obligations arising hereunder and thereunder shall be governed by, and
construed in accordance with, the laws of the state of California applicable to
contracts made and performed in such state and any applicable law of the United
States of America. Borrower hereby unconditionally and irrevocably waives, to
the fullest extent permitted by law, any claim to assert that the law of any
jurisdiction other than California governs the Deed of Trust, this Note and the
other Loan Documents.

 

  10.6. Consent to Jurisdiction. Borrower irrevocably submits to the
jurisdiction of any state or federal court sitting in the state of California
over any suit, action, or proceeding, brought by Borrower against Lender,
arising out of or relating to this Note or the Loan evidenced hereby; and
(b) any state or federal court sitting in the state in which Borrower’s
principal place of business is located over any suit, action or proceeding,
brought by Lender against Borrower, arising out of or relating to this Note or
the Loan evidenced hereby. Borrower irrevocably waives, to the fullest extent
permitted by law, any objection that Borrower may now or hereafter have to the
laying of venue of any such suit, action, or proceeding brought in any such
court and any claim that any such suit, action, or proceeding brought in any
such court has been brought in an inconvenient forum.

 

  10.7. Counterparts. This Note may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed an original and all of
which taken together shall be deemed to be one and the same Note.

 

  10.8. Heirs, Successors and Assigns. All of the terms, covenants, conditions
and indemnities contained in this Note and the other Loan Documents shall be
binding upon the heirs, successors and assigns of Borrower and shall inure to
the benefit of the successors and assigns of Lender. The foregoing sentence
shall not be construed to permit Borrower to assign the Loan except as otherwise
permitted in this Note or the other Loan Documents.

 

  10.9.

Severability. If any term of this Note, or the application thereof to any person
or circumstances, shall, to any extent, be invalid or unenforceable, the
remainder of this Note, or the application of such term to persons or
circumstances other

 

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than those as to which it is invalid or unenforceable, shall not be affected
thereby, and each term of this Note shall be valid and enforceable to the
fullest extent permitted by law.

 

11. NOTICES. All notices, demands, or other communications under this Note and
the other Loan Documents shall be in writing and shall be delivered to the
appropriate party at the address set forth below (subject to change as set forth
below). Except when otherwise required by law, any notice which a party is
required or may desire to give the other shall be in writing and may be sent by
personal delivery or by mail (either [i] by United States registered or
certified mail, return receipt requested, postage prepaid, or [ii] by Federal
Express or similar generally recognized overnight carrier regularly providing
proof of delivery), or by facsimile transmittal (in which case, such notice if
immediately followed by Federal Express or similar generally recognized
overnight carrier regularly providing proof of delivery shall be deemed given
upon receipt of a transmittal confirmation statement). Any notice so given by
mail shall be deemed to have been given as of the date of delivery established
by U.S. Post Office return receipt or the overnight carrier’s proof of delivery,
as the case may be. Any such notice not so given shall be deemed given upon
receipt of the same by the party to whom the same is to be given; provided,
however, that non-receipt of any communication as the result of any change of
address of which the sending party was not notified or as the result of a
refusal to accept delivery shall be deemed receipt of such communication. Any
party shall have the right to change its address for notice hereunder to any
other location within the continental United States by giving thirty (30) days
written notice to the other parties in the manner set forth above.

Addresses for Notices:

 

If to Lender:   

MIREF Governor Finance,

LLC 425 Market Street, Suite 1600

San Francisco, CA 94105

   Attention:    Thomas P. O’Hanlon    Telephone:    415-616-9354    Facsimile:
   415-616-9399    Email:    tohanlon@mcmorgan.com With a copy to:   

McMorgan Institutional Real Estate Fund I, LLC

425 Market Street, Suite 1600

San Francisco, CA 94105

   Attention:    Steve Ghiselli    Telephone:    415-616-9143    Facsimile:   
415-616-9399    Email:    sghiselli@mcmorgan.com And to:   

Goodwin|Procter LLP

601 South Figueroa Street, 41st

Floor Los Angeles, CA 90017

   Attention:    Dean Pappas    Telephone:    213-426-2525    Facsimile:   
213-623-1673    Email:    dpappas@goodwinprocter.com

 

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If to Borrower:   

FPA Governor Park Associates, LLC

c/o Fowler Property Acquisitions

100 Bush Street, Suite 510

San Francisco, CA 94104

   Attention:    Hannah Moriarty    Telephone:    415-249-6199    Facsimile:   
415-925-3440    Email:    hmoriarty@fpacquisitions.com With a copy to:   

c/o Fowler Property Acquisitions

100 Bush Street, Suite 510

San Francisco, CA 94104

   Attention:    Steve Grant    Telephone:    415-249-6192    Facsimile:   
415-925-3440    Email:    sgrant@fpacquisitions.com And to:   

Nancy Mauriello, Esq.

4665 MacArthur Court, Suite 210

Newport Beach, CA 92660

   Telephone:    949-399-2525    Facsimile:    949-399-2528    Email:   
nancy@nmapc.com

 

12. ADDITIONAL TERMS AND CONDITIONS. The additional terms and conditions set
forth in Exhibit A attached hereto are incorporated herein by this reference.

 

13. PREPAYMENT; EXIT FEE. This Note may be prepaid in full (but not in part)
without penalty or premium, provided that Borrower shall have delivered to
Lender at least thirty (30) days’ prior written notice of its intention to so
prepay this Note and all amounts due under the Loan at the time of such
prepayment, including all accrued interest and the Exit Fee are paid to Lender
at the time of such prepayment, provided, however, Borrower may prepay this Note
in part solely in connection with a release of a Release Parcel in accordance
with Section 6.21(b) of the Deed of Trust. Any outstanding principal balance of
the Loan that is prepaid may not be re-borrowed.

 

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“BORROWER”

 

FPA GOVERNOR PARK ASSOCIATES, LLC, a Delaware limited liability company By:   GF
Governor Park, LLC,   a Delaware limited liability company Its:   Manager By:  

/s/ Michael B. Earl

Name:   Michael B. Earl Title:   Manager

 

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EXHIBIT A TO PROMISSORY NOTE

Additional Terms And Conditions

This Exhibit A is attached to and forms a part of that Promissory Note (“Note”)
executed by FPA GOVERNOR PARK ASSOCIATES, LLC, a Delaware limited liability
company (“Borrower”) in favor of MIREF GOVERNOR FINANCE, LLC, a Delaware limited
liability company (“Lender”).

 

1. DISBURSEMENT OF LOAN PROCEEDS. Borrower hereby authorizes Lender to disburse
the proceeds of the Initial Advance, after deducting any and all fees owed by
Borrower to Lender in connection with the Loan, to MIREF GOVERNOR PARK, LLC, the
Seller of the Property pursuant to the Purchase Agreement.

 

2. FINANCIAL STATEMENTS AND COVENANTS.

 

  2.1 Statements Required. During the term of the Loan and while any liabilities
of Borrower to Lender under any of the Loan Documents remain outstanding and
unless Lender otherwise consents in writing, Borrower shall provide to Lender
the following:

 

  a. Operating Statement. Not later than 30 days after and as of the end of each
calendar quarter, a statement of Net Operating Income certified by Borrower and
Limited Guarantor as true and correct, showing all revenues and expenses during
such quarter and year-to-date, relating to the Property, including, without
limitation, all information requested under any of the Loan Documents;

 

  b. Rent Roll. Not later than 30 days after and as of the end of each calendar
quarter and not later than 90 days after and as of the end of Borrower’s fiscal
year, a current rent roll certified by Borrower as true and correct, showing the
following lease information with regard to each tenant of the Property: the name
of the tenant, monthly or other periodic rental amount, dates of commencement
and expiration of the lease, and payment status;

 

  c. Financial Statements of Borrower. Not later than 90 days after and as of
the end of Borrower’s fiscal year, annual financial statements of Borrower
certified by Borrower and Limited Guarantor as true and correct;

 

  d. Financial Statements of Guarantor. Not later than 90 days after and as of
the end of Limited Guarantor’s fiscal year, annual financial statements of
Limited Guarantor certified by Borrower and Limited Guarantor as true and
correct;

 

  e. Minimum Net Worth Requirement. Not later than 90 days after and as of the
end of each fiscal year, a compliance certificate certified by Limited Guarantor
with respect to its compliance with the Minimum Net Worth Requirement (as
defined in the Limited Guaranty).

 

  f. Default. Upon the occurrence of a Default hereunder or under any of the
other Loan Documents, Borrower and Limited Guarantor shall promptly provide
Lender with such additional financial reports and such additional financial
information as Lender may require.

 

 

EXHIBIT A-1

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  g. Other Information. From time to time, upon Lender’s delivery to Borrower of
at least 15 days’ prior written notice, such other financial statements and
information with regard to Borrower, principals of Borrower, guarantors or the
Property as Lender may reasonably request in writing, including aged delinquency
reports, notices of lease terminations and tenant bankruptcy event.

 

  2.2 Form; Warranty. Borrower agrees that all financial statements to be
delivered to Lender pursuant to Section 2.1 shall: (a) be certified by Borrower
and Limited Guarantor as true and correct; (b) be prepared on a modified cash
basis, consistently applied; (c) shall include a footnote detailing the
modifications from a straight cash basis; and (d) shall be accompanied by annual
tax returns as they relate to the Property.

 

3. OPTION TO EXTEND. Borrower shall have the option to extend the term of the
Loan from the Original Maturity Date to the First Extended Maturity Date, and
from the First Extended Maturity Date to the Second Extended Maturity Date, upon
satisfaction of each of the following conditions precedent, which must be
satisfied both as of the date of Borrower’s delivery of notice of request to
exercise the Option to Extend and on the first day of the First Extension Term
and the Second Extension Term, as the case may be:

 

  3.1 Borrower shall provide Lender with written notice of Borrower’s request to
exercise the Option to Extend not less than sixty (60) days prior to the
Original Maturity Date or First Extended Maturity Date, as applicable;

 

  3.2 Borrower shall, on or prior to the first day of the First Extension Term
or the Second Extension Term, as the case may be, deliver to Lender (in
immediately available funds) an extension fee in an amount equal to 1.50% of the
then outstanding principal balance of this Note (which fee shall be fully earned
by Lender as of the first day of the applicable Extension Term and shall be
non-refundable);

 

  3.3 No Default shall have occurred and be continuing, and no event or
condition which, with the giving of notice or the passage of time or both, would
constitute a Default shall have occurred and be continuing, and Borrower shall
so certify in writing;

 

  3.4 Borrower shall execute an extension and modification agreement (and any
other documents required by Lender) reasonably acceptable to Lender in
connection with the extension and modification of the Loan (which documents may
be recorded at Borrower’s expense),

 

  3.5 Borrower shall deliver to Lender, at Borrower’s sole cost and expense,
(i) a title date-down of the existing title policy acceptable to Lender showing
no exceptions and reflecting no subordinate liens or other encumbrances except
those set forth in Lender’s existing title policy, approved by Lender or
expressly permitted by the Loan Documents without Lender consent and a
(ii) mortgage modification title endorsement to Lender’s title policy insuring
the validity and priority of the Deed of Trust as modified by the extension and
modification agreement;

 

 

EXHIBIT A-2

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  3.6 No material adverse change in the financial condition of Borrower and
Limited Guarantor shall have occurred;

 

  3.7 The Debt Service Coverage Ratio as determined by Lender shall be equal to
or greater than 1.20;

 

  3.8 The Loan-to-Value Ratio as determined by Lender is no greater than seventy
percent (70%), with the Loan-to-Value Ratio meaning, as of the first day of the
applicable Extension Period, the ratio in which (a) the numerator is the sum of
the aggregate amount of the principal balance under this Note and all
undisbursed portions of the Loan proceeds, if any, and (b) the denominator is
the “as-is” fair market value of the Property as determined by Lender (which
determination may, if required by Lender, be based on an appraisal satisfactory
to Lender, the cost of which shall be paid by Borrower);

 

  3.9 The Limited Guarantor reaffirms all of its obligations under the Hazardous
Materials Indemnity Agreement and the Limited Guaranty pursuant to a writing
acceptable to Lender;

 

  3.10 In the case of the option to extend the term to the Second Extended
Maturity Date, Borrower shall have exercised the Option to Extend the term of
the Loan to the First Extended Maturity Date in accordance with the terms
hereof;

 

  3.11 All out of pocket costs and expenses incurred by Lender (including legal
fees) in connection with the Option to Extend are paid by Borrower (which shall
be paid by Borrower regardless of whether the extension transaction closes);

 

  3.12 All representations and warranties set forth in the Deed of Trust shall
be true and correct in all material respects on and as of the first day of the
applicable Extension Term;

 

  3.13 Such other conditions as Lender may require (in its reasonable
discretion) are satisfied.

Borrower may reduce the outstanding principal balance of the Loan to the extent
necessary to satisfy the conditions set forth in Sections 3.7 and 3.8 above
prior to the first day of the First Extension Term and the Second Extension
Term, as the case may be.

 

4. Intentionally Deleted.

 

5. ADDITIONAL ADVANCES. Provided no Default exists, in addition to the Initial
Advance to be funded by Lender on the Initial Advance Disbursement Date, and
amounts to be funded in respect of interest payments as set forth in
Section 4.2(b) of the Note, Lender (or its servicer) shall advance to Borrower,
at Borrower’s request, not more frequently than quarterly, additional Loan
proceeds to be applied to capital improvements, tenant improvements and leasing
commission costs incurred in accordance with the Cap-Ex, Leasing Costs and
Interest Reserve Budget and the Business Plan (each an “Additional Advance”).

 

  5.1

Disbursements of Additional Advances. Borrower shall submit an original or
facsimile written request for disbursement of such Additional Advance, no more
frequently than quarterly, no later than 11:00 a.m. Pacific Standard Time or
Pacific Daylight Time, as applicable, not less than ten (10) Business Days prior
to the proposed funding date of such disbursement. Each such request for
disbursement shall specify (i) Borrower’s desired funding date (which shall be a

 

 

EXHIBIT A-3

--------------------------------------------------------------------------------

 

Business Day) in respect of the disbursement of Loan proceeds, (ii) the amount
of the proposed disbursement, (iii) a reasonably detailed description of the
proposed use of such disbursement of Loan proceeds, and (iv) a certification
that each of the conditions to Lender’s obligation to fund the proceeds of the
Additional Advance as set forth herein have been satisfied. Each such request
for disbursement shall be accompanied by such additional documents and
information relating to the proposed disbursement as Lender shall require in
good faith. Subject to Lender’s approval of the request for disbursement and in
accordance with the terms and conditions contained in this Note, Lender shall
use good faith efforts to make available to Borrower the proceeds of each
disbursement requested by Borrower on the funding date specified in the
Borrower’s request for disbursement (or such other date as Lender shall deem
appropriate) and shall disburse such funds into such account of Borrower as
Borrower shall specify and Lender shall reasonably approve. All amounts
disbursed pursuant to any disbursement request shall be applied by Borrower to
the payment of capital expenditure costs and/or tenant improvement costs and
leasing commissions in the amounts and to the payees reflected in the applicable
disbursement request.

 

  5.2 Conditions to Funding of Additional Advances. Without limiting the
foregoing, Lender shall in no event be required to disburse to Borrower any
funds from the Cap-Ex, Leasing Costs and Interest Reserve pursuant to any
disbursement request:

 

  a. that will cause the aggregate principal balance of the Loan to exceed the
Maximum Loan Amount;

 

  b. to the extent the amounts contained in such disbursement request represent
greater than ninety percent (90%) of any periodic payments due any contractor or
supplier, provided that Borrower may thereafter submit a disbursement request
with respect to the remaining ten percent (10%) “retainage” upon the completion
of the contract in question, subject to all of the conditions contained in this
Section 5.2;

 

  c. to the extent such disbursement request requests the disbursement of
amounts that would cause any line item of the Cap-Ex, Leasing Costs and Interest
Reserve Budget to be exceeded (notwithstanding that the then-current Business
Plan may set forth amounts in excess of such line-item amounts set forth on the
Cap-Ex, Leasing Costs and Interest Reserve Budget), unless Lender provides
Borrower with written approval of such deviation, which may be withheld in
Lender’s sole and absolute discretion;

 

  d. to the extent such disbursement request requests the disbursement of
amounts in respect of any leasing costs or tenant improvements incurred in
connection with leases not approved by Lender or otherwise entered into in
accordance with the terms of the Loan Documents;

 

  e. with respect of amounts incurred that are not in accordance with the
then-current annual Business Plan approved in writing by Lender pursuant to the
terms of Section 6 of this Exhibit A to this Note;

 

 

EXHIBIT A-4

--------------------------------------------------------------------------------

  f. if a Default shall have occurred and is continuing and if an event or
condition which, with the giving of notice or the passage of time or both, would
constitute a Default shall have occurred and be continuing;

 

  g. unless, prior to each Additional Advance, the title company that has issued
the title insurance policy to Lender in connection with the closing of the Loan
shall have issued an endorsement (or commitment to issue an endorsement)
insuring the priority of the lien of the Deed of Trust, subject only to
exceptions previously approved by Lender, for the full amount of each such
Additional Advance and all previous Advances made by Lender pursuant to this
Note;

 

  h. unless Lender shall have received Borrower’s certification that all capital
improvements and/or tenant improvements have been completed lien-free and in a
workmanlike manner and applicable law, and any duly executed unconditional lien
waivers (or duly executed conditional lien waivers subject only to payment of
the amount to be paid form the proceeds of such Additional Advance) that Lender
shall require;

 

  i. unless Lender shall have received a cost breakdown of the work and items to
be paid with such Additional Advance in reasonable detail, including, without
limitation, copies of invoices, bills and receipts with respect thereto or other
documents evidencing the total amount expended, incurred or due for any
requested items;

 

  j. unless, if applicable and if required by Lender, Borrower shall have
furnished to Lender evidence that all required inspections by governmental
authorities have been satisfactorily completed; and

 

  k. unless, if applicable and if required by Lender, Borrower shall have
furnished an inspection report, signed by an inspector selected by Lender, whose
fees and expenses shall be paid by Borrower and deducted from the amount of the
requested Additional Advance.

 

6. BUSINESS PLAN. Not later than sixty (60) days prior to the end of each
calendar year, Borrower shall submit to Lender for approval Borrower’s business
plan for the following year, which shall include (i) leasing guidelines such as
minimum rental rates, rent concessions, tenant credit quality requirements, and
minimum and maximum permitted lease terms and (ii) reasonably anticipated
capital improvement expenditures and tenant improvement expenditures and leasing
commissions, and the items to which such expenditures are to be applied, and
such other criteria as Lender shall require. The Business Plan shall be promptly
modified and updated by Borrower as reasonably necessary to reflect changed
circumstances and additional information, and at Lender’s reasonable request. If
Lender determines, in its reasonable discretion, that Borrower has not complied
with such obligation to revise and update the Business Plan, or if Lender has
not approved the business plan submitted by Borrower for the then-current
calendar year, then Lender shall have the right, in its reasonable, good faith
discretion, to adjust any amounts or criteria reflected in the Loan Documents
that are based on the Business Plan to the extent reasonably necessary to cause
such amounts or criteria to reflect a business plan that has been so revised and
updated (as reasonably determined by Lender). Any then-current business plan
that has been approved in writing by Lender shall be referred to in the Loan
Documents as the “Business Plan.”

 

 

EXHIBIT A-5

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EXHIBIT B TO PROMISSORY NOTE

Loan Documents and Other Related Documents

This Exhibit B is attached to and forms a part of that Promissory Note (“Note”)
executed by FPA GOVERNOR PARK ASSOCIATES, LLC, a Delaware limited liability
company (“Borrower”) in favor of MIREF GOVERNOR FINANCE, LLC, a Delaware limited
liability company (“Lender”).

 

1. LOAN DOCUMENTS. The documents numbered 1.1 through 1.24 below of even date
herewith (unless otherwise specified) and any amendments, modifications and
supplements thereto which have received the prior written approval of Lender and
any documents executed in the future that are approved by Lender and that recite
that they are “Loan Documents” for purposes of this Note are collectively
referred to as the “Loan Documents”.

 

  1.1 This Note;

 

  1.2 Deed of Trust;

 

  1.3 Assignment of Management Contracts;

 

  1.4 State of California Uniform Commercial Code - Financing Statements - Form
UCC-1

 

2. Other Document Related to the Loan:

 

  2.1 Limited Guaranty.

 

  2.2 Hazardous Materials Indemnity Agreement

 

 

EXHIBIT B-1

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EXHIBIT C TO PROMISSORY NOTE

Cap-Ex, Leasing Costs and Interest Reserve Budget

 

Carry/Interest Reserve:

   $ 811,000

Capital Expenditure Budget:

   $ 880,000

Tenant Improvement/Leasing Costs Budget:

   $ 1,419,000

Total Budget:

   $ 3,110,000

 

 

EXHIBIT C-1