Document:

Exhibit 10.2

Exhibit 10.2

PROMISSORY NOTE
$13,664,456.00                                                May 17, 2011
		
	I.
	COVENANT TO PAY.

FOR VALUE RECEIVED, TRACT 107, L.L.C., a Texas limited liability company (herein called “Borrower”, whether one or more), promises to pay to the order of COMERICA BANK [herein, together with all subsequent holders of this Promissory Note (“Note”), called “Lender”], on or before the Maturity Date, as hereinafter provided, the principal sum of THIRTEEN MILLION SIX HUNDRED SIXTY-FOUR THOUSAND FOUR HUNDRED FIFTY-SIX AND NO/100 DOLLARS ($13,664,456.00), or so much thereof as may actually be outstanding hereunder, together with interest on the unpaid principal balance from time to time outstanding at the rate or rates herein specified and otherwise in strict accordance with the terms and provisions hereof.
		
	II.
	DEFINITIONS.

As used in this Note, the following terms have the respective meanings indicated below:
“Applicable Margin” means one percent (1.0%) for the Base Rate Balance and three percent (3.0%) for each LIBOR Balance.
“Applicable Rate” means (a) with respect to the Base Rate Balance outstanding from time to time, a fluctuating per annum rate of interest equal to the Base Rate plus the Applicable Margin and (b) with respect to each LIBOR Balance, a per annum rate of interest equal to the LIBOR Rate for the Interest Period then in effect with respect to such LIBOR Balance plus the Applicable Margin; provided, however, in no event shall the Applicable Rate ever be less than the Floor Rate nor more than the Maximum Lawful Rate.
“Base Rate” means that annual rate of interest which is equal to the greater of the annual rate of interest designated by Lender as its base or prime rate which is charged by Lender from time to time or a variable per annum rate of interest determined from day to day which equals the sum of 1% plus the average per annum rate of interest on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers (“Overnight Transactions”) transacted on the immediately preceding Business Day, as published by the Federal Reserve Bank of New York, or, if such interest rate is not so published for any Business Day, the average of the per annum interest rate quotations for Overnight Transactions received by Lender (or, at its option, the Reference Bank) for such Business Day from three Federal funds brokers of recognized standing selected by Lender (or, at its option, the Reference Bank).  Lender's Base Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged by Lender to any of its customers.  Lender may make commercial loans at rates of interest at, above or below its Base Rate.
“Base Rate Balance” means each portion of the unpaid principal balance of this Note designated by Borrower to bear interest at a rate determined with respect to the Base Rate.
“Business Day” means any day other than a Saturday, Sunday or holiday, on which Lender and the Reference Bank are open to carry on all or substantially all of their normal commercial lending business.
“Charges” means all fees and charges and/or any other things of value, if any, contracted for, charged, received, taken or reserved by Lender in connection with the transactions relating to this Note and 

the Indebtedness, which are treated as interest under applicable law.
“Debtor Relief Laws” means Title 11 of the United States Code, as now or hereafter in effect, or any other applicable law, domestic or foreign, as now or hereafter in effect, relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement or composition, extension or adjustment of debts, or similar laws affecting the rights of creditors.
“Deed of Trust” means the Deed of Trust, Security Agreement and Fixture Filing of even date herewith from Borrower to David J. Neumeyer, Trustee, for the benefit of Lender.
“Default Rate” means at any time of determination thereof with respect to the applicable portion of the Indebtedness, a per annum rate of interest equal to the sum of the Applicable Rate then in effect plus six percent (6%), but not more than the Maximum Lawful Rate.
“Event of Default” has the meaning given to the term in the Loan Agreement, which definition is hereby incorporated into this Note for all purposes by this reference.
“Floor Rate” means a rate equal to five percent (5%) per annum.
“Indebtedness” means (i) the principal of, interest on, or other sums evidenced by this Note or the Loan Documents; (ii) any other amounts, payments, or premiums payable under the Loan Documents; (iii) such additional or future sums (whether or not obligatory), with interest thereon, as may hereafter be borrowed or advanced from Lender, its successors or assigns, by the then record owner of the Mortgaged Property, when evidenced by a promissory note which, by its terms, is secured thereby (it being contemplated by Borrower and Lender that such future indebtedness may be incurred); and (iv) any and all other indebtedness, obligations, and liabilities of any kind or character of Borrower to Lender, now or hereafter existing, absolute or contingent, due or not due, arising by operation of law or otherwise, or direct or indirect, primary or secondary, joint, several, joint and several, fixed or contingent, secured or unsecured by additional or different security or securities, voluntarily or involuntarily incurred, known or unknown, or originally payable to Lender or to a third party and subsequently acquired by Lender, including, without limitation, (A) late charges, loan fees or charges, and overdraft indebtedness, (B) costs incurred by Lender in establishing, determining, continuing or defending the validity or priority of any Lien or in pursuing any of its rights or remedies under any Loan Document or in connection with any proceeding involving Lender as a result of any financial accommodation to Borrower, (C) debts, obligations and liabilities for which Borrower would otherwise be liable to Lender were it not for the invalidity or unenforceability of them by reason of any Debtor Relief Law or for any other reason, and (D) reasonable costs and expenses of attorneys and paralegals, whether any suit or other action is instituted, and court costs if suit or action is instituted, (whether any such fees, costs or expenses are incurred at the trial court level or on appeal, in any Debtor Relief Law proceeding, in administrative proceedings, in probate proceedings or otherwise; (v) any of the foregoing indebtedness, obligations, and liabilities to Lender of Borrower as a member of any partnership, joint venture, trust or other type of business association, or other group, and whether incurred by Borrower as principal, surety, endorser, guarantor, accommodation party or otherwise; and (vi) any and all renewals, modifications, amendments, restatements, rearrangements, consolidations, substitutions, replacements, enlargements, and extensions of any of the foregoing, it being contemplated by Borrower and Lender that Borrower may hereafter become indebted to Lender in further sum or sums.  Notwithstanding the foregoing provisions of this definition, the Loan Documents shall not secure any such other Indebtedness with respect to which Lender is by applicable law prohibited from obtaining a lien on real estate.  Further, the term “Indebtedness” shall not operate or be effective to constitute or require any assumption or payment by any Person, in any way, of any 

debt or obligation of any other Person to the extent that the same would violate or exceed the limit provided in any applicable usury or other law or include any consumer loan to the extent treatment of such loan or extension of credit as part of the Indebtedness would violate any Governmental Requirement.
“Interest Notice” means a written notice from Borrower in form and content satisfactory to Lender specifying the Interest Option(s) and the respective amounts of the Base Rate Balance and each LIBOR Balance designated by Borrower for such advance.
“Interest Option” means Borrower's right, exercisable from time to time, to designate a portion of the unpaid principal balance of this Note as a “Base Rate Balance” and to designate one or more portions of the unpaid principal balance of this Note as a “LIBOR Balance.”
“Interest Period” means, with respect to the applicable LIBOR Balance, a period commencing on the date (which must be a LIBOR Business Day) upon which, pursuant to an Interest Notice, the principal amount of such LIBOR Balance begins to accrue interest at the applicable LIBOR Rate plus the Applicable Margin (or, in the case of a rollover to a successive Interest Period, the last day of the immediately preceding Interest Period) and ending either 30, 60 or 90 days after the commencement date (as designated by Borrower in the Interest Notice); provided, that:  (i) any Interest Period which would otherwise end on a day which is not a LIBOR Business Day shall be extended to the next succeeding LIBOR Business Day (unless such LIBOR Business Day falls in another calendar month, in which case, such Interest Period shall end on the next preceding LIBOR Business Day); and (ii) any Interest Period which begins on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last LIBOR Business Day of such last calendar month; and (iii) no Interest Period shall extend beyond the Maturity Date.
“LIBOR Balance” means each portion of the unpaid principal balance of this Note designated by Borrower to bear interest at a rate determined with respect to the LIBOR Rate.
“LIBOR Business Day” means a Business Day on which dealings in U.S. dollars are carried out in the interbank eurodollar market selected by Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office).
“LIBOR Rate” means, with respect to the applicable Interest Period and applicable LIBOR Balance (as defined herein), the quotient of the following (rounded upwards, if necessary, to the nearest 1/16 of 1%): (a) the interest rate determined by the Lender or Reference Bank (which determination shall be conclusive) to be the per annum interest rate at which deposits in immediately available funds in U.S. dollars are offered to the Lender or Reference Bank (or, if elected by the Lender, by the Reference Bank's designated eurodollar lending office) on the first (1st) day of such Interest Period, to prime banks in the interbank eurodollar market selected by Lender or Reference Bank (or, if applicable, by the Reference Bank's designated eurodollar lending office) for delivery on the first day of such Interest Period in an amount equal to the principal amount of the corresponding LIBOR Balance for a period equal to the length of such Interest Period; divided by (b) a percentage (expressed as a decimal) equal to 1.00 minus the maximum rate during such interest period at which Lender or the Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) is required to maintain reserves on “Eurocurrency Liabilities” as defined in and pursuant to Regulation D of the Board of Governors of the Federal Reserve System or, if such regulation or designation is modified, and as long as Lender or the Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) is required to maintain reserves against a category of liabilities which includes 

eurodollar deposits or includes a category of assets which includes eurodollar loans, the rate at which such reserves are required to be maintained on such category.
“Loan Agreement” means that certain Construction Loan Agreement of even date herewith between Borrower and Lender.
“Loan Extension” shall mean the extension of the Loan in accordance with the provisions of Section 2.9 of the Loan Agreement.
“Maturity Date” means (i) at all times prior to the Loan Extension as provided for in the Loan Agreement, May 31, 2013; and (ii) if, and only if, the Loan Extension occurs as provided for in the Loan Agreement, May 31, 2014; subject, however, in all events to the right of acceleration prior to the Maturity Date as provided for in the this Note and the other Loan Documents.
“Maximum Lawful Rate” shall mean the maximum lawful rate of interest which may be contracted for, charged, taken, received or reserved by Lender in accordance with the applicable laws of the State of Texas (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law), taking into account all Charges made in connection with the loan evidenced by this Note and the Loan Documents.  To the extent that Lender is relying on Chapter 303 of the Texas Finance Code to determine the Maximum Lawful Rate payable on the Indebtedness, Lender will utilize the weekly ceiling from time to time in effect as provided in such Chapter 303, as amended.  To the extent United States federal law permits Lender to contract for, charge, take, receive or reserve a greater amount of interest than under Texas law, Lender will rely on United States federal law instead of such Chapter 303 for the purpose of determining the Maximum Lawful Rate.  Additionally, to the extent permitted by applicable law now or hereafter in effect, Lender may, at its option and from time to time, utilize any other method of establishing the Maximum Lawful Rate under such Chapter 303 or under other applicable law by giving notice, if required, to Borrower as provided by applicable law now or hereafter in effect.
“Reference Bank” means Comerica Bank, a Texas banking association, its successors and assigns.
Any term use in this Note with an initial capitalized letter and not otherwise defined in this Note has the meaning given to such term in the Loan Agreement.
		
	III.
	INTEREST RATE COMPUTATION.

3.1Interest Rate.  Except as otherwise provided herein, interest on the principal balance of this Note outstanding from time to time shall accrue at a per annum rate equal to the lesser of (a) the Applicable Rate (but in no event less than the Floor Rate) or (b) the Maximum Lawful Rate until maturity, whether by acceleration or otherwise, or until an Event of Default occurs and after that at the Default Rate (but in no event in excess of the Maximum Lawful Rate).

3.2Default Rate.  Upon the occurrence of an Event of Default hereunder or under any of the Loan Documents, at the option of the Lender, the principal balance of this Note then outstanding shall bear interest at the Default Rate for the period beginning with the date of occurrence of such Event of Default.

3.3Interest Limitation Recoupment.  Notwithstanding anything in this Note to the contrary, if at any time (i) interest at the Applicable Rate, (ii) interest at the Default Rate, if applicable, and (iii) the Charges computed over the full term of this Note, exceed the Maximum Lawful Rate, then the rate of interest payable hereunder, together with all Charges, shall be limited to the Maximum Lawful Rate; provided, however, that 

any subsequent reduction in any applicable reference rate shall not cause a reduction of the rate of interest payable hereunder below the Maximum Lawful Rate until the total amount of interest earned hereunder, together with all Charges, equals the total amount of interest which would have accrued at the Applicable Rate if such interest rate had at all times been in effect.

3.4Computation Period. Except for the computation of the Maximum Lawful Rate which shall be undertaken on the basis of a 365‐ or 366‐day year, as the case may be, interest on the indebtedness evidenced by this Note shall be computed on the basis of a 360‐day year and shall accrue on the actual number of days any principal balance hereof is outstanding.

3.5Interest Rate Changes.  Interest rate changes will be effective for interest computation purposes as and when the Maximum Lawful Rate or the Applicable Rate, as applicable, changes.

3.6LIBOR Rate Provisions.

(a)The Interest Option shall be exercisable by Borrower subject to the other limitations in this Note on Borrower's option to designate a portion of the unpaid principal balance hereof as a LIBOR Balance and only in the manner provided below:

(i)Before 12:00 noon at least three (3) Business Days prior to the date Borrower has requested Lender to make the initial advance upon this Note, Borrower shall have given Lender an Interest Notice with respect to such advance.  If the required Interest Notice shall not have been timely received by Lender or fails to designate all or any portion of the unpaid principal amount hereof of the advance as either a Base Rate Balance or a LIBOR Balance in accordance with the terms and provisions of this Note, Borrower shall be deemed conclusively to have designated such amounts to be a Base Rate Balance and to have given Lender notice of such designation.

(ii)At least three (3) LIBOR Business Days prior to the termination of any Interest Period for a LIBOR Balance, Borrower shall give Lender an Interest Notice specifying the Interest Option which is to be applicable to such LIBOR Balance upon the expiration of such Interest Period.  If the required Interest Notice shall not have been timely received by Lender, Borrower shall be deemed conclusively to have designated such amount as a Base Rate Balance immediately upon the expiration of such Interest Period and to have given Lender notice of such designation.

(iii)Borrower shall have the right, exercisable on any Business Day subject to the terms of this Note, to convert an eligible portion of the Base Rate Balance to a LIBOR Balance by giving Lender an Interest Notice of such designation at least three (3) LIBOR Business Days prior to the effective date of such exercise.  Additionally, upon termination of any Interest Period, Borrower shall have the right, on any Business Day, to convert all or a portion of such principal amount from the LIBOR Balance to a Base Rate Balance by giving Lender an Interest Notice of such selection at least three (3) LIBOR Business Days prior to effective date of such exercise.

(iv)There may be no more than three (3) LIBOR Balances in effect at any time.

(v)Each LIBOR Balance must be, as of the first day of the applicable Interest Period, at least $250,000.00.

(vi)No Event of Default, or condition or event which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default, shall have occurred and be continuing or exist.

(vii)Each exercise of an Interest Option to designate a LIBOR Balance to bear interest at an Applicable Rate which is based on the LIBOR Rate shall not be revocable.

(viii)Borrower shall exercise Interest Options with designated Interest Periods which permit Borrower to make the mandatory installment payments required under the terms of this Note, if any, when due, in accordance with the terms hereof, without having to repay the then outstanding LIBOR Balance prior to the expiration of the applicable Interest Period.

(b)Changes in the Applicable Rate applicable to a Base Rate Balance or a LIBOR Balance shall become effective without prior notice to Borrower automatically as of the opening of business on the date of each change in the Base Rate or the LIBOR Rate, as the case may be.

(c)If Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) reasonably determines that deposits in U.S. dollars (in the applicable amounts) are not being offered to prime banks in the interbank eurodollar market selected by Lender or Reference Bank (or if applicable, the Reference Bank's designated eurodollar lending office) for the applicable Interest Period, or that the rate at which such dollar deposits are being offered will not adequately and fairly reflect the cost to Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) of making or maintaining a LIBOR Balance for the applicable Interest Period, Lender shall forthwith give notice thereof to Borrower, whereupon, until Lender notifies Borrower that such circumstances no longer exist, the right of Borrower to select an Interest Option based upon a LIBOR Rate shall be suspended, and Borrower may only select Interest Options based on the Base Rate.

