-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, L37g1FQ/xnWFGEp01qtP5JBdrVE4U/VjqSqxQaD7Urln7yBadJyOPioD7T53O4sg ewXzZiMCEe91bacxNkqCiw== 0000950144-00-003968.txt : 20000411 0000950144-00-003968.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950144-00-003968 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROBERTS REALTY INVESTORS INC CENTRAL INDEX KEY: 0001011109 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 582122873 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-13183 FILM NUMBER: 582862 BUSINESS ADDRESS: STREET 1: 8010 ROSWELL RD STREET 2: STE 120 CITY: ATLANTA STATE: GA ZIP: 30350 BUSINESS PHONE: 7703946000 MAIL ADDRESS: STREET 1: 8010 ROSWELL ROAD SUITE 120 CITY: ATLANTA STATE: GA ZIP: 30350 10-K405 1 ROBERTS REALTY INVESTORS, INC. 1 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________. Commission file number 001-13183 ROBERTS REALTY INVESTORS, INC. ---------------------------------------------- (Name of small business issuer in its charter)
GEORGIA 58-2122873 - ---------------------------------------------------------------- ----------------------------------- (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
8010 ROSWELL ROAD, SUITE 120 ATLANTA, GA 30350 - --------------------------------------------------- ---------------- (Address of Principal Executive Offices) (Zip Code) Issuer's telephone number: (770) 394-6000 Securities registered under Section 12(b) of the Act: NONE Title of each class: Name of each exchange on which registered: ------------------- ----------------------------------------- N/A N/A Securities registered under Section 12(g) of the Exchange Act: Common Stock ---------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of a specified date within 60 days prior to the date of this filing. (See definition of affiliate in Rule 405.) $24,727,024 Note: If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided that the assumptions are set forth in this Form. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. 4,840,075 shares of common stock (as of March 1, 2000) Documents Incorporated by Reference. Portions of the proxy statement for the registrant's 2000 annual meeting of shareholders are incorporated by reference in Part III of this Form 10-K. 2 TABLE OF CONTENTS
PAGE ---- PART I............................................................................................... 2 ITEM 1. BUSINESS....................................................................... 2 ITEM 2. PROPERTIES..................................................................... 9 ITEM 3. LEGAL PROCEEDINGS.............................................................. 22 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................................................... 22 PART II.............................................................................................. 23 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.................................................... 23 ITEM 6. SELECTED FINANCIAL DATA........................................................ 24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................................. 27 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.............................................................. 39 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................................... 40 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................................................................... 40 PART III............................................................................................. 40 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ............................................. 40 ITEM 11. EXECUTIVE COMPENSATION......................................................... 40 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................................... 40 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................................... 40 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K........................................................ 41
3 PART I ITEM 1. DESCRIPTION OF BUSINESS. GENERAL Roberts Realty Investors, Inc. owns and operates multifamily residential properties as a self-administered, self-managed equity real estate investment trust, or REIT. We conduct our business through Roberts Properties Residential, L.P., which we refer to as the operating partnership. The operating partnership owns all our properties. As of March 1, 2000, Roberts Realty owns a 65.4% interest in the operating partnership and is its sole general partner. We expect to continue to conduct our business in this organizational structure, which is sometimes called an "umbrella partnership" or "UPREIT." As of March 24, 2000 we own nine existing multifamily apartment communities containing a total of 1,779 apartment homes, and three communities under development or construction that will contain approximately 853 apartment homes. Eight of our communities - River Oaks, Rosewood Plantation, Plantation Trace, Preston Oaks, Highland Park, Crestmark, Ivey Brook, and Bradford Creek - containing a total of 1,661 apartment units, are stabilized. Our 118-unit first phase of Addison Place, formerly referred to as Abbotts Bridge, is now in its initial lease-up phase. Addison Place's second phase, anticipated to total 285 apartment homes, and Ballantyne, anticipated to total 319 apartment homes, are under construction. Our Old Norcross community, anticipated to total 249 apartment homes, is in the development stage. All of our communities are located in metropolitan Atlanta, Georgia, except the Ballantyne community, which is located in Charlotte, North Carolina. We consider a community to have achieved stabilized occupancy on the earlier of (a) attainment of 95% occupancy as of the first day of any month, or (b) one year after completion of construction. As of December 31, 1999, we owned eight stabilized communities containing a total of 1,661 apartment homes that had a physical occupancy rate of 92.6%. Roberts Realty is a Georgia corporation formed in July 1994. We expect to continue to qualify as a REIT for federal income tax purposes. A REIT is a legal entity that holds real estate interests and, through its payment of distributions, is able to reduce or avoid incurring federal income tax at the corporate level. This structure allows shareholders to participate in real estate investments without the "double taxation" of income i.e., at both the corporate and shareholder levels - that generally results from an investment in shares of a corporation. To maintain our qualification as a REIT, we must, among other things, distribute annually to our shareholders at least 95% of our taxable income. Our common stock is traded on the American Stock Exchange under the symbol "RPI." We have engaged two entities owned by Mr. Charles S. Roberts, our Chairman of the Board, Chief Executive Officer and President, to perform services for the operating partnership. These entities are Roberts Properties, Inc. and Roberts Properties Construction, Inc., which we sometimes refer to as the Roberts Companies. The Roberts Companies developed and constructed each of our nine existing communities, except the 24-unit second phase of Preston Oaks, which was constructed by an independent contractor. We expect that affiliates of Mr. Roberts will continue to develop future properties and construct properties where feasible. Roberts Construction started construction of the Ballantyne Community and intends to hire an independent general contractor to complete construction of the community. Roberts Construction will continue to oversee the project. Our executive offices are located at 8010 Roswell Road, Suite 120, Atlanta, Georgia 30350, and our telephone number is (770) 394-6000. As of March 20, 2000, we have 47 full-time employees. THE OPERATING PARTNERSHIP We conduct our business and own all of our real estate assets through the operating partnership. We control the operating partnership as its sole general partner. Our ownership interest in the operating partnership entitles us to share in cash distributions from, and in the profits and losses of, the operating partnership generally in proportion to our ownership percentage. In this report we refer to units of limited partnership interest in the operating partnership as "units." The holders of units are: former limited partners in the limited partnerships that were merged into the operating partnership; Mr. Roberts; and the former owner of one of the retail centers we formerly owned. 2 4 Except as described in the following paragraph, holders of units in the operating partnership, sometimes referred to in this report as unitholders, generally have the right to require the operating partnership to redeem their units. A unitholder who submits units for redemption will receive, at our election, either an equal number of shares or cash in the amount of the average of the daily market prices of the common stock for the 10 consecutive trading days before the date of submission multiplied by the number of units submitted. We have adopted a policy of acquiring units in exchange for shares. We also have the right, at our election, to issue shares in exchange for all outstanding units. Our articles of incorporation limit ownership by any one holder to 6% of the outstanding shares of our common stock, par value $0.01 per share, other than by Mr. Roberts, who is limited to 25%. As a result, unitholders cannot redeem their units if doing so would violate those ownership limits. On February 1, 1999, we began a six-month period in which units could not be redeemed. At the end of the six-month period, we registered new shares with the SEC that simplified the process for unitholders who elect to exchange their units for shares. We completed the registration of these new shares with the SEC on August 2, 1999. Unlike the shares issued in exchange for units before February 1, 1999 in reliance upon the "intrastate" offering exemption, shares issued under the new registration (a) are freely tradeable, other than by affiliates, and (b) can be issued both to persons who reside in Georgia and in other states. Before February 1, 1999, we paid cash to redeeming unitholders who resided outside the state of Georgia. Whenever we issue shares, we are obligated to contribute the net proceeds from that issuance to the operating partnership, and the operating partnership is obligated to issue the same number of units to us. The operating partnership agreement permits the operating partnership, without the consent of the unitholders, to sell additional units and add limited partners. GROWTH STRATEGIES Our business plan and growth strategy are focused on creating cash flow and capital appreciation by building and managing new apartment homes of the highest quality and value in excellent high-growth neighborhoods. Our business objectives are: - to maximize the current return to our shareholders in the form of quarterly dividends through increases in cash flow, and - to increase long-term total returns to our shareholders through appreciation in the value of the common stock. To achieve these objectives, we intend to pursue the following growth strategies: (a) maximize cash flow from operations by seeking through intensive management to maintain high occupancy levels, obtain regular rent increases, manage resident turnover efficiently and control operating expenses; and (b) develop new multifamily apartment communities in metropolitan Atlanta, North Carolina, Florida and other parts of the Southeast. We will engage others, including the Roberts Companies, to help us pursue these strategies, which are described in more detail below. Property Management Strategy. We believe that managing our communities intensively is a fundamental element of our growth strategy. As of March 20, 2000, we employ 46 property management personnel, including property managers, leasing managers, leasing consultants, maintenance supervisors and technicians, and accounting personnel. We believe our property management expertise will enable us to continue to deliver quality services, thereby promoting resident satisfaction, maintaining high resident retention, and enhancing the value of each of the communities. Our property management strategy will continue to be: 3 5 - to increase the average occupancy and rental rates as market conditions permit, - to minimize resident turnover and delinquent rental payments through strict review of each applicant's creditworthiness, and - to control operating expenses to increase net operating income at each of the communities. Development Strategy. We intend to continue to develop high quality apartment communities for long-term ownership. During the past 15 years, the Roberts Companies have developed, constructed and/or managed over 4,200 residential units. We believe that the number and quality of the apartment units developed by the Roberts Companies, the relationships Mr. Roberts and employees of the Roberts Companies have developed with local permitting and governmental authorities, and the Roberts Companies' experience with the development, construction and financing process will minimize the barriers to new development often faced by less experienced developers and national developers attempting to enter the Atlanta market. These barriers include governmental growth control; a difficult rezoning and permitting process; and the limited availability of well-located sites. We believe that these restraints on construction, coupled with the predicted continued growth in population, job growth and household formations, present an excellent opportunity for us to achieve favorable returns on the development of well-located, high quality apartment home communities. Roberts Properties is developing the Addison Place, Ballantyne and Old Norcross communities. We expect that Roberts Properties will continue to develop communities for us in the future. Although the experience of the Roberts Companies will be most helpful to us in the Atlanta area, we believe that experience will enable us to develop multifamily apartment communities in other areas in the Southeast, including Charlotte. Although we presently intend to engage the Roberts Companies in our development and construction activities, we may hire other development or construction companies in Atlanta and elsewhere if we deem it to be in our best interests to do so. The most likely development scenario for the operating partnership is for it to acquire properties already under development from Roberts Properties and/or an entity formed by Mr. Roberts or his affiliates. We may engage the Roberts Companies to develop properties on a fee basis; we may enter into joint venture agreements with the Roberts Companies; or we may acquire communities developed by the Roberts Companies and owned by other affiliates of Mr. Roberts. We may also enter into similar arrangements with others who are independent of Mr. Roberts. In analyzing the potential development of a particular community, we will evaluate geographic, demographic, economic and financial data, including: - household, population and employment growth; - prevailing rental and occupancy rates in the immediate market area and the perceived potential for growth in those rates; - costs that affect profitability of the investment, including construction, financing, operating and maintenance costs; - income levels in the area; - existing employment bases; - traffic volume, transportation access, proximity to commercial centers and regional malls; and - proximity to and quality of the area's schools. We will also consider physical elements regarding a particular site, including the probability of zoning approval (if required), availability of utilities and infrastructure, and other physical characteristics of the site. For information regarding the development and construction of Addison Place, Ballantyne, and Old Norcross, see Part I, Item 2, Description of Property. 4 6 ENVIRONMENTAL AND OTHER REGULATORY MATTERS Under various federal, state and local laws and regulations, an owner of real estate is liable for the costs of removal or remediation of hazardous or toxic substances on the property. Those laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of the hazardous or toxic substances. The costs of remediation or removal of the substances may be substantial, and the presence of the substances, or the failure to promptly remediate the substances, may adversely affect the owner's ability to sell the real estate or to borrow using the real estate as collateral. In connection with its ownership and operation of the communities and its other real estate assets, the operating partnership may be potentially liable for: (a) those remediation and removal costs, and (b) damages to persons or property arising from the existence or maintenance of those hazardous or toxic substances. We have conducted preliminary evaluations of the environmental condition of our communities and surrounding properties. In April 1998, Wallace Enterprises, Inc., an adjacent land owner, notified us that a petroleum product release had been discovered on property adjacent to our Crestmark community. Wallace repaired the source of the release and its corrective action plan has been approved by the Georgia Environmental Protection Division, or EPD. Our environmental attorneys and consultants have advised us that Wallace is responsible for cleaning up the release to the extent required by the EPD regulations. Our environmental consultants have informed us that despite a possible groundwater impact at Crestmark, no threat to human health or safety is suggested. We and our environmental consultants are monitoring the EPD files to ensure Wallace's compliance with the EPD regulations. The preliminary environmental assessments of our other communities and other real estate assets have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets, or results of operations, nor are we aware of any liability of that type. Nevertheless, these assessments may not have revealed all environmental liabilities, and we may have material environmental liabilities that we do not know about. Future uses or conditions - including changes in applicable environmental laws and regulations - may cause us to have environmental liability. COSTS OF COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT AND SIMILAR LAWS Under the American with Disabilities Act of 1990, or the ADA, all places of public accommodation are required to meet federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Although we believe that the communities are substantially in compliance with present requirements of the ADA, we may incur additional costs of complying with the ADA. A number of additional federal, state and local laws may also require modifications to the communities, or restrict further renovations to them, with respect to access by disabled persons. For example, the Fair Housing Amendments Act of 1988 requires apartment communities first occupied after March 13, 1990 to be accessible to the handicapped. Noncompliance with this Act could result in the imposition of fines or an award of damages to private litigants. We believe that the communities that are subject to the Act comply with that law. Additional legislation may impose further burdens or restrictions on owners with respect to access by disabled persons. We cannot estimate the ultimate amount of the cost of compliance with the ADA or that legislation, and, while those costs are not expected to have a material adverse effect on us, those costs could be substantial. Limitations or restrictions on the completion of renovations may limit application of our investment strategy in some instances or reduce overall returns on our investments. 5 7 INSURANCE We carry comprehensive general liability, fire, extended coverage and rental loss insurance on all of our existing communities, with policy specifications, insured limits and deductibles customarily carried for similar properties. We carry similar insurance with respect to our properties under development or properties under construction, but with appropriate exceptions given the nature of these properties. We believe that our communities are adequately covered by insurance. There are, however, some types of losses (such as losses arising from acts of war) that are not generally insured because they are either uninsurable or not economically insurable. If an uninsured loss or a loss in excess of insured limits occurs, we could lose our capital invested in a property, as well as the anticipated future revenues from the property, and would continue to be obligated on any mortgage indebtedness or other obligations related to the property. Any loss of that kind would adversely affect us. INVESTMENT, FINANCING AND CONFLICT OF INTEREST POLICIES The investment policies, financing policies and conflict of interest policies set by our board of directors are summarized below. Our board may amend or revise them from time to time without a vote of our shareholders or any vote of the partners of the operating partnership, except that: (a) we cannot change our policy of holding our assets and conducting our business exclusively through the operating partnership without amending the operating partnership agreement, which will generally require the consent of the holders of a majority in interest of the limited partners in the operating partnership including, if applicable, Roberts Realty, and (b) changes in our conflicts of interest policies must be approved by a majority of the independent directors and otherwise be consistent with legal requirements. INVESTMENT POLICIES Investments in Real Estate or Interests in Real Estate. We conduct all of our investment activities through the operating partnership and will do so for so long as the operating partnership exists. (The agreement of limited partnership of the operating partnership provides that it is not required to be dissolved until 2093.) Our investment objectives are to achieve stable cash flow available for distributions and, over time, to increase cash flow and portfolio value by continuing to develop multifamily apartment communities for long-term ownership. Our policy is to develop assets where we believe that favorable investment opportunities exist based on market conditions at the time of the investment. We expect to pursue our investment objectives primarily through the direct ownership of properties by the operating partnership, although, as discussed below, we may also pursue indirect property ownership opportunities. We intend to develop multifamily apartment communities primarily in the Atlanta and Charlotte metropolitan areas, Florida, and other parts of the Southeast. Future development or investment activities will not be limited by our governing documents to any geographic area, product type or specified percentage of our assets. 6 8 Possible Acquisition of Communities Developed by Mr. Roberts or his Affiliates. Mr. Roberts and Roberts Properties have been engaged in the development of residential and commercial real estate since the early 1970s, and Mr. Roberts expects that he and Roberts Properties will continue to engage in real estate development. Provided that any transaction or agreement must comply with the policies discussed under "Conflict of Interest Policies," we and/or the operating partnership may engage in transactions of various types with Mr. Roberts, Roberts Properties and/or other affiliates of Mr. Roberts to develop or acquire real estate. Those transactions may include: - hiring Mr. Roberts or Roberts Properties to develop real estate under a fee arrangement, - acquiring undeveloped property from Mr. Roberts or his affiliates for future development, or - acquiring from Mr. Roberts or his affiliates partially or completely constructed properties, whether in their lease-up phase or already leased-up. No particular arrangements have been determined, other than the communities now under construction and development as described elsewhere in this report. Securities of or Interest in Persons Primarily Engaged in Real Estate Activities and Other Issuers. We and the operating partnership also may invest in securities of other entities engaged in real estate activities or invest in securities of other issuers, including investments by us and the operating partnership for the purpose of exercising control over those entities. We or the operating partnership may acquire all or substantially all of the securities or assets of other REITs or similar entities where those investments would be consistent with our investment policies. We do not currently intend to invest in the securities of other issuers. In making any of the investments described in this paragraph we intend to comply with the percentage of ownership limitations and gross income tests necessary for REIT qualification under the Internal Revenue Code. Also, we will not make any investments if the proposed investment would cause us or the operating partnership to be an "investment company" under the Investment Company Act of 1940. No Investments in Mortgages. We do not own any mortgages and do not currently intend to invest in mortgages or to engage in originating, servicing, or warehousing mortgages. FINANCING POLICIES Our organizational documents do not limit the amount of indebtedness we may incur. We have an informal policy that we will not incur indebtedness in excess of 75% of what the board of directors believes is the fair market value of our assets at any given time. We may, however, from time to time re-evaluate our borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market value of the operating partnership's real estate assets, growth and acquisition opportunities and other factors. Modification of this policy may adversely affect the interests of our shareholders. To the extent that the board of directors determines to seek additional capital, we may raise capital through additional equity offerings, debt financing or retention of cash flow, or a combination of these methods. Our retention of cash flow is subject to provisions in the Internal Revenue Code requiring a REIT to distribute a specified percentage of taxable income, and we must also take into account taxes that would be imposed on undistributed taxable income. As long as the operating partnership is in existence, we will contribute the net proceeds of all equity capital we raise to the operating partnership in exchange for units or other interests in the operating partnership. We have not established any limit on the number or amount of mortgages on any single property or on the operating partnership's portfolio as a whole. 7 9 CONFLICT OF INTEREST POLICIES The board of directors is subject to provisions of Georgia law that are designed to eliminate or minimize potential conflicts of interest. We can give no assurances, however, that these policies will always eliminate the influence of those conflicts. If these policies are not successful, the board could make decisions that might fail to reflect fully the interests of all shareholders. Under Georgia law, a director may not misappropriate corporate opportunities that he learns of solely by serving as a member of the board of directors. In addition, under Georgia law, a transaction effected by us or any entity we control (including the operating partnership) in which a director, or specified related persons and entities of the director, have a conflicting interest of such financial significance that it would reasonably be expected to exert an influence on the director's judgment may not be enjoined, set aside or give rise to damages on the grounds of that interest if either: - the transaction is approved, after disclosure of the interest, by the affirmative vote of a majority of the disinterested directors, or by the affirmative vote of a majority of the votes cast by disinterested shareholders, or - the transaction is established to have been fair to us. The board of directors has adopted a policy that all conflicting interest transactions must be authorized by a majority of the disinterested directors, but only if there are at least two directors who are disinterested with respect to the matter at issue. OTHER POLICIES We and the operating partnership have authority to offer our securities and to repurchase and otherwise reacquire our securities, and we may engage in those activities in the future. We have adopted a policy that we will issue shares to unitholders who exercise their rights of redemption. In the future, we may make loans to joint ventures in which we participate to meet working capital needs. We have not engaged in trading, underwriting, agency distribution, or sale of securities of other issuers, and we do not intend to do so. We intend to make investments in a manner so that we will not be treated as an investment company under the Investment Company Act of 1940. We announced our intention to repurchase up to 300,000 shares of our outstanding common stock on September 3, 1998. We repurchased 121,200 shares in 1999 for $909,000 and 19,300 shares in 1998 for $145,000. During 1999, we paid $28,000 to redeem 3,917 units from unitholders who resided outside the state of Georgia. At all times, we intend to make investments in a manner to be consistent with the requirements of the Internal Revenue Code for us to qualify as a REIT unless, because of changing circumstances or changes in the Internal Revenue Code or in applicable regulations, the board of directors decides that it is no longer in our best interests to qualify as a REIT. For a description of the competition we face, see Part 1, Item 2, Description of Property - Competition. 8 10 ITEM 2. DESCRIPTION OF PROPERTY. GENERAL As of March 24, 2000 we own nine existing multifamily apartment communities containing a total of 1,779 apartment homes, and three communities under development or construction that will contain approximately 853 apartment homes. Eight of our existing communities - River Oaks, Rosewood Plantation, Plantation Trace, Preston Oaks, Highland Park, Crestmark, Ivey Brook, and Bradford Creek - containing a total of 1,661 apartment units, are stabilized. Our 118-unit first phase of Addison Place, formerly referred to as Abbotts Bridge, is now in its initial lease-up phase. Addison Place's second phase, totaling 285 apartment homes and Ballantyne, totaling 319 apartment homes, are under construction. Our Old Norcross community, anticipated to total 249 apartment homes, is in the development stage. All of our communities are located in metropolitan Atlanta, Georgia, except the Ballantyne community, which is located in Charlotte, North Carolina. As of December 31, 1999, we owned eight stabilized communities containing a total of 1,661 apartment homes that had a physical occupancy rate of 92.6%. We sold the 118-unit Bentley Place community on August 23, 1999. We believe that the demand for multifamily housing in Atlanta will increase due to Atlanta's growing population. According to the Atlanta Regional Commission, which we refer to as the ARC, both population and job growth in Atlanta are projected to be above the national average for the foreseeable future. The ARC is the regional planning and governmental coordination agency for the 10-county Atlanta Region, which is comprised of Fulton, Dekalb, Gwinnett, Cobb, Clayton, Rockdale, Henry, Douglas, Cherokee, and Fayette counties. The following information is based on statistical estimates published by the ARC. The population of the Atlanta Region is projected to grow 40.9% for the period from 1990 to 2010, from 2,557,800 persons in 1990 to 3,603,800 persons in 2010. The estimated population of the Atlanta Region increased by 25.3% from 2,557,800 persons in 1990 to 3,204,900 persons in 1999, making it one of the largest metropolitan areas in the country and the largest in the Southeast. Employment of the Atlanta Region is projected to grow 52.5% for the period from 1990 to 2010, from 1,426,000 jobs in 1990 to 2,175,000 jobs in 2010. Estimated employment of the Atlanta Region increased by 29.0% from 1,426,000 jobs in 1990 to 1,840,000 jobs in 1998. According to the Georgia Department of Labor, the estimated December 1999 unemployment rate of the Atlanta Region was 2.6%, which was below the estimated December 1999 Georgia unemployment rate of 3.2% and the estimated December 1999 U.S. unemployment rate of 3.7%. Housing units in the Atlanta Region increased an estimated 25.9%, from 1,052,430 units in 1990 to 1,324,511 units in 1999. Multifamily homes in the Atlanta Region increased 17.1% from 342,441 units in 1990 to 400,973 units in 1999. 9 11 The following table summarizes basic information about our communities. THE COMMUNITIES
December 1999 Year Average Rental Rates Average Physical Completed Number Approximate Average -------------------- Occupancy for the or to be of Rentable Area Unit Size Per Square 12 Months Ended Community Location Completed Units (Square Feet) (Square Feet) Per Unit Foot Dec. 31, 1999 --------- -------- --------- ------ ------------- ------------- -------- ---- --------------- Existing Communities: - -------------------- Plantation Trace(1) Atlanta 1990/1998 232 310,956 1,340 $ 974 $ 0.73 89.7% River Oaks Atlanta 1992 216 276,046 1,278 940 0.74 92.7 Crestmark(2) Atlanta 1993/1997 334 360,284 1,079 830 0.77 94.9 Rosewood Plantation Atlanta 1994 152 192,352 1,265 960 0.76 97.1 Preston Oaks(3) Atlanta 1995/1998 213 257,180 1,207 1,021 0.85 97.8 Highland Park Atlanta 1995 188 231,634 1,232 967 0.79 97.0 Ivey Brook Atlanta 1997 146 197,028 1,350 1,032 0.76 96.6 Bradford Creek Atlanta 1998 180 243,941 1,355 968 0.71 92.5 Addison Place Phase I Atlanta 1999 118 200,194 1,697 $1,313 $ 0.77 N/A (4) ----- --------- Subtotal/Average 1,779 2,269,615 1,276 ===== ========= ===== Communities Under - ----------------- Construction: - ------------- Addison Place Phase II Atlanta 2001 285 403,312 1,415 N/A N/A N/A Ballantyne Charlotte 2001 319 413,528 1,296 N/A N/A N/A Subtotal/Average 604 ===== Communities Under - ----------------- Development (5): - ---------------- Old Norcross Atlanta 2001 249 (5) (5) N/A N/A N/A
(1) Plantation Trace was completed in 2 phases. The 182-unit first phase was completed in 1990 and the 50-unit second phase was completed in 1998. (2) Crestmark was completed in 2 phases. The 248-unit first phase was completed in 1993 and the 86-unit second phase was completed in 1997. (3) Preston Oaks was completed in 2 phases. The 189-unit first phase was completed in 1995 and the 24-unit second phase was completed in 1998. (4) The 118-unit first phase of Addison Place was in its lease-up phase at December 31, 1999, and its 12-month historical occupancy percentage is not comparable. (5) Because this community is still in the development stage, the date of completion and exact number of units are estimates and are subject to change, and the square footage information is not available. 10 12 Annual operating data regarding our stabilized communities at December 31, 1999 are summarized in the following table (with the second phases of Crestmark, Preston Oaks and Plantation Trace described separately for this purpose and Windsong and Bentley Place omitted due to their sales in January 1998 and August 1999, respectively). Except for those figures noted with an asterisk, the occupancy rates shown represent the average physical occupancy of the applicable community calculated by dividing the total number of vacant days by the total possible number of vacant days for each year and then subtracting the resulting number from 100%. The figures noted with asterisks reflect the applicable data on December 31 of the specified year and are not annualized, because the applicable community was under construction and in its initial lease-up period during at least a portion of that year. During lease-up, units are leased as they are constructed and made ready for occupancy building by building, thus annualization of data is not possible during that period. Throughout this table, "N/A" means "not applicable," i.e., no unit in the community was available to be occupied during the relevant year. Footnotes are on the following page.
Physical Occupancy Rate ----------------------- Month Completed Initial Community Leaseup 1995 1996 1997 1998 1999 --------- --------- ------ ------ ------ ------ ------ Plantation 9/90 98% 99% 93% 94% 90% Trace Plantation 11/98 N/A N/A N/A 92%* N/A Trace Phase II(1) River Oaks 2/93 99% 98% 96% 98% 93% Rosewood 5/94 99% 99% 97% 97% 97% Plantation Preston Oaks 8/95 100%* 99% 97% 98% 98% Highland Park 3/96 68% 96%* 96% 97% 97% Crestmark 4/94 99% 98% 87% 91% 95% Crestmark 9/97 N/A N/A 96%* N/A N/A Phase II(2) Ivey Brook 8/97 N/A 27%* 98%* 97% 97% Preston Oaks 7/98 N/A N/A N/A 100%* N/A Phase II(1) Bradford 8/98 N/A N/A N/A 94%* 93% Creek(3) Average Effective Annual Rental Rates ------------------------------------- 1995 1996 1997 1998 1999 ------ ------ ------ ------ ------ Per Per Per Per Per Per Per Per Per Per Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. Unit Sq. Ft. ------ ------- ------ ------- ------ ------- ------ ------- ------ ------- Plantation $ 786 $ 0.62 $ 821 $ 0.65 $ 867 $ 0.69 $ 867 $ 0.69 $ 956 $0.71 Trace Plantation N/A N/A N/A N/A $1,171* $ 0.72* $1,171* $ 0.72* N/A N/A Trace Phase II(1) River Oaks $ 820 $ 0.64 $ 859 $ 0.67 $ 910 $ 0.71 $ 910 $ 0.71 $ 930 $0.73 Rosewood $ 814 $ 0.64 $ 858 $ 0.68 $ 917 $ 0.72 $ 917 $ 0.72 $ 946 $0.75 Plantation Preston Oaks $ 885 $ 0.71* $ 892 $ 0.72 $ 981 $ 0.79 $ 981 $ 0.79 $ 994 $0.82 Highland Park $ 819* $ 0.67* $ 805 $ 0.65 $ 920 $ 0.75 $ 920 $ 0.75 $ 950 $0.77 Crestmark $ 688 $ 0.67 $ 736 $ 0.72 $ 787 $ 0.73 $ 787 $ 0.73 $ 807 $0.75 Crestmark N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Phase II(2) Ivey Brook N/A N/A $ 925* $ 0.69* $ 979 $ 0.73 $ 979 $ 0.73 $1,014 $0.75 Preston Oaks N/A N/A N/A N/A $ 799* $ 0.83* $ 799* $ 0.83* N/A N/A Phase II(1) Bradford N/A N/A N/A N/A $ 926* $ 0.68* $ 926* $ 0.68* $ 949 $0.70 Creek(3)
- --------------- (1) Plantation Trace Phase II completed its lease-up phase in November 1998 and Preston Oaks Phase II completed its lease-up in August 1998. Beginning with 1999, both phases of Plantation Trace and Preston Oaks are combined. (2) We acquired Crestmark in June 1996. Phase II of Crestmark completed its lease-up in September 1997. Beginning with 1998, both phases of Crestmark are combined. (3) Bradford Creek completed its lease-up in August 1998. 11 13 As described below, our Atlanta communities are located in Gwinnett, Fulton and Douglas Counties and six submarkets, or geographic areas, within these counties. We also have one community in Charlotte. The Ballantyne community now under construction in Charlotte is described after the Georgia properties. Each heading identifies the community or communities within the specified county and submarket. We obtained population and employment data for each Atlanta submarket from the ARC. Multiple communities are located in each of the Duluth, Peachtree Corners and Perimeter Center/North Springs submarkets; thus those communities compete not only with unaffiliated apartment communities but also with each other. Please see "Summary of Debt Secured by the Communities," which follows the description of the individual communities, for an explanation of the terms of our secured indebtedness. GWINNETT COUNTY Gwinnett County was one of the fastest growing counties in the U.S. in the 1980's, and from 1985 until 1990 it ranked first in the nation in growth among counties with a population of more than 100,000. Since 1990, Gwinnett's population has increased 47% to a current level of 523,900. Gwinnett's strong employment base, transportation networks, excellent public education system and affordable home prices contribute to the county's remarkable growth. Gwinnett is home to approximately 250 international firms, over 700 manufacturing and 480 high technology firms that generate many of its 254,600 jobs. Since 1990, Gwinnett has added 102,600 jobs, which is second only to Fulton county in the Atlanta region. The average household income of the county is approximately $67,000. Gwinnett County is home to communities located in the City of Duluth, Peachtree Corners and unincorporated Gwinnett. Duluth Area - Plantation Trace, River Oaks, and Bradford Creek Communities Duluth. The City of Duluth is located in central Gwinnett County and is home to the Plantation Trace, River Oaks, and Bradford Creek communities. Duluth has exceeded even Gwinnett County as a whole in percentage of population growth; its population has increased more than 200% since 1980. Duluth is located near I-85 and Gwinnett Place Mall, a 1,100,000 square foot regional mall. Plantation Trace. Plantation Trace is a 232-unit garden apartment community that was completed in two phases: a 182-unit first phase in 1990 and a 50-unit second phase in 1998, sometimes referred to below as Phase II. Plantation Trace consists of 31 two and three story Nantucket-style stone and wood sided buildings located on a 29.2-acre site on Pleasant Hill Road approximately one-half mile west of its intersection with Peachtree Industrial Boulevard. In 1990, the 182-unit first phase received the Aurora Award from the Southeast Builders' Conference for "Best Rental Apartment Community in the Southeast." The Plantation Trace community, with its award-winning traditional architecture and landscaped grounds, features a clubhouse, a modern fitness and exercise facility, two lighted tennis courts, sand volleyball court, multi-station playground, two free-form swimming pools, a small wading pool, a stone paver pool deck and a covered whirlpool spa. In addition to upscale amenities, Plantation Trace offers such interior features as nine foot ceilings, crown molding, pickled wood cabinetry in the kitchen and bath, marble vanity tops, fireplaces, vaulted ceilings and Palladian windows in select units, designer wallcoverings and full laundry rooms with washer and dryer connections. Phase II provides the Plantation Trace community direct access to the Chattahoochee River, as well as to jogging trails around the existing lake and nature areas along the river. Plantation Trace has a variety of floor plans, including 28 one bedroom units ranging from 901 to 929 square feet, 48 two bedroom standard and 66 two bedroom roommate units ranging from 1,228 to 1,298 square feet, and 40 three bedroom units ranging from 1,471 to 1,494 square feet. Phase II contains 7 one bedroom units of approximately 966 square feet each, 6 two bedroom units of approximately 1,433 square feet each, 18 two bedroom townhouses of approximately 1,490 square feet each, 12 three bedroom townhouses of approximately 1,948 square feet each, 7 four bedroom townhouses of approximately 2,314 square feet each, and 33 garages of 200 square feet each. The weighted average unit size is 1,340 square feet. As of December 31, 1999, rental rates ranged from $730 to $1,750 per month, with a weighted average monthly rent of $974 per unit and $0.73 per square foot. Local real estate taxes were $228,000 in 1999. The physical occupancy rate for the entire Plantation Trace community as of December 31, 1999 was 85.3%. 12 14 River Oaks. River Oaks, which was completed in 1992, consists of 22 two and three story Charleston-style brick and wood sided buildings located on a 31.6 acre site on Pleasant Hill Road adjacent to the Chattahoochee River to the west and the Plantation Trace community to the east. The River Oaks community, with its traditional architecture and landscaped grounds, features a large clubhouse with a fitness center, two lighted tennis courts, sand volleyball court, multi-station playground, free-form swimming pool, stone paver pool deck, and whirlpool spa. In addition to upscale amenities, River Oaks offers such interior features as nine foot ceilings, crown molding, garden tubs, pickled pine cabinetry in the kitchen and bath, marble vanity tops, fireplaces and vaulted ceilings in select units, designer wallcoverings, and full laundry rooms with washer and dryer connections. River Oaks has a variety of floor plans, including 40 one bedroom units at approximately 907 square feet, 32 two bedroom roommate units, 24 two bedroom deluxe units and 48 two bedroom standard units ranging from 1,276 to 1,309 square feet, and 72 three bedroom units with approximately 1,457 square feet. The weighted average unit size is 1,278 square feet. As of December 31, 1999, the community was 92% occupied, and rental rates ranged from $790 to $1,085 per month, with a weighted average monthly rent of $940 per unit and $0.74 per square foot. Local real estate taxes were $205,000 in 1999. Bradford Creek. Bradford Creek, which was completed in 1998, consists of 9 two and three story buildings located on an approximately 22.5 acre property near the southeast corner of Peachtree Industrial Boulevard and Howell Ferry Road in Duluth, approximately one-mile southeast of Plantation Trace and River Oaks. The Bradford Creek community, with its unique mountain lodge architecture and traditional landscaping, features a large clubhouse with a fitness center, clubroom, laundry room, two lighted tennis courts, free-form swimming pool, stone paver pool deck, a 12-acre nature area, a courtyard highlighted by a water fountain, and a gated entrance. In addition to the upscale amenities, Bradford Creek offers such interior features as nine foot ceilings and a computer room in select units, crown moldings, garden tubs, white raised-panel cabinetry in the kitchen and bath, marble vanity tops, breakfast bars, designer wallcoverings, and full laundry rooms with washer and dryer connections. Each building was constructed using cobblestone and vinyl siding and offers private patios or balconies along with gables and varying paint colors. Bradford Creek contains 28 one bedroom units of approximately 1,001 square feet each, 46 two bedroom standard units of approximately 1,302 square feet each, 47 two bedroom roommate units of approximately 1,344 square feet each, and 59 three bedroom units of approximately 1,589 square feet each. The weighted average unit size is 1,355 square feet. As of December 31, 1999, the community was 88% occupied, and rental rates ranged from $815 to $1,170 per month, resulting in a weighted average monthly rent of $968 per unit and $0.71 per square foot. Local real estate taxes were $180,000 in 1999. Peachtree Corners Area - Rosewood Plantation and Ivey Brook Communities Peachtree Corners. Located in west Gwinnett County, Peachtree Corners benefits from the existing transportation networks, employment resources and consumer conveniences in the area. Over 400 companies are located in the Peachtree Corners area, occupying more than 4,500,000 square feet of office and distribution space and providing Gwinnett County with approximately 35% of its total jobs. Peachtree Corners' most prominent office/institutional development is Technology Park/Atlanta, which has become the premier location in Georgia for national and international high tech companies. With over 2,100,000 square feet of space occupied by more than 70 firms, approximately 4,500 people are employed at Technology Park/Atlanta. The area is within eight miles of three regional shopping malls, each containing over 1,000,000 square feet of retail space. Rosewood Plantation. This community, which was completed in May 1994, targets the upper tier of the apartment resident market. The 152-unit community is located on Spalding Drive just southwest of Holcomb Bridge Road on a 21-acre site. Since 1989, each of the elementary, middle and high schools serving the community has been designated as the Gwinnett County School of Excellence by the Gwinnett County Board of Education for at least one year, and the middle school has been designated as a Georgia School of Excellence by the Georgia Department of Education and a National Blue Ribbon School of Excellence by the U.S. Department of Education. Due partly to the highly regarded public school system in the area, Rosewood Plantation is an attractive choice for white-collar 13 15 professionals and families who choose the rental lifestyle. Rosewood Plantation is composed of 7 two and three story buildings with brick accents and wood siding. Rosewood Plantation has 29 one-bedroom units with 914 square feet, 45 two bedroom standard units with 1,247 to 1,276 square feet, 43 two-bedroom roommate units with 1,310 square feet, and 35 three-bedroom units with 1,510 square feet. The weighted average unit size is 1,265 square feet. As of December 31, 1999, the community was 98% occupied, and rental rates ranged from $830 to $1,180, resulting in a weighted average monthly rent of $960 per unit and $0.76 per square foot. Local real estate taxes were $128,000 in 1999. Rosewood Plantation's amenities include a clubhouse offering an exercise room with weight equipment, and a clubroom with a big screen television and bar with kitchen facilities. The recreational area includes a free-form swimming pool with stone paver deck, lighted tennis court, children's playground, walking trails through the nature area, and a two-acre lake. Each building is patterned after the architecture of Charleston, featuring columned porches, transom windows, and distinctive gables. The interior of each apartment home offers high-end finishes such as crown molding, garden tubs, marble vanity tops, bay windows, and large walk-in closets. Ivey Brook. The Ivey Brook community consists of 146 upscale apartment units in 12 buildings located on an 11.8 acre site at the intersection of Holcomb Bridge Road and Peachtree Corners Circle in the Peachtree Corners area. Ivey Brook benefits from its excellent location at a major intersection amidst an established multifamily market area in close proximity to Gwinnett County's largest employment base. Ivey Brook has 13 one-bedroom units with approximately 956 square feet, 36 two bedroom standard units with approximately 1,231 square feet, 50 two-bedroom roommate units with approximately 1,321 square feet, and 47 three-bedroom units with approximately 1,546 square feet. The weighted average unit size is approximately 1,350 square feet. As of December 31, 1999, Ivey Brook was 95% occupied, and its rental rates ranged from $875 to $1,230, resulting in a weighted average monthly rent of $1,032 per unit and $0.76 per square foot. Local real estate taxes were $128,000 in 1999. The buildings are of traditional design with brick accents and vinyl siding with the facades varying from building to building. Exterior features include gables, bay windows, varying paint colors with white trim, and private patios or balconies. Extensive landscaping includes mature trees, flowers, and shrubbery. The interior features include crown molding in the living/dining rooms, designer wallcoverings, separate laundry rooms, breakfast bars, garden tubs, and private balconies, and the three bedroom units feature a separate computer room with a built-in desk, cabinetry, and wiring. Recreational amenities include a swimming pool and fitness center. Unincorporated Gwinnett - Old Norcross The Old Norcross community will be located on a 35.3 acre site at the intersection of Old Norcross Road and Herrington Road in unincorporated Gwinnett County near the western Lawrenceville area. This community will have approximately 249 garden-style apartments. We have not determined the unit mix or developed an estimate of the construction costs. The site for the community is located near I-85, GA-316 and Gwinnett Place Mall, an 1,100,000 square foot regional mall. 14 16 FULTON COUNTY Fulton County is the largest county in the Atlanta Region in terms of population, employment, housing units and land area. Between 1990 and 1998, Fulton's net population increase, 102,500 persons, ranked second in the region behind Gwinnett County. Fulton County added 96,600 jobs between 1990 and 1998, which led the region. Perimeter Center/North Springs Area - Preston Oaks and Highland Park Communities Perimeter Center/North Springs. The Perimeter Center/North Springs area offers convenient proximity and access to both urban and suburban employment bases and retail conveniences. Georgia 400 and I-285 provide direct access within minutes to major regional malls such as North Point Mall and Perimeter Center Mall. The Phipps Plaza/Lenox Mall/Buckhead area and downtown Atlanta's Central Business District are readily accessible via the Georgia 400 extension, which connects to I-85 South near downtown Atlanta. Within this corridor is a large base of residential, commercial and office developments. The south quadrant of the area includes medical facilities such as Northside Hospital, St. Joseph's Hospital and Egleston Scottish Rite Children's Hospital. Perimeter Center encompasses office developments that exceed 18,500,000 square feet of space, with such upscale facilities as Ravinia, Northpark Town Center, Concourse and Perimeter Center Office Park. Several prominent companies such as Holiday Inn, UPS, and Hewlett-Packard have located their worldwide or regional headquarters within the Perimeter Center area. This area, which includes portions of Fulton and DeKalb Counties, has an average household income of approximately $73,000, which is considerably higher than the metropolitan Atlanta average of $44,913. The median value of a single-family home in this area exceeds $200,000. Preston Oaks. Preston Oaks is a 213-unit garden apartment community that was completed in two phases: a 189-unit first phase in August 1995, and a 50-unit second phase in 1998. Preston Oaks consists of nine two and three story buildings located on Mt. Vernon Highway in the Perimeter Center area. The traditional architecture consists of stacked stone and vinyl siding incorporating details of gabled roofs, Palladian windows, columns, and bay windows. The community is located on a 11.5-acre site and features extensive landscaping. The amenities are similar to those of the other existing communities, with custom swimming pool, lighted tennis court, fitness center with individual workout stations, and a large clubhouse. Interior features include garden tubs, oversized walk-in closets, pickled pine cabinetry in the kitchen and bath, crown molding, mirrored walls, and chair railing in the dining rooms. Phase one consists of 36 one-bedroom units, 92 two-bedroom units, and 61 three-bedroom units. Phase two consists of 24 one bedroom apartment units with 959 square feet each. Preston Oaks is conveniently located less than one mile from Perimeter Mall, a 1,200,000 square foot regional mall, and in close proximity to the area's numerous office developments. Several stand-alone restaurants and major retail centers either exist or are being developed near the community. As of December 31, 1999, Preston Oaks was 96% occupied, and its rental rates ranged from $860 to $1,260 per month, resulting in a weighted average monthly rent of $1,021 per unit and $0.85 per square foot. Local real estate taxes were $231,000 in 1999. Highland Park. This community consists of 188 upscale apartment units in a total of eight buildings on a 10.9-acre site. Located on Dunwoody Place in the North Springs area of Sandy Springs, Highland Park benefits from its close proximity to Georgia 400, which provides direct access within minutes to major retail and employment areas to the north such as North Point Mall and the Windward mixed use project, and to the south such as Perimeter Mall and Perimeter Center. 15 17 Highland Park has 42 one-bedroom units with 902 square feet, 32 two bedroom standard units with 1,225 square feet, 62 two-bedroom roommate units with 1,285 square feet, and 52 three bedroom units with 1,440 square feet. The weighted average unit size is 1,232 square feet. The buildings are of a traditional design with stacked stone accents and vinyl siding with the facades varying from building to building. Exterior features include gables, bay windows, various paint colors with white trim, and private patios or balconies. Extensive landscaping includes mature trees, flowers and shrubbery. The interiors feature crown molding in the living/dining rooms, designer wallcoverings, separate laundry rooms, breakfast bars, garden tubs and private balconies. Recreational amenities include a swimming pool, tennis court, and fitness center. As of December 31, 1999, Highland Park was 95% occupied and its monthly rental rates ranged from $815 to $1,180 per month, resulting in a weighted average monthly rent of $967 per unit and $0.79 per square foot. Local real estate taxes were $180,000 in 1999. Alpharetta Area - Addison Place Community Alpharetta. The Alpharetta area offers convenient proximity and access to both urban and suburban employment bases and retail conveniences. Georgia 400 provides direct access within minutes to major regional malls such as North Point Mall and Perimeter Center Mall. The Phipps Plaza/Lenox Mall/Buckhead area and downtown Atlanta's Central Business District are readily accessible via the Georgia 400 extension, which connects to I-85 South near downtown Atlanta. Within this corridor is a large base of residential, commercial and office developments. North Point Mall's success accelerated the already high rate of residential development, which caters to the upscale consumer. North Fulton's prestigious neighborhoods have been a major factor in the emergence of the Georgia 400 corridor as a center for corporate headquarters. Between 1990 and 1999, North Fulton added 92,314 residents, and 41,401 housing units. Between 1990 and 1997, North Fulton added 59,469 jobs. The Windward project, which straddles Georgia 400, is the region's largest mixed-use development. Addison Place Phase I. The 118-unit first phase of Addison Place is located on 19.2 acres on Abbotts Bridge Road near the intersection of Abbotts Bridge and Jones Bridge roads. This first phase contains 60 two bedroom townhouses of approximately 1,497 square feet each and 58 three bedroom townhouses of approximately 1,903 square feet each. As of December 31, 1999, the first phase of Addison Place was 56% occupied and rental rates ranged from $1,140 to $1,495 per month, with a weighted average monthly rent of $1,313 per unit and $0.77 per square foot. The architectural style, land planning, landscaping and amenities of this first phase are similar to those of our other communities. The construction of this first phase was completed under a cost-plus 10% construction contract with Roberts Properties Construction providing for 5% profit and 5% overhead. The total cost of construction, including the fee to Roberts Properties Construction, was approximately $9,611,000. We anticipate that there was approximately $874,000 in net profit to Roberts Properties Construction on the construction contract. We funded the development and construction of this first phase from our working capital and a $9,500,000 construction loan. Addison Place Phase II. The second phase of Addison Place will contain 285 garden-style apartment homes. It will include 11 different floor plans, including 60 one bedroom ranging from 765 to 1,034 square feet, 147 two bedroom units ranging from 1,150 to 1,550 square feet, 58 three bedroom units at approximately 1,706 square feet, and 20 four bedroom units at approximately 2,074 square feet, along with 40 direct-entry garages. The weighted average unit size will be 1,415 square feet. The architectural style, land planning, and landscaping of Phase II will be similar to Phase I. The amenities in Phase II will feature a free-from swimming pool, 2 tennis courts, a modern fitness and exercise facility, a business center, mens and womens saunas, and a playground. DOUGLAS COUNTY Douglas County, one of the 10 counties in the Atlanta Region, is located west of Atlanta and encompasses 202 square miles. The county is surrounded by Fulton, Cobb, Carroll and Paulding Counties, with the Chattahoochee River as its southeastern border. Its population was estimated at 93,500 in 1999, an increase of 30% since 1990. Between 1990 and 1998, Douglas County added 9,150 jobs and between 1990 and 1999, the county added 21,800 16 18 persons and 8,300 housing units. Douglas County benefits from its accessibility to downtown Atlanta to the east via I-20 and to Hartsfield International Airport to the southeast via Thornton Road/Camp Creek Parkway. Just across the county line to the east lies the Fulton Industrial District, the Southeast's largest contiguous industrial park. The Fulton Industrial District consists of more than 50,000,000 square feet of both manufacturing and warehouse space and stretches six miles north and south along Fulton Industrial Boulevard. It represents 20% of Atlanta's total inventory of warehouse/industrial space, and an additional 1,000,000 square feet is under construction. Numerous Fortune 500 companies are represented in the Fulton Industrial District, employing more than 100,000 people. Thornton Road/I-20 Area - Crestmark Community Thornton Road/I-20 Area. Thornton Road is the third exit west of I-285 on I-20 and connects I-20 with Hartsfield International Airport to the southeast and the significant residential base of Douglas, West Cobb and Paulding counties to the north and east. Several office and business parks that total more than 2,000,000 square feet of space and house corporations such as BellSouth, Mitsubishi, Robert Bosch Corporation, TDK Electronics, and Saab-Scania contribute to a large employment base of approximately 20,000 people within the Thornton Road area. Restaurant, hospitality and retail conveniences support the existing employment and residential base in the Thornton Road corridor. The area also benefits from its close proximity to the Fulton Industrial District as well as the Six Flags Over Georgia amusement park, both of which are less than three miles away. At the northwest corner of the Thornton Road/I-20 interchange is the Columbia/HCA Parkway Medical Center, a 320-bed acute care medical facility that employs approximately 600 people. Crestmark. Crestmark is a 334-unit garden apartment community that was completed in two phases: a 248-unit first phase in 1993 and an 86-unit second phase in 1997. Crestmark consists of 16 three and four story stacked stone and wood sided buildings, 17 garages and 24 storage units located on a 32.2 acre site on Thornton Road, approximately one-half mile north of its intersection with I-20 in Douglas County. In 1993, Crestmark received two Aurora Awards from the Southeast Builders' Conference, one for "Best Landscape Design in the Southeast" and another for "Best Recreational Facility in the Southeast." The Crestmark community, with its award-winning traditional architecture and landscaped grounds, features a large 14,000 square foot clubhouse with a club room, full kitchen, fitness center and aerobics room, a business center and conference room, two lighted tennis courts, multi-station playground, walking and jogging trail, two free-form swimming pools, stone paver pool decks and a whirlpool spa. In addition to the upscale amenities, Crestmark offers such interior features as nine foot ceilings, crown and chair-rail molding, pickled wood cabinetry in the kitchen and baths, marble vanity tops, fireplaces, vaulted and trey ceilings, Palladian and bay windows in select units, designer wallcoverings and full laundry rooms with washer and dryer connections. Crestmark has a variety of floor plans including 29 one bedroom standard units with 704 square feet, 50 one bedroom deluxe units with 816 square feet, 19 one bedroom units of 901 square feet in the second phase, 33 two bedroom standard units with 1,005 square feet, 86 two bedroom deluxe units with 1,110 square feet, 21 two bedroom standard units of 1,223 square feet in the second phase, 22 two bedroom roommate units of 1,285 square feet in the second phase, 50 three bedroom units with 1,295 square feet and 24 three bedroom units of 1,437 square feet in the second phase. The weighted average unit size is 1,079 square feet. As of December 31, 1999, the community was 93% occupied, and rental rates ranged from $675 to $1,025 per month, with a weighted average monthly rent of $830 per unit and $0.77 per square foot. Local real estate taxes were $202,000 in 1999. CHARLOTTE, NORTH CAROLINA - BALLANTYNE The following information is based on statistics and estimates published by the Charlotte Chamber of Commerce. During the last ten years, Charlotte's population grew by 24%, which was well above the national growth rate of 9%. Since 1986, employment in Charlotte has grown 29%, compared to the U.S. growth of 14%. Nine of the nation's top 200 banks operate in Charlotte, including Bank of America, N.A. (which is the nation's largest bank) and First Union Corporation. Other major employers include Carolinas Healthcare System, Charlotte-Mecklenburg School System, Duke Energy Corporation and USAirways. Additionally, nearly 300 of the nation's largest industrial 17 19 and service corporations listed by FORTUNE magazine have facilities in the area. Education is a top priority in the area as evidenced by The Charlotte-Mecklenburg School System recently receiving a national Community Award for Excellence in Education. The Ballantyne community will be located on a 23.8 acre site at the intersection of Lancaster Highway (old NC-521) and John J. Delaney Drive. The Ballantyne area is the largest mixed-use development in Mecklenburg County. This community will have 319 garden-style apartments. The Ballantyne community will consist of 110 one-bedroom units ranging from 765 square feet to 1,034 square feet, 143 two-bedroom units ranging from 1,150 square feet to 1,550 square feet, 48 three-bedroom units at 1,706 square feet, and 18 four-bedroom units at 2,074 square feet, along with 36 direct-entry garages. We have not developed a final estimate of the construction cost. The community is located near I-485 and I-77, which offers convenient access to downtown Charlotte and I-85. The table on the following page summarizes the amenities of each of the existing communities and Addison Place Phase II, which is now under construction. We have not yet fully determined the specific amenities of the Ballantyne and Old Norcross communities. 18 20 SUMMARY OF AMENITIES OF THE COMMUNITIES
CLUB- PATIO, WASHER HOUSE PORCH & DRYER GARDEN FIRE- VAULTED SWIMMING FITNESS COMMUNITY BALCONY HOOK-UPS TUBS PLACES* CEILINGS* POOL CENTER --------- ------- -------- ---- ------ --------- ---- ------ Existing Communities: Plantation Yes Yes Yes(1) Yes(2) Yes Yes Yes Trace River Oaks Yes Yes Yes Yes Yes Yes Yes Rosewood Yes Yes Yes No No Yes Yes Plantation Preston Oaks Yes Yes Yes No Yes Yes Yes Highland Yes Yes Yes No Yes Yes Yes Park Crestmark Yes Yes Yes Yes Yes Yes Yes Ivey Brook Yes Yes Yes No Yes Yes Yes Bradford Creek Yes Yes Yes No Yes Yes Yes Addison Place Yes Yes Yes No No Yes No Phase I Communities Under Construction: Addison Place Yes Yes Yes Yes No Yes Yes Phase II SAND WHIRL- CAR TENNIS VOLLEY- PLAY- LAUNDRY COMMUNITY POOL WASH COURT(S) BALL GROUND ROOM OTHER --------- ---- ---- -------- ---- ------ ---- ----- Existing Communities: Plantation Yes(2) Yes Yes-2 Yes Yes Yes Riverfront. Trace Lake, Nature Preserve River Oaks Yes Yes Yes-2 Yes Yes Yes Riverfront, Nature Preserve Rosewood No Yes Yes-1 No Yes Yes Lake, Plantation Nature Preserve Preston Oaks No Yes Yes-1 No No Yes Highland No Yes Yes-1 No Yes Yes Park Crestmark Yes Yes Yes-2 No Yes Yes Nature Preserve, Jogging Trail Ivey Brook No Yes No No No Yes Bradford Creek No Yes Yes-2 No Yes Yes Nature Preserve Addison Place No Yes Yes-1 No No Yes Lake, Phase I Nature Trail Communities Under Construction: Addison Place No Yes Yes-2 No Yes Yes Lake, Phase II Nature Trail
- ------------------- * In select units (1) Phase II only. (2) Phase I only. 19 21 COMPETITION All of the communities are located in developed areas, and numerous other apartment projects are located within the market area of each community. The number of competitive apartment communities in the area could have a material adverse effect on our ability to lease our apartments at the rental rates anticipated, and we can give no assurances regarding the development of additional competing multifamily communities in the future. The remainder of this section summarizes the competition for each of the communities. The following information reflects our study of apartment communities in each submarket that we believe to be closely competitive with our community or communities within that submarket. This section includes summary information we obtained from various sources - including developers and real estate brokers, as well as on-site visits - regarding those apartment communities. Although we have attempted to verify the information and believe that it is substantially accurate on the whole, information regarding a particular community may be incorrect due to the sources relied upon or erroneous information supplied by competitors. Plantation Trace, River Oaks, and Bradford Creek. The Duluth submarket, which we consider to include the area within a two mile radius from these communities, currently consists of 17 multifamily communities, including River Oaks, Plantation Trace, and Bradford Creek. Although the Bridgewater apartment community - which was previously developed and sold by an affiliate of Mr. Roberts - is located more than two miles from Plantation Trace, it is also included in the Duluth market area because it offers units with attached garages and its architecture and amenities are similar to Plantation Trace. Of the 17 existing communities in the area, five were completed in the last two years, including Bradford Creek and the second phase of Plantation Trace. Due to the quality of construction, age of the communities, type of amenities, resident profiles and rental rates, we believe that only nine of the other 14 communities are in direct competition with Plantation Trace, River Oaks and Bradford Creek. Rosewood Plantation and Ivey Brook. The Peachtree Corners multifamily submarket, which we believe includes the area within a three mile radius from these two communities, currently consists of 27 multifamily communities, including Rosewood Plantation and Ivey Brook. Of the 27 existing communities in the market area, only eight have been built since 1988. The remaining communities range from approximately 13 to over 20 years old. We believe that Rosewood Plantation and Ivey Brook draw residents from all of the other 25 communities located in the market area but that only six of the 25 communities compete closely with Rosewood Plantation and Ivey Brook. Preston Oaks. We believe that the north central Perimeter multifamily submarket includes the area within a two-mile radius around this community. It is generally bounded by Roswell Road to the west, Ashford Dunwoody Road to the east, Spalding Drive to the north and Glenridge Drive to the south, and it currently consists of 25 multifamily communities, including Preston Oaks. Of the 24 other existing communities in the market area, only six were built before 1983. The remaining 18 communities range from approximately one to eight years of age. We believe that Preston Oaks competes with all 24 of these communities. Highland Park. We believe the North Springs multifamily submarket includes the area within an approximately two-mile radius around this community. It is generally bounded by the Chattahoochee River to the north and west, Georgia 400 to the east and Dalrymple Road to the south, and currently consists of 34 communities, including Highland Park. Of the 34 existing communities in the market area, only five have been built since 1989. The remaining communities range in age from 12 years to over 20 years. We believe that Highland Park will draw residents from all of the other 33 communities located in the market area, but that only 11 of the 33 communities will compete closely with Highland Park. Crestmark. We consider the Thornton Road multifamily submarket to be the area within an approximately two-mile radius around the Crestmark community. It is generally bounded by I-20 to the south, Blairs Bridge Road to the east, and Georgia Highway 78 to the north and west, and it currently consists of eight communities, including Crestmark. Of the eight existing communities in the market area, four have been built since 1990. We believe that Crestmark will draw residents from all of the seven other communities located in the market area, but due to their amenities, quality of construction and resident profile, only five of the seven other communities will compete closely with Crestmark. Addison Place. We believe the Alpharetta multifamily submarket includes the area within an approximately two-mile radius around the Abbotts Bridge community. It is generally bounded by the Chattahoochee River to the east, 20 22 Old Alabama to the south, Georgia 400 to the west, and Windward Parkway to the north, and it currently consists of 15 communities, including Addison Place. We believe that Addison Place will draw residents from all of the 14 other communities located in the market area, but due to their amenities, quality of construction and resident profile, only 13 of the 14 other communities will compete closely with Addison Place. Ballantyne. We consider the Ballantyne multifamily submarket to include the area within an approximately two-mile radius around the community. It is generally bounded by the Princeton Road to the east, Providence Road West to the south, Lancaster Highway (old NC-521) to the west, and I-485 to the north, and it currently consists of nine communities, including Ballantyne. We believe that once construction of Ballantyne is complete, it will draw residents from all of the eight other existing communities located in the market area and will compete with the four communities under construction in the market area. Old Norcross. We believe the Old Norcross multifamily submarket includes the area within an approximately two-mile radius around the Old Norcross community. It is generally bounded by Herrington Road to the east, Club Drive to the south, Steve Reynolds Boulevard to the west, and Sugarloaf to the north and east, and it currently consists of 24 communities, including Old Norcross. We believe that Old Norcross will draw residents from all of the 23 other communities located in the market area, but due to their amenities, quality of construction and resident profile, only 15 of the 23 other communities will compete closely with Old Norcross. SUMMARY OF DEBT SECURED BY THE COMMUNITIES Information regarding our indebtedness secured by the communities is as follows:
Principal Principal Fixed Monthly Balance at Maturity Balance at Interest Amortization Principal and Community Dec. 31, 1999 Date Maturity Rate Schedule Interest Payment --------- ------------- ---------- ------------ ---------- --------------- ---------------- Plantation Trace $ 11,760,000 10-15-08 $ 10,313,000(1) 7.09% 30-year $ 79,892 River Oaks 8,946,000 11-15-03 8,513,000(2) 7.15 30-year 62,475 Rosewood Plantation 7,973,000 07-15-08 6,939,000(1) 6.62 30-year 51,838 Preston Oaks 8,313,000 10-15-02 8,025,000(2) 7.21 30-year 59,188 Highland Park 7,844,000 02-15-03 7,544,000(2) 7.30 30-year 56,066 Ivey Brook 6,228,000 02-15-07 5,570,000(2) 7.14 30-year 43,318 Crestmark 15,778,000 10-01-08 13,690,000(3) 6.57 30-year 101,869 Bradford Creek 8,273,000 06-15-08 7,290,000(2) 7.15 30-year 56,734 Addison Place Ph. I 9,500,000 11-15-09 8,387,000(1) 6.95 30-year 55,021(4)
- ------------------ (1) Each of the loans secured by the Plantation Trace, Rosewood Plantation and Addison Place Phase I communities may be prepaid upon payment of a premium equal to the greater of (a) 1% multiplied by a fraction having as its numerator the number of months to maturity and its denominator the number of months in the full term of the loan, or (b) the present value of the loan less the amount of principal and accrued interest being repaid. Each loan may be prepaid in full during the last 30 days before its maturity date without any prepayment premium. (2) Each of the loans secured by the River Oaks, Preston Oaks, Highland Park, Ivey Brook and Bradford Creek communities may be prepaid in full upon payment of a premium equal to the greater of (a) 1% of the outstanding principal balance of the loan, or (b) the sum of the present value of the scheduled monthly payments to the maturity date and the present value of the balloon payment due on the maturity date, less the outstanding principal balance of the loan on the date of prepayment. Each loan may be prepaid in full during the last 90 days before its maturity date without any prepayment premium. 21 23 (3) The loan secured by the Crestmark community may be prepaid upon the payment of a premium equal to the greater of (a) 1% of the outstanding principal balance, or (b) the product obtained by multiplying the amount of principal being prepaid by the excess (if any) of the monthly note rate over the assumed reinvestment rate by the present value factor. If the loan is prepaid after expiration of the yield maintenance period, but more than 90 days before the maturity date, the prepayment premium shall be 1% of the unpaid principal balance of the note. The loan may be prepaid in full during the last 90 days before its maturity date without any prepayment premium. (4) The loan secured by Addison Place Phase I includes interest only payments for the first year of $55,021 per month. Beginning with the December 2000 payment, the principal and interest payments will be $62,885 per month. POSSIBLE ADDITIONAL COMMUNITIES TO BE DEVELOPED From time to time Roberts Properties plans the development of other apartment communities to be located on property owned by Roberts Properties or other affiliates of Mr. Roberts, or on property that one of those entities is interested in acquiring. Mr. Roberts may elect to raise the required equity by syndicating a limited partnership. Alternatively, we may seek to raise the equity required to purchase and develop the community by selling shares. If Mr. Roberts elects to raise equity through a limited partnership, Mr. Roberts may seek to cause the partnership to be merged into the operating partnership at a later date. A transaction of that nature would require the consent of a majority in interest of the limited partners of the partnership and of a majority of the disinterested members of our board of directors, and we can give no assurances regarding whether Mr. Roberts will ultimately determine to seek a merger in that manner, or whether such a merger would in fact be approved by the requisite majority in interest of limited partners in the partnership and by a majority of the disinterested members of the Board. As described above in "Part I, Item 1, Description of Business - Growth Strategies - Development Strategy," three other multifamily apartment communities that are anticipated to total 853 apartment homes are in the development or construction stage. OTHER REAL ESTATE ASSETS The operating partnership sold its two retail centers totaling 15,698 square feet on July 17, 1998 for $2,400,000 in cash resulting in a gain, net of minority interest, of $300,000. Net sales proceeds were $2,182,000, after deducting for closing costs and prorations of $218,000. We reinvested the net proceeds in new apartment communities. The purchaser was unaffiliated with us, and the transaction was negotiated at arms-length. The net book value of the property was $1,715,000 at June 30, 1998. We paid Roberts Properties $92,500 for consulting fees in connection with the sale. The retail centers together composed less than 1% of our assets and generated less than 2% of our gross revenues for 1998. ITEM 3. LEGAL PROCEEDINGS. Neither Roberts Realty, the operating partnership, nor the communities are presently subject to any material litigation nor, to our knowledge, is any material litigation threatened against any of them. Routine litigation arising in the ordinary course of business is not expected to result in any material losses to us or the operating partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted to a vote of security holders during the fourth quarter of 1999. 22 24 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The common stock began trading on the American Stock Exchange, or AMEX, on December 9, 1997 under the symbol "RPI." Before that date there was no established public trading market for the common stock. The following table sets forth the quarterly high and low closing sales prices per share reported on the AMEX, as well as the quarterly dividends declared per share:
Dividends Quarter Ended High Low Declared ------------- ------- ------- --------- 1998 First Quarter $9.4375 $8.2500 $0.1425 Second Quarter 9.0000 8.2500 0.1450 Third Quarter 8.9375 7.3750 0.1450 Fourth Quarter 7.8750 7.0625 0.1450 1999 First Quarter $7.6250 $7.1250 $0.1500 Second Quarter 7.7500 7.2500 0.1500 Third Quarter 8.5000 7.5000 0.6500 * Fourth Quarter 7.8125 7.3125 0.1350
* Includes a special dividend of $0.50 per share. On March 1, 2000 there were approximately 900 holders of record of the common stock. As of March 1, 2000, we had 4,840,075 shares outstanding. In addition, 2,563,691 shares are reserved for issuance to unitholders from time to time upon their exercise of redemption rights as explained in "Part I, Item 1, Description of Business The Operating Partnership." There is no established public trading market for the units. As of March 1, 2000, the operating partnership had 319 unitholders of record. We depend upon distributions from the operating partnership to fund our distributions to shareholders. Distributions by the operating partnership, and thus distributions by us, will continue to be at the discretion of the board of directors and will be equal in amount for each unit and share. We and the operating partnership declared quarterly distributions for 1999 that totaled $1.085 per share/unit per annum (including a special distribution of $0.50 per share/unit in August 1999 as a result of the sale of our Bentley Place community) and for 1998 that totaled $0.5775 per share/unit per annum. Approximately 11.39% of those 1999 distributions represented ordinary income, 19.70% represented capital gain and the remaining 68.91% represented a return of capital. We elected to become a REIT beginning with the partial year ended December 31, 1994. To maintain our qualification as a REIT under the Internal Revenue Code, we must make annual distributions to shareholders of at least 95% of our taxable income, which does not include net capital gains. Under some circumstances, we may be required to make distributions in excess of cash available for distribution to meet those distribution requirements. During the fourth quarter of 1999, we issued a total of 7,571 shares of restricted common stock to seven employees as incentive compensation. The restrictions on transfer lapse at specified dates ranging between three and four years after the respective grant date. The grants were exempt from registration as private placements under section 4(2) of the Securities Act. We affixed appropriate legends to the share certificates we issued in these transactions. All recipients of these securities had adequate access, through their relationships with us, to information about us. All of these securities are deemed to be restricted securities for purposes of the Securities Act. 23 25 ITEM 6. SELECTED FINANCIAL DATA. OPERATING DATA: (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 1996 1995 -------- ------- -------- -------- ------- OPERATING DATA: Revenues: Rental operations $ 18,163 $ 16,521 $ 16,831 $ 14,651 $ 6,677 Other operating income 1,221 833 741 546 289 -------- -------- -------- -------- ------- Total revenues 19,384 17,354 17,572 15,197 6,966 -------- -------- -------- -------- ------- Expenses: Property operating and maintenance expense (exclusive of depreciation and amortization) (1) 6,688 6,192 5,504 5,091 2,207 Depreciation of real estate assets 5,529 5,017 5,708 4,974 2,326 Management fees to related party (2) 0 0 211 760 347 Interest expense 5,244 4,555 4,670 3,724 2,006 Interest income (159) (384) (395) (353) (277) Amortization of deferred financing costs 219 139 122 141 178 Other amortization expense 11 52 65 67 69 General and administrative 1,964 1,727 1,714 926 430 Acquisition of Roberts Properties Management, LLC (3) 0 0 5,900 0 0 Loss on disposal of assets 81 94 156 0 0 -------- -------- -------- -------- ------- Total expenses 19,577 17,392 23,655 15,330 7,286 -------- -------- -------- -------- ------- LOSS BEFORE MINORITY INTEREST, GAINS ON SALE OF REAL ESTATE ASSETS, AND EXTRAORDINARY ITEMS (193) (38) (6,083) (133) (320) MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 70 15 2,646 52 141 -------- -------- -------- -------- ------- LOSS BEFORE GAINS ON SALE OF REAL ESTATE ASSETS AND EXTRAORDINARY ITEMS (123) (23) (3,437) (81) (179) GAINS ON SALE OF REAL ESTATE ASSETS, net of minority interest of unitholders in the operating partnership 1,023 1,218 1,012 0 9 -------- -------- -------- -------- ------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 900 1,195 (2,425) (81) (170) EXTRAORDINARY ITEMS, loss on early extinguishment of debt, net of minority interest of unitholders in the operating partnership (4) (184) (487) (184) (99) (102) -------- -------- -------- -------- ------- Net income (loss) $ 716 $ 708 $ (2,609) $ (180) $ (272) ======== ======== ======== ======== ======= INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED: Income (loss) before extraordinary items $ 0.19 $ 0.26 $ (0.58) $ (0.02) $ (0.08) Extraordinary items (0.04) (0.11) (0.04) (0.03 (0.05) -------- -------- -------- -------- ------- Net income (loss) $ 0.15 $ 0.15 $ (0.62) $ (0.05 $ (0.13) ======== ======== ======== ======== ======= Dividends declared (5) $ 1.0850 $ 0.5775 $ 0.5760 $ 0.4813 N/A ======== ======== ======== ======== =======
24 26
1999 1998 1997 1996 1995 --------- --------- --------- -------- --------- BALANCE SHEET DATA: Real estate assets, before accumulated depreciation $ 128,898 $ 122,830 $ 111,778 $110,800 $ 74,243 Real estate assets, net of accumulated depreciation 107,869 105,916 98,337 101,885 70,303 Total assets 127,078 125,090 118,350 116,815 77,324 Total debt 88,850 79,973 67,951 63,342 44,019 Minority interest of unitholders in the operating partnership 12,013 15,579 18,861 19,322 13,873 Shareholders' equity 22,310 26,526 26,697 29,226 17,728 OTHER DATA: Cash flow provided from (used in): Operating activities $ 5,917 $ 5,295 $ 5,469 $ 5,567 $ 1,799 Investing activities (7,003) (18,235) (1,537) (16,309) (21,119) Financing activities (1,347) 9,929 23 12,500 19,716 --------- --------- --------- -------- --------- Net increase (decrease) in cash and cash equivalents (2,433) (3,011) 3,955 1,758 396 Cash and cash equivalents, beginning of year 4,106 7,117 3,162 1,404 1,008 Cash and cash equivalents, end of year 1,673 4,106 7,117 3,162 1,404 Funds from operations (6) 5,417 5,114 5,746 4,908 2,075 Weighted average common shares outstanding - basic 4,737,008 4,638,265 4,187,013 3,799,567 2,023,358 Weighted average common shares outstanding - diluted 7,448,757 7,547,978 7,404,323 6,244,513 3,617,320 Total stabilized communities (at end of year) 9 9 9 9 7 Total stabilized apartments (at end of year) 1,779 1,778 1,756 1,731 1,366 Average physical occupancy (stabilized communities) (7) 93.7% 96.3% 95.4% 97.2% 99.0%
(1) Property operating expenses include personnel, utilities, real estate taxes, insurance, maintenance, landscaping, marketing, and property administration expenses (real estate taxes include an adjustment of $588,000 in 1997 to reduce estimated property tax accruals for two properties that received favorable tax assessments). (2) Because we acquired Roberts Properties Management, LLC on April 1, 1997, we paid no management fees to a related party after April 1, 1997; however, we incurred additional general and administrative expenses as a result of managing our properties internally. (3) On April 1, 1997, we acquired Roberts Management, the property management company that managed our multifamily apartment communities since our inception. The operating partnership issued 590,000 units valued at $10.00 per unit or $5,900,000 to purchase Roberts Management. We manage our own properties using Roberts Management's property management systems and the property management personnel formerly employed by Roberts Management. Although we no longer pay 5% of gross property revenues to Roberts Management for property management services, we do bear the actual overhead cost of managing the properties internally. Because Roberts Management, a related party, managed only properties we owned, the transaction was accounted for as the settlement of a contract and expensed for the year ended December 31, 1997. (4) The extraordinary items resulted from costs associated with the early extinguishment of indebtedness. The extraordinary items have been reduced by the portion related to the minority interest of the unitholders. (5) We began paying dividends and distributions on our common stock and units beginning on April 15, 1996. (6) Funds from Operations, or FFO, is defined by the National Association of Real Estate Investment Trusts as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property and non-recurring items, plus real estate related depreciation and amortization. We use the NAREIT definition of FFO, which was adopted for periods beginning after January 1, 1996. We consider FFO to be an important measure of our operating performance; however, FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, property acquisitions, development and distributions, or other commitments and uncertainties. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. We consider FFO to be an important measure of our operating 25 27 performance. While FFO does not represent cash flows from operating, investing or financing activities as defined by GAAP, FFO does provide investors with additional information with which to evaluate the ability of a REIT to pay dividends, meet required debt service payments and fund capital expenditures. We believe that to gain a clear understanding of our operating results, FFO should be evaluated in conjunction with net income (determined in accordance with GAAP). FFO represents funds from operations available for shareholders and unitholders. (7) Represents the average physical occupancy of the stabilized communities calculated by dividing the total number of vacant days by the total possible number of vacant days for each period and subtracting the resulting number from 100%. 26 28 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements relate to future economic performance, plans and objectives of management for future operations and projections of revenues and other financial items that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. The words "expect," "estimate," "anticipate," "believe" and similar expressions are intended to identify forward-looking statements. Those statements involve risks, uncertainties and assumptions, including industry and economic conditions, competition and other factors discussed in this and our other filings with the SEC, including the "Risk Factors" section of the prospectus included in our Registration Statement on Form S-3 (Registration number 333-82453), as declared effective by the SEC on August 2, 1999. If one or more of these risks or uncertainties materialize or underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. See "Disclosure Regarding Forward-Looking Statements" at the end of this Item for a description of some of the important factors that may affect actual outcomes. OVERVIEW We own multifamily residential properties as a self-administered and self-managed equity real estate investment trust. At December 31, 1999, we owned nine completed multifamily apartment communities, of which eight were stabilized, consisting of 1,779 apartment homes. As part of our business plan and growth strategy, we sold our 117-unit Bentley Place community in August 1999, our 232-unit Windsong community in January 1998, and our 207-unit Autumn Ridge community in August 1997. Our decision to sell these three communities was based on their age and locations in markets that are not included in our long-term growth strategy. In July 1998, we sold our two small retail centers because we decided to exit all businesses not related to the long-term ownership of high quality apartment homes. In June 1998, we used the equity from the sale of Windsong and cash to purchase three separate parcels of land for $11.3 million. We are developing and building three new multifamily communities totaling 971 apartment homes, of which 118 apartment homes were completed during the fourth quarter of 1999. The 853 apartment homes under development or construction will increase the size of our portfolio 48% from 1,779 to 2,632 apartment homes. One of our new communities under construction is located in Charlotte, North Carolina, and is the first step in our diversification strategy. The other two communities are located in north Atlanta. We began construction of the 285-unit second phase of Addison Place Phase II during the third quarter of 1999, and we expect to commence construction of a 249-unit apartment home community located in north Atlanta during the second quarter of 2000. RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 For the year ended December 31, 1999, we recorded net income of $716,000 or $0.15 per share compared to net income of $708,000 or $0.15 per share for the year ended December 31, 1998 and a net loss of $2,609,000 or $0.62 per share for the year ended December 31, 1997. The $8,000 increase in net income from $708,000 in 1998 to $716,000 in 1999 is due primarily to the following: (a) the start of leasing operations at Addison Place Phase I in April 1999; (b) the completion of the initial lease-up phase at Bradford Creek in August 1998 and the second phases of Preston Oaks in July 1998 and Plantation Trace in November 1998; (c) a $307,000 increase in water revenue from $50,000 in 1998 to $357,000 in 1999; offset by: 27 29 (d) the gain on the sale of Bentley Place in August 1999 compared to the gains on the sales of Windsong and the two retail centers in 1998; (e) higher interest expense due to: - the permanent financing of Bradford Creek in June 1998; - the refinancing of Rosewood Plantation for a higher loan amount in June 1998; - the refinancing of Plantation Trace for a higher loan amount in September 1998; - the refinancing of Crestmark for a higher loan amount in September 1998; - construction loan interest on the Addison Place Townhomes in 1999; - and the permanent financing of the Addison Place Townhomes in October 1999; (f) higher general and administrative costs; (g) increased depreciation expense; and (h) the decline in average stabilized occupancy from 96.3% in 1998 to 93.7% in 1999. The increase in net income of $3,317,000 from a net loss of $2,609,000 in 1997 to net income of $708,000 in 1998 is due primarily to the following: (a) the April 1, 1997 acquisition of Roberts Management, an affiliate owned by Mr. Roberts; offset by: (b) the gains on the sales of Windsong and the two retail centers compared to the gain on the sales of Autumn Ridge in August 1997; and (c) the completion of the initial lease-up phase at Ivey Brook in July 1997 and the second phase of Crestmark in August 1997, versus the completion of the initial lease-up phase at Bradford Creek in August 1998 and the second phases of Preston Oaks in July 1998 and Plantation Trace in November 1998; and (d) an increase in average stabilized occupancy from 95.4% to 96.3%. Our operating performance for all communities is summarized in the following table:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, (dollars in thousands) ------------------------------ ---------------------------- % % 1999 1998 CHANGE 1998 1997 CHANGE ------- ------- -------- ------- ------- ------ Total operating revenues $19,384 $17,354 11.7% $17,354 $17,572 (1.2%) Property operating expenses (1) $ 6,688 $ 6,192 8.0% $ 6,192 $ 6,092 1.6% Management fees paid to related party (2) $ 0 $ 0 0.0% $ 0 $ 211 (100.0%) General and administrative expenses $ 1,964 $ 1,727 13.7% $ 1,727 $ 1,714 0.8% Net operating income (3) $12,696 $11,162 13.7% $11,162 $11,480 (2.8%) Depreciation of real estate assets $ 5,529 $ 5,017 10.2% $ 5,017 $ 5,708 (12.1%) Average stabilized occupancy (4) 93.7% 96.3% (2.6%) 96.3% 95.4% 0.9% Operating expense ratio (5) 34.5% 35.7% (1.2%) 35.7% 34.7% 1.0%
- --------------- (1) Property operating expenses include personnel, utilities, real estate taxes, insurance, maintenance, landscaping, marketing, and property administration expenses (real estate taxes excludes an adjustment of $588,000 in 1997 to reduce estimated property tax accruals for two properties that received favorable tax assessments). 28 30 (2) Because we acquired Roberts Management on April 1, 1997, we paid no management fees to a related party after March 31, 1997; however, we incurred additional general and administrative expenses as a result of managing our properties internally. (3) Net operating income is equal to total operating revenues minus property operating expenses. (4) Represents the average physical occupancy of our stabilized properties calculated by dividing the total number of vacant days by the total possible number of vacant days for each period and subtracting the resulting number from 100%. The calculation includes the following: (a) Highland Park beginning March 1, 1996, Ivey Brook beginning August 1, 1997, the second phase of Crestmark beginning September 1, 1997, the second phase of Preston Oaks beginning August 1, 1998, Bradford Creek beginning September 1, 1998 and the second phase of Plantation Trace beginning December 1, 1998, which are the dates each community achieved stabilized occupancy; (b) Autumn Ridge only through August 26, 1997, which is the date the property was sold, (c) Windsong only through January 9, 1998, which is the date the property was sold, and (d) Bentley Place only through August 23, 1999, which is the date the property was sold. (5) Represents the total of property operating expenses divided by property operating revenues expressed as a percentage. Our 1999 same-property operating performance, when compared to 1998, includes a 4.2% increase in operating revenues, a 5.6% increase in net operating income, a 0.6% decrease in average occupancy from 95.5% to 94.9%, and a 3.6% decline in our lease renewal percentage. Same-property results for the seven communities that were fully stabilized during both years ended December 31, 1999 and 1998 (Crestmark, Highland Park, Ivey Brook, River Oaks, Rosewood Plantation, and the first phases of Plantation Trace, and Preston Oaks) are summarized in the table below. Our 1998 same-property operating performance, when compared to 1997, includes a 4.6% increase in operating revenues, a 1.0% increase in net operating income, a 2.0% increase in average occupancy from 94.2% to 96.2%, and a 4.0% increase in our lease renewal percentage. Same-property results for the seven communities that were fully stabilized during both years ended December 31, 1998 and 1997 (Bentley Place, Highland Park, River Oaks, Rosewood Plantation, and the first phases of Crestmark, Plantation Trace, and Preston Oaks) are summarized in the following table:
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, (dollars in thousands) ----------------------------------- ------------------------------------- % % 1999 1998 CHANGE 1998 1997 CHANGE ------- ------- ------ ------- ------- ------ Rental income $14,441 $14,149 2.1% $12,817 $12,239 4.7% Total operating revenues $15,402 $14,785 4.2% $13,267 $12,678 4.6% Property operating expenses (1) $ 5,255 $ 5,180 1.4% $ 4,702 $ 4,194 12.1% Management fees paid to related party (2) $ 0 $ 0 0.0% $ 0 $ 160 (100.0%) Net operating income (3) $10,147 $ 9,605 5.6% $ 8,565 $ 8,484 1.0% Average stabilized occupancy (4) 94.9% 95.5% (0.6%) 96.2% 94.2% 2.0% Operating expense ratio (5) 34.1% 35.0% (0.9%) 35.4% 33.1% 2.3% Average monthly rent per apartment home $ 920 $ 895 2.8% $ 879 $ 856 2.7% Lease renewal percentage (6) 55.7% 59.3% (3.6%) 62.6% 58.6% 4.0%
(1) Property operating expenses include personnel, utilities, real estate taxes, insurance, maintenance, landscaping, marketing, and property administration expenses (real estate taxes excludes an adjustment of $588,000 in 1997 to reduce estimated property tax accruals for two properties that received favorable tax assessments). (2) Because we acquired Roberts Management on April 1, 1997, we paid no management fees to a related party after March 31, 1997; however, we incurred additional general and administrative expenses as a result of managing our properties internally. (3) Net operating income is equal to total operating revenues minus property operating expenses. (4) Represents the average physical occupancy of the stabilized communities calculated by dividing the total number of vacant days by the total possible number of vacant days for each period and subtracting the resulting number from 100%. (5) Represents the total of property operating expenses divided by property operating revenues expressed as a percentage. 29 31 6) Represents the number of leases renewed divided by the number of leases expired during the period presented, expressed as a percentage. The following discussion compares our statements of operations for the years ended December 31, 1999, 1998 and 1997. Property operating revenue increased $2,030,000 or 11.7% from $17,354,000 for the year ended December 31, 1998 to $19,384,000 for the year ended December 31, 1999. The increase in operating revenue is due primarily to the following: (a) the start of leasing operations at Addison Place Phase I in April 1999; (b) the completion of the initial lease-up phase at Bradford Creek in August 1998 and the second phases of Preston Oaks in July 1998 and Plantation Trace in November 1998; (c) a $617,000 or 4.2% increase in same-property operating revenue; and (d) a $307,000 increase in water revenue from $50,000 in 1998 to $357,000 in 1999; $255,000 of the $307,000 increase is attributable to the seven properties that were stabilized during both 1998 and 1999; offset by: (e) the sale of the two retail centers in 1998 compared to the sale of Bentley Place in 1999; and (f) decreased average physical occupancy from 96.3% in 1998 to 93.7% in 1999. Property operating revenue decreased $218,000 or 1.2% from $17,572,000 for the year ended December 31, 1997 to $17,354,000 for the year ended December 31, 1998. The decrease in operating revenue is due primarily to the following: (a) the sales of Autumn Ridge in August 1997, Windsong in January 1998, and the two retail centers in July 1998; offset by: (b) a 4.6% increase in same-property revenue, which is due to an increase in occupancy from 94.2% to 96.2% along with a 2.7% increase in the average monthly rent per apartment home from $856 to $879 per month; and (c) the lease-up of Bradford Creek and the second phases of Preston Oaks and Plantation Trace during 1998. During 1998, we implemented a program to bill residents for their individual water consumption. We completed the installation of water-metering equipment in the fourth quarter of 1998 at a total cost of $377,000. Water revenues were $50,000 during 1998 and $357,000 during 1999. We expect to install water-metering equipment in all new apartment homes we develop. Property operating expenses (excluding depreciation and general and administrative expenses) increased $496,000 or 8.0% from $6,192,000 for the year ended December 31, 1998 to $6,688,000 for the year ended December 31, 1999. The increase in property operating expenses is due primarily to the following: (a) the start of leasing operations at Addison Place Phase I in April 1999; (b) the completion of the initial lease-up phase at Bradford Creek in August 1998 and the second phases of Preston Oaks in July 1998 and Plantation Trace in November 1998; 30 32 (c) a $75,000, or 1.4% increase in same-property operating expenses; offset by: (d) the sales of Bentley Place in 1999 and the two retail centers in 1998. Property operating expenses (excluding depreciation, general and administrative expenses, management fees, and a $588,000 favorable real estate tax adjustment) increased $100,000 or 1.6% from $6,092,000 for the year ended December 31, 1997 to $6,192,000 for the year ended December 31, 1998. The increase in property operating expenses is due primarily to the following: (a) the sales of Autumn Ridge in August 1997, and Windsong in January 1998 and the two retail centers in July 1998; offset by: (b) the start of property operations at Bradford Creek and the second phases of Preston Oaks and Plantation Trace, all of which were first leased-up in 1998; and (c) a 12.1% increase in same-property expenses due primarily to higher personnel and maintenance costs. General and administrative expenses increased $237,000 or 13.7% from $1,727,000 for the year ended December 31, 1998 to $1,964,000 for the year ended December 31, 1999 and include legal, accounting and tax fees, marketing and printing fees, salaries, director fees and other costs. The increase is due primarily to increased personnel costs including amortization of restricted stock, accounting and tax fees related to the registration statement we filed with the SEC that became effective in August 1999, expenses of SEC and other shareholder reports, marketing, and directors fees. General and administrative expenses as a percentage of operating revenues increased from 10.0% for the year ended December 31, 1998 to 10.1% for the year ended December 31, 1999. General and administrative expenses increased $13,000 or 0.8% from $1,714,000 for the year ended December 31, 1997 to $1,727,000 for the year ended December 31, 1998. The increase is due primarily to increased personnel costs due to the acquisition of Roberts Management, offset by a reduction in accounting and tax fees, legal, and marketing fees, and the initial fee paid to list our common stock on the American Stock Exchange. General and administrative expenses as a percentage of operating revenues increased from 9.8% for the year ended December 31, 1997 to 10.0% for the year ended December 31, 1998. Depreciation expense increased $512,000 or 10.2% from $5,017,000 for the year ended December 31, 1998 to $5,529,000 for the year ended December 31, 1999. The increase is due primarily to the completion of construction of Bradford Creek and the second phases of Preston Oaks and Plantation Trace in 1998 and the completion of construction of the first phase of Addison Place in 1999, offset by the sale of the two retail centers in 1998 and the sale of Bentley Place in 1999. Depreciation expense decreased $691,000 or 12.1% from $5,708,000 for the year ended December 31, 1997 to $5,017,000 for the year ended December 31, 1998. The decrease is due primarily to the sales of Autumn Ridge in 1997 and Windsong in 1998, offset by depreciation from the communities leased-up in 1998 (because depreciation expense is recorded as apartment homes are completed and available for occupancy). On April 1, 1997, we acquired Roberts Management, the property management company that had managed our multifamily apartment communities since our inception. Because Roberts Management, a related party, managed only the properties we owned, we accounted for the transaction as the settlement of a contract and showed it as an expense for the year ended December 31, 1997. Interest expense increased $689,000 or 15.1% from $4,555,000 for the year ended December 31, 1998 to $5,244,000 for the year ended December 31, 1999. The increase is due primarily to: (1) the financing of Bradford Creek in June 1998 and the first phase of Addison Place in October 1999, 31 33 (2) the refinancing of the mortgage loan secured by the Rosewood Plantation community in June 1998 for a higher loan amount, and (3) the refinancing of the mortgage loans secured by the Plantation Trace and Crestmark communities in September 1998, each for higher loan amounts, offset by the mortgage note that we repaid when we sold Bentley Place in 1999. Interest expense decreased $115,000 or 2.5% from $4,670,000 for the year ended December 31, 1997 to $4,555,000 for the year ended December 31, 1998. The decrease is due primarily to the mortgage notes that we repaid when we sold Autumn Ridge in 1997 and Windsong in 1998, offset by: (1) the financing of Ivey Brook, the second phase of Crestmark, and Bradford Creek in January 1997, July 1997, and June 1998, respectively, (2) the refinancing of the mortgage loan secured by the Rosewood Plantation community in June 1998 for a higher loan amount, and (3) the refinancing of the mortgage loans secured by the Plantation Trace and Crestmark communities in September 1998, each for higher loan amounts. On August 26, 1997, we completed the sale of the 207-unit Autumn Ridge community for $10,601,000 in cash. The sale resulted in a gain, net of minority interest, of $1,012,000. Net sales proceeds were $5,045,000 after deduction for loan repayment, closing costs and prorations. The purchaser, Benchmark Autumn Ridge Associates, L.P., is not affiliated with us, and the transaction was negotiated at arms-length. We paid Roberts Properties a consulting fee of $150,000 at closing. On January 9, 1998, we completed the sale of the Windsong community for $9,750,000 in cash resulting in a gain, net of minority interest, of $918,000 on the sale of real estate assets. Net sales proceeds were $5,194,000 after deduction for loan repayment of $3,959,000, closing costs of $458,000, and prorations of $139,000. We paid Roberts Properties a consulting fee of $288,000 at closing. We reinvested the net cash proceeds from the sale of Windsong in undeveloped land in June 1998 as part of a Section 1031 tax-deferred exchange. On July 17, 1998, we completed the sale of two retail centers for $2,400,000 in cash resulting in a gain, net of minority interest, of $300,000. Net sales proceeds were $2,182,000, after deducting for closing costs of $183,000 and prorations of $35,000. We paid Roberts Properties a consulting fee of $92,500 at closing. On August 23, 1999, we sold the Bentley Place community for $8,273,000 in cash resulting in a gain, net of minority interest, of $1,023,000. Net sales proceeds were $3,726,000 after deduction for loan repayment, including prepayment fee, of $4,166,000, and closing costs, accrued interest, and prorations totaling $381,000. Partnership profits interests of $242,000 were paid to Roberts Properties under the amended partnership agreement of the operating partnership. We used the remaining net sales proceeds of $3,484,000 to fund a special distribution to shareholders and unitholders on August 30, 1999. Unamortized loan cost of $93,000 and a prepayment fee of $198,000 payable at closing were charged to expense as an extraordinary item. The extraordinary item (early extinguishment of debt) for the year ended December 31, 1999 was $291,000 (including the minority interests' share of $107,000). We refinanced the mortgage notes payable secured by the Rosewood Plantation and Crestmark communities in June and September 1998, respectively, before their contractual maturity. We charged the yield maintenance fee and the unamortized loan costs related to the mortgage notes payable at the time of the refinancing to expense as an extraordinary item. The extraordinary item (early extinguishment of debt), including the extraordinary gain of $110,000 on the buyer's assumption of debt related to the sale of Windsong, for the year ended December 31, 1998 was $792,000 (including the minority interests' share of $305,000). We repaid the mortgage note payable secured by Autumn Ridge in full at the closing of the sale of Autumn Ridge in August 1997, before its contractual maturity. We charged unamortized loan costs of $73,000 and a yield maintenance fee of $252,000 payable at the closing of the sale to expense as an extraordinary item. The extraordinary item (early extinguishment of debt) for the year ended December 31, 1997 was $325,000 (including the minority interests' share of $141,000). 32 34 LIQUIDITY AND CAPITAL RESOURCES Comparison of Years Ended December 31, 1999, 1998 and 1997. Cash and cash equivalents decreased $2,433,000 from $4,106,000 as of December 31, 1998 to $1,673,000 as of December 31, 1999. The decrease was due to a decrease in cash provided by financing activities, offset by an decrease in cash used in investing activities and an increase in cash provided by operating activities. Cash and cash equivalents decreased $3,011,000 from $7,117,000 as of December 31, 1997 to $4,106,000 as of December 31, 1998. The decrease was due to an increase in cash used in investing activities and a decrease in cash provided by operating activities, offset by an increase in cash provided by financing activities. A primary source of liquidity for us is cash flow from operations. Operating cash flows have historically been determined by the number of apartment homes, rental rates and operating expenses with respect to those apartment homes. Net cash provided by operating activities increased $622,000 from $5,295,000 during 1998 to $5,917,000 during 1999. The increase in cash flow from operations is due primarily to additional cash flow from the communities leased-up in 1998 and the commencement of leasing operations at the first phase of Addison Place in 1999, offset by the sales of the two retail centers in 1998, and Bentley Place in 1999. Net cash provided by operating activities decreased $174,000 from $5,469,000 during 1997 to $5,295,000 during 1998. The decrease in cash flow from operations is due primarily to the sales of Autumn Ridge and Windsong, offset by additional cash flow from the communities leased-up in 1998. Generally, depreciation and amortization expenses are the most significant adjustments to net income (loss) in arriving at cash provided by operating activities. Net cash used in investing activities decreased $11,232,000 from $18,235,000 during 1998 to $7,003,000 during 1999. This decrease is due primarily to the following: (a) the purchase of three separate parcels of land for $11,359,000 in 1998; and (b) construction costs of $12,915,000 in 1999 related to the first and second phases of Addison Place, Bradford Creek, and the second phase of Plantation Trace, compared to construction costs of $13,913,000 in 1998 related to Bradford Creek, the second phases of Preston Oaks and Plantation Trace, and the first phase of Addison Place; offset by: (c) proceeds of $7,918,000 from the sale of Bentley Place in 1999 compared to proceeds of $7,521,000 in 1998 in from the sales of Windsong and the two retail centers. Net cash used in investing activities increased $16,698,000 from $1,537,000 during 1997 to $18,235,000 during 1998. This increase is due primarily to the following: (a) the purchase of three separate parcels of land for $11,359,000 in 1998; and (b) construction costs of $13,913,000 in 1998 related to Bradford Creek, the second phases of Preston Oaks and Plantation Trace, and the first phase of Abbotts Bridge, compared to construction costs totaling $10,519,000 in 1997 related to Ivey Brook, the second phase of Crestmark, and the start of construction at Bradford Creek; offset by: (c) proceeds totaling $7,521,000 in 1998 from the sales of Windsong and the two retail centers compared to proceeds of $10,330,000 from the sale of Autumn Ridge in 1997. Net cash provided by (used in) financing activities decreased $11,276,000 from $9,929,000 of net cash provided in 1998 to $1,347,000 of net cash used during 1999. This decrease is due primarily to the following: 33 35 (a) the closing of a $9,500,000 loan in October 1999 on Addison Place Phase I with a fixed interest rate of 6.95% per annum and a term of ten years, which provided net cash proceeds of $1,321,000 after paying off the construction loan ($8,019,000) and accrued interest ($38,000); the $1,321,000 net proceeds will be used to pay the balance of construction costs; the lender required us to obtain a letter of credit in the amount of $843,000 until the property obtains 95% physical occupancy (at December 31, 1999, the physical occupancy of the property was 55.9%.); (b) the closing of a $3,000,000 land loan secured by Addison Place Phase II with a variable interest rate of LIBOR plus 150 basis points, a one-year term, which provided net cash proceeds of $2,977,000; the proceeds will be used to fund the initial construction of the second phase of Addison Place; (c) net borrowings of $1,235,000 from the $2,000,000 line of credit; offset by: (d) the closing of an $8,400,000 loan in June 1998 on Bradford Creek with a fixed interest rate of 7.15% per annum and a term of ten years, which provided net cash proceeds of $8,282,000; (e) the refinancing of a $6,317,000 loan on Rosewood Plantation in June 1998 for $8,100,000 with a fixed interest rate of 6.62% per annum (compared with 7.38% per annum on the old loan), a term of ten years, which provided net cash proceeds of $1,474,000; (f) the refinancing of a $7,686,000 loan on Plantation Trace in September 1998 for $11,900,000 (which included the 50-unit second phase of Plantation Trace), with a fixed interest rate of 7.09% per annum (compared with 7.75% per annum on the old loan), a term of ten years, which provided net cash proceeds of $3,092,000; an additional $150,000 was escrowed by lender until completion of construction of the additional amenities, which occurred during the second quarter of 1999; (g) the refinancing of two loans totaling $13,520,000 on Crestmark in September 1998; the new loan amount is $16,000,000 with a fixed interest rate of 6.57% per annum (compared with 7.54% per annum on the old loans), a term of ten years, and net cash proceeds of $1,680,000; and (h) an increase of $3,826,000 in dividends and distributions paid, from $4,322,000 during 1998 to $8,148,000 during 1999. Net cash provided by financing activities increased $9,906,000 from $23,000 during 1997 to $9,929,000 during 1998. This increase is due primarily to the following: (a) the closing of an $8,400,000 loan in June 1998 on Bradford Creek with a fixed interest rate of 7.15% per annum and a term of ten years, which provided net cash proceeds of $8,282,000; (b) the refinancing of an existing $6,317,000 loan on Rosewood Plantation in June 1998 for $8,100,000 with a fixed interest rate of 6.62% per annum (compared with 7.38% per annum on the old loan) and a term of ten years, which provided net cash proceeds of $1,474,000; (c) the refinancing of an existing $7,686,000 loan on Plantation Trace in September 1998 for $11,900,000 (which included the 50-unit second phase of Plantation Trace), with a fixed interest rate of 7.09% per annum (compared with 7.75% per annum on the old loan) and a term of ten years, which provided net cash proceeds of $3,092,000; an additional $150,000 was escrowed by lender until completion of construction of the additional amenities, which occurred during the second quarter of 1999; (d) the refinancing of two existing loans totaling $13,520,000 on Crestmark in September 1998; the new loan amount is $16,000,000 with a fixed interest rate of 6.57% per annum (compared with 7.54% per annum on the old loans) and a term of ten years, which provided net cash proceeds of $1,680,000; and 34 36 (e) an increase of $234,000 in dividends and distributions paid, from $4,088,000 during 1997 to $4,322,000 during 1998; offset by: (f) the permanent financing of Ivey Brook in January 1997 that resulted in net cash proceeds of $6,270,000; (g) the permanent financing of the second phase of Crestmark in July 1997 that resulted in net cash proceeds of $3,905,000; and (h) the payoff of a $4,899,000 mortgage loan in August 1997 from the proceeds of the sale of Autumn Ridge. Existing Debt Structure. The following facts highlight our existing debt structure: (a) each of our nine communities is financed with fixed-rate debt; (b) the average interest rate for all nine communities is 6.98% per annum as of December 31, 1999; (c) no debt is scheduled to mature before October 2002; (d) the average term to maturity is eight years; and (e) debt principal will amortize at a rate of approximately $927,000 per year. The following table summarizes the debt for each of our nine communities:
FIXED INTEREST PRINCIPAL RATE AS OF OUTSTANDING 12/31/99 MATURITY 12/31/99 -------------- --------- ------------ Addison Place Phase I 6.95% 11/15/09 $ 9,500,000 Bradford Creek 7.15% 06/15/08 8,273,000 Crestmark 6.57% 10/01/08 15,778,000 Highland Park 7.30% 02/15/03 7,844,000 Ivey Brook 7.14% 02/15/07 6,228,000 Plantation Trace 7.09% 10/15/08 11,760,000 Preston Oaks 7.21% 10/15/02 8,313,000 River Oaks 7.15% 11/15/03 8,946,000 Rosewood Plantation 6.62% 07/15/08 7,973,000 --------- $ 84,615,000 ==============
35 37 Each of our existing mortgage loans will require balloon payments (in addition to monthly principal amortization) coming due over the years 2002 to 2009 as summarized below:
2002 $ 8,025,000 2003 16,057,000 2007 5,570,000 2008 38,232,000 2009 8,387,000 --------- Total $ 76,271,000 ==============
Because we anticipate that only a small portion of the principal of that indebtedness will be repaid before maturity and that we will not have funds on hand sufficient to repay that indebtedness, it will be necessary for us to refinance that debt through (a) debt financing collateralized by mortgages on individual communities or groups of communities and/or (b) equity offerings. During the quarter ended December 31, 1999, we completed construction on the 118-unit Addison Place Phase I, located in north Atlanta. We funded Phase I with the proceeds from mortgage loan financings, operating cash, and a $9,500,000 construction loan. We repaid the $8,019,000 outstanding on the construction loan plus accrued interest of $38,000 upon closing a $9,500,000 permanent loan secured by Addison Place Phase I on October 25, 1999. We will use the balance of the proceeds to pay the remaining construction costs. Because the property was less than 95% occupied at closing, the lender required us to obtain an $843,000 letter of credit secured by an equal amount of cash. The permanent loan includes a 10-year term with a fixed interest rate of 6.95% payable in monthly installments of $62,885 based on a 30-year amortization schedule. The first 12 payments are interest-only payments of $55,021 per month. During the quarter ended June 30, 1999, we started construction on Addison Place Phase II. Phase II will consist of 285 apartment homes, and we expect occupancy to begin in the third quarter of 2000. We began construction on a 319-unit community in Charlotte during the fourth quarter of 1999 and expect to start construction of a 249-unit community located in north Atlanta in the second quarter of 2000. We paid cash for the land for these three new communities, and we expect to fund the cost of construction with construction loans. We are in the process of obtaining construction loans, and we do not expect to begin substantial construction until construction loans are secured. We obtained a $2,000,000 revolving line of credit in June 1999 to provide funds for short-term working capital purposes. The line has a one-year term and bears an interest rate of LIBOR + 150 basis points. At December 31, 1999, $1,235,000 was outstanding under the line. We and some of our non-owned affiliates have a $35,000,000 advised guidance line with Bank of America, N.A. for the purpose of providing financing for the acquisition or development of multifamily communities. Financing under the guidance line is available on a revolving basis and bears interest at LIBOR plus 1.80% or the prime rate, at our option, payable monthly. The guidance line is not a commitment to lend, and each loan under the guidance line will be made at Bank of America's discretion in accordance with normal loan approval procedures. At December 31, 1999, no amount was outstanding under the guidance line. We anticipate that each community's rental and other operating revenues will be adequate to provide short-term (less than 12 months) liquidity for the payment of direct rental operating expenses, interest and amortization of principal on related mortgage notes payable and capital expenditures. We expect to meet our other short-term liquidity requirements generally through our net cash provided by operations, which we believe will be adequate to meet our operating requirements in both the short term and in the long term (greater than 12 months). We also expect to fund improvements and renovations at existing communities from property operations. We expect to meet our long-term liquidity requirements, including future developments and debt maturities, from the proceeds of construction and permanent loans. 36 38 STOCK REPURCHASE PLAN On September 3, 1998, we issued a press release announcing that our board of directors had authorized the repurchase of up to 300,000 shares of our outstanding common stock. We intend to repurchase our shares from time to time by means of open market purchases depending on availability, our cash position and price per share. We repurchased 121,200 shares in 1999 at a total cost of $909,000. From October 1, 1998 through December 31, 1999, we repurchased 140,500 shares for $1,054,000. REDEMPTIONS OF UNITS FOR CASH During the year ended December 31, 1999, we paid $28,000 to redeem 3,917 units from unitholders who resided outside the state of Georgia. From June 1, 1998 through February 3, 1999, we paid $150,000 to redeem 18,258 units from unitholders who resided outside the state of Georgia. SUPPLEMENTAL DISCLOSURE OF FUNDS FROM OPERATIONS Funds from Operations, or FFO, is defined by the National Association of Real Estate Investment Trusts as net income (loss), computed in accordance with generally accepted accounting principles, excluding gains (or losses) from debt restructuring and sales of property and non-recurring items, plus real estate related depreciation and amortization. We compute FFO in accordance with the current NAREIT definition, which may differ from the methodology for calculating FFO utilized by other equity REITs and, accordingly, may not be comparable to those other REITs. FFO does not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations, property acquisitions, development and distributions, or other commitments and uncertainties. FFO should not be considered as an alternative to net income (determined in accordance with GAAP) as an indication of our financial performance or cash flows from operating activities (determined in accordance with GAAP) as a measure of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. We consider FFO to be an important measure of our operating performance. While FFO does not represent cash flows from operating, investing or financing activities as defined by GAAP, FFO does provide investors with additional information with which to evaluate the ability of a REIT to pay dividends, meet required debt service payments and fund capital expenditures. We believe that to gain a clear understanding of our operating results, FFO should be evaluated in conjunction with net income (determined in accordance with GAAP). FFO represents funds from operations available for Shareholders and unitholders. The following table reconciles net income (loss) to FFO (dollars in thousands).
TWELVE MONTHS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- --------- --------- Net income (loss) $ 716 $ 708 $ (2,609) Minority interest of unitholders in the operating partnership (70) (15) (2,646) Extraordinary item 184 487 184 Amortization (real estate related) 0 41 65 Acquisition of Roberts Management 0 0 5,900 Loss on disposal of real estate - related assets 81 94 156 Gain on sale of real estate assets (1,023) (1,218) (1,012) Depreciation expense 5,529 5,017 5,708 --------- --------- --------- Funds From Operations $ 5,417 $ 5,114 $ 5,746 ========= ========= ========= Weighted average shares and units outstanding during the period 7,448,757 7,547,978 7,404,323
37 39 NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes standards for reporting and display of derivative instruments, hedges and their components. We will be required to adopt SFAS 133, amended by SFAS 137, on January 1, 2001. As of December 31, 1999, we had no derivative instruments or hedging activities and, therefore, we do not expect this statement to have a material effect on our financial position and results of operations. INFLATION Substantially all apartment leases are for an initial term of not more than 12 months and thus may enable us to seek increases in rents after the expiration of each lease. The short-term nature of these leases serves to reduce the risk to us of the adverse effects of inflation. YEAR 2000 COMPUTER ISSUES The "Year 2000 problem" is a general term used to identify those computer programs or applications that are programmed to use a two-digit field, instead of a four-digit field, for the year component of a date. Those programs or applications which are programmed in this manner may recognize the year 2000 as the year 1900, thereby causing potential system failures or miscalculations, which could result in disruptions of normal business operations. We have experienced no problems in either our accounting or property management systems as a result of the year 2000, and amounts expensed to remedy year 2000 issues were not material. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. These statements appear in a number of places in this report and include all statements that are not historical facts. Some of the forward-looking statements relate to our intent, belief or expectations regarding our strategies and plans for operations and growth, including development and construction of new multifamily apartment communities in our existing markets and elsewhere in the Southeast. Other forward-looking statements relate to trends affecting our financial condition and results of operations, and our anticipated capital needs and expenditures. These forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those that are anticipated in the forward-looking statements. These risks include the following: - Unfavorable changes in market and economic conditions in Atlanta and Charlotte could hurt our occupancy and rental rates. - Increased competition in the Atlanta and Charlotte markets could limit our ability to lease our apartments homes or increase or maintain rents. - Conflicts of interest inherent in business transactions between or among Roberts Realty and/or the operating partnership on one hand, and Mr. Roberts and/or his affiliates on the other hand, could result in our paying more for property or services than we would pay an independent seller or provider. - Construction and lease-up risks inherent in our development of the Addison Place, Ballantyne and Old Norcross communities, and the other communities we may develop in the future, could adversely affect our financial performance. - We might not be able to obtain replacement financing to make balloon payments on our fixed-rate debt, or we might have to refinance our debt on less favorable terms. - Because our organizational documents do not limit the amount of debt we may incur, we could increase the amount of our debt as a percentage of the estimated value of our properties. - Our operations could be adversely affected if we lost key personnel, particularly Mr. Roberts. - We could incur costs from environmental problems even though we did not cause, contribute to or know about them. 38 40 - Compliance or failure to comply with the Americans with Disabilities Act and other similar laws could result in substantial costs. In addition, the market price of the common stock may from time to time fluctuate widely as a result of, among other things: - our operating results; - the operating results of other REITs, particularly apartment REITs; and - changes in the performance of the stock market in general. Investors should review the more detailed description of these and other possible risks contained in the "Risk Factors" section of the prospectus included in the S-3 Registration Statement filed on August 2, 1999. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. We are exposed to market risk from changes in interest rates, which may adversely affect our financial position, results of operations and cash flows. In seeking to minimize the risks from interest rate fluctuations, we manage exposures through our regular operating and financing activities. We do not use financial instruments for trading or other speculative purposes. We are exposed to interest rate risk primarily through our borrowing activities, which are described in Note 4 to the Consolidated Financial Statements. All of our long-term borrowings are under fixed rate instruments, and our line of credit rate and land loan rates are 150 basis points over the three-month LIBOR. We have determined that there is no material market risk exposure to our consolidated financial position, results of operations or cash flows. The table below presents principal reductions and related weighted average interest rates by year of expected maturity for our debt obligations.
FAIR VALUE DECEMBER 31, (DOLLARS IN THOUSANDS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL 2000 - --------------------------------------------------------------------------------------------------------------------------------- Principal reductions in mortgage notes $ 927 $1,084 $9,105 $16,922 $893 $55,684 $84,615 $84,615 Average interest rates 6.98% 6.98% 6.96% 6.88% 6.88% 6.85% 6.99% 6.99% Principal reductions in $1,235 $ 0 $ 0 $ 0 $ 0 $ 0 $ 1,235 $ 1,235 line of credit Principal reductions in $3,000 $ 0 $ 0 $ 0 $ 0 $ 0 $ 3,000 $ 3,000 land loan
39 41 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements are listed under Item 14(a) and are filed as part of this annual report on the pages indicated.
Report of Independent Public Accountants (Arthur Andersen LLP).......................F-1 Consolidated Financial Statements and Schedule as of December 31, 1999 and 1998 and for the Years Ended December 31, 1999, 1998 and 1997: Balance Sheets.......................................................................F-2 Statements of Operations.............................................................F-3 Statements of Shareholders' Equity...................................................F-4 Statements of Cash Flows.............................................................F-5 Notes to Financial Statements .......................................................F-6 Schedule III - Real Estate and Accumulated Depreciation..............................S-1
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III As permitted by applicable rules of the SEC, some information required by Part III is omitted from this report because we will file a definitive proxy statement for our 2000 annual shareholders meeting under Regulation 14A not later than April 30, 2000. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS. The information required by this item is incorporated by reference from our definitive proxy statement. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference from our definitive proxy statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from our definitive proxy statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from our definitive proxy statement. 40 42 ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. and 2. Financial Statements and Schedules. The financial statements and schedules listed below are filed as part of this annual report on the pages indicated. INDEX TO FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
PAGE REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS (Arthur Andersen LLP).........................................................F-1 CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE AS OF DECEMBER 31, 1999 AND 1998 AND FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996: Balance Sheets.......................................................................................F-2 Statements of Operations.............................................................................F-3 Statements of Shareholders' Equity...................................................................F-4 Statements of Cash Flows.............................................................................F-5 Notes to Financial Statements........................................................................F-6 Schedule III - Real Estate and Accumulated Depreciation..............................................S-1
41 43 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Roberts Realty Investors, Inc.: We have audited the accompanying consolidated balance sheets of Roberts Realty Investors, Inc. (a Georgia corporation) and its subsidiary as of December 31, 1999 and 1998 and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Roberts Realty Investors, Inc. and its subsidiary as of December 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP Atlanta, Georgia February 25, 2000 F-1 44 ROBERTS REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except Per Share Amounts)
DECEMBER 31, DECEMBER 31, ASSETS 1999 1998 --------- --------- REAL ESTATE ASSETS - At cost: Land $ 21,120 $ 20,239 Buildings and improvements 96,124 91,407 Furniture, fixtures and equipment 11,654 11,184 --------- --------- 128,898 122,830 Less accumulated depreciation (21,029) (16,914) --------- --------- Operating real estate assets 107,869 105,916 Land held for future development 2,559 6,065 Construction in progress and real estate under development 12,393 7,035 --------- --------- Net real estate assets 122,821 119,016 CASH AND CASH EQUIVALENTS 1,673 4,106 RESTRICTED CASH 1,202 470 DEFERRED FINANCING COSTS - Net of accumulated amortization of $425 and $246 at December 31, 1999 and, 1998, respectively 1,031 1,095 OTHER ASSETS - Net 351 403 --------- --------- $ 127,078 $ 125,090 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Mortgage notes payable $ 84,615 $ 79,973 Land note payable 3,000 0 Line of credit 1,235 0 Accounts payable and accrued expenses 1,238 1,187 Dividends and distributions payable 1,010 1,092 Due to affiliates (including retainage payable of $216 and $0 at December 31, 1999 and 1998, respectively) 1,214 398 Security deposits and prepaid rents 443 335 --------- --------- Total liabilities 92,755 82,985 --------- --------- COMMITMENTS AND CONTINGENCIES (Note 10) MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 12,013 15,579 --------- --------- SHAREHOLDERS' EQUITY: Preferred shares, $.01 par value, 20,000,000 shares authorized, no shares issued and outstanding -- -- Common shares, $.01 par value, 100,000,000 shares authorized, 4,959,697 and 4,764,037 shares issued at December 31, 1999 and 1998, respectively 49 47 Additional paid-in capital 25,354 29,335 Less treasury shares, at cost (140,500 shares and 19,300 shares at December 31, 1999 and 1998, respectively) (1,054) (145) Unamortized deferred compensation (136) (92) Accumulated deficit (1,903) (2,619) --------- --------- Total shareholders' equity 22,310 26,526 --------- --------- $ 127,078 $ 125,090 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. F-2 45 ROBERTS REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Amounts)
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- OPERATING REVENUES: Rental operations $ 18,163 $ 16,521 $ 16,831 Other operating income 1,221 833 741 ----------- ----------- ----------- Total operating revenues 19,384 17,354 17,572 ----------- ----------- ----------- OPERATING EXPENSES: Personnel 1,785 1,777 1,661 Utilities 1,301 1,178 1,194 Repairs, maintenance and landscaping 1,180 1,090 1,124 Real estate taxes 1,574 1,393 724 Management fees to related party 0 0 211 Marketing, insurance and other 848 754 801 General and administrative expenses 1,964 1,727 1,714 Depreciation expense 5,529 5,017 5,708 ----------- ----------- ----------- Total operating expenses 14,181 12,936 13,137 ----------- ----------- ----------- INCOME FROM OPERATIONS 5,203 4,418 4,435 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Acquisition of Roberts Properties Management, L.L.C 0 0 (5,900) Interest income 159 384 395 Interest expense (5,244) (4,555) (4,670) Loss on disposal of assets (81) (94) (156) Amortization of deferred financing costs (219) (139) (122) Other amortization expense (11) (52) (65) ----------- ----------- ----------- Total other expense (5,396) (4,456) (10,518) ----------- ----------- ----------- LOSS BEFORE MINORITY INTEREST, GAINS ON SALE OF REAL ESTATE ASSETS AND EXTRAORDINARY ITEMS (193) (38) (6,083) MINORITY INTEREST OF UNITHOLDERS IN THE OPERATING PARTNERSHIP 70 15 2,646 ----------- ----------- ----------- LOSS BEFORE GAINS ON SALE OF REAL ESTATE ASSETS AND EXTRAORDINARY ITEMS (123) (23) (3,437) GAINS ON SALE OF REAL ESTATE ASSETS, net of minority interest of unitholders in the operating partnership 1,023 1,218 1,012 ----------- ----------- ----------- INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS 900 1,195 (2,425) EXTRAORDINARY ITEMS - Loss on early extinguishment of debt, net of minority interest of unitholders in the operating partnership (184) (487) (184) ----------- ----------- ----------- NET INCOME (LOSS) $ 716 $ 708 $ (2,609) =========== =========== =========== INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED: Income (loss) before extraordinary items $ 0.19 $ 0.26 $ (0.58) Extraordinary items (0.04) (0.11) (0.04) ----------- ----------- ----------- Net income (loss) $ 0.15 $ 0.15 $ (0.62) =========== =========== =========== Weighted average common shares - basic 4,737,008 4,638,265 4,187,013 Weighted average common shares - diluted 7,448,757 7,547,978 7,404,323
The accompanying notes are an integral part of these consolidated financial statements. F-3 46 ROBERTS REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Dollars in Thousands, Except Share and Per Share Amounts)
COMMON SHARES -------------- ADDITIONAL TOTAL NUMBER OF PAID-IN TREASURY DEFERRED ACCUMULATED SHAREHOLDERS' SHARES ISSUED AMOUNT CAPITAL SHARES COMPENSATION DEFICIT EQUITY ------------------------------------------------------------------------------------ BALANCE AS OF DECEMBER 31, 1996 4,186,329 $42 $29,902 $ 0 $ 0 $ (718) $29,226 Conversion of units to shares 234,179 2 1,410 1,412 Dividends declared ($0.576 per share) (2,444) (2,444) Adjustment for minority interest in the operating partnership 1,112 1,112 Net loss (2,609) (2,609) ---------------------------------------------------------------------------------- BALANCE AS OF DECEMBER 31, 1997 4,420,508 44 29,980 0 0 (3,327) 26,697 Conversion of units to shares 330,468 3 2,002 2,005 Dividends declared ($0.5775 per share) (2,702) (2,702) Adjustment for minority interest in the operating partnership 66 66 Repurchase of units (122) (122) Restricted shares issued to employees 13,061 111 (111) 0 Amortization of deferred compensation 19 19 Treasury shares (19,300 shares at cost) (145) (145) Net income 708 708 ----------------------------------------------------------------------------------- BALANCE AS OF DECEMBER 31, 1998 4,764,037 47 29,335 (145) (92) (2,619) 26,526 Conversion of units to shares 185,858 2 955 957 Dividends declared ($1.085 per share) (5,134) (5,134) Adjustment for minority interest in the operating partnership 147 147 Repurchase of units (28) (28) Restricted shares issued to employees 9,802 79 (79) 0 Amortization of deferred compensation 35 35 Treasury shares (121,200 shares at cost) (909) (909) Net income 716 716 ---------------------------------------------------------------------------------- BALANCE AS OF DECEMBER 31, 1999 4,959,697 $49 $25,354 ($1,054) $(136) $(1,903) $22,310 ==================================================================================
The accompanying notes are an integral part of these consolidated financial statements. F-4 47 ROBERTS REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)
YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 -------- -------- -------- OPERATING ACTIVITIES: Net income (loss) $ 716 $ 708 $ (2,609) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Minority interest of unitholders in the operating partnership (70) (15) (2,646) Gain on sale of real estate assets (1,023) (1,218) (1,012) Loss on disposal of assets 81 94 156 Depreciation and amortization 5,759 5,208 5,895 Non-cash interest 0 0 (55) Acquisition of Roberts Properties Management, L.L.C 0 0 5,900 Extraordinary items, net of minority interest of unitholders in the operating partnership 184 487 184 Amortization of deferred compensation 35 19 0 Changes in assets and liabilities: (Increase) Decrease in restricted cash (39) 148 64 (Increase) Decrease in other assets 52 (34) (15) Increase (decrease) in accounts payable and accrued expenses relating to operations 114 (23) (94) Decrease in due to affiliates relating to operations 0 0 (251) Increase (decrease) in security deposits and prepaid rent 108 (79) (48) -------- -------- -------- Net cash provided by operating activities 5,917 5,295 5,469 -------- -------- -------- INVESTING ACTIVITIES: Proceeds from sale of real estate assets 7,918 7,521 10,330 Acquisition and construction of real estate assets (14,921) (25,756) (11,867) -------- -------- -------- Net cash used in investing activities (7,003) (18,235) (1,537) -------- -------- -------- FINANCING ACTIVITIES: Proceeds from mortgage notes payable 9,500 44,400 10,420 Proceeds from land note payable 3,000 0 0 Proceeds from mortgage notes payable held in escrow (693) (150) 0 Payoff of mortgage notes, including prepayment penalty (4,166) (28,291) (5,151) Principal repayments on mortgage notes payable (890) (788) (913) Payment of loan costs (248) (653) (245) Proceeds from short-term loan 3,085 350 0 Payoff of short-term loan (1,850) (350) 0 Proceeds from construction loan 8,019 0 0 Payoff of construction loan (8,019) 0 0 Repurchase of units (28) (122) 0 Repurchase of treasury stock (909) (145) 0 Payment of dividends and distributions (8,148) (4,322) (4,088) -------- -------- -------- Net cash (used in) provided by financing activities (1,347) 9,929 23 -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,433) (3,011) 3,955 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,106 7,117 3,162 -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,673 $ 4,106 $ 7,117 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 5,852 $ 5,079 $ 4,722 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 48 ROBERTS REALTY INVESTORS, INC. NOTES TO FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION OF THE COMPANY Roberts Realty Investors, Inc. (the "Company"), a Georgia corporation, was formed July 22, 1994 to serve as a vehicle for investments in, and ownership of, a professionally managed real estate portfolio of multifamily apartment communities. The Company owns and operates multifamily residential properties as a self-administered, self-managed equity real estate investment trust (a "REIT"). All of the Company's completed apartment homes are located in the Atlanta metropolitan area. The Company conducts all of its operations and owns all of its assets in and through Roberts Properties Residential, L.P., a Georgia limited partnership (the "Operating Partnership"), of which the Company is the sole general partner and had a 65.0% and 63.0% ownership interest at December 31, 1999 and 1998, respectively. As the sole general partner and owner of a majority interest of the Operating Partnership, the Company controls the Operating Partnership. The Company, as the general partner of the Operating Partnership, does not hold any limited partner interests in the Operating Partnership. Units of limited partnership interest ("Units") in the Operating Partnership outstanding at December 31, 1999 and 1998 were 2,594,836 and 2,784,611, respectively. Units held by the minority interest as a percentage of total Units and shares of common stock ("Shares") of the Company outstanding were 35.0% and 37.0% at December 31, 1999 and 1998, respectively. The minority interest percentage reflects the number of Shares and Units outstanding and will change as additional Shares and Units are issued. Effective October 1, 1994, the Company began operations through a business combination (the "Consolidation") of four limited partnerships (the "Predecessors") sponsored by Charles S. Roberts, the Chairman, President and Chief Executive Officer of the Company ("Mr. Roberts"). The Consolidation was accounted for as a reorganization of entities under common ownership and control. As a result of the Consolidation, the partners of the Predecessors received Shares and/or Units. Purchase accounting has been applied to all acquisitions after the Consolidation. At December 31, 1999, the Company owned nine completed multifamily apartment communities totaling 1,779 apartment homes in Atlanta, and an additional 604 apartment homes were under construction (285 in Atlanta and 319 in Charlotte). On August 23, 1999, the Company sold a 117-unit apartment community located in Atlanta, Georgia. The Company also held land under development on which it expects to develop 249 apartment homes in Atlanta in 2000. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The accompanying consolidated financial statements include the consolidated accounts of the Company and the Operating Partnership. All significant intercompany accounts and transactions have been eliminated in consolidation. The financial statements of the Company have been adjusted for the minority interest of the unitholders in the Operating Partnership. The minority interest of the Unitholders in the Operating Partnership on the accompanying balance sheets is calculated based on the minority interest ownership percentage multiplied by the Operating Partnership's net assets (total assets less total liabilities). The minority interest percentage reflects the number of Shares and Units outstanding and will change as additional Shares and Units are issued. The minority interest of the Unitholders in the earnings or loss of the Operating Partnership on the accompanying statements of operations is calculated based on the weighted average number of Units outstanding during the period, which was 36.4%, 38.5% and F-6 49 43.5% for the years ended December 31, 1999, 1998 and 1997, respectively. The minority interest of the Unitholders was $12,013,000 and $15,579,000 at December 31, 1999 and 1998, respectively. Holders of Units generally have the right to require the Operating Partnership to redeem their Units for Shares. Upon submittal of Units for redemption, the Operating Partnership has the option either (a) to acquire those Units in exchange for Shares, on a one-for-one basis, or (b) to pay cash for those Units at their fair market value, based upon the then current trading price of the Shares. The Operating Partnership has adopted a policy that it will issue Shares in exchange for all future Units submitted. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. REAL ESTATE ASSETS AND DEPRECIATION. All real estate assets are to be held and used and are recorded at depreciated cost less reductions for impairment, if any. In identifying potential impairment, management considers such factors as declines in a property's operating performance or market value, a change in use, or adverse changes in general market conditions. In determining whether an asset is impaired, management estimates the future cash flows expected to be generated from the asset's use and its eventual disposition. If the sum of these estimated future cash flows on an undiscounted basis is less than the asset's carrying cost, the asset is written down to its fair value. None of the Company's real estate assets have required write-downs. Expenditures directly related to the development, acquisition and improvement of real estate assets are capitalized at cost as land, buildings and improvements. Ordinary repairs and maintenance are expensed as incurred. Major replacements and betterments are capitalized and depreciated over their estimated useful lives. Buildings are generally depreciated over 27.5 years. Land improvements are depreciated over 15 years, and furniture, fixtures and equipment are depreciated over 5 to 7 years. REVENUE RECOGNITION. The Company leases its residential properties under operating leases with terms generally one year or less. Rental income is recognized when earned, which is not materially different than revenue recognition on a straight-line basis. CASH AND CASH EQUIVALENTS. All investments purchased with an original maturity of three months or less are considered to be cash equivalents. RESTRICTED CASH. Restricted cash consists of resident security deposits ($359,000) and monies restricted by lenders from proceeds on mortgage financings ($843,000). Because the physical occupancy of Addison Place phase I was less than 95%, the lender required the Company to obtain a letter of credit in the amount of $843,000. The 1998 restricted cash consists of resident security deposits ($320,000) and monies restricted by lenders from proceeds on mortgage financings. See Note 4 - Notes Payable. DEFERRED FINANCING COSTS. Deferred financing costs include fees and costs incurred to obtain financings and are amortized on the straight-line method over the terms of the related debt. INTEREST AND REAL ESTATE TAXES. Interest and real estate taxes incurred during the construction period are capitalized and depreciated over the estimated useful lives of the constructed assets. Interest capitalized was $621,000, $580,000 and $388,000 for the years ended December 31, 1999, 1998, and 1997, respectively. INCOME TAXES. The Company elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the taxable year ended December 31, 1994. As a result, the Company generally will not be subject to federal and state income taxation at the corporate level to the extent it distributes annually at least 95% of its taxable income, as defined in the Code, to its shareholders and satisfies certain other requirements. Accordingly, no provision has been made for federal and state income taxes in the accompanying consolidated financial statements. F-7 50 EARNINGS PER SHARE. Basic earnings per share is computed based upon the weighted average number of common Shares outstanding during the period. Diluted earnings per share is computed to reflect the potential dilution of all instruments or securities which are convertible into Shares of common stock. NEW ACCOUNTING PRONOUNCEMENTS. Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes standards for reporting and display of derivative instruments, hedges and their components. The Company will be required to adopt SFAS 133, amended by SFAS 137, on January 1, 2001. As of December 31, 1999, the Company had no derivative instruments or hedging activities and, therefore, does not expect this statement to have a material effect on its financial position and results of operations. RECLASSIFICATIONS. Certain prior years amounts have been reclassified to conform with the 1999 presentation. 3. ACQUISITIONS AND DISPOSITIONS On April 1, 1997, the Company acquired Roberts Properties Management, L.L.C. ("Roberts Management"), the property management company that managed the Company's multifamily apartment communities since the Company's inception, from Mr. Roberts. The Operating Partnership issued a total of 590,000 Units valued at $10.00 per Unit or $5,900,000 to purchase Roberts Management. Because Roberts Management, a related party, managed only the properties owned by the Company, the transaction has been accounted for as the settlement of a contract and has been expensed in the year ended December 31, 1997. On August 26, 1997, the Company completed the sale of the Autumn Ridge community for $10,601,000 in cash. The sale resulted in a gain of $1,012,000, net of minority interest of Unitholders in the Operating Partnership. The Company acquired Autumn Ridge in December 1995. Autumn Ridge is a 207-unit apartment home community located in Cobb County in the Atlanta metropolitan area. Net sale proceeds were $5,045,000 after deduction for loan repayment of $5,162,000 and closing costs and prorations of $394,000. The purchaser, Benchmark Autumn Ridge Associates, L.P., is not affiliated with the Company. See Note 9 - Related Party Transactions. On January 9, 1998, the Company completed the sale of the Windsong community for $9,750,000 in cash resulting in a gain, net of minority interest, of $918,000 on the sale of real estate assets and an extraordinary gain, net of minority interest, of $68,000 on the buyer's assumption of related mortgage indebtedness. Net sales proceeds were $5,194,000 after deduction for loan repayment of $3,959,000 and closing costs and prorations totaling $597,000. Partnership profits interests of $288,000 were paid to Roberts Properties. The Company reinvested the net sales proceeds in replacement properties in connection with a Section 1031 tax-deferred exchange as described below. The purchaser is not affiliated with the Company. See Note 9 - Related Party Transactions. On June 22, 1998, the Company purchased approximately 23.8 acres of undeveloped land in the Ballantyne area of Charlotte, North Carolina for $3,540,000 from a local Charlotte investment group. The Company began construction of a 319-unit multifamily apartment community on the property during the fourth quarter of 1999. See Note 9 Related Party Transactions. On June 24, 1998, the Company purchased approximately 49.1 acres of undeveloped land located in north Fulton County, Georgia for $5,294,000 from Roberts Properties, Inc. ("Roberts Properties"), an affiliate owned by Mr. Roberts. The Company intends to construct a 403-unit multifamily apartment community on the property. Construction of the 118-unit first phase began in the third quarter of 1998 and was completed in the fourth quarter of 1999. Construction on the 285-unit second phase began in the second quarter of 1999. See Note 9 Related Party Transactions. On June 25, 1998, the Company purchased approximately 35.3 acres of undeveloped land located in Gwinnett County, Georgia for $2,525,000 from Roberts Properties Old Norcross, Ltd. The Company intends to construct a F-8 51 249-unit multifamily apartment community on the property, which is anticipated to begin in the second quarter of 2000. See Note 9 - Related Party Transactions. On July 17, 1998, the Company completed the sale of its two retail centers for $2,400,000 in cash resulting in a gain, net of minority interest, of $300,000. Net sales proceeds were $2,182,000, after deducting for closing costs and prorations of $218,000. Partnership profits interests of $60,000 were paid to Roberts Properties. The purchaser is unaffiliated with the Company. See Note 9 - Related Party Transactions. On August 23, 1999, the Company sold the Bentley Place community for $8,273,000 in cash resulting in a gain, net of minority interest, of $1,023,000. Net sales proceeds were $3,726,000 after deduction for loan repayment, including prepayment fee, of $4,166,000, and closing costs, accrued interest, and prorations totaling $381,000. Partnership profits interests of $242,000 were paid to Roberts Properties under the amended partnership agreement of the Operating Partnership. The Company used the remaining net sales proceeds of $3,484,000 to fund a special distribution to shareholders and unitholders on August 30, 1999 as described in Note 7. The purchaser is not affiliated with the Company. See Note 9 - Related Party Transactions. Unaudited pro forma amounts for the years ended December 31, 1999 and 1998, assuming the sales of Bentley Place, Windsong, and the two retail centers had taken place as of January 1 for the periods presented, are presented below (dollars in thousands, except per share amounts). The unaudited pro forma information is not necessarily indicative of the results of operations of the Company had the acquisition and sales occurred at the beginning of the periods presented, nor is it indicative of future results.
1999 1998 ---- ---- Total operating revenues $18,682 $16,122 Loss before extraordinary items (164) (164) Net loss (164) (719) Per Share Data - Basic and Diluted Loss before extraordinary items $ (0.04) $ (0.04) Net loss (0.04) (0.16)
4. NOTES PAYABLE LINE OF CREDIT. The Company obtained a $2,000,000 revolving unsecured line of credit (the "Line") in June 1999 to provide funds for short-term working capital purposes. The Line has a one-year term and bears an interest rate of LIBOR + 150 basis points. At December 31, 1999, $1,235,000 was outstanding under the Line. F-9 52 MORTGAGE NOTES. Mortgage notes payable were secured by the following communities at December 31, 1999 and 1998:
FIXED INTEREST PRINCIPAL OUTSTANDING RATE AS OF PROPERTY SECURING MORTGAGE MATURITY 12/31/99 12/31/99 12/31/98 -------------------------- -------- -------- -------- -------- Addison Place - phase I 11/15/09 6.95% $ 9,500,000 $ 0 Bentley Place 08/15/06 7.10 0 4,000,000 Bradford Creek 06/15/08 7.15 8,273,000 8,359,000 Crestmark 10/01/08 6.57 15,778,000 15,957,000 Highland Park 02/15/03 7.30 7,844,000 7,940,000 Ivey Brook 02/15/07 7.14 6,228,000 6,300,000 Plantation Trace 10/15/08 7.09 11,760,000 11,881,000 Preston Oaks 10/15/02 7.21 8,313,000 8,420,000 River Oaks 11/15/03 7.15 8,946,000 9,052,000 Rosewood Plantation 07/15/08 6.62 7,973,000 8,064,000 ----------- ----------- $84,615,000 $79,973,000 =========== ===========
The Company and certain non-owned affiliates of the Company have a $35,000,000 Advised Guidance Line with Bank of America, N.A. for the purpose of providing financing for the acquisition or development of multifamily communities. Financing under the guidance line is available on a revolving basis and bears interest at LIBOR plus 1.80% or the prime rate, at the option of the borrower, payable monthly. The guidance line is not a commitment to lend, and each loan under the guidance line will be made at Bank of America's discretion in accordance with normal loan approval procedures. At December 31, 1999, there was no balance outstanding under the guidance line. On April 13, 1999, the Company closed a $9,500,000 construction loan to complete phase one of Addison Place (formerly referred to as Abbotts Bridge). The loan had a nine-month term and bore an interest rate of LIBOR plus 160 basis points. In October 1999, the Company closed a $9,500,000 permanent loan secured by the first phase of Addison Place. The Company used $8,057,000 of the proceeds of the permanent loan to repay the construction loan ($8,019,000) and accrued interest ($38,000) and will use the balance of the proceeds to pay the remaining construction costs. The permanent loan has a 10-year term with a fixed interest rate of 6.95% payable in monthly installments of $62,885 based on a 30-year amortization schedule. The first 12 payments, however, are interest-only payments of $55,021 per month. Because the property was less than 95% occupied at closing, the lender required the Company to obtain an $843,000 letter of credit secured by an equal amount of cash. In October 1999, the Company closed a $3,000,000 land loan to fund the initial construction of the second phase of Addison Place. The loan is secured by the second phase land, has a six-month term, and bears an interest rate of LIBOR plus 150 basis points. The scheduled principal payments of all debt outstanding at December 31, 1999 for each of the years ending December 31 are as follows: 2000 $ 927,000 2001 1,084,000 2002 9,105,000 2003 16,922,000 2004 893,000 Thereafter 55,684,000 ----------- Mortgage notes payable $84,615,000 ===========
F-10 53 Real estate assets having a combined depreciated cost of approximately $105,978,000 serve as collateral for the outstanding mortgage debt at December 31, 1999. 5. EXTRAORDINARY ITEMS The 1999 extraordinary item relates to the write-off of unamortized loan costs and prepayment fee to the lender for the extinguishment of the mortgage loan secured by the Bentley Place community, which Roberts Realty sold on August 23, 1999. This extraordinary item is net of $107,000, which was allocated to the minority interest of the unitholders in the Operating Partnership, and calculated based on the weighted average number of partnership Units outstanding during the period. The 1998 extraordinary items are comprised of (1) the write-off of unamortized debt premium associated with the January 9, 1998 buyer's assumption of the mortgage note secured by the Windsong community upon sale of the property, (2) the write-off of unamortized loan costs and prepayment fee to the lender for the refinancing of the mortgage note secured by the Rosewood Plantation community on June 23, 1998, and (3) the write-off of unamortized loan costs and prepayment fee to the lender for the refinancing of the mortgage notes secured by the Crestmark community on September 30, 1998. These extraordinary items are net of $306,000, which was allocated to the minority interest of the unitholders in the Operating Partnership, based on the weighted average number of Units outstanding during the period. The 1997 extraordinary item resulted from the write-off of unamortized deferred financing costs and debt prepayment associated with the August 26, 1997 repayment of the mortgage note secured by the Autumn Ridge community upon sale of the property. The extraordinary item is net of $140,000, which was allocated to the minority interest of the unitholders in the Operating Partnership, based on the weighted average number of Units outstanding during the period. 6. FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS The following disclosures of estimated fair value were determined by management using available market information and appropriate valuation methodologies. Because considerable judgment is necessary to interpret market data and develop the related estimates of fair value, the estimates presented herein are not necessarily indicative of the amounts that could be realized upon disposition of the financial instruments. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Cash and cash equivalents, accounts payable, accrued expenses, security deposits and other liabilities, due to their short-term nature, are carried at amounts which reasonably approximate their fair values at December 31, 1999 and 1998. Fixed rate mortgage debt, the variable rate line of credit, and the variable rate land loan with carrying values of $88,850,000 and $79,973,000 at December 31, 1999 and 1998, respectively, are estimated by management to approximate fair value based upon interest rates available to the Company for debt with similar terms and maturities. 7. SHAREHOLDERS' EQUITY EXCHANGES OF UNITS FOR SHARES. During the years ended December 31, 1999, 1998, and 1997, a total of 185,858, 330,468, and 234,179 Units, respectively, were exchanged for the same number of Shares. Each conversion was reflected in the accompanying consolidated financial statements at book value. REDEMPTIONS OF UNITS FOR CASH. During the years ended December 31, 1999 and 1998, a total of 3,917 and 14,341 Units were redeemed for cash of $28,000 and $122,000, respectively. No Units were redeemed for cash in 1997. F-11 54 RESTRICTED SHARE AWARDS. During the years ended December 31, 1999 and 1998, the Company granted 9,802 and 13,061 Shares of restricted stock to certain employees. The market value of these restricted stock grants totaled $79,000 and $111,000, respectively, which was recorded as unamortized deferred compensation and is shown as a separate component of shareholders' equity. These restricted Shares vest 100% at the end of a three or four-year vesting period and are being amortized to compensation expense ratably over the vesting period. The Company issued no restricted Shares in 1997. TREASURY SHARE REPURCHASES. The Company repurchased 121,200 and 19,300 Shares in 1999 and 1998 at a total cost of $909,000 and $145,000, respectively. The Company did not repurchase any Shares in 1997. DIVIDENDS. On November 16, 1999, the Company's board of directors declared a quarterly distribution in the amount of $0.135 per common Share and Unit payable on January 14, 2000 to shareholders and unitholders of record on December 30, 1999. Of the total dividends declared for 1999 totaling $1.085 per share, approximately $0.12 per share represents ordinary income, $0.21 per share represents capital gain and $0.75 per share represents a return of capital to the shareholders. On December 15, 1998, the board of directors declared a quarterly distribution in the amount of $0.145 per common Share and Unit payable on January 15, 1999 to shareholders and unitholders of record on December 31, 1998. Of the total dividends declared for 1998 totaling $0.5775 per share, approximately $0.16 per share represents ordinary income, $0.05 per share represents capital gain and $0.37 per share represents a return of capital to the shareholders. Of the total dividends declared for 1997 totaling $0.576 per share, approximately $0.19 per share represented ordinary income, $0.21 per share represented capital gain, and $0.18 per share represented a return of capital to the shareholders. EARNINGS PER SHARE. Reconciliations of income available to common shareholders and weighted average Shares and Units used in the Company's basic and diluted earnings per share computations are detailed below (dollars in thousands).
1999 1998 1997 ---- ---- ---- Income (loss) before extraordinary items - basic $ 900 $ 1,195 $ (2,425) Minority interest of Unitholders in the Operating Partnership in income (loss) before extraordinary items 520 748 (1,866) --------- --------- --------- Income (loss) before extraordinary items - diluted $ 1,420 $ 1,943 $ (4,291) ========= ========= ========= Net income (loss) - basic $ 716 $ 708 $ (2,609) Minority interest of Unitholders in Operating Partnership in net income (loss) 413 442 (2,006) --------- --------- ---------- Net income (loss) - diluted $ 1,129 $ 1,150 $ (4,615) ========= ========= ========= Weighted average Shares - basic 4,737,008 4,638,265 4,187,013 Dilutive Securities - weighted average Units 2,711,749 2,909,713 3,217,310 --------- --------- --------- Weighted average Shares - diluted 7,448,757 7,547,978 7,404,323 ========= ========= =========
8. SEGMENT REPORTING SFAS No. 131 established standards for reporting financial and descriptive information about operating segments in annual financial statements. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in F-12 55 deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its chief executive officer. The Company owns, operates, and develops multifamily apartment communities in two major markets located in Georgia and North Carolina. These apartment communities generate rental revenue and other income through leasing of apartment homes to a diverse group of residents. The Company evaluates the performance of each of its apartment communities on an individual basis. However, because each of the apartment communities have similar economic characteristics, residents, and products and services, the apartment communities have been aggregated into one reportable segment. This segment comprises 100%, 99% and 99%, respectively, of the Company's total revenues for each of the three years ended December 31, 1999, 1998, and 1997. The primary financial measure for the Company's reportable business segment is net operating income ("NOI"), which represents total property revenues less total property operating expenses, excluding general and administrative and depreciation expenses. Current year NOI is compared to prior year NOI and current year budgeted NOI as a measure of financial performance. NOI from apartment communities totaled $12,696,000, $11,162,000, and $11,857,000 for the years ended December 31, 1999, 1998 and 1997, respectively. All other segment measurements are disclosed in the Company's consolidated financial statements. 9. RELATED PARTY TRANSACTIONS LAND ACQUISITIONS. On June 22, 1998, the Company purchased the Ballantyne land for $3,540,000 from a local Charlotte investment group unrelated to the Company. As part of the closing costs, the Operating Partnership paid Roberts Properties an acquisition fee of $166,000 for finding the property, negotiating the sales contract, conducting due diligence and closing the transaction. In addition, the Operating Partnership will pay Roberts Properties a fee of $1,595,000, or $5,000 per unit, for designing, developing, and overseeing construction of the Ballantyne project. Through December 31, 1999, the Company had incurred $1,063,000 of the $1,595,000 development fees. The independent members of the board of directors approved the foregoing arrangements with Roberts Properties. On June 24, 1998, the Company purchased the Addison Place land for $5,294,000 from Roberts Properties. As part of the closing costs, the Operating Partnership paid Roberts Properties an acquisition fee of $250,000 for finding the property, negotiating the sales contract, conducting due diligence and closing the transaction. In addition, the Operating Partnership will pay Roberts Properties a fee of $2,015,000, or $5,000 per unit, for designing, developing, and overseeing construction of the Addison Place project. Through December 31, 1999, the Company had incurred $1,540,000 of the $2,015,000 development fees. The independent members of the board of directors approved the foregoing arrangements with Roberts Properties after reviewing two independent appraisals. Roberts Properties acquired the property for $4,343,000 on March 6, 1997. On June 25, 1998, the Company purchased the Old Norcross land for $2,525,000 from Roberts Properties Old Norcross, Ltd.. Mr. Roberts, who is the general partner of Roberts Properties Old Norcross, Ltd., received none of the sale proceeds as general partner or otherwise. As part of the closing costs, the Operating Partnership paid Roberts Properties an acquisition fee of $119,250 for finding the property, negotiating the sales contract, conducting due diligence and closing the transaction. In addition, the Operating Partnership will pay Roberts Properties a fee of $1,245,000, or $5,000 per unit, for designing, developing, and overseeing construction of the Old Norcross project. The independent members of the board of directors approved the foregoing arrangements with Roberts Properties after reviewing two independent appraisals. CONSTRUCTION CONTRACTS. The Company enters into contractual commitments in the normal course of business related to the construction of real estate assets with Roberts Properties Construction, Inc. ("Roberts Construction"), an affiliate of the Company owned by Mr. Roberts. Roberts Construction constructed the first phase of Addison Place under a cost plus 10% contract. Roberts Construction is currently constructing the second phase of Addison Place, consisting of 285 apartment homes, under a cost plus 10% arrangement. Roberts Construction started construction of the Ballantyne community and intends to hire a third-party general contractor to complete construction of the community. Roberts Construction will continue to oversee the project. F-13 56 In 2000, the Company expects to enter into a contract with Roberts Construction related to construction of the Old Norcross project in Atlanta. During 1999, the Company incurred $116,000 and $64,000 of costs related to the Ballantyne and Old Norcross projects, respectively, to Roberts Construction. The contractual amounts for projects started and/or completed with Roberts Construction during the last three years, from inception through December 31, 1999, are summarized in the following table:
ACTUAL/ ESTIMATED ESTIMATED TOTAL REMAINING CONTRACT AMOUNT CONTRACTUAL AMOUNT INCURRED COMMITMENT ------ -------- ---------- Ivey Brook $ 7,774,000 $ 7,774,000 $ 0 Crestmark Club - Phase II 4,817,000 4,817,000 0 Bradford Creek 10,394,000 10,394,000 0 Plantation Trace - Phase II 4,908,000 4,908,000 0 Addison Place - Phase I 9,647,000 9,305,000 342,000 Addison Place - Phase II 20,605,000 2,014,000 18,591,000 ----------- ----------- ----------- $58,145,000 $39,212,000 $18,933,000 =========== =========== ===========
The Company paid Roberts Construction for labor and materials to perform repairs and maintenance for the communities in the amount of $420,000, $52,000, and $513,000 in 1999, 1998 and 1997, respectively. DEVELOPMENT FEES. Roberts Properties received fees for various development services including market studies, business plans, design, finish selection, interior design and construction administration. Fees incurred totaled $2,603,000, $0, and $990,000 for the years ended December 31, 1999, 1998 and 1997, respectively. MANAGEMENT FEES. Roberts Management provided property management services to the Company through March 31, 1997 for a fee of 5% of gross income. On April 1, 1997, the Company acquired Roberts Management and, as a result, no longer pays 5% of gross property revenues to Roberts Management, although it does bear the actual overhead cost of managing the properties internally. Property management fees incurred totaled $0, $0, and $211,000 for the years ended December 31, 1999, 1998 and 1997, respectively. In addition, the Company reimbursed Roberts Management for the salaries of the on-site property management personnel through March 31, 1997. PARTNERSHIP PROFITS INTEREST. Between 1994 and 1996, the Operating Partnership acquired nine limited partnerships of which Mr. Roberts was the sole general partner. As a part of each acquisition, the Operating Partnership assumed an existing financial obligation to an affiliate of Mr. Roberts. That financial obligation has been formalized as a profits interest in the Operating Partnership ("Profits Interests"). As the holder of the Profits Interests, Roberts Properties may receive distributions in certain circumstances. Upon a sale of any of the acquired properties, Roberts Properties will receive a distribution of a specified percentage of the gross sales proceeds, or, in the case of the Crestmark Phase II land, a specified amount. Upon a change in control of the Company, or the Operating Partnership, Roberts Properties will receive a distribution of the applicable percentages of the fair market values of all of the properties and the specified amount with respect to the Crestmark Phase II land. The amount to be distributed to Roberts Properties with respect to each affected property will, however, be limited to the amount by which the gross proceeds from the sale of that property, or, in connection with a change in control, its fair market value, exceeds the sum of: -- the debt assumed, or taken subject to, by the Operating Partnership in connection with its acquisition of the property; -- the equity issued by the Operating Partnership in acquiring the property; and -- all subsequent capital improvements to the property made by the Operating Partnership. F-14 57 The percentages which apply to the sales prices, or fair market values, of the affected properties are shown in the following table: River Oaks 5% Rosewood Plantation 5% Preston Oaks Phase I 5% Highland Park 5% Ivey Brook 5% Crestmark Phase I 5% Plantation Trace Phase I 6% In the case of the Crestmark Phase II land, the specified amount is $86,775. If the Company exercises its option to acquire all of the outstanding Units for Shares, it must simultaneously purchase the Profits Interests for cash in the amount the holder of that interest would receive if a change in control occurred at that time. Except for Units and the partnership profits interest related to the original nine limited partnerships acquired between 1994 and 1996, no partnership interests have been, or are presently expected to be, issued or assumed by the Operating Partnership. During 1999, 1998, and 1997, Profits Interests of $242,000, $348,000, and $0, respectively, were paid to Roberts Properties. OTHER FEES. During 1999, 1998 and 1997, affiliates of Mr. Roberts received fees and cost reimbursements for services related to (1) leasing administration services at the Shoppes of River Oaks and Shoppes of Plantation Trace ($21,000), (2) the acquisition and rezoning of a 1.1 acre parcel of undeveloped land located adjacent to the existing Preston Oaks community ($25,000), (3) the sale of Autumn Ridge in August 1997 ($150,000), (4) the sale of the Shoppes of River Oaks ($33,000), and (5) miscellaneous fees and cost reimbursements ($669,000). These fees and costs incurred totaled $242,000, $373,000, and $283,000 for the years ended December 31, 1999, 1998 and 1997, respectively. LOAN ORIGINATION FEES. A director of the Company is executive vice president of a commercial mortgage banking firm that has originated loans for the Company. Loan origination fees incurred totaled $0, $63,000, and $48,150 for the years ended December 31, 1999, 1998 and 1997, respectively. 10. COMMITMENTS AND CONTINGENCIES The Company and the Operating Partnership are subject to various legal proceedings and claims that arise in the ordinary course of business. While the resolution of these matters cannot be predicted with certainty, the Company believes that the final outcome of those matters will not have a material adverse effect on the Company's financial position or results of operations. As a result of the mergers of various limited partnerships into the Operating Partnership, the former partners of these limited partnerships received Units. Holders of Units have the right to require the Operating Partnership to redeem their Units for Shares, subject to certain conditions. Upon submittal of Units for redemption, the Operating Partnership will have the option either (a) to pay cash for those Units at their fair market value, which will be based upon the then current trading price of the Shares, or (b) to acquire those Units in exchange for Shares (on a one-for-one basis). The Company has adopted a policy that it will issue Shares in exchange for all future Units submitted. There were 2,594,836 Units outstanding at December 31, 1999 that could be exchanged for Shares, subject to the conditions described above. F-15 58 The Company enters into contractual commitments in the normal course of business related to the development of real estate assets. Management does not believe that the completion of these commitments will result in a material adverse effect on the Company's financial position or results of operations. 11. SUPPLEMENTAL CASH FLOW INFORMATION Non-cash investing and financing activities for the years ended December 31, 1999, 1998, and 1997 were as follows: A. On April 1, 1997, the Operating Partnership issued 590,000 Units in exchange for the assets and liabilities of Roberts Management valued at $5,900,000. B. On January 9, 1998, the Company sold the Windsong community. As a condition of the sale, the purchaser assumed the mortgage note payable associated with the property in the amount of $3,959,000. 12. SUBSEQUENT EVENTS On February 1, 2000, the Company closed a $2,000,000 land loan secured by the Old Norcross land to fund initial construction of the second phase of Addison Place. The loan is secured by the Old Norcross land, has a one-year term, and bears an interest rate of LIBOR plus 150 basis points. F-16 59 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ROBERTS REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 1999 (DOLLARS IN THOUSANDS) - --------------------------------------------------------------------------------
Initial Cost to Trust Carried at Close of Period Improvements Capitalized Buildings and After Buildings and Description Encumbrance Land Improvements Acquisition Land Improvements Total - ----------- ----------- ---- ------------ ----------- ---- ------------ ----- River Oaks $ 8,946 $ 1,837 $ 9,718 $ 758 $ 1,837 $ 10,476 $ 12,313 Rosewood Plantation 7,973 1,310 7,120 171 1,310 7,291 8,601 Preston Oaks 8,313 2,570 11,278 170 2,570 11,448 14,018 Highland Park 7,844 1,827 10,003 80 1,827 10,082 11,909 Ivey Brook 6,228 3,073 8,929 45 3,073 8,974 12,047 Plantation Trace 11,760 2,385 15,802 593 2,385 16,395 18,780 Bentley Place 0 0 0 0 0 0 0 Bradford Creek 8,273 1,672 12,174 30 1,672 12,204 13,876 Crestmark 15,778 4,366 20,397 71 4,366 20,468 24,834 Addison Place Townhomes 9,500 2,080 10,440 0 2,080 10,440 12,520 -------- -------- -------- -------- -------- -------- -------- Total $ 84,615 $ 21,120 $105,861 $ 1,918 21,120 $107,778 $128,898 ======== ======== ======== ======== ======== ======== ========
Life on which Date of Accumulated Depreciation Date Original Description Depreciation is Computed Acquired Construction - ----------- ------------ ----------- -------- ------------ River Oaks $ 3,340 3 - 27.5 Years Oct - 94 1992 Rosewood Plantation 2,269 3 - 27.5 Years Oct - 94 1994 Preston Oaks 2,649 3 - 27.5 Years Oct - 94 1995 Highland Park 2,448 3 - 27.5 Years Oct - 94 1995 Ivey Brook 1,763 3 - 27.5 Years Mar - 95 1997 Plantation Trace 3,037 3 - 27.5 Years May - 95 1990 Bentley Place 0 3 - 27.5 Years Mar - 96 1993 Bradford Creek 1,265 3 - 27.5 Years Mar - 96 1998 Crestmark 3,948 3 - 27.5 Years Jun - 96 1996 Addison Place Townhomes 310 3 - 27.5 Years Sep - 99 1999 -------- Total $ 21,029 ========
The accompanying notes are an integral part of this schedule. (A) The Company enters into contractual commitments in the normal course of business related to the construction of real estate assets with Roberts Construction - see Note 9 to the Consolidated Financial Statements. S-1 60 (B) Gross capitalized costs of real estate assets are summarized as follows:
1999 1998 1997 --------- --------- --------- Balance at beginning of period $ 122,830 $ 111,778 $ 110,800 Additions during period: Acquisitions 0 0 0 Other additions 12,915 21,323 10,276 Improvements 950 792 613 --------- --------- --------- Total Additions 13,865 22,115 10,889 --------- --------- --------- Deductions during period: Sales (7,459) (10,781) (9,619) Other disposals (338) (282) (292) --------- --------- --------- Total disposals (7,797) (11,063) (9,911) --------- --------- --------- Balance at close of period $ 128,898 $ 122,830 $ 111,778 ========= ========= =========
(C) Accumulated depreciation on real estate assets is as follows:
1999 1998 1997 --------- --------- --------- Balance at beginning of period $ 16,914 $ 13,401 $ 8,915 Additions during period: Depreciation expense 5,529 5,017 5,708 --------- --------- --------- Deductions during period Sales (1,154) (1,304) (1,096) Other disposals: (260) (200) (126) --------- --------- --------- Total disposals (1,414) (1,504) (1,222) --------- --------- --------- Balance at close of period $ 21,029 $ 16,914 $ 13,401 ========= ========= =========
S-2 61 3. Exhibits. We have filed some of the exhibits required by Item 601 of Regulation S-K with previous registration statements or reports. As specifically noted in the following Index to Exhibits, those previously filed exhibits are incorporated into this annual report on Form 10-K by reference. All exhibits contained in the following Index to Exhibits that are designated with an asterisk are incorporated into this annual report by reference from our initial Registration Statement on Form 10-SB filed with the SEC on March 22, 1996; the applicable exhibit number in that Registration Statement is provided beside the asterisk.
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Articles of Incorporation of Roberts Realty Investors, Inc. filed with the Georgia Secretary of State on July 22, 1994. [* 2.1] 3.2 Bylaws of Roberts Realty Investors, Inc. [* 2.2] 4.1 Agreement of Limited Partnership of Roberts Properties Residential, L.P., dated as of July 22, 1994. [* 3.1] 4.1.1 First Amended and Restated Agreement of Limited Partnership of Roberts Properties Residential, L.P., dated as of October 1, 1994. [* 3.1.1] 4.1.2 Amendment #1 to First Amended and Restated Agreement of Limited Partnership of Roberts Properties Residential, L.P., dated as of October 13, 1994. [* 3.1.2] 4.1.3 Amendment #2 to First Amended and Restated Agreement of Limited Partnership of Roberts Properties Residential, L.P. [Incorporated by reference to Exhibit 10.1 from our Registration Statement on Form S-3 filed July 8, 1999, registration number 333-82453.] 4.2 Certificate of Limited Partnership of Roberts Properties Residential, L.P. filed with the Georgia Secretary of State on July 22, 1994. [* 3.2] 4.2.1 Certificate of Merger filed with the Georgia Secretary of State on October 13, 1994, merging Roberts Properties River Oaks, L.P.; Roberts Properties Rosewood Plantation, L.P.; Roberts Properties Preston Oaks, L.P.; and Roberts Properties Highland Park, L.P. with and into Roberts Properties Residential, L.P. (1994 Consolidation). [*3.2.1] 4.2.2 Certificate of Merger filed with the Georgia Secretary of State on March 24, 1995, merging Roberts Properties Holcomb Bridge, L.P. with and into Roberts Properties Residential, L.P. (Holcomb Bridge Merger). [* 3.2.2] 4.2.3 Certificate of Merger filed with the Georgia Secretary of State on May 16, 1995, merging Roberts Properties Plantation Trace, L.P. with and into Roberts Properties Residential, L.P. (Plantation Trace Merger). [* 3.2.3] 4.2.4 Certificate of Merger filed with the Georgia Secretary of State on September 27, 1995, merging Roberts Properties-St. Simons, L.P. with and into Roberts Properties Residential, L.P. (Windsong Merger). [* 3.2.4]
42 62 4.2.5 Certificate of Merger filed with the Georgia Secretary of State on March 21, 1996, merging Roberts Properties Bentley Place, L.P. with and into Roberts Properties Residential, L.P. (Bentley Place Merger). [Incorporated by reference to Exhibit 4.2.5 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 4.2.6 Certificate of Merger filed with the Georgia Secretary of State on June 26, 1996, merging The Crestmark Club, L.P. with and into Roberts Properties Residential, L.P. (Crestmark Merger). [Incorporated by reference to Exhibit 4.2.6 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 4.2.7 Certificate and Articles of Merger filed with the Georgia Secretary of State on April 1, 1997 merging Roberts Properties Management, L.L.C. with and into Roberts Properties Residential, L.P. [Incorporated by reference to Exhibit 4.2.7 from our current report on Form 8-K dated April 1, 1997.] 10.1.2 Real Estate Note executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated September 20, 1995, in the original principal amount of $8,711,000.00 (Preston Oaks). [*6.11.1] 10.1.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated September 20, 1995, and related collateral documents (Preston Oaks). [* 6.11.2] 10.2.1 Real Estate Note A executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated January 31, 1996, in the original principal amount of $6,678,000.00 (Highland Park). [* 6.18.1] 10.2.2 Real Estate Note B executed by Roberts Properties Residential, L.P. in favor of Employers Life Insurance Company of Wausau, dated January 31, 1996, in the original principal amount of $1,500,000.00 (Highland Park). [* 6.18.2] 10.2.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company and Employers Life Insurance Company of Wausau, dated January 31, 1996, and related collateral documents (Highland Park). [* 6.18.3] 10.3.1 Real Estate Note A executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated October 17, 1996, in the original principal amount of $7,250,000.00 (River Oaks). [Incorporated by reference to Exhibit 10.3.3 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.3.2 Real Estate Note B executed by Roberts Properties Residential, L.P. in favor of Nationwide Life & Annuity Insurance Company, dated October 17, 1996, in the original principal amount of $2,000,000.00 (River Oaks). [Incorporated by reference to Exhibit 10.3.4 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.3.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company and Nationwide Life & Annuity Insurance Company, dated October 17, 1996, and related collateral documents (River Oaks). [Incorporated by reference to Exhibit 10.3.5 from our annual report on Form 10-KSB for the year ended December 31, 1996.]
43 63 10.4.1 Promissory Note executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated June 23, 1998, in the original principal amount of $8,100,000.00 (Rosewood). [Incorporated by reference to Exhibit 10.4.5 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.4.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated June 23, 1998, and related collateral documents (Rosewood). [Incorporated by reference to Exhibit 10.4.6 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.4.3 Limited Guaranty between Roberts Realty Investors, Inc. and The Prudential Insurance Company of America, dated June 23, 1998 (Rosewood). [Incorporated by reference to Exhibit 10.4.7 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.5.1 Real Estate Note A executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated January 30, 1997, in the original principal amount of $5,670,000.00 (Ivey Brook - formerly Holcomb Bridge). [Incorporated by reference to Exhibit 10.5.12 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.5.2 Real Estate Note B executed by Roberts Properties Residential, L.P. in favor of West Coast Life Insurance Company, dated January 30, 1997, in the original principal amount of $750,000.00 (Ivey Brook). [Incorporated by reference to Exhibit 10.5.13 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.5.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company and West Coast Life Insurance Company, dated January 30, 1997, and related collateral documents (Ivey Brook). [Incorporated by reference to Exhibit 10.5.14 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.7.1 Promissory Note executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated September 29, 1998, in the original principal amount of $11,900,000 (Plantation Trace). [Incorporated by reference to Exhibit 10.07.04 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.7.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated September 29, 1998, and related collateral documents (Plantation Trace). [Incorporated by reference to Exhibit 10.07.05 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.7.3 Limited Guaranty executed by Roberts Realty Investors, Inc. in favor of The Prudential Insurance Company of America, dated September 29, 1998 (Plantation Trace). [Incorporated by reference to Exhibit 10.07.06 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.8.1 Real Estate Note executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated June 1, 1998, in the original principal amount of $8,400,000.00 (Bradford Creek). [Incorporated by reference to Exhibit 10.8.6 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.8.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company of America, dated June 1, 1998, and related collateral documents (Bradford Creek). [Incorporated by reference to Exhibit 10.8.7 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.8.3 Guaranty between Roberts Realