Document:

Loan Agreement (final)  (W1540274.DOCX;1)

LOAN AGREEMENT

This Loan Agreement is made and entered into effective this 14th day of March, 2018, by and between SOUTHSIDE BANK (“Lender”), whose mailing address is P. O. Box 1079, Tyler, Texas 75710, and HARTMAN RICHARDSON TECH CENTER, LLC, a Texas limited liability company (“Borrower”), whose mailing address is 2909 Hillcroft, Suite 420, Houston, Texas 77057.

WHEREAS, Lender desires to lend to Borrower, and Borrower desires to borrow from Lender, the principal sum of up to the maximum amount of THREE MILLION FIVE HUNDRED SEVENTY THOUSAND US DOLLARS ($3,570,000.00) on the terms and conditions set forth in this Agreement and the other Loan Documents (hereinafter defined).

NOW, THEREFORE, for and in consideration of the premises, Lender and Borrower hereby covenant and agree as follows:

.

THE LOAN.   The loan made the subject of this Agreement (the “Loan”) is a non-revolving term loan evidenced by Borrower’s Promissory Note of even date herewith payable to the order of Lender in the principal face amount of $3,570,000.00, with interest and principal payable as provided therein, and any renewals, extensions and modifications thereof (the “Promissory Note”).  All proceeds of the Loan shall be used by Borrower for the following purposes, and for no other purpose, without the prior written consent of Lender: 

a.

The initial advance of the Loan shall be used to pay a portion of the purchase price of the Property, and shall be in the amount equal to the lesser of (i) $2,520,000.00, or (ii) one-half of the purchase price payable by Borrower to purchase the Property, or (iii) fifty percent (50%) of the fair market value of the Property as determined by a current independent professional appraisal (paid for by Borrower) ordered and approved by Lender (the “Initial Advance”); and  

b.

Within 30 days after Lender receives a written request (in form and substance satisfactory to Lender) by Borrower, and subject to the conditions to advances set forth in Section 4 of this Agreement, additional advances of the Loan (the “Future Advances”) shall be made to Borrower to reimburse Borrower for actual costs incurred and paid by Borrower to make tenant finish-out improvements to the Property required by Borrower under the terms of Leases (“TI”); for leasing commissions incurred and paid by Borrower for Leases signed by Borrower (LC); and for capital improvement to the Property (“CI”), provided, however, Future Advances shall be subject to the following limitations:

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(i)

the total of all Future Advances shall not exceed $1,050,000.00 in the aggregate;

(ii)

the total of all Future Advances for TI and LC shall not exceed $650,000.00 in the aggregate; 

(iii)

the total of all Future Advances for CI shall not exceed $400,000.00 in the aggregate; 

(iv)

with respect to Leases for new Tenants, each Future Advance for TI and LC shall not exceed the actual cost of the TI, or the amount of the LC payable by Borrower, as applicable; and

(v)

with respect to renewal Leases for existing Tenants, each Future Advance for TI and LC shall not exceed 25% of the actual cost of TI, or 25% of the actual LC payable by Borrower, as applicable.    

.

FEES.   Borrower shall pay to Lender a loan commitment fee in the amount of $17,850.00.  The said fee shall be due and payable to Lender upon execution of this Agreement by Borrower and Lender.     

.

DEFINITIONS.  For purposes of this Agreement, the following terms shall have the following meanings unless the context clearly otherwise requires:

“Agreement” shall mean this Loan Agreement as hereafter renewed, extended, restated, amended or supplemented from time to time.

“Applicable Law” shall mean the laws of the State of Texas in effect from time to time and applicable to the transactions between Lender and Borrower pursuant to this Agreement and the other Loan Documents, and to the extent providing for a higher lawful rate of interest, applicable federal laws of the United States of America.  

“Capital Reserve Account” shall mean a deposit account, pursuant to Section 8(o) of this Agreement, maintained by Borrower with Lender for the sole purpose of paying the costs and expenses of making (i) capital improvements to the Property, and (ii) repairs to the Property that are recommended in the Property Condition Report dated December 20, 2017 prepared by AEI Consultants (the “PCR”).

“Collateral” shall have the meaning ascribed to such term in Section 6 of this Agreement.

“Debt Service” shall mean, for any Period, the sum of all installments of principal and interest that would be payable during such Period based on a 25-year amortization, calculated based on the outstanding principal balance of the Loan (as of the end of such Period); and calculated based on the greater of (i) the applicable interest rate under the Promissory Note, (ii) the 10-year U.S. Treasury rate, plus 2.75%, or (iii) 6.0% per annum.

“Debt Service Coverage Ratio” for each twelve month period ending on June 30 and December 31, respectively, of each calendar year (each such twelve month period is herein referred to as the “Period”) shall mean the ratio of: (i) Net Operating Income for the Period to (ii) Debt Service for the Period.  The said ratio shall be calculated in accordance 

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with generally accepted accounting principles consistently applied, based on the Period for which the ratio is calculated and tested. 

“Deed of Trust” shall mean the Deed of Trust, Security Agreement and Assignment of Rents, covering the Property, for the benefit of Lender, securing payment of the Loan, and any renewals, extensions, modifications or restatements of the said Deed of Trust, Security Agreement and Assignment of Rents.

  

“Default” shall have the meaning ascribed to such term in Section 10 of this Agreement.

“Effective Gross Revenue” shall mean, for any Period, the sum of all current rents, revenues and other income received during such Period from the leasing and operation of the Property, minus any rents and other income received from any Tenant whose rents are more than 90 days past due at the end of the Period. 

“Embargoed Person” shall mean (i) any person, entity, country, government or governmental agency or entity thereof that is or becomes subject to trade restrictions , embargo, or economic sanction pursuant to applicable United States law, regulation or Executive Order, including but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder; and (ii) any person identified on the Specially Designated Nationals and Blocked Persons List or Consolidated Sanctions List maintained by OFAC (as hereinafter defined) and/or on any other similar list maintained by OFAC.

“Governmental Authority” means any and all courts, boards, agencies, commissions, offices or authorities of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence that have authority over the Borrower and/or the Property.

“Guarantor” means Hartman vREIT XXI, Inc., a Maryland corporation. 

“Guaranty Agreement” means the Guaranty Agreement of even date herewith, executed by Guarantor for the benefit of Lender, as hereafter modified, amended, restated or replaced. 

“Lease Agreements” and “Leases” means all leases, licenses, concessions, rental agreements or other agreements (written or oral, now or hereafter in effect) that grant a possessory interest in and to, or the right to use, all or any part of the Property.

“Legal Requirements” means (a) any and all present and future judicial decisions, statutes, rulings, rules, regulations, permits, certificates or ordinances of any Governmental Authority in any way applicable to Borrower or the Property including, without implied limitation, those applicable to (i) the ownership, use, occupancy, zoning, possession, operation, maintenance, alteration, repair or reconstruction of the Property, (ii) the accessibility of the Property to handicapped persons (including, without implied 

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limitation, the Americans with Disabilities Act), and (iii) the effect of the Property or its operation on the environment (including, without implied limitation, the rules and regulations of the federal government’s Environmental Protection Agency, and the Comprehensive Environmental Response, Compensation and Liability Act of 1980), and (b) to the extent applicable, the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §1701 et. seq.

“Loan” shall mean the loan described in Section 1 of this Agreement.

“Loan Documents” shall mean this Agreement; the Promissory Note; the Deed of Trust; the Guaranty Agreement; all other agreements, documents or instruments described, or referred to, in this Agreement or delivered to Lender by Borrower in connection with the Loan; and all renewals, extensions or restatements of, or amendments or supplements to, any of the foregoing.

“Maximum Rate” shall mean the maximum non-usurious rate of interest that the Lender may lawfully charge Borrower on the Loan under Applicable Law.

“Net Operating Income” shall mean, for any Period, the sum of Effective Gross Revenue for such Period, minus Operating Expenses for such Period.  

“OFAC” shall mean the Office of Foreign Assets Control, United States Department of the Treasury.

“Operating Expenses” shall mean, for any Period, the sum of all costs and expenses incurred in owning, managing, leasing and operating the Property during such Period, including, without limitation, utilities, administration, cleaning, landscaping, security, repairs and maintenance, management fees, insurance premiums and property taxes, but excluding capital expenditures, tenant improvement allowances, leasing commissions, debt service and non-cash expenses (e.g. depreciation and amortization).

“Potential Default” shall mean the existence or occurrence of any fact, circumstance or event which, with the giving of notice and/or the passing of time, would reasonably be expected to result in a Default.

“Promissory Note” and “Note” shall mean the Promissory Note as defined in Section 1 of this Agreement.

“Property” shall mean 5.972 acres of land described on Exhibit “A” attached hereto, and all appurtenant easements, and the buildings and other improvements located thereon.  The Property is located at 651-681 North Plano Road, Richardson, Texas, and includes, without limitation, four one-story Class B buildings (the “Buildings”).

“Property Tax Reserve Account” shall mean a deposit account maintained by Borrower with Lender for the sole purpose of paying property taxes assessed against the Property.

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“Tenants” shall mean tenants occupying the Buildings under Leases that are unexpired and in effect.  

“TI and LC Reserve Account” shall mean a deposit account maintained by Borrower with Lender for the sole purpose of paying for tenant improvements and leasing commissions payable by Borrower under Leases. 

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CONDITIONS TO FUTURE ADVANCES.    Lender’s obligation to make the Future Advances is subject to each of the following conditions: 

a.

Borrower shall deliver to Lender a written request for funding of each Future Advance, which request shall specify the desired amount of the Future Advance (and the purpose of such advance) requested by Borrower; shall be in form and substance reasonably satisfactory to Lender; must be received by Lender prior to March 14, 2021; and shall be accompanied by such supporting documents and certifications as may be reasonably required by Lender, including, without limitation, invoices, lien waivers, a current rent roll for the Buildings and a certificate of Borrower’s chief financial officer stating that no Default or Potential Default exists;  

b.

Immediately after funding of each Future Advance, the unpaid outstanding principal balance of the Loan shall not exceed sixty percent (60%) of the as-stabilized value of the Property as determined by the most current independent professional appraisal (paid for by Borrower) ordered and approved by Lender; and

c.

Notwithstanding anything herein to the contrary, in no event shall Lender be obligated to make any Future Advance, if, at the time the request for advance is made by Borrower, or at any time thereafter prior to the funding of any Future Advance, a Default exists or a Potential Default exists. 

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OPTION TO EXTEND MATURITY DATE. 

(A)

First Extension.  If each of the following conditions is satisfied (to the reasonable satisfaction of Lender), then, Borrower may, at Borrower’s option, elect to extend the Final Maturity Date (as defined in the Promissory Note from March 14, 2021 (the “Original Maturity Date”) to March 14, 2022 (the “First Extended Maturity Date”): 

a.

As of the Original Maturity Date, there shall exist no Default or Potential Default;

b.

As of the Original Maturity Date, there shall exist no material adverse change with respect to any of the Collateral or with respect to the financial condition of Borrower or Guarantor;

c.

Borrower shall give Lender written notice of Borrower’s election to extend the Original Maturity Date at least 30 days prior to the Original Maturity Date, which notice shall include a certification by Borrower that no Default or Potential 

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Default exists;

d.

Borrower shall pay to Lender an extension fee in an amount equal to 0.25% of the unpaid balance of the Loan on the Original Maturity Date; 

e.

Borrower shall execute and deliver, or cause to be executed and delivered, to Lender such documents as Lender may request, including, without limitation, estoppel certificates signed by the Tenants; 

f.

Borrower shall pay, or reimburse Lender upon demand for, all costs, expenses, fees and attorney fees incurred by Lender in connection with the extension of the Original Maturity Date; and 

g.

The unpaid principal balance of the Loan shall not exceed sixty percent (60%) of the fair market value of the Property as determined by a new independent professional appraisal (paid for by Borrower) ordered and approved by Lender.

If the Original Maturity Date is so extended, then, after the Original Maturity Date, the Note shall be payable as follows: the unpaid balance of the Note (unpaid principal and unpaid accrued interest as of the Original Maturity Date) shall be due and payable in equal monthly installments of principal and interest (the amount of such installments shall be calculated based on a 25-year amortization and based on an interest rate of 5.0% per annum) payable on the first day of each month, beginning on April 1, 2021 and continuing regularly thereafter until the First Extended Maturity Date, when all unpaid accrued interest and unpaid principal shall be due and payable in full.

(B)

Second Extension.  If the Original Maturity Date is extended as provided above, and if each of the following conditions is satisfied (to the reasonable satisfaction of Lender), then, Borrower may, at Borrower’s option, elect to further extend the Final Maturity Date of the Note to March 14, 2023 (the “Second Extended Maturity Date”): 

a.

As of the First Extended Maturity Date, there shall exist no Default or Potential Default;

b.

As of the First Extended Maturity Date, there shall exist no material adverse change with respect to any of the Collateral or with respect to the financial condition of Borrower or Guarantor;

c.

Borrower shall give Lender written notice of Borrower’s election to extend the First Extended Maturity Date at least 30 days prior to the First Extended Maturity Date, which notice shall include a certification by Borrower that no Default or Potential Default exists;

d.

Borrower shall pay to Lender an extension fee in an amount equal to 0.25% of the unpaid balance of the Loan on the First Extended Maturity Date; 

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e.

Borrower shall execute and deliver, or cause to be executed and delivered, to Lender such documents as Lender may request, including, without limitation, estoppel certificates signed by the Tenants; and

f.

Borrower shall pay, or reimburse Lender upon demand for, all costs, expenses, fees and attorney fees incurred by Lender in connection with the extension of the First Extended Maturity Date.

If the First Extended Maturity Date is so extended, then, after the First Extended Maturity Date, the Note shall be payable as follows: the unpaid balance of the Note (unpaid principal and unpaid accrued interest as of the First Extended Maturity Date) shall be due and payable in equal monthly installments of principal and interest (the amount of such installments shall be calculated based on a 25-year amortization and based on an interest rate of 5.0% per annum) payable on the first day of each month, beginning on April 1, 2022 and continuing regularly thereafter until the Second Extended Maturity Date, when all unpaid accrued interest and unpaid principal shall be due and payable in full.

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SECURITY.  When collateral is pledged as security for the Loan (the “Collateral”), Borrower shall grant, or cause to be granted, to Lender a first lien in the Collateral and agrees to do, or cause to be done, all reasonable things deemed necessary or appropriate by Lender to fully perfect the lien of Lender in the Collateral.  The Collateral for the Loan includes all assets of Borrower now owned or hereafter acquired, including, without limitation, the Property and the other “Mortgaged Property” as described and defined in the Deed of Trust; the Capital Reserve Account; the TI and LC Reserve Account; and the Property Tax Reserve Account. 

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REPRESENTATIONS.

a.

Existence, Good Standing and Purpose of Borrower.  Borrower is a limited liability company, duly organized under the laws of the State of Texas, and has the power to own its property and to carry on its business in the State of Texas.  Attached hereto as Schedule I is a true and correct organization chart that accurately reflects the ownership of Borrower.  Borrower is, and shall remain, a single purpose entity organized and operated for the sole purpose of owning, operating, managing, leasing and otherwise dealing with the Property (the “Purpose”).   

b.

Authority and Compliance.  Borrower has full power and authority to enter into this Agreement, to make the borrowing hereunder, to execute and deliver the Loan Documents and to incur the obligations provided for herein, all of which has been duly authorized by all proper and necessary action.  No consent or approval of any public authority is required as a condition to the validity of this Agreement or the Loan Documents, and Borrower is in compliance, in all material respects, with all Legal Requirements.

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c.

Binding Agreement.  This Agreement constitutes, and the other Loan Documents when issued and delivered pursuant hereto for value received will constitute, valid and legally binding obligations of Borrower enforceable in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditor’s rights generally.

d.

Litigation.  There are no proceedings pending or, to the knowledge of Borrower, threatened before any court or administrative agency that will have a material adverse effect on the financial condition of Borrower or the operation of the Property.

e.

No Conflicting Agreements.  There are no provisions of the governing documents of Borrower (and no provisions of any existing agreement, mortgage, indenture or contract binding on Borrower or affecting its property) which would conflict, in any material respect, with or in any way prevent the execution, delivery or carrying out of the terms of this Agreement or the other Loan Documents.

f.

Ownership of Assets.  The Property is owned by Borrower free of liens and security interests, except for liens and security interests granted to Lender, the inchoate lien for property taxes that are not delinquent and the Permitted Encumbrances (as defined in the Deed of Trust).  The Buildings are, in the aggregate, at least 73.54% Tenant occupied, as of February 1, 2018, and are in good condition and repair, except for repairs recommended in the PCR.

g.

Taxes.   All income taxes and other taxes due and payable by Borrower through the date of this Agreement have been paid prior to becoming delinquent.

h.

Financial Statements.  The books and records of Borrower properly reflect its financial condition in all material respects as of the date(s) thereof, and there has been no material adverse change in Borrower’s financial condition as represented in any financial statements of the Borrower delivered to Lender prior to the date of this Agreement.

i.

Place of Business.  The principal office of the Borrower is located at 2909 Hillcroft, Suite 420, Houston, Texas 77057.

j.

Rent Roll.   Attached hereto as Exhibit “B” is a true and complete (in all material respects) rent roll identifying all Tenants occupying the Property on the date of this Agreement.  With respect to each such tenant, except as set forth in any tenant estoppel certificate delivered to Lender prior to the date of this Agreement, to Borrower’s knowledge (i) Borrower has delivered, or made available, to Lender a true, correct and complete (in all material respects) copy of the applicable lease agreement and all amendments; (ii) its lease agreement is currently in force and effect and the current term of the lease ends on the date stated on the rent roll; (iii) except as indicated on the rent roll, the Tenant is paying rent monthly in the amount stated on the rent roll, and is not delinquent in the payment of rent; and (iv) the landlord is not in default under the applicable lease agreement and, except as indicated on the rent roll, Borrower is not aware of any default by the landlord or any Tenant. 

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k.

ERISA and Prohibited Transaction Taxes.  (i) Borrower is not and will not be (A) an “employee benefit plan”, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”); or (B) a “plan” within the meaning of Section 4975 of the Code; (ii) the assets of Borrower do not and will not constitute “plan assets” within the meaning of the United States Department of Labor Regulations set forth in 29 C.F.R. §2510.3-101; (iii) Borrower is not and will not be a “governmental plan” within the meaning of Section 3(32) of ERISA; (iv) transactions by or with Borrower are not and will not be subject to state statutes applicable to Borrower regulating investments of fiduciaries with respect to governmental plans; and (v) Borrower shall not engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under this Agreement, the Promissory Note or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA or Section 4975 of the Code.  Borrower further agrees to deliver to Lender such reasonable certifications or other evidence of compliance with the provisions of this Section as Lender may from time to time reasonably request.

l.

OFAC.  

i.

Borrower has complied and will continue to comply with all requirements of law relating to money laundering, anti-terrorism, trade embargos and economic sanctions, now or hereafter in effect; 

ii.

None of (i) the Borrower, (ii) any person or entity having a twenty percent (20%) or greater economic interest in the Borrower, or (iii) any person or entity otherwise controlling the Borrower, is or will become an Embargoed Person; 

iii.

Borrower will not use the proceeds of the Loan to finance or otherwise facilitate, directly or indirectly, any transaction or dealing with an Embargoed Person; 

iv.

Borrower’s profits are not and will not be predominantly derived from dealings with Embargoed Persons, including but not limited to activities in countries subject to United States embargoes administered by OFAC; and

v.

Borrower has made and will make appropriate inquiries, including inquiries about persons and entities having an ownership interest in the Borrower, to ensure the foregoing representations and warranties remain true and correct at all times.

The foregoing representations shall not apply to the extent that any such person’s or entity’s ownership interest in Borrower is held solely through a U.S. Publicly-Traded Entity and is less than twenty percent (20%).

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AFFIRMATIVE COVENANTS.  Until payment in full of the Loan and payment/performance of all other obligations of Borrower to Lender, whether now existing or hereafter arising:

a.

Financial Covenants. Borrower shall maintain a Debt Service Coverage Ratio of not less than 1.25 to 1.00.  The said ratio shall be calculated and tested semi-annually (as of June 30 and December 31 of each calendar year) on a trailing twelve month basis for the Period, beginning on June 30, 2019.  

In the event that Borrower fails to maintain the required Debt Service Coverage Ratio for any Period, such failure will constitute a Default, unless, within 30 days after Lender’s written notice to Borrower that Borrower has failed to maintain the required Debt Service Coverage Ratio, Borrower makes a payment to Lender to reduce the principal balance of the Loan to an amount that will result in a Debt Service Coverage Ratio of not less than 1.25 to 1.00 for the applicable Period, as re-calculated and re-determined by Lender; provided, notwithstanding anything herein or in the other Loan Documents to the contrary, the foregoing notice and cure provision shall apply only to the first failure of Borrower to maintain the required Debt Service Coverage Ratio, and thereafter, Borrower shall have no notice or cure rights with respect to any failure of Borrower to maintain the required Debt Service Coverage Ratio for any Period.

b.

Financial Statements and Reporting.  Borrower shall maintain a system of accounting reasonably satisfactory to Lender and in accordance with generally accepted accounting principles consistently applied, and will permit Lender’s officers or authorized representatives to visit and inspect its books of account and other records upon reasonable advance notice at such reasonable times and as often as Lender may desire (but not more frequently than once per calendar year in the absence of a Default), and if a Default then exists or is reasonably expected to occur, Borrower will pay the reasonable fees and disbursements of any accountants or other agents of Lender selected by Lender for the foregoing purposes.  The books and records of Borrower will be located at Borrower’s office in Harris County, Texas.  Borrower shall:

i.

Furnish to Lender unaudited internally-prepared quarter-annual financial statements for Borrower (to include a balance sheet, income statement, statement of cash flows and if there have been changes in the organizational chart last provided by Borrower to Lender, then also a current version of the organizational chart), within 30 days after the end of each calendar quarter, beginning with the quarter ending on June 30, 2018.

ii.

Furnish to Lender a quarterly rent roll (substantially in the form attached hereto as Exhibit “B”) for the Property, within 30 days after the end of each calendar quarter, beginning with the quarter ending on June 30, 2018; and, except as disclosed in the rent roll, Borrower shall be deemed to have made each of the representations set forth in Section 7(j) with respect to each such rent roll. 

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iii.

Furnish to Lender, with each second-quarter financial statement and each fourth-quarter financial statement, a certificate of compliance, signed by an executive officer of Borrower, certifying compliance, in all material respects, with all covenants, terms and provisions of this Agreement (or specifically identifying any non-compliance). The certificate of compliance shall specifically include, without limitation, a detailed calculation of the Debt Service Coverage Ratio for the applicable Period. 

iv.

Furnish to Lender copies of annual federal income tax returns filed by Borrower, within 30 days after filing. 

v.

Furnish to Lender true and complete copies of the following documents within 45 days after execution: all new Leases, and all agreements that extend, amend, modify or terminate any existing Lease Agreements.  

vi.

Furnish to Lender such other reasonable information and reports concerning the financial condition of Borrower, or concerning the condition, operation or management of the Property, as Lender may reasonably request, within 30 days after receipt of a written request from Lender, including without limitation, upon request by Lender, Borrower shall use commercially reasonable efforts to obtain tenant estoppel certificates (but not more often than once per calendar year unless a Default has occurred and is continuing) and subordination, non-disturbance and attornment agreements from Tenants in the form required under their respective Lease Agreements, or substantially in the form attached hereto as Exhibit “D”, with such changes thereto as may be reasonably acceptable to Lender.

The above-referenced certificates of compliance shall be in the form attached hereto as Exhibit “E”, and each of the other above-referenced financial statements, reports and certificates shall contain such information as may be reasonably required by Lender and shall be in form and substance reasonably satisfactory to Lender.  

c.

Insurance.  Borrower shall maintain in effect at all times insurance coverage and limits not less than those reflected on the certificate of insurance attached hereto as Exhibit “C”. Borrower shall deliver to Lender reasonably satisfactory evidence of such insurance upon request by Lender from time to time.  With respect to commercial liability insurance policies, Lender shall be named as additional insured, and with respect to property insurance policies, Lender shall be named as mortgagee and loss payee. 

d.

Existence, Compliance and Purpose.  Borrower shall maintain its existence as a Texas limited liability company in good standing (i.e. active account status) in the State of Texas.  Borrower shall comply, in all material respects, with all Legal Requirements.  Borrower shall remain a single purpose entity as represented in Section 7(a) of this Agreement.  No amendments shall be made to Borrower’s Certificate of Formation without the prior written consent of Lender.

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e.

Adverse Conditions or Events.  Borrower shall promptly advise Lender in writing of any condition, event or act which comes to the attention of Borrower that would be reasonably expected to materially and adversely affect Borrower’s financial condition or Lender’s rights in or to the Collateral or under this Agreement or the other Loan Documents, and of any litigation filed against Borrower or the Property.

f.

Taxes.  Borrower shall pay all applicable taxes prior to delinquency.  Provided, however, with respect to taxes assessed against the Property, or any part thereof, Borrower may in good faith, by appropriate proceedings, contest the validity, applicability, or amount of any asserted tax or assessment, and pending such contest, Borrower shall not be deemed in default hereunder if:  (i) Borrower complies with all laws and procedures applicable to any such contest, (ii) Borrower pays to Lender promptly after written demand therefor all reasonable costs and expenses incurred by Lender in connection with such contest, and (iii) Borrower promptly causes to be paid any amount adjudged by a court of competent jurisdiction to be due, with all costs, penalties and interest thereon, promptly after such judgment becomes final; provided, however, that in any event each such contest will be concluded and the tax, assessment, penalties, interest and costs will be paid at least ten days prior to the date any writ or order is issued under which the Property may be sold.

g.

Operation.  Borrower shall cause the Property to be operated in a commercially reasonable manner, consistent with comparable Class B properties in the submarket in which the Property is located, and keep the Property in good order, repair, condition and appearance (ordinary wear and tear and damage caused by casualty and condemnation excepted), causing all necessary structural and non-structural repairs, renewals, replacements, additions and improvements to be promptly made, and will not commit physical waste of the Property.  Borrower shall promptly replace all worn-out or obsolete fixtures or personal property owned by Borrower in the Property necessary for the continued operations of the Property with fixtures or personal property comparable to the replaced fixtures or personal property when new.  Borrower shall not use, maintain, operate or occupy, or knowingly allow the use, maintenance, operation or occupancy of, any portion of the Property for any purpose which violates any Legal Requirement, or in any manner which would reasonably be expected to be dangerous (unless safeguarded as required by law) or which would reasonably be expected to constitute a public or private nuisance or which would reasonably be expected to make void, voidable or cancelable or materially increase the premium of any insurance then in force with respect thereto.  

h.

Payment of Property Costs.  Borrower shall promptly pay, or cause to be paid, when due all bills, invoices and claims, whether for labor, materials or otherwise which are submitted or made in connection with the construction, repair or maintenance of the Property; provided, however, Borrower shall have the right to diligently contest in good faith by appropriate proceedings any bill, invoice or claim, provided that Borrower causes any related judgment or lien filed against title to the Property or any 

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portion thereof to be bonded around or released on or before the date that is at least 20 days prior to the time any such judgment or lien could be foreclosed. 

i.

Estoppel Certificate.  Borrower shall at any time and from time to time (but not more frequently than once per calendar year in the absence of a Default) furnish promptly upon written request by Lender a written statement in such form as may be reasonably required by Lender stating that the Loan Documents are valid and binding obligations of Borrower, enforceable against Borrower in accordance with their terms, the unpaid principal balance of the Promissory Note, the date to which interest on the Promissory Note is paid, that the Loan Documents have not been released, subordinated or modified, and that (to Borrower’s knowledge) there are no offsets or defenses against the enforcement of the Loan Documents, or if any of the foregoing statements are untrue, specifying the reasons therefor.

j.

General Covenant.  Borrower shall make, execute or endorse, acknowledge and deliver or file or cause the same to be done, all such vouchers, invoices, notices, certifications and additional agreements, undertakings, conveyances, deeds of trust, mortgages, assignments, financing statements or other assurances, and take any and all such other action as Lender may from time to time reasonably determine to be necessary or appropriate in connection with this Agreement or any of the other Loan Documents (i) to cure any defects in the creation of the Loan Documents, or (ii) to evidence further or more fully describe, perfect or realize on the collateral intended as security, or (iii) to correct any omissions in the Loan Documents, or (iv) to state more fully the security for the Loan, or (v) to perfect, continue, protect or preserve liens and security interests pursuant to any of the Loan Documents, or (vi) for better assuring and confirming unto Lender all or any part of the security for the Loan.

k.

Accounts.   Borrower hereby grants to Lender a lien on and security interest in all of Borrower’s rights, title and interest in and to any and all deposit accounts of Borrower held by Lender including, without limitation, the Capital Reserve Account, the TI and LC Reserve Account, and the Property Tax Reserve Account.

l.

Perfection of Liens and Security Interests.  Borrower hereby authorizes Lender to file in the applicable public records the Deed of Trust and all financing statements, financing statement amendments and continuation statements as Lender may deem necessary or appropriate in order to perfect its liens and security interests in the Collateral and to maintain the priority of such liens and security interests as first and superior liens.

m.

Asset Based Lending Examination/Field Audit.  Subject to the rights of Tenants, Borrower shall, following reasonable prior notice from Lender, permit Lender, its representatives and agents, to inspect, examine and appraise the Collateral, as well as the books and records pertaining thereto, and to enter upon the premises where the Collateral and books and records are maintained for the purpose of conducting such inspections and examinations, all during normal business hours (but not more frequently than once per calendar year in the absence of a Default).  If at the time of the subject inspection, examination or appraisal (as applicable) Borrower is in Default 

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or a default is reasonably expected to occur, then Borrower shall pay all reasonable fees, costs and expenses incurred by Lender in connection with such inspections, examinations and appraisals.

n.

Lease Agreements.  Borrower shall timely perform all obligations of the landlord/lessor under the Lease Agreements when due; and if any Tenant notifies Borrower that it does not intend to renew or extend its Lease beyond the end of the Lease term, or that it intends to vacate all or any portion of its leased premises prior to the end of the Lease term, Borrower shall notify Lender in writing within 30 days. 

o.

Capital Reserve Account.  If the Original Maturity Date is extended as provided in Section 5(A), then, after the Original Maturity Date, Borrower shall deposit the sum of $8,055.00 each month in the Capital Reserve Account until the balance of the Capital Reserve Account is at least $96,660.00; and thereafter, if at any time the balance of the Capital Reserve Account falls below $96,660.00, then the said monthly deposits shall resume and shall be required for each and every month when the balance of the Capital Reserve Account is less than $96,660.00.

p.

(Intentionally Omitted)

q.

Declaration.  Borrower shall comply with all provisions of any declaration of easements, covenants and restrictions (or similar documents) that are applicable to Borrower and/or the Property or any part thereof.

r.

Change in Ownership.  In the event of any change in ownership of Borrower, Borrower shall promptly notify Lender in writing, and shall (i) remake the representations contained herein relating to OFAC, ERISA and any other matters requested by Lender, (ii) continue to comply with the covenants contained herein relating to OFAC and ERISA matters, and (iii) deliver to Lender a certificate of compliance containing such updated representations as to OFAC and ERISA effective as of the date of the consummation of the change in ownership.

s.

Property Tax Reserve Account.  Borrower shall deposit the sum of $9,440.00 each month in the Property Tax Reserve Account; provided, however, the amount of the required monthly deposits may be increased from time to time by Lender to reflect any increases in the amount of the property taxes assessed against the Property.  Lender shall give Borrower at least ten days written notice of any such increases. 

t.

TI and LC Reserve Account.  Any termination fees or other payments made to Borrower as compensation for the early termination of any Lease shall be deposited in the TI and LC Reserve Account. 

.

NEGATIVE COVENANTS.  So long as Borrower may borrow hereunder and until payment in full of the Loan and payment/performance of all other obligations of Borrower to Lender, whether now existing or hereafter arising:

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a.

Transfer of Assets.   Borrower shall not sell or otherwise transfer title to the Property, or any interest therein, nor shall Borrower sell, assign or otherwise dispose of or transfer any other assets of Borrower, except in the normal course of the business of owning, operating and leasing the Property.  Borrower shall not (y) enter into any merger or consolidation, or authorize, cause, consent to, or permit any transfer of an ownership interest in Borrower, unless, after such merger, consolidation or transfer, Borrower (or the merged or consolidated entity) is controlled by Hartman Income REIT Management, Inc.; or (z) form or acquire any subsidiary.  

b.

Liens.  Borrower shall not hereafter grant, suffer or permit liens on or security interests in the Collateral or fail to promptly pay all lawful claims, whether for labor, materials or otherwise and any such claim remains unpaid, un-stayed on appeal, un-discharged, not bonded or not otherwise released or dismissed for a period of 30 days or more.

c.

Borrowings.  Borrower shall not, without the prior written consent of Lender, borrow any money (direct, contingent or otherwise), except for the Loan and unsecured trade payables incurred in the ordinary course of business.

d.

Investments.  Borrower shall not make any investments, except for insured bank certificates of deposit, US Government obligations and “sweep repos” purchased in the ordinary course of Borrower’s cash management program.  

e.

Extensions of Credit.  Borrower shall not make any loan or advance to any owner or employee of Borrower, or to any other person or entity other than a Tenant in connection with a tenant improvement allowance that is provided for in a Lease Agreement.  

f.

Character of Business.  Borrower shall not engage in any type of business, investment or activity that is not directly related to the Purpose.

g.

Violate Other Covenants.  Borrower shall not violate, or fail to comply with, any covenants or agreements regarding other debt or obligations of Borrower that will or would, with the passage of time or upon demand, cause the maturity of any other debt or obligation of Borrower to be accelerated, or that would reasonably be expected to materially and adversely affect Borrower’s ability to perform its obligations under the Loan Documents.

h.

Distributions.  During the existence of a Default, Borrower shall not declare or make any distributions to the owners of Borrower, or apply any of its property or assets to the purchase, redemption or other retirement of any ownership interests in Borrower or in any way amend its capital structure.

i.

Capital Reserve Account.  Borrower shall not use, or permit the use of, funds on deposit in the Capital Reserve Account for any purpose, except for the purposes specified in the definition of Capital Reserve Account as set forth in Section 3 of this Agreement, and 

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shall not make any withdrawals or disbursement from the said account at any time when a Default exists or a Potential Default exists. 

j.

Lease Agreements.   Borrower shall not hereafter enter into, modify or terminate any Lease Agreement except in the ordinary course of business.  As a condition to making any Lease Agreement in excess of 7,500 rentable square feet of space, Borrower shall (i) require the Tenant to execute and deliver to Lender a subordination, non-disturbance and attornment agreement substantially in the form attached to as Exhibit “D” with such changes as may be reasonably acceptable to Lender or such other form as reasonably acceptable to Lender; and (ii) obtain Lender’s prior written approval of the proposed Lease Agreement, which approval shall not be unreasonably withheld if the lease terms reflect market terms and the tenant is creditworthy in the judgment of Lender.  Borrower will not agree to early termination of any Lease Agreement without Lender’s prior written approval, which approval shall not be unreasonably withheld or denied. 

k.

Zoning, Drilling, Condominium.  Borrower shall not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use (other than legal nonconforming) under applicable zoning ordinances or other laws; provided that Borrower may pursue and obtain renewals, extensions or replacements of existing rights appurtenant to the Property that may be provided by ordinance.  Borrower shall not cause or authorize any drilling or exploration for, or extraction, removal or production of, minerals from the surface or subsurface of the Property.  Borrower shall not operate the Property, or authorize the Property to be operated, as a cooperative or condominium building or buildings in which the tenants or occupants participate in the ownership, control or management of the Property or any part thereof, as tenant stockholders or in a similar manner.  

l.

Property Tax Reserve Account.  Borrower shall not use, or permit the use of, funds on deposit in the Property Tax Reserve Account for any purpose, except for the purposes specified in the definition of Property Tax Reserve Account as set forth in Section 3 of this Agreement, and shall not make any withdrawals or disbursement from the said account at any time when a Default exists or a Potential Default exists.

m.

TI and LC Reserve Account.  Borrower shall not use, or permit the use of, funds on deposit in the TI and LC Reserve Account for any purpose, except for the purposes specified in the definition of TI and LC Reserve Account as set forth in Section 3 of this Agreement, and shall not make any withdrawals or disbursement from the said account at any time when a Default exists or a Potential Default exists.

     

10.

EVENTS OF DEFAULT.  A default (“Default”) shall exist if any one or more of the following shall occur:

a.

Payment Default.  Default shall be made in the payment of any installment of principal or interest due on the Loan or any other obligation (whether now existing or hereafter 

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incurred) of Borrower to Lender or any affiliate of Lender under the Loan Documents when due and payable, whether at maturity or otherwise, and such default is not cured within ten days after receipt of written notice specifying such default and prior to the expiration of any applicable cure period; or

b.

Breach of Covenants.  Default shall be made in the performance of any other term, covenant or agreement set forth in (i) this Agreement and such default is not cured within the specified cure period, or if no cure period is otherwise specified, then within 30 days after Borrower’s receipt of written notice specifying such default (provided, however, the said 30 day period shall be extended to 90 days if such default is of such a nature that it is not susceptible of being cured within 30 days and if Borrower commences good faith efforts to cure such default within 30 days and thereafter diligently pursues such efforts); or (ii) any of the other Loan Documents and Borrower fails to cure such default after receipt of written notice specifying such default and prior to the expiration of any applicable cure period set forth in the Loan Documents; or

c.

Representations and Warranties.  Any representation or warranty herein contained or in any financial statement, certificate, report or opinion submitted by Borrower to Lender in connection with the Loan or pursuant to the requirements of this Agreement shall prove to have been incorrect or misleading in any material respect when made, and to the extent that such matter is susceptible of cure, the subject matter has not been cured within 30 days after Borrower’s receipt of written notice specifying such default (provided, however, the said 30 day period shall be extended to 90 days if such default is of such a nature that it is not susceptible of being cured within 30 days and if Borrower commences good faith efforts to cure such default within 30 days and thereafter diligently pursues such efforts); or

d.

Judgment, Attachment or Levy.  Subject to Borrower’s right to contest same pursuant to Section 8(h), any judgment against Borrower, or any attachment or other levy against the Property or any other property of Borrower, with respect to a claim remains unpaid, un-stayed on appeal, un-discharged, not bonded or not dismissed for a period of 30 days, in any case which would reasonably be expected to materially and adversely affect Borrower’s ability to perform its obligations under the Loan Documents; or

e.

Change in Ownership of Borrower.  There shall occur a change in the ownership of Borrower as shown on Schedule I, or in the control of Borrower; or

f.

Management.  Hartman Income REIT Management, Inc., or another reputable professional property leasing and management company approved in writing by Lender, shall cease to be the property manager for the Property, and such Default is not cured within 15 days after Borrower’s receipt of notice of such Default from Lender; or

g.

Bankruptcy, Etc.   (i) Any of the following are true with respect to Borrower or Guarantor: Borrower or Guarantor makes a general assignment for the benefit of creditors, admits in writing its inability to pay its debts generally as they become due, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions or applies to 

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any tribunal for any receiver or any trustee of Borrower  or Guarantor or any substantial part of its property, commences any action relating to Borrower or Guarantor under any reorganization, rearrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or if there is commenced against Borrower or Guarantor any such action which is not dismissed within 90 days after filing, or Borrower or Guarantor by any act indicates its consent to or approval of any trustee for Borrower or Guarantor, or any substantial part of its property, or suffers any such receivership or trustee to continue un-discharged within 90 days after filing; or

h.

Default in Payment of Other Indebtedness.    Borrower shall default in the payment of any other indebtedness of Borrower, whether now owing or hereafter incurred, as and when such other indebtedness is due and payable, and Borrower fails to cure such default after receipt of written notice specifying such default and prior to the expiration of any applicable cure period, and such default would reasonably be expected to materially and adversely affect Borrower’s ability to perform its obligations under the Loan Documents. 

11.

REMEDIES UPON DEFAULT.   

a.

Bankruptcy, Etc.  If a Default exists under Section 10(g) of this Agreement, the commitment to extend credit hereunder shall automatically terminate and the entire unpaid balance of the Loan and all other indebtedness of Borrower to Lender (whether now existing or hereafter incurred) shall automatically become due and payable without any action of any kind whatsoever.

b.

Other Defaults.  If any other Default exists, Lender may at its election, do any one or more of the following:

.

If the maturity of the Loan and all other indebtedness of Borrower to Lender (whether now existing or hereafter incurred) has not already been accelerated under Section 11(a), declare the entire unpaid balance of the Promissory Note and all other indebtedness of Borrower to Lender (whether now existing or hereafter incurred), or any part thereof, immediately due and payable, whereupon it shall be due and payable in full;

.

Terminate any commitments of Lender to extend credit to Borrower;

.

Reduce any claim to judgment;

.

To the extent permitted by law, exercise the right of offset or banker’s lien against the interest of Borrower in and to every deposit, account and other property of Borrower that is in the possession of Lender; or

.

Exercise any and all other legal or equitable rights afforded by the Loan Documents, the laws of the State of Texas or any other applicable jurisdiction as Lender shall deem appropriate, including, but not limited to, 

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the right to bring suit or other proceedings either for specific performance of any covenant or condition contained in any of the Loan Documents or in aid of the exercise of any right granted to Lender in any of the Loan Documents. 

c.

Rights, Remedies and Recourses Cumulative.  All rights, remedies and recourses afforded Lender in the Loan Documents or otherwise available at law or in equity, including specifically, but without limitation, those granted by the Uniform Commercial Code in effect (a) will be deemed cumulative and concurrent; (b) may be pursued separately, successively or concurrently against Borrower or anyone else obligated under any of the Loan Documents, or against the Collateral, or against any one or more of them, at the sole discretion of Lender; (c) may be exercised as often as the occasion therefor will arise, it being understood by Borrower that the exercise, failure to exercise or election not to exercise any of the same will in no event be construed as a waiver of same or of any other right, remedy or recourse available to Lender; and (d) are intended to be, and will be, nonexclusive.

12.

MISCELLANEOUS.

a.

Expenses.  All costs and expenses incurred in performing and complying with Borrower’s covenants set forth in the Loan Documents will be borne solely by Borrower.  Borrower shall promptly, upon written demand: (a) pay all reasonable legal fees incurred by Lender in connection with the preparation, negotiation, execution and administration of this Agreement and any and all other Loan Documents contemplated hereby (including any amendments hereto or thereto or consents, releases or waivers hereunder or thereunder); (b) pay all reasonable, out-of-pocket expenses of Lender in connection with the disbursement of the Loan and administration of this Agreement and the other Loan Documents; (c) reimburse Lender, promptly upon written demand, for all amounts reasonably expended, advanced or incurred by Lender to satisfy or enforce any obligation of Borrower under this Agreement or any other Loan Documents that arise in connection with a breach or Default by Borrower, which amounts will include all court costs, reasonable attorneys’ fees (including, without limitation, for trial, appeal or other proceedings), fees of auditors and accountants and investigation expenses reasonably incurred by Lender in connection with any such matter; and (d) pay any and all other reasonable costs and expenses required to satisfy any provision of this Agreement, including, without limitation, documentary taxes and recording, brokerage, escrow, closing costs, fees of attorneys, surveyors, appraisers, accountants and inspectors, and title insurance premiums. 

b.

No Waiver.   No delay by Lender in exercising any right shall operate as a waiver thereof, nor shall any single or partial exercise by Lender of any right preclude any other or future exercise thereof or the exercise of any other right.  Any of the foregoing covenants and agreements may be waived by Lender, but only in writing signed by Lender.  Borrower expressly waives presentment, demand, protest, notice of intent to accelerate maturity, notice of acceleration of maturity and all other 

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notices of any kind, except for any notices expressly required under the terms of this Agreement of the other Loan Documents.

No notice to or demand on Borrower in any case shall, of itself, entitle Borrower to any other or further notice or demand in similar or other circumstances.  No delay or omission by Lender in exercising any power or right hereunder shall impair any such right or power or be construed as a waiver thereof or any acquiescence therein, nor shall any single or partial exercise of any such power preclude other or further exercise thereof, or the exercise of any other right or power thereafter.

c.

GOVERNING LAW.  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.  THE EXCLUSIVE VENUE FOR ANY DISPUTES BETWEEN THE PARTIES RELATING TO THE LOAN, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENTS SHALL BE IN THE STATE OR FEDERAL COURTS HAVING JURISDICTION AND SITTING IN THE CITY OF DALLAS, DALLAS COUNTY, TEXAS, OR IN THE CITY OF TYLER, SMITH COUNTY, TEXAS.

d.

Amendment.  No modification, consent, amendment or waiver of any provision of this Agreement, nor consent to any departure by Borrower therefrom, shall be effective unless the same shall be in writing and signed by Lender and Borrower, and then shall be effective only in the specific instance and for the purpose for which given.  This Agreement is binding upon Lender, Borrower and their respective successors and assigns, and inures to the benefit of Lender, Borrower and their respective successors and assigns.

e.

Conflicts.  The obligations, rights and remedies set forth in the Loan Documents shall be cumulative.  In all regards, all terms and provisions of the Loan Documents are intended to be read and integrated in a harmonious and consistent manner.  In the event of any conflict or inconsistency between the terms and provisions of this Agreement and any other of the Loan Documents, the terms and provisions of this Agreement shall control.  Time is of the essence of this Agreement.

f.

No Obligation to Renew Loan.  Notwithstanding anything herein or in any of the other Loan Documents to the contrary, Lender shall have no obligation to renew the Loan or to extend the maturity of the Promissory Note referred beyond the maturity date stated therein.

g.

Interest Limitations.  It is the intention of the parties hereto to comply strictly with all applicable usury and similar laws; and, accordingly, in no event and upon no contingency shall the Lender ever be entitled to receive, collect, or apply as interest any interest, fees, charges or other payments equivalent to interest, in excess of the Maximum Rate.  In determining if interest exceeds the Maximum Rate, interest shall be spread over the entire contracted for term of the Loan.  Any provision hereof, or 

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of any other agreement executed by Borrower that would otherwise operate to bind, obligate or compel Borrower to pay interest in excess of such Maximum Rate or fees in excess of the maximum lawful amount shall be construed to require the payment of the Maximum Rate or amount only.  The provisions of this Section shall be given precedence over any other provisions contained herein or in any other agreement applicable to the Loan that is in conflict with the provisions of this Section.

h.

Indemnification.  Notwithstanding anything to the contrary contained herein, Borrower shall indemnify, defend and hold Lender and its successors and assigns harmless from and against any and all claims, demands, suits, losses, damages, assessments, fines, penalties, costs or other expenses (including reasonable attorneys’ fees and court costs) arising from or in any way related to the following and items or matters related to or arising from the Property; (i) actual or threatened damage to the environment, (ii) agency costs of investigation, personal injury or death, or property damage, due to a release or alleged release of hazardous materials, arising from Borrower’s business operations or in the surface or ground water arising from Borrower’s business operations, or (iii) gaseous emissions arising from Borrower’s business operations or (iv) any other condition existing or arising from Borrower’s business operations resulting from the use or existence of hazardous materials, whether such claim proves to be true or false; provided that the foregoing indemnity shall not be applicable to any conditions or matters (a) arising or resulting from the gross negligence or willful misconduct of Lender or its agents, contractors, successors or assigns or (b) first existing or occurring after the date on which the lien of the Deed of Trust is foreclosed or a conveyance in lieu of such foreclosure is effective, or the date on which Lender, its agents or any receiver appointed thereby otherwise obtains possession of the Property.  Borrower further agrees that such indemnity obligations shall include, but are not limited to, liability for damages resulting from the personal injury or death of an employee of Borrower, regardless of whether Borrower has paid the employee under the workmen’s compensation laws of any state or other similar federal or state legislation for the protection of employees.  The term “property damage” as used in this Section includes, but is not limited to, damage to any real or personal property of Borrower, the Lender, and of any third parties.  Borrower shall not indemnify Lender for Lender's sole negligence, gross negligence or willful misconduct.  The obligations of Borrower under this Section shall survive the repayment of the Loan.

i.

Sale of Loan.  Lender may, at Lender’s sole cost and expense, sell, transfer, or assign all or any portion of the Loan and the Loan Documents or grant participations in the Loan or in the Loan Documents.  Lender may forward to each current and prospective purchaser, transferee, assignee, and participant documents and information relating to the Loan, Borrower and the Property, whether furnished by Borrower or otherwise, as Lender determines necessary or desirable.    

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j.

Successors and Assigns.  In this Agreement wherever one of the parties hereto is named or referred to, the heirs, legal representatives, successors and assigns of such party will be included and all covenants and agreements contained in this Agreement by or on behalf of Borrower or by or on behalf of Lender will bind and inure to the benefit of their respective heirs, legal representatives, successors and assigns, whether so expressed or not.  Notwithstanding the foregoing, Borrower will have no right to assign its rights hereunder or the proceeds of the Loan without the prior written consent of Lender.   Lender shall have the right to assign or pledge any portion of this Agreement and/or the Loan.  In the event of such an assignment or pledge, Borrower shall agree to such modifications to this Agreement as will facilitate such assignment or pledge, provided that such modifications will not expand or alter Borrower’s obligations or liabilities or limit or reduce Borrower’s rights or benefits under the Loan Documents.  It is understood that any assignment or pledge by Lender will not result in additional expense to Borrower.  Additionally, Lender shall have the right to disseminate (subject to a customary confidentiality agreement signed by the recipient party for the benefit of both Lender and Borrower) any information it has pertaining to the Loan, including without limitation, complete and current credit information on Borrower and Tenants.  

k.

Loan Commitment Satisfied.  Borrower and Lender agree that the obligations of Lender under any loan commitment providing for the extension of credit to Borrower with respect to the Property are satisfied by Lender’s execution and delivery of the Loan Documents. This Agreement supersedes any loan commitment letter.  

l.

Notices to Borrower.  Any notices to Borrower given hereunder shall be in writing and shall be given in accordance with Section 5.11 of the Deed of Trust.

m.

JUDICIAL PROCEEDINGS; WAIVER OF JURY.  BORROWER AND LENDER ACKNOWLEDGE AND AGREE THAT (a) ANY SUIT, ACTION, OR PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT OR INSTITUTED BY BORROWER OR LENDER OR ANY SUCCESSOR OR ASSIGNEE OF BORROWER OR LENDER, ON OR WITH RESPECT TO THE LOAN, THIS AGREEMENT, THE PROMISSORY NOTE, ANY OF THE OTHER LOAN DOCUMENTS, THE COLLATERAL OR THE DEALINGS OF THE PARTIES WITH RESPECT HERETO OR THERETO SHALL BE TRIED ONLY BY A COURT AND NOT BY A JURY, AND EACH PARTY WAIVES THE RIGHT TO TRIAL BY JURY; (b) EACH WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT, ACTION, OR PROCEEDING, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES AND REASONABLE ATTORNEY FEES; AND (c) THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THE PROMISSORY NOTE, AND LENDER WOULD NOT EXTEND CREDIT IF THE WAIVERS SET FORTH IN THIS SECTION 

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WERE NOT A PART OF THIS AGREEMENT AND THE PROMISSORY NOTE.

n.

FINAL AGREEMENT.  THIS WRITTEN LOAN AGREEMENT REPRESENTS 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.

o.

Counterpart Execution.   This Agreement may be signed in multiple counterparts, all of which taken together shall constitute a single document. 

(End of Page – Signature Page, Schedule and Exhibits Follow)

(Loan Agreement Signature Page - Lender)

IN WITNESS WHEREOF, Lender has caused this Loan Agreement to be duly executed as of the date first above written.

LENDER:

SOUTHSIDE BANK

By: ______________________________

Alex S. Hammond, Senior Vice President

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(Loan Agreement Signature Page - Borrower)

IN WITNESS WHEREOF, Borrower has caused this Loan Agreement to be duly executed as of the date first above written.

HARTMAN RICHARSON TECH CENTER, LLC, 

a Texas limited liability company

By:

Hartman Income REIT Management, Inc.,

a Texas corporation, its Manager

By:

Name:

Allen R. Hartman

Its:

President

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SCHEDULE I

(Organization Chart)

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EXHIBIT “A”

(Land)

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EXHIBIT “B”

(Initial Rent Roll)

See Attached

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EXHIBIT “C”

(Certificate of Insurance)

(See Attached)

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EXHIBIT “D”

(Lender’s Approved Form Subordination, Non-Disturbance and Attornment Agreement)

SUBORDINATION, NON-DISTURBANCE 

AND ATTORNMENT AGREEMENT

THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this "Agreement"), made as of the ____ day of ________________________, by and between _____________________________, whose mailing address is ________________________ ("Tenant"), and Southside Bank, whose mailing address is P. O. Box 1079, Tyler, Texas 75710 ("Lender").