(d)If the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impractical for Lender or the Reference Bank (or, if applicable, its designated eurodollar lending office) to make or maintain a LIBOR Balance, Lender shall so notify Borrower and any then‐existing LIBOR Balance shall automatically convert to a Base Rate Balance either (i) on the last day of the then‐current Interest Period applicable to such LIBOR Balance, if Lender and Reference Bank (and, if applicable, its designated eurodollar lending office) may lawfully continue to maintain and fund such LIBOR Balance to such day, or (ii) immediately, if Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) may not lawfully continue to maintain such LIBOR Balance to such day.  Further, until Lender notices Borrower that such conditions or circumstances no longer exist, the right of Borrower to select an Interest Option based on a LIBOR Rate shall be suspended, and Borrower may only select Interest Options based on the Base Rate.

(e)If either (i) the adoption of any applicable law, rule or regulation, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance 

by Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) with any request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall subject Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) to any tax (including without limitation any United States interest equalization or similar tax, however named), duty or other charge with respect to any LIBOR Balance, this Note or Lender's or Reference Bank's (or, if applicable, its designated eurodollar lending office's) obligation to compute interest on the principal balance of this Note at a rate based upon a LIBOR Rate, or shall change the basis of taxation of payments to Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) of the principal of or interest on any LIBOR Balance or any other amounts due under this Note in respect of any LIBOR Balance or Lender's or the Reference Bank's (or, if applicable, its designated eurodollar lending office's) obligation to compute the interest on the balance of this Note at a rate based upon a LIBOR Rate, or (ii) any governmental authority, central bank or other comparable authority shall at any time impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, Lender or Reference Bank (or, if applicable, its designated eurodollar lending office), or shall impose on Lender or the Reference Bank (or, if applicable, its designated eurodollar lending office) or any relevant interbank eurodollar market or exchange any other condition affecting any LIBOR Balance, this Note or Lender's or Reference Bank's (or, if applicable, its designated eurodollar lending office's) obligation to compute the interest on the balance of this Note at a rate based upon a LIBOR Rate; and the result of any of the foregoing is to increase the cost to Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) of maintaining any LIBOR Balance, or to reduce the amount of any sum received or receivable by Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) under or with respect to this Note by an amount deemed by Lender to be material, then upon demand by Lender, Borrower shall pay to Lender such additional amount or amounts as will reimburse Lender and the Reference Bank (and, if applicable, its designated eurodollar lending office) for such increased cost or reduction.  The Lender will promptly notify Borrower of any event of which it has knowledge, occurring after the date hereof, which will entitle Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) to compensation pursuant to this paragraph.  A certificate of Lender claiming compensation under this paragraph and setting forth the additional amount or amounts to be paid hereunder shall be conclusive in the absence of manifest error.

(f)If any applicable law, treaty, rule, or regulation (whether domestic or foreign) now or hereafter in effect and whether presently applicable to Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) or any change therein or any interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof or compliance by Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) therewith or with any guidance, request or directive of any such governmental authority, central bank or comparable agency (whether or not having the force of law), including any risk‐based capital guidelines, affects or would affect the amount of capital required or expected to be maintained by Lender or Reference Bank (or any corporation controlling Lender or Reference Bank), and Lender determines that the amount of such capital is increased by or based upon the existence of any obligations of Lender hereunder or the maintaining of any LIBOR Balance hereunder, and such increase has the effect of reducing the rate of return on Lender's or Reference Bank's (or its controlling corporation's) capital as a consequence of such obligations or the maintaining of LIBOR Balances hereunder to a level below that which Lender or Reference Bank (or such controlling corporation) could have achieved but for such circumstances (taking into consideration its policies with respect to capital adequacy), then Borrower 

shall pay to Lender, within fifteen (15) days of receipt by Borrower of written notice, together with such documentation as is reasonably available to Lender, from Lender demanding such compensation, such additional amounts as are sufficient to compensate Lender or Reference Bank (or its controlling corporation) for any increase in the amount of capital and reduced rate of return which Lender determines to be allocable to the existence of any obligations of Lender hereunder or maintenance of any LIBOR Balances hereunder.  A certificate of Lender as to the amount of such compensation, prepared in good faith and in reasonable detail by Lender, together with such documentation as is reasonably available to Lender, which is submitted by Lender to Borrower shall be conclusive and binding for all purposes absent manifest error.

(g)Notwithstanding any other term or provisions of this Note to the contrary, Borrower may not repay any LIBOR Balance or convert all or any portion of a LIBOR Balance to a Base Rate Balance prior to the expiration of the applicable Interest Period, unless (i) such repayment or conversion is specifically required by the terms of this Note, (ii) Lender demands that such repayment or conversion be made, (iii) Lender, in its sole discretion, consents to such repayment or conversion, or (iv) Borrower compensates Lender for any loss or cost incurred by Lender as a result of such prepayment or conversion prior to the expiration of the Interest Period or Interest Option.  If for any reason, whether or not consent shall have been given or demand shall have been made by Lender, any LIBOR Balance is repaid or converted prior to the expiration of the corresponding Interest Period or any Interest Option which designates a LIBOR Balance is revoked for any reason whatsoever prior to the commencement of the applicable Interest Period or Borrower fails for any reason to borrow the full amount of any LIBOR Balance for which Borrower has exercised an Interest Option, or if for any other reason whatsoever, the basis for determining the Applicable Rate shall be changed from a LIBOR Rate to the Base Rate prior to the expiration of the applicable Interest Period, or Borrower shall fail to make any payment of principal or interest upon this Note at any time that the Applicable Rate is based on a LIBOR Rate, then Borrower shall pay to Lender on demand any amounts required to compensate Lender and Reference Bank (and, if applicable, its designated eurodollar lending office) for any losses, costs or expenses which any of them may incur as a result thereof, including, without limitation, any loss, cost or expense incurred in obtaining, liquidating, employing or redeploying deposits from third parties.  Amounts payable by Borrower to Lender pursuant to this paragraph may include, without limitation, amounts equal to the excess, if any of (a) the amounts of interest which would have accrued on any amounts so prepaid, refunded, converted or not so borrowed, from the respective dates of prepayment, refund, conversion or failure to borrow through the last day of the relevant Interest Periods at the applicable rates of interest for the applicable LIBOR Balances, as provided under this Note, over (b) the amounts of interest determined by Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) which would have accrued to Lender or Reference Bank (or, if applicable, its designated eurodollar lending office) on such respective amounts by placing such amounts on deposit for comparable periods with leading banks in the interbank eurodollar market selected by Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office).  The calculation of any such amounts under this paragraph shall be made as if Lender or Reference Bank (or, if applicable, the Reference Bank's designated eurodollar lending office) actually funded or committed to fund the relevant LIBOR Balances hereunder through the purchase of underlying deposits in amounts equal to the respective amounts of the applicable LIBOR Balances and having terms comparable to the applicable Interest Periods; provided, however, that Lender or Reference Bank may fund LIBOR Balances hereunder in any manner they may elect in their sole discretion, and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this paragraph.  Upon written request by Borrower, Lender shall deliver to Borrower a certificate setting forth the basis for determining such losses, costs and expenses which certificate shall be conclusive in the absence of manifest error.

(h)For any LIBOR Balance, if Lender or the Reference Bank shall designate a eurodollar lending office which maintains books separate from those of Lender or the Reference Bank, Lender and the Reference Bank shall have the option of maintaining and carrying such LIBOR Balance on the Books of such eurodollar lending office.

IV.PAYMENTS.

4.1Payment Schedule.
This Note shall be due and payable as follows:
(a)Commencing on June 5, 2011, and continuing thereafter on the fifth (5th) day of each successive month until the Maturity Date or upon earlier maturity hereof, whether by acceleration or otherwise, Borrower shall pay Lender interest payments equal to all then accrued but unpaid interest hereon; and

(b)In the event the Borrower extends the Maturity Date pursuant to and in accordance with the Loan Extension, then commencing on June 5, 2013 and continuing thereafter on the fifth (5th) day of each successive month until the Maturity Date or upon earlier maturity hereof, whether by acceleration or otherwise, Borrower shall also pay Lender successive monthly principal installments in the amount of $45,000.00 each month (being an amount equal to a hypothetical principal payment calculated on a level payment basis with an assumed mortgage amortization term of fifteen (15) years at an interest rate of 7% per annum); and

(c)The entire remaining unpaid principal balance hereof and any and all accrued but unpaid interest thereon shall be due and payable in full on the Maturity Date or upon earlier maturity hereof, whether by acceleration or otherwise.

4.2Application.  All payments on this Note shall, at the sole option of Lender, be applied at any time and from time to time and in any order, to the following:  (i) the payment of accrued but unpaid interest hereon, (ii) the payment or reimbursement of any expenses, costs or obligations (other than the principal hereof and interest hereon) for which Borrower shall be obligated or Lender entitled pursuant to the provisions hereof or of the other Loan Documents, and (iii) the payment of all or any portion of the principal balance then outstanding hereunder, in either the direct or inverse order of maturity.

4.3Place.  All payments hereunder shall be made to Lender at its offices located in Dallas County, Texas, at the address of Lender as specified herein or as Lender may from time to time designate in writing to Borrower.

4.4Business Days.  If any payment of principal or interest on this Note shall become due and payable on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day of Lender.  Any such extension of time for payment shall be included in computing interest which has accrued and shall be payable in connection with such payment.

4.5Legal Tender.  All amounts payable hereunder are payable in immediate lawful money or legal tender of the United States of America without setoff or counterclaim.

4.6Prepayment.  Borrower shall have the right to prepay without premium or penalty at any time the entire unpaid principal balance of this Note and from time to time any portion thereof, provided that (i) Borrower shall give Lender at least five (5) days prior written notice thereof, (ii) Borrower must also pay 

the amount of then accrued but unpaid interest on the amount of principal being so prepaid and (iii) Borrower shall pay any amounts owing to Lender under this Note on account of the payment of any LIBOR Balance prior to the expiration of the Interest Period applicable to such LIBOR Balance.  Any such partial prepayments of principal shall be applied in inverse order of maturity to the last maturing installment(s) of principal.

4.7Late Charge.  In addition to the payments otherwise specified herein, subject to the provisions of Section 6.4 hereof, if Borrower fails, refuses or neglects to pay, in full, any installment or portion of the indebtedness evidenced hereby, within ten (10) days of when same shall be due and payable, then Borrower shall be obligated to pay to Lender a late charge equal to five percent (5%) of the amount of such delinquent payment to compensate Lender for Borrower's default and the additional costs and administrative efforts required by reason of such default.

4.8Advances.  The principal amount payable under this Note at any time shall be the sum of all advances made by Lender to or at the request of Borrower, as provided in the Loan Agreement, less principal payments, if any, actually received by Lender.  The books and records of Lender shall be prima facie evidence of the principal and interest amounts owing and unpaid at any time under this Note and shall be conclusive absent manifest error.  No interest shall accrue under this Note until the date of the first advance made by Lender; after that interest on all advances shall accrue and be computed on the principal balance outstanding from time to time under this Note until the same is paid in full.

V.DEFAULT AND REMEDIES.

5.1Remedies. Upon the occurrence of any Event of Default, Lender may, at its option, without further notice or demand, declare the unpaid principal balance of, and the accrued but unpaid interest on, this Note immediately due and payable, foreclose any or all liens and security interests securing payment hereof, set off against the Indebtedness any amounts owing by Lender to Borrower, charge interest at the Default Rate, and pursue any and all other rights, remedies and recourses available to Lender or pursue any combination of the foregoing.  All remedies hereunder, under the Loan Documents and at law or in equity shall be cumulative.

5.2Waiver.  Borrower and any endorsers or guarantors hereof severally waive presentment and demand for payment, notice of demand, notice of intent to accelerate maturity, notice of acceleration of maturity, protest and notice of protest, notice of nonpayment, notice of dishonor, bringing of suit, diligence in taking any action to collect any sums owing hereunder or in proceeding against any of the rights and Mortgaged Property securing payment hereof and all other notices.  Borrower and any endorsers or guarantors hereof agree (i) that the time for any payments hereunder may be extended from time to time at Lender's sole discretion without notice and consent, (ii) to the acceptance of further property as security for the Indebtedness, and/or (iii) the release of any existing Mortgaged Property for the payment of this Note, all without in any manner affecting its or  their liability under or with respect to this Note.  No extension of time for the payment of this Note or any installment hereof shall affect the liability of Borrower under this Note or any endorser or guarantor hereof even though the Borrower or such endorser or guarantor is not a party to such agreement.  Borrower waives all defenses or right to discharge available under Section 3.605 of the Texas Uniform Commercial Code and waives all other suretyship defenses or right to discharge.

5.3No Waiver.  Failure of Lender to exercise any of the options granted herein to Lender upon the happening of one or more of the events giving rise to such options shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time in respect to the same or any other event.  The acceptance by Lender of any payment hereunder that is less than payment in full of all amounts due and payable at the time of such payment shall not constitute a waiver of the right to exercise any of the 

options granted herein to Lender at that time or at any subsequent time or nullify any prior exercise of any such option without the express written acknowledgment of the Lender.

5.4Collection Costs.  Borrower agrees to reimburse the holder or owner of this Note upon demand for any and all costs and expenses (including without limit, court costs, legal expenses and reasonable attorneys' fees, whether inside or outside counsel is used, and whether or not suit is instituted and, if suit is instituted, whether at the trial court level, appellate level, in a bankruptcy, probate or administrative proceeding or otherwise) incurred in collecting or attempting to collect this Note or incurred in any other matter or proceeding relating to this Note.

VI.MISCELLANEOUS.

6.1Loan Documents.  This Note is issued pursuant to the Loan Agreement, is one of the Loan Documents and is secured, inter alia, by the Deed of Trust described in the Loan Agreement.

6.2Notices.  All notices or other communications required or permitted to be given pursuant hereto shall be given in the manner provided for in the Section of the Loan Agreement entitled “Notices.”

6.3GOVERNING LAW.  THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA.  THIS NOTE IS PERFORMABLE IN DALLAS COUNTY, TEXAS.  ANY ACTION OR PROCEEDING UNDER OR IN CONNECTION WITH THIS NOTE AGAINST BORROWER OR ANY OTHER PARTY EVER LIABLE FOR PAYMENT OF ANY SUMS OF MONEY PAYABLE ON THIS NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS.  BORROWER AND EACH SUCH OTHER PARTY HEREBY IRREVOCABLY (i) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS, AND (ii) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM.  WHENEVER POSSIBLE, EACH PROVISION OF THIS NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS NOTE.

6.4Maximum Interest.  It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply strictly with the applicable Texas law governing the maximum rate or amount of interest payable on the Indebtedness (or applicable United States federal law to the extent that it permits Lender to contract for, charge, take, reserve or receive a greater amount of interest than under Texas law).  If the applicable law is ever judicially interpreted so as to render usurious any amount (i) contracted for, charged, taken, reserved or received pursuant to this Note, any of the other Loan Documents or any other communication or writing by or between Borrower and Lender related to any of the Indebtedness, (ii) contracted for, charged or received by reason of Lender's exercise of the option to accelerate the maturity of this Note and/or any other portion of the Indebtedness, or (iii) Borrower will have paid or Lender will have received by reason of any voluntary prepayment by Borrower of this Note and/or any of the other Indebtedness, then it is Borrower's and Lender's express intent that all amounts charged in excess of the Maximum Lawful Rate shall be automatically canceled, ab initio, and all amounts in excess of the Maximum Lawful Rate theretofore collected by Lender shall be credited on the principal balance of this Note and/or 

any of the other Indebtedness (or, if this Note and all other Indebtedness have been or would thereby be paid in full, refunded to Borrower), and the provisions of this Note and the other Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new document, so as to comply with the applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder; provided, however, if this Note has been paid in full before the end of the stated term of this Note, then Borrower and Lender agree that Lender shall, with reasonable promptness after Lender discovers or is advised by Borrower that interest was received in an amount in excess of the Maximum Lawful Rate, either refund such excess interest to Borrower and/or credit such excess interest against any other Indebtedness then owing by Borrower to Lender.  Borrower hereby agrees that as a condition precedent to any claim seeking usury penalties against Lender, Borrower will provide written notice to Lender, advising Lender in reasonable detail of the nature and amount of the violation, and Lender shall have sixty (60) days after receipt of such notice in which to correct such usury violation, if any, by either refunding such excess interest to Borrower or crediting such excess interest against this Note and/or other Indebtedness then owing by Borrower to Lender.  All sums contracted for, charged or received by Lender for the use, forbearance or detention of any of the Indebtedness, including any portion of the debt evidenced by this Note shall, to the extent permitted by applicable law, be amortized or spread, using the actuarial method, throughout the stated term of this Note and/or other Indebtedness (including any and all renewal and extension periods) until payment in full so that the rate or amount of interest on account of this Note and/or other Indebtedness does not exceed the Maximum Lawful Rate from time to time in effect and applicable to this Note and/or the other Indebtedness for so long as any Indebtedness is outstanding.  In no event shall the provisions of Chapter 346 of the Texas Finance Code (which regulates certain revolving credit loan accounts and revolving triparty accounts) apply to this Note and/or any of the other Indebtedness.  Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, it is not the intention of Lender to accelerate the maturity of any interest that has not accrued at the time of such acceleration or to collect unearned interest at the time of such acceleration.

6.5Captions.  The article and section headings used in this Note are for convenience of reference only and shall not affect, alter or define the meaning or interpretation of the text of any article or section contained in this Note.

6.6Joint and Several Liability.  If this Note is executed by more than one party, each such party shall be jointly and severally liable for the obligations of Borrower under this Note.  If Borrower is a partnership, each general partner of Borrower shall be jointly and severally liable hereunder, and each such general partner hereby waives any requirement of law that in the event of a default hereunder, Lender exhaust any assets of Borrower before proceeding against such general partner's assets.

6.7Participations.  Borrower agrees that Lender has the right to sell, assign, or grant participations or any interest in, any or all of the Indebtedness, and that, in connection with this right, but without limiting its ability to make other disclosures to the full extent allowable, Lender may disclose all documents and information which Lender now or later has relating to Borrower or the Indebtedness.  Borrower agrees that Lender may provide information relating to this Note or the Indebtedness or relating to Borrower to Lender's parent, affiliates, subsidiaries and service providers.

6.8WAIVER OF RIGHT TO TRIAL BY JURY.  BORROWER, AND LENDER BY ACCEPTANCE OF THIS NOTE, ACKNOWLEDGE AND AGREE THAT ALTHOUGH THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL ONE, IT MAY BE WAIVED.  EACH PARTY, AFTER CONSULTING (OR HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF ITS OWN CHOICE, KNOWINGLY, VOLUNTARILY, IRREVOCABLY, UNCONDITIONALLY AND FOR THE MUTUAL BENEFIT OF BOTH BORROWER AND 

LENDER, WAIVES ANY RIGHT TO TRIAL BY JURY IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.  THIS AGREEMENT OF BORROWER IS A MATERIAL INDUCEMENT TO LENDER TO PROVIDE THE FINANCING EVIDENCED BY THIS NOTE.

6.9NO ORAL AGREEMENTS.  THIS NOTE AND ALL OF THE OTHER LOAN DOCUMENTS EMBODY THE FINAL AND ENTIRE AGREEMENT OF BORROWER AND LENDER AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF BORROWER AND LENDER.  THERE ARE NO ORAL AGREEMENTS BETWEEN BORROWER AND LENDER.  THE PROVISIONS OF THIS NOTE AND THE OTHER LOAN DOCUMENTS MAY BE AMENDED OR REVISED ONLY BY AN INSTRUMENT IN WRITING SIGNED BY THE BORROWER AND LENDER.  IN ACCORDANCE WITH SECTION 26.02 OF THE TEXAS BUSINESS AND COMMERCE CODE, BORROWER ACKNOWLEDGES THAT THE WRITTEN LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

6.10This Note amends and restates in its entirety, and supersedes, that certain Promissory Note dated as of February 3, 2011 (the “Original Note”), executed by Borrower and payable to the order of Stratus Properties Operating Co., L.P. (“Original Payee”), in the stated principal amount of $14,000,000, which Original Note was assigned from Original Payee to Payee pursuant to an Assignment of Note and Lien dated of even date herewith.  The undersigned acknowledges and agrees that the indebtedness outstanding under the Original Note and the liens, security interests and assignments granted by the undersigned securing the Original Note are valid and subsisting and have been assigned to Payee, and that such liens, security interests, and assignments continue to secure the repayment of the indebtedness evidenced by this Note, and that as of the date of this Note, there are no offsets, claims or defenses existing in connection with the loan evidenced by this Note.  This Note is entitled to all of the liens, security interests, benefits and priorities securing the Original Note, all of which have been assigned to Payee by Original Payee.

The remainder of this page is blank.  The signature page follows.

EXECUTED to be effective as of the date and year first above written.
BORROWER:

TRACT 107, L.L.C., 
a Texas limited liability company

By:    Circle C GP, L.L.C., a Delaware limited liability company, its Manager

By:    Stratus Properties Inc., a Delaware corporation, Sole Member and Manager

By: /s/ Erin D. Pickens                                      
Erin D. Pickens, 
Senior Vice Presidentform10qex101_080111.htm

Exhibit 10.1

 

 

FORBEARANCE AND STANDSTILL AGREEMENT

 

THIS FORBEARANCE AND STANDSTILL AGREEMENT (the “Agreement”) is entered into as of June 30, 2011 by and between NEDAK Ethanol, LLC, a Nebraska limited liability company, (the “Borrower”), and Arbor Bank, a Nebraska banking corporation (the “Lead Lender”) with the intent and agreement that this Agreement shall be effective as of the Effective Date defined below. Lead Lender and Borrower shall each individually be a “Party” and collectively, the “Parties”.

 

RECITALS

 

A.           Reference is made to that certain Loan Agreement dated as of June 19, 2007 (the “Loan Agreement”), by and among Borrower and Lead Lender, and the Promissory note issued thereunder by Borrower and made payable to Lead Lender dated as of June 19, 2007 in the principal sum of $6,864,000 (the “Borrower’s Note”) under which Lead Lender and certain other lenders has provided tax increment financing in connection with the development by Borrower of a 44 million gallon ethanol plant in the City of Atkinson (the “Facility”). Unless otherwise defined, terms in this Agreement with an initial capital letter will have the meaning given such term in the Loan Agreement.

 

B.           On August 12, 2010, the Lead Lender filed a lawsuit in the District Court of Douglas County, Nebraska (the “Court”) against the Borrower (designated Arbor Bank v NEDAK Ethanol, LLC, Doc. 1110 No. 213, the “Lender Suit”) alleging that Borrower has failed to make certain payments required under the Borrower’s Note and failed to comply with certain other covenants under the Loan Agreement. On October 29, 2010, the Lead Lender filed a motion for summary judgment (the “Lender Summary Judgment Motion”). On April 20, 2011, the Court issued a preliminary order finding in favor of the Lead Lender with respect to the default by the Borrower on the TIF Loan and directing that a hearing be held to establish the interest and costs.

 

C.           Borrower is party to a Master Credit Agreement, as amended and supplemented (the “Senior Credit Agreement”), with AgCountry Farm Credit Services FCA (f/k/a Farm Credit Services of Grand Forks, North Dakota) (“Senior Lender”) regarding a senior secured credit facility (the “Senior Credit Facility”). Borrower and Senior Lender have entered into several forbearance agreements, including the Seventh Supplement and Forbearance Agreement dated as of February 1, 2011 (the “Senior Lender Forbearance”) pursuant to which Senior Lender has agreed to forbear from its rights under the Senior Credit Agreement until June 30, 2011, or the occurrence of an event of default under the Senior Lender Forbearance. Included among such events of default are any actions by the Lead Lender to exercise any right or remedy under any the Loan Agreement, or the issuance or entry of any judgment, decree or order for the payment of money against Borrower or the award of equitable relief in connection with the Lender Suit and the Lender Summary Judgment Motion.

 

D.           Borrower has undertaken a plan to raise capital (the “2011 Offering”) in order to remedy the current defaults under the Senior Credit Facility and the Loan Agreement and to complete a restructuring of its debt to allow for continued operations of the Facility, as is more fully described in the Borrower’s Confidential Private Placement Memorandum dated

 

 

  

  

  

April 7, 2011 (as supplemented from time to time, the “2011 Offering PPM”). A copy of the 2011 Offering PPM has been provided to the Lead Lender.

 

E.           In connection with the 2011 offering and the proposed restructuring plan, Borrower intends to enter into an Ethanol Purchase And Sale Agreement and the Ethanol Tank Lease with Tenaska Biofules, LLC (together, the “Tenaska Agreements”). This Agreement is imperative to aid Borrower in its efforts to negotiate favorable terms with Tenaska Biofuels, LLC and the Senior Lender in their respective agreements. Borrower and Lead Lender wish to cooperate to support Borrower’s activities to complete the 2011 Offering, allow Borrower to enter into the Tenaska Agreements and for the implementation of the plan.

 

F.           To induce Lead Lender to enter into this Agreement and thereby forbear from exercising Lender’s rights, powers and remedies under the Loan Agreement, Borrower’s Note and other Loan Documents and the law, Borrower has agreed to adhere to the promises and covenants set forth herein.

 

G.           Lead Lender is willing to forebear during the Standstill Period (defined below) from exercising its rights, remedies and powers under the Loan Agreement, Borrower’s Note, the other Loan Documents and the law subject to the terms and conditions set forth herein, provided that Lead Lender does not waive any Events of Default by Borrower or any of such rights, powers and remedies.

 

NOW, THEREFORE, in consideration of the foregoing, and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Borrower and Lead Lender, acting on behalf of itself and each Participant, agree as follows:

 

1.           Recitals. Borrower acknowledges and agrees that each of the Recitals and facts set forth in Paragraphs A through G above is true and correct and is incorporated herein by this reference and made a part hereof.

 

2.           Reaffirmation of the Terms and Undertakings of the Loan Documents and Other Agreements. Borrower acknowledges and agrees that, as a result of certain Events of Default, Lead Lender has validly accelerated and the entire unpaid balance of Borrower’s Note is due and owing to Lead Lender without setoff, defense or counterclaims of any kind whatsoever, and that Borrower is absolutely and unconditionally liable to Lead Lender for the same to the full extent set forth in the Recitals together with any interest and other costs (including collection costs) that continue to accrue after the date hereof, and that such liability is not subject to any defense, setoff or counterclaim. Borrower acknowledges and agrees that the terms of the Loan Agreement, Borrower’s Note, any other Loan Documents, and any other agreements delivered in favor of Lead Lender prior to the date hereof are valid and remain in full force and effect in accordance with their terms, and are hereby reaffirmed and restated effective as of the date hereof as if fully set forth herein.

 

3.           Validity and Enforceability of the Loan Agreement, Borrower’s Note, Loan Documents and Other Agreements. Borrower acknowledges and agrees that the Loan Agreement, Borrower’s Note, and any other Loan Documents, are valid, binding and fully enforceable according to their terms. Any technical defects in the Loan Agreement, Borrower’s

 

 

  

  

  

Note, or any other Loan Documents, whether known or unknown, are hereby unconditionally and absolutely waived by Borrower. Borrower hereby waives any and all rules of construction, if any, and arguments that this Agreement, the Loan Agreement, Borrower’s Note and other Loan Documents are to be construed against Lead Lender as a result of its participation in the drafting hereof and thereof.

 

4.           No Waiver by Lead Lender of Existing Defaults, Rights and Remedies. Nothing in this Agreement or otherwise should or shall be construed as a waiver by Lead Lender of any existing Events of Default. Lender retains and has not waived any of its rights and remedies set forth in the Loan Agreement, Borrower’s Note, the other Loan Documents or provided for at law. Lead Lender’s agreement to forbear under this Agreement shall not constitute an extension of the maturity date under the Loan Documents, a waiver of any defaults under the Loan Documents and except as specifically agreed to under the terms of this Agreement and for the term of this Agreement, Lead Lender shall at all times retain all rights and remedies available to it under the Loan Documents and applicable law. Borrower agrees that the Loan shall remain due and payable subject to the terms of this Agreement. Lead Lender’s agreement to forbear from exercising its remedies under the Loan Documents shall terminate upon the expiration of the Standstill Period under this Agreement.

 

5.           Balance Due to Lead Lender. Borrower affirms, acknowledges and admits that the unpaid balance due to Lead Lender from Borrower in connection with the Loan as of June 20, 2011, is as set forth on Exhibit A, attached hereto, which includes expenses, late charges and default interest which are continuing.

 

6.           Payments. Subject to Sections 7 and 8 hereof, Borrower agrees to make the following payments:

 

a.           Within three (3) business days of execution of this Agreement by Lead Lender and delivery of this Agreement to Borrower, Borrower shall cause to be paid to the Lead Lender a payment of $25,000 (the “First PILOT Payment”).

 

b.           On or before July 29, 2011, and on or before the last business day of each calendar month thereafter, Borrower shall cause to be paid to the Lead Lender a payment of $25,000 (the “Monthly PILOT Payments”).

 

Borrower and Lead Lender agree that the First Pilot Payment and subsequent Monthly Pilot Payments shall be applied first to the expenses as set forth on Exhibit A, then late charges, then interest and then to principal. Lead Lender acknowledges and agrees that the First Pilot Payment and subsequent Monthly Pilot Payments may be paid by funds other than from the Borrower.

 

7.           Standstill. Lead Lender hereby agrees to forbear from exercising any rights and remedies under the Loan Documents, applicable law or otherwise including, but not limited to, the filing or pursuit of any claim against Borrower in any court, including, but not limited to, the litigation pending in the Lender Suit, for a period beginning as of the Effective Date of this Agreement and ending on September 30, 2011, or, if earlier (a) the date Senior Lender takes any action to enforce its rights or remedies with respect to property of the Borrower, (b) any

 

 

  

  

  

Standstill Event of Default if such default is not cured within any cure period specified in Section 12 for such default (the “Standstill Period”).

 

8.           Lender Suit. Lead Lender agrees to take the following actions with respect to the Lender Suit:

 

a.           Immediately upon receipt of the First PILOT Payment, Borrower and Lead Lender shall file with the Court a joint stipulation for withdrawal of hearing request and stay of proceedings of the Lender Suit, until such time as the Standstill Period expires as provided in Section 12 or this Agreement is terminated;

 

b.           Lead Lender hereby agrees that during the Standstill Period, Lead Lender will not take any action with respect to the Lender Suit without the written consent of the Borrower, or initiate any other action in any court with respect to the Borrower’s Note or Loan Documents, and shall not file any motion, serve any discovery, take any action to lift any stay, file any proposed progression order or certificate of readiness for trial, or take any other action to prosecute any claims asserted in the Lender Suit, or file any complaint or petition in any court, unless Borrower consents in writing, or unless a Standstill Default described in either Section 12.a or 12.c has occurred and has not been cured, and the specified cure period has expired.

 

c.           If at any time during the Standstill Period Borrower has paid in full all amounts due to Lead Lender under the Note and Loan Agreement, as well as those amounts described on Exhibit A attached hereto, is current on payment of all real estate taxes in respect of the Facility, and is current on all payments under Borrower’s Note without regard to Lead Lender’s acceleration thereof and has fully funded the Debt Service Reserve, Lead Lender shall file a motion with the Court to dismiss the Lender Suit without prejudice to the claims of the Lead Lender or waiver of the defenses of the Borrower.

 

9.           Conditions Precedent to Effectiveness of this Agreement. This Agreement shall not be effective as against Lead Lender unless and until each of the following conditions shall have been satisfied in Lead Lender’s sole and absolute discretion or waived by the Lead Lender in writing, for whose sole benefit such conditions exist:

 

a.           Payments. Lead Lender shall have received the First PILOT Payment.

 

b.           Delivery of Executed Agreement. Lead Lender shall have executed and delivered this Agreement to Borrower and shall have received this Agreement duly executed by Borrower which shall constitute delivery thereof by Borrower.

 

The “Effective Date” shall be the date in which the last of the above conditions are satisfied or waived by the Lead Lender.

 

10.           Representations and Warranties. Borrower hereby represents and warrants to the Lead Lender as follows:

 

 

  

  

  

 

 

a. Corporate Power; Authorization. Borrower has the full legal power, and has been duly authorized by all requisite corporate or limited liability company action, to execute and deliver this Agreement, and to perform its obligations hereunder. Borrower has duly executed and delivered this Agreement, which agreement is fully enforceable in accordance with its terms.

 

b. Accuracy of Financial Information. All financial information concerning Borrower and Borrower’s operations, all financial statements, reports and other records concerning the same provided to Lead Lender as of the date hereof, has been maintained in a timely, accurate and complete manner in accordance with generally accepted accounting principles, and such information accurately and honestly reflects and represents the capital structure of Borrower, its assets and liabilities, and its treatment of the same, including without limitation Borrower’s accounts receivable, accounts payable, and customer deposits.

 

c.           No Violation. The execution, delivery, and performance of this Agreement do not and will not (i) violate any law, rule, regulation, or court order to which Borrower is subject, or (ii) conflict with or result in a breach of Borrower’s organizational documents or any agreement or instrument to which Borrower is a party or by which its properties are bound.

 

11.           Covenants. Borrower hereby agrees and covenants that during the Standstill Period:

 

a.           Payments in the Ordinary Course of Business. Borrower shall make payments on its trade payables and other operating expenses only in the ordinary course of its business and only to the extent that the payment thereof does not constitute or result in an Event of Default.

 

b.           Compliance with this Agreement. Borrower shall be in compliance with all of the terms and conditions of this Agreement.

 

c.           Conduct Business in Ordinary Course. Borrower shall conduct its operations and business in the ordinary course of business and shall not accelerate the payment, or cause the acceleration of any payment, of any amount due to any vendor; provided, however, that the conduct of business contemplated by the Tenaska Agreements shall be considered in the ordinary course of business during the Standstill Period.

 

d.           Reporting. Borrower agrees to provide Lead Lender with all statements, reports, and certificates that Borrower provides to the Senior Lender concurrent with the delivery to the Senior Lender beginning on the Effective Date and lasting though the Standstill Period including, without limitation, all items required under the Seventh Supplement.

 

e.           Notifications. Borrower agrees to immediately notify Lead Lender of Borrower’s receipt or knowledge of any of the following: (i) notice of default under the 

 

 

  

  

  

Senior Credit Facility or the Senior Lender Forbearance, or (ii) any action by the Senior Lender to enforce its rights or remedies with respect to property of the Borrower.

 

f.           Restricted Payments. During the Standstill Period, Borrower shall not make any payments for director fees or payments on indebtedness for borrowed money to former or current officers, directors or members of Borrower. Notwithstanding the foregoing, Borrower is authorized to reimburse directors for travel expenses and to pay salary and benefits due to directors who are also employees of the Borrower, in all respects consistent with past practices and in customary amounts.

 

g.           Material Developments. Borrower’s representatives, professionals and their officers shall promptly advise Lead Lender of any material adverse developments in the business or operations of Borrower or matters that could reasonably be expected to negatively impact Borrower’s budget or otherwise constituting, with or without the passage of time, a material adverse effect on Borrower.

 

h.           Further Assurances. Borrower shall execute such other and further documents and instruments and shall take such further action as the Lead Lender may reasonably request to implement the provisions of this Agreement, the Loan Agreement, Borrower’s Note and the other Loan Documents.

 

12.           Standstill Event of Default. A “Standstill Event of Default” shall mean, with respect to the Borrower, the occurrence of any one or more of the following events that is not cured within the time period noted, if any:

 

a.           The Borrower fails to make any payment required pursuant to Section 6 hereof, on or before the day such payment is due, and such failure is not cured within 10 days of such date.

 

b.           Any breach or default under or any Event of Default described in the Loan Agreement, Borrower’s Note or any of the Loan Documents, or any of the documents executed in connection with this Agreement, that are not existing or are existing but have not been disclosed to or known by the Lead Lender as of the date of this Agreement, which is not cured within the time period allowed in the Loan Documents;

 

c.           The occurrence or continuation of any default or Event of Default under the Senior Credit Agreement or any other agreement between Senior Lender and Borrower which results in the commencement of foreclosure proceedings against the Facility or the exercise by the Senior Lender of any of its other rights and remedies against Borrower;

 

d.           Any instrument, document, report, schedule, agreement, representation or warranty, oral or written, made or delivered to Lead Lender by Borrower, or any of Borrower’s directors, officers, shareholders, agents, or representatives in connection with this Agreement is untrue or incorrect in any material respect when made or delivered;

 

e.           Any provision contained in this Agreement, the Loan Agreement, the Borrower’s Note or any other Loan Document in connection with any of the Borrower’s obligations hereunder or any of Borrower’s 

 

 

 

  

  

  

 

obligations thereunder shall, at any time, cease to be in full force and effect, or shall be revoked or declared null and void, or the validity or enforceability thereof shall be contested by Borrower, or Borrower shall  deny or challenge any further liability or obligation hereunder or thereunder, as the case may be; or

 

f.           Borrower fails to observe any covenant or agreement in or otherwise defaults under the terms of this Agreement.

 

13.           Remedies. Time is of the essence of this Agreement. Subject to Section 8 in this Agreement, upon the occurrence of any Standstill Event of Default which is not cured within any time period allowed for such default: (i) Lead Lender may proceed to protect, exercise, and enforce any and all such rights, powers, privileges and remedies as may be provided by this Agreement, the Loan Agreement, the Borrower’s Note or any other Loan Documents and/or under law or in equity; and (ii) Lead Lender shall be entitled to have and may file a motion to cause the stay of the Lender Suit to be lifted. Each and every one of such rights and remedies shall be cumulative and may be exercised from time to time, at Lead Lender’s option, singly in any order or sequence, or concurrently, and no failure on the part of Lead Lender to exercise, and no delay in exercising, any right or remedy under this Agreement, the Loan Agreement, the Borrower’s Note, any other Loan Documents or provided for at law or in equity shall operate as a waiver thereof, and no single or partial exercise of any right or remedy shall preclude any other or future exercise thereof, or the exercise of any other right. Borrower agrees to reasonably cooperate with Lead Lender in connection with the exercise of any right or remedy and further agrees that it will not interfere with any right, remedy or power of Lead Lender provided in this Agreement or any other Loan Documents or now or hereafter existing at law or in equity or by statute or otherwise, or the exercise or beginning of the exercise by Lead Lender of any one or more of such rights, powers or remedies. Any inconsistencies among this Agreement, the Loan Agreement, the Borrower’s Note, and the Loan Documents and any documents executed in connection with this Agreement will be interpreted in the manner most favorable to Lead Lender and, in particular, in any manner so as to provide Lead Lender the broadest scope of rights and remedies.

 

14.           Amendments. This Agreement can be waived, modified, amended, terminated or discharged only in a writing signed by Lead Lender. A waiver so signed shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any rights and remedies available to Lead Lender.

 

15.           No Waiver, Etc. No failure or delay by Lead Lender in exercising any rights, powers or remedies under this Agreement, the Loan Agreement, Borrower’s Note, the other Loan Documents, or any other obligations of Borrower to Lender will be a waiver thereof. The acceptance by Lead Lender of any partial performance as to any duty of performance owed to Lead Lender will not operate to impair Lead Lender’s rights to obtain or demand the full performance thereof.

 

16.           Release of Claims. In consideration of this Agreement and the standstill and other consideration afforded hereby, Borrower hereby fully and finally releases, remises, acquits, and forever discharges, with prejudice, Lead Lender and each of its participants in the Loan and their 

 

 

  

  

  

respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, members, shareholders, participants, predecessors, successors and assigns, subsidiary corporations, parent corporations, affiliates and related corporate divisions (all of the foregoing hereinafter called the “Released Parties”), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages, and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any manner or things done, omitted, or suffered to be done by any of the Released Parties prior to and including the date of execution hereof and in any way directly or indirectly arising out of or in any way connected to the Loan Agreement, Borrower’s Note, or any other Loan Documents, including but not limited to, claims, liabilities or obligations relating to any settlement negotiations, representations, commitments, arrangements, liabilities, offsets or deductions of sums owed to or by Borrower (all of the foregoing hereinafter called the “Released Matters”). Borrower acknowledges that the agreements in this paragraph are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters; provided, however, that any and all rights, benefits, agreements and obligations set forth in this Agreement are not and shall not be Released Matters and shall not be impaired or abridged thereby. Borrower represents and warrants to Lead Lender that it has not purported to transfer, assign, or otherwise convey any right, title, or interest of Borrower in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of all Released Matters.

 

17.           Waiver. BORROWER HEREBY WAIVES EVERY PRESENT DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF WHICH BORROWER MAY NOW HAVE TO ANY ACTION BY LEAD LENDER IN ENFORCING OR EXERCISING ANY RIGHT, POWER OR PRIVILEGE UNDER OR IN CONNECTION WITH THIS AGREEMENT, THE LOAN AGREEMENT, BORROWER’S NOTE AND THE LOAN DOCUMENTS. BORROWER RATIFIES AND CONFIRMS WHAT LENDER MAY DO PURSUANT TO THE TERMS OF THIS AGREEMENT, THE LOAN AGREEMENT, BORROWER’S NOTE AND THE LOAN DOCUMENTS. THIS PROVISION, AND THE RELEASES SET FORTH IN SECTION 16 OF THIS AGREEMENT, IS A MATERIAL INDUCEMENT FOR LEAD LENDER GRANTING ANY FINANCIAL ACCOMMODATION TO BORROWER.

 

18.           Effect of Acknowledgments. Any and all acknowledgments contained in this Agreement, including but not limited to those contained in Sections 1, 2, and 3 above, are intended to be and may be construed to be affirmative covenants, representations and warranties of Borrower.

 

19.           Collection Costs. Borrower shall remain obligated to Lead Lender for all costs and fees, including but not limited to reasonable attorneys’ fees, incurred in connection with the Loan to the extent provided for under the Loan Agreement and other Loan Documents. Such costs and fees shall include, but not be limited to, unpaid expenses and fees relating to the preparation and execution of this Agreement, and also including but not limited to expenses and fees relating to the enforcement of rights and remedies of Borrower in connection with the Loan.

 

 

 

  

  

  

 

20.           Jury Trial Waiver. Borrower hereby IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS IT MAY HAVE TO TRIAL BY JURY with regard to any actions, claims, disputes or proceedings directly or indirectly arising out of or connected with the Loan, this Agreement, or any documents executed in connection with this Agreement and the Loan, any transactions or occurrences arising therefrom, or the enforcement and/or interpretation of any of the foregoing.

 

21.           Advice of Counsel. Borrower has obtained such counsel as each deems appropriate before entering into this Agreement, and each has independently determined to enter into this Agreement.

 

22.           Entire Agreement. There are no oral side agreements between Borrower and Lead Lender relative to the terms hereof; the Loan Agreement, the Borrower’s Note, the other Loan Documents and this Agreement, and the documents executed in connection with this Agreement, represent the entire agreement between the parties relative to the subject matter hereof which cannot be modified except in writing.

 

23.           Severability. Any provision of this Agreement which is prohibited or unenforceable will be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions of this Agreement.

 

24.           Headings. The bold-faced headings at the beginning of each paragraph are for convenience only and are not intended to be part of the substance of this Agreement; any perceived inconsistencies between the heading and the text are to be governed exclusively by the text.

 

25.           Counterparts. This Agreement may be executed in facsimile and in any number of counterparts and by different parties to this Agreement in separate counterparts, each of which, when so executed, shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement.

 

26.           Further Assurances. Borrower shall execute such other and further documents and instruments and shall take such further action as Lead Lender may reasonably request to implement the provisions of this Agreement and the other Loan Documents.

 

27.           Reservation of Rights. NOTHING CONTAINED IN THIS AGREEMENT OR OTHERWISE SHALL BE DEEMED TO CREATE A COURSE OF DEALING OR OTHERWISE ENTITLE BORROWER TO A CONSENT TO, OR A WAIVER, AMENDMENT, MODIFICATION, OR OTHER CHANGE OF, ANY OF THE TERMS, CONDITIONS, OBLIGATIONS, COVENANTS, OR AGREEMENTS CONTAINED IN THE LOAN AGREEMENT OR ANY OTHER LOAN DOCUMENTS IN SIMILAR OR DIFFERENT CIRCUMSTANCES IN THE FUTURE. BORROWER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT SHALL NOT BE DEEMED AN AGREEMENT BY LENDER TO MAKE OR RENEW ANY LOANS, GRANT ANY FURTHER WAIVERS OR EXTEND ANY FORBEARANCES OR FINANCIAL ACCOMMODATIONS OTHER THAN THOSE SPECIFICALLY CONTAINED HEREIN.

 

 

 

  

  

  

 

 

28.           Notices. Any and all notices, requests, or other communications contemplated by or with respect to this Agreement shall be made in accordance with the Loan Documents.

 

29.           Governing Law. This Agreement shall be governed as set forth in the Loan Documents.

[Signature Page Follows.]

 

 

  

  

  

IN WITNESS WHEREOF, the parties hereto execute this Agreement as of the date noted above.

 

	

LEAD LENDER:

ARBOR BANK

	 
	 	 
	By: 	/s/ Mark D. Jepson 	 
	Name	Mark D. Jepson 	 
	Title	Executive Vice President 	 
	 	 

 

 

 

	

BORROWER:

NEDAK ETHANOL, LLC

	 
	 	 
	By: 	/s/ Jerome Fagerland 	 
	Name	Jerome Fagerland 	 
	Title	President and General Manager	 
	 

 

 

 

 

  

  

  

EXHIBIT A

 

	
PRINCIPAL AND INTEREST DUE AS OF 6/20/11 TO ARBOR BANK

	
Principal due as of 6/20/11

	
$6,586,300.00

	
Interest due as of 6/20/11

	
$       590,041.52

	
Late fees due as of 6/20/11

	
$       0.00

	
TOTAL

	
$7,176,341.52*

 

Per Diem Interest: Beginning 6/21/11 at the following rate: $2,469.86.

 

*: As shown below, the payments received from the City of Atkinson on March 31, 2011 and May 6, 2011, as a result of Arbor Bank’s purchase of the tax certificates, have been applied as payments in reaching the above calculated debt total.

 

Pursuant to the terms of the Loan Agreement and the Promissory Note, additional late fees, costs and other fees may be due or may become due and the above calculations do not account for such additional amounts. Such late fees, costs, and other fees will be added to the total outstanding amount due from NEDAK to Arbor Bank in accordance with the terms of the Loan Agreement and the Promissory Note when appropriate.

 

Payments Applications Pursuant to the Loan Agreement and Promissory Note

 

	
Date

	
Amount

	
Payment Type / Application

	
Account

	
12/3/2007

	
$298,870.00

	
Interest payment

	
Capitalized Interest Fund

	
6/16/2008

	
$335,096.66

	
Interest payment

	
Debt Service Reserve Fund

	
12/1/2008

	
$327,851.34

	
Interest payment

	
Debt Service Reserve Fund

	
6/24/2009

	
$331,474.00

	
Interest payment

	
Capitalized Interest Fund

	
6/30/2009

	
$139,000.00

	
Principal payment

	
Capitalized Interest Fund

	
12/9/2009

	
$329,337.82

	
Interest payment

	
NEDAK Ethanol Dynamics

	
12/30/2009

	
$146,000.00

	
Late fees, costs & principal

payment

	
Capitalized Interest Fund

	
7/1/2010

	
$ 59,347.99

	
Late fees, costs & interest

payment

	
Capitalized Interest Fund

	
3/31/2011

	
$ 12,106.93

	
Late fees & interest payment

	
Atkinson County Tax Credit

	
3/31/2011

	
$520,000.00

	
Late fees & interest payment

	
Atkinson: Tax Receipt Redemption

	
5/6/2011

	
$ 49,497.86

	
Late fees & interest payment

	
Atkinson: Tax Receipt Redemption

	
6/14/2011

	
$ 12,106.93

	
Late fees & interest payment

	
Atkinson County Tax Credit

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