W I T N E S S E T H:

WHEREAS, by Lease dated _________ (as amended, the "Lease"), _________________________ or its predecessor in title ("Landlord") leased and rented to Tenant certain premises described as Suite No. _____ in the office building located at _____ North Plano Road, Richardson, Dallas County, Texas (the “Property”); and

WHEREAS, it is contemplated that Lender will be the holder of a Promissory Note secured by a deed of trust, security interest and other liens against the Property (the “Mortgage”).

NOW, THEREFORE, in consideration of the premises and the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Tenant and Lender hereby agree as follows:

1.

Tenant subordinates all of its right, title and interest in and to the Property, the Lease and the leased premises to the liens of the Mortgage, and to all renewals, extensions, modifications or replacements thereof.

2.

Provided, so long as Tenant is not in default in the payment of rent or in the performance of any of the other terms, covenants and conditions of the Lease, in any case beyond the expiration of all applicable grace, notice and cure periods, Tenant’s right to possession of the leased premises shall not be affected or disturbed by Lender in the exercise of any of its rights under the Mortgage or the notes secured thereby, and any sale of the Property pursuant to the exercise of any rights and remedies under the Mortgage or otherwise shall be made subject to Tenant’s right of possession under the Lease.

3.

If Lender forecloses the lien of the Mortgage or accepts a conveyance in lieu of foreclosure, Tenant shall attorn to Lender or any purchaser of the leased premises and the Lease shall continue in accordance with its terms between Tenant and Lender or such other purchaser, as applicable.  The foregoing provisions shall be self-operative; however, Tenant agrees to execute and deliver to Lender or to any person to whom Tenant herein agrees to attorn, such other appropriate instruments as either shall request in order to effectuate such provisions.

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Loan Agreement

Page 44

4.

If any Lender or any purchaser at foreclosure of the Mortgage succeeds to the interest of Landlord under the Lease, such purchaser shall be bound to Tenant under all of the terms, covenants, and conditions of the Lease for the period of the purchaser’s ownership of the leased premises; provided, however, the purchaser shall not be (a) liable for any act or omission of the Landlord or any prior landlord; (b) subject to any offsets or defenses that Tenant may have against Landlord or any prior landlord; (c) bound by any rent that Tenant may have paid or prepaid for more than the current month to Landlord or any prior landlord; (d) bound by any agreement between Landlord and Tenant to which Lender has not previously consented in writing; (e) obligated to perform, or pay for, the construction of any improvements required under the Lease; (f) obligated to pay any broker’s fees or commissions; (g) obligated to make any payments to, or for the benefit of, Tenant in the nature of a tenant improvement allowance or leasing incentive; or (h) responsible for any security deposit unless actually received.    

5.

Tenant agrees that no modifications or alterations to the Lease that materially increase the obligations of Landlord, or materially reduce or impair the rights of Landlord, shall be binding on Lender unless approved in writing by Lender. 

6.

Tenant agrees that it will notify Lender in writing, by certified mail, of any default by Landlord under the Lease and shall not cancel or terminate the Lease without allowing Lender at least 30 days after Lender’s receipt of such notice (or such longer period as may be applicable under the terms of the Lease) within which to cure said default, without any obligation to so.  If any default by Landlord is cured within the time period described above, Tenant shall have no right to cancel or terminate the Lease by virtue of said default.  

7.

If Lender demands that rents and other sums payable by Tenant under the Lease be paid to Lender, Tenant shall comply with such demand, and if Tenant fails to comply, Tenant shall be in default under the Lease.

8.

This Agreement shall inure to the benefit of, and shall be binding upon, the parties hereto and their respective successors and assigns.

9.

This Agreement may be signed in multiple counterparts. 

(End of Page – Signature Page, Acknowledgements and Exhibit Follow)

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Loan Agreement

Page 45

EXECUTED as of the date and year first above written.

TENANT:

_________________________________

By: ______________________________

Name: ___________________________

Title: ____________________________

LENDER:

SOUTHSIDE BANK 

By:

_______________________________

Name:

_______________________________

Title:

_______________________________

CONSENT 

The undersigned hereby consents to, and approves, the foregoing Subordination, Non-Disturbance and Attornment Agreement. 

HARTMAN RICHARDSON TECH CENTER, LLC 

By: _______________________________

Name: ____________________________

Title: _____________________________

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Loan Agreement

Page 46

EXHIBIT “E”

(Form of Semi-Annual Certificate of Compliance)

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Loan Agreement

Page 47Promissory Note  (W1536339.DOCX;2)

PROMISSORY NOTE

$3,570,000.00

March 14, 2018

For value received, the undersigned (herein called “Maker”) hereby promises to pay to the order of Southside Bank (“Lender”), in immediately available funds in lawful money of the United States of America, at the offices of Southside Bank in the City of Tyler, Smith County, Texas, the principal sum of THREE MILLION FIVE HUNDRED SEVENTY THOUSAND US DOLLARS ($3,570,000.00), together with interest on the unpaid principal balance of this Note from day to day advanced and outstanding.  This Note will be funded in multiple advances, subject to the terms, conditions and limitations set forth in the Loan Agreement (hereinafter defined); provided, in no event shall Lender be obligated to make any advances after March 14, 2021, and provided further, sums advanced and repaid shall not be re-advanced. 

Definitions. 

The term “Applicable Law” as used in this Note means the laws of the State of Texas (without regard to any conflict of laws principles) and applicable United States federal laws; provided, however, with respect to determination of the Maximum Rate and the Maximum Amount, this Note shall be governed by the laws of the State of Texas or the applicable federal laws of the United States, whichever laws allow the greater interest, as such laws now exist (or as such laws may be changed or amended or come into effect in the future, but only to the extent that any change, modification or new law permits a higher Maximum Rate or higher Maximum Amount).

The term “Business Day” as used in this Note means a day other than a Saturday, Sunday or other day on which banks in Tyler, Texas are authorized or required to be closed.

The term “Collateral” as used in this Note means all collateral as described in the Loan Documents, including, without limitation, the Property (as defined in the Loan Agreement) and any other assets of Maker, whether now owned or hereafter acquired. 

The term “Floating Rate Index” as used in this Note means a floating interest rate equal to the One Month London Interbank Offered Rate (Libor) as published in the “Borrowing Benchmarks - Money Rates” section of the Wall Street Journal from time to time (or a comparable rate selected by Lender if The Wall Street Journal ceases to publish such rate).  The initial Floating Index Rate on the date of this Note is 1.776%, provided, the Floating Index Rate shall be adjusted on the first day of each month (commencing on April 1, 2018) to the then current One Month London Interbank Offered Rate (Libor) as published in The Wall Street Journal on the last business day preceding such date. 

The term “Loan Agreement” as used in this Note means a Loan Agreement dated of even date herewith, by and between Maker and Lender, as same may be modified, amended or restated from time to time.  This Note is subject to the terms of the Loan Agreement and evidences the “Loan” as therein defined. 

The term “Loan Documents” as used in this Note means this Note, the Loan Agreement and all deeds of trust, security agreements and other documents now or hereafter securing, guaranteeing or 

{A17/04114/0107/W1536339.2 }

executed in connection with the loan evidenced by this Note, as the same may be amended, restated, modified or supplemented from time to time. 

The term “Maximum Rate” as used in this Note means the maximum non-usurious rate of interest per annum permitted by Applicable Law. The Maximum Rate shall be applied by taking into account all amounts characterized by Applicable Law as interest on the debt evidenced by this Note, so that the aggregate of all interest does not exceed the Maximum Amount (hereinafter defined).

The term “Past Due Rate” as used in this Note means a rate per annum equal to the Stated Rate plus four percent (4%) per annum.

The term “Stated Rate” as used in this Note means a floating annual interest rate equal to the greater of (i) the Floating Rate Index, plus 2.75%, or (ii) 2.75%.  

Interest Rate.  The unpaid principal balance of this Note from day to day outstanding which is not past due shall bear interest at a rate per annum equal to the lesser of (a) the Maximum Rate or (b) the Stated Rate.  Any principal of, and to the extent permitted by Applicable Law, any interest on, this Note which is not paid when due shall bear interest, from the date due and payable until paid, payable on demand, at a rate per annum equal to the lesser of (a) the Maximum Rate or (b) the Past Due Rate.  Subject always to limitation by the Maximum Rate, interest on this Note at the Stated Rate and the Past Due Rate shall be calculated on the basis of the 360/actual method, which computes a daily amount of interest for a year consisting of 360 days, then multiplies such amount by the actual number of days in an interest calculation period.

Terms of Payment.   Interest shall be due and payable monthly as it accrues on the first day of each month beginning April 1, 2018 and continuing regularly thereafter UNTIL MARCH 14, 2021 (THE “FINAL MATURITY DATE”), WHEN ALL PRINCIPAL AND ALL ACCRUED INTEREST REMAINING UNPAID SHALL THEN BE DUE AND PAYABLE IN FULL, AND LENDER SHALL HAVE NO OBLIGATION TO RENEW THIS NOTE OR TO EXTEND THE FINAL MATURITY DATE (EXCEPT FOR ANY EXTENSION OF THE FINAL MATURITY DATE THAT IS EXPRESSLY PERMITTED IN THE LOAN AGREEMENT; AND IF THE FINAL MATURITY DATE IS SO EXTENDED, THEN PRINCIPAL AND INTEREST SHALL BE PAYABLE IN MONTHLY INSTALLMENTS AS THEREIN PROVIDED UNITL THE FINAL EXTENDED MATURITY DATE, WHEN ALL PRINCIPAL AND ALL ACCRUED INTEREST REMAINING UNPAID SHALL THEN BE DUE AND PAYABLE IN FULL AS PROVIDED IN THE LOAN AGREEMENT).  Whenever any payment shall be due under this Note on a day which is not a Business Day, the date on which such payment is due shall be extended to the next succeeding Business Day, and such extension of time shall be included in the computation of the amount of interest then payable.  All payments made on this Note shall be applied, to the extent thereof, first to accrued but unpaid interest and the balance to unpaid principal. Any monthly installment that is not paid within ten days after the due date shall be subject to a one-time late fee in an amount equal to 5% of the past due amount, which fee shall be due and payable only upon demand by Lender; provided, however, with respect to the first time only that a monthly installment is not paid within ten days after the due date, Lender agrees to waive the late fee if the payment is received within five days after Lender gives Maker written notice that such installment is past due.     

 

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Page 2

Prepayments.  Principal may be prepaid in whole or in part without any penalty, premium or fee; provided, however, Lender shall not be required to accept any prepayment of principal unless Maker gives Lender written notice of Maker’s intent to make a prepayment (which notice must specify the amount of the prepayment and the date on which the prepayment will be made) at least thirty (30) days prior to Lender’s receipt of the prepayment.  Prepayments of principal shall be applied to the last installment(s) of principal payable hereunder.

Security.  The security for this Note includes, without limitation, a Deed of Trust, Security Agreement and Assignment of Rents of even date herewith covering the Property (as defined in the Loan Agreement).   

Default.  It shall be a default under this Note and each of the other Loan Documents if (i) any installment of principal, accrued interest or other amount of money due under this Note is not paid in full when due, regardless of how such amount may have become due, and if Maker fails to cure such default prior to expiration of the applicable cure period as provided in the Loan Agreement; or (ii) there shall occur any default or event of default under any of the Loan Documents, and if Maker fails to cure such default prior to expiration of any applicable cure period provided in the Loan Documents (each a “Default”).  Upon the occurrence of a Default, the holder hereof shall have the rights to declare the unpaid principal balance and accrued but unpaid interest on this Note at once due and payable (and upon such declaration, the same shall be at once due and payable); foreclose any or all liens and security interests securing payment hereof; and/or exercise any of its other rights, powers and remedies under this Note, under any other Loan Document, or at law or in equity.

Remedies.  All rights and remedies provided for in this Note and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity.  The resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate rights or remedies.  No single or partial exercise by the holder hereof of any right, power or remedy shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy may be exercised at any time and from time to time.  Neither the failure by the holder of this Note to exercise, nor delay by the holder in exercising, the right to accelerate the maturity of this Note or any other right, power or remedy upon any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at any time.  Without limiting the generality of the foregoing provisions, the acceptance by the holder hereof from time to time of any payment under this Note which is past due or which is less than the payment in full of all amounts due and payable at the time of such payment, shall not (i) constitute a waiver of, or impair or extinguish, the rights of the holder hereof to accelerate the maturity of this Note or to exercise any other right, power or remedy at the time or at any subsequent time, or nullify any prior exercise of any such right, power or remedy, or (ii) constitute a waiver of the requirement of punctual payment and performance, or a novation in any respect.

Attorney’s Fees.  If any holder of this Note retains an attorney in connection with any Default or to collect, enforce or defend this Note or any other Loan Document in any lawsuit or in any probate, reorganization, bankruptcy or other proceeding, or if Maker sues any holder in connection with this Note or any other Loan Document and does not prevail, then Maker agrees to pay to each such holder, in addition to principal and interest, all reasonable costs and expenses incurred by such holder in trying to collect this Note or in any such suit or proceeding, including reasonable attorneys' fees.

Usury Savings.  It is the intent of Lender and Maker and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements between Lender or any other holder hereof and Maker (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this paragraph which shall override and control all such agreements, whether now existing or hereafter arising.  In no way, nor in any event or contingency (including but not limited to prepayment, Default, demand for payment, or acceleration of maturity), shall the interest taken, reserved, contracted for, charged or received under this Note or otherwise, exceed the maximum non-usurious amount permitted by Applicable Law (the “Maximum Amount”).  If, from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this paragraph and such document shall be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If the holder hereof shall ever receive anything of value which is characterized as interest under Applicable Law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the indebtedness evidenced hereby in the inverse order of its maturity and not to the payment of interest, or refunded to Maker or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate maturity of this Note or any other indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and the holder hereof does not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to the holder hereof shall, to the extent permitted by Applicable Law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of such indebtedness so that the amount of interest does not exceed the Maximum Amount. 

 

Waivers.  If there is more than one Maker of this Note, all Makers shall be jointly and severally liable for payment of the indebtedness evidenced hereby and all other obligations under the Loan Documents.  Except as otherwise expressly provided in the Loan Documents, Maker and all sureties, endorsers, guarantors and any other party now or hereafter liable for the payment of this Note in whole or in part, hereby severally (i) waive demand, presentment for payment, notice of dishonor and of nonpayment, protest, notice of protest, notice of intent to accelerate, notice of acceleration and all other notice (except any applicable notices which are specifically required by this Note or any other Loan Document), filing of suit and diligence in collecting this Note or enforcing any of the security herefor; (ii) agree to any substitution, subordination, exchange or release of any such security or the release of any party primarily or secondarily liable hereon; (iii) agree that the holder hereof shall not be required first to institute suit or exhaust its remedies hereon against Maker or other party liable or to become liable hereon or to enforce its rights against them or any security herefor; (iv) consent to any extension or postponement of time of payment of this Note for any period or periods of time and to any partial payments, before or after maturity, and to any other indulgences with respect hereto, without notice thereof to any of them; (v) submit (and waive all rights to object) to personal jurisdiction in the State of Texas, and venue in Dallas County, Texas or Smith County, Texas for the enforcement of any and all obligations under the Loan Documents; and (vi) waive all rights and defenses under Sections 51.003, 51.004 and 51.005 of the Texas Property Code, as amended.  

Business Purpose Loan.  This Note may not be amended except in a writing specifically intended for such purpose and executed by the party against whom enforcement of the amendment is sought.  The loan evidenced by this Note is solely for business, commercial, investment or other similar purpose and is not for personal, family, household or agricultural purposes.  The holder of this Note may sell, or offer to sell, the loan evidenced by this Note to a bank or other financial institution chartered under the laws of the United States or any State, and the holder of this Note is hereby authorized to disseminate to any such purchaser or prospective purchaser any information that holder has pertaining to the loan evidenced by this Note, including, without limitation, credit information on the Maker and any guarantors of this Note. 

 

Jurisdiction and Venue; Waiver of Jury.   THIS EXCLUSIVE VENUE FOR ANY LITIGATION WITH RESPECT TO THIS NOTE SHALL BE IN THE FEDERAL OR STATE COURTS SITTING IN THE CITY OF DALLAS, DALLAS COUNTY, TEXAS, OR IN THE CITY OF TYLER, SMITH COUNTY, TEXAS, AND HAVING JURISDICTION.  MAKER AND LENDER HEREBY WAIVE THE RIGHT TO A JURY TRIAL WITH RESPECT TO ANY CLAIMS OR DISPUTES RELATING TO THIS NOTE OR ANY OF THE OTHER LOAN DOCUMENTS.

Notice of Final Agreement.  THE 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.

(End of Page – Signature Page Follows)

{A17/04114/0107/W1536339.2 }

Page 3

IN WITNESS WHEREOF, Maker has duly executed this Promissory Note as of the date first above written.

MAKER:

 

HARTMAN RICHARDSON TECH CENTER, LLC, 

a Texas limited liability company

By:

Hartman Income REIT Management, Inc.,

a Texas corporation, its Manager

By:

Name:

Allen R. Hartman

Its:

President

{A17/04114/0107/W1536339.2 }

Promissory Note

Signature Page

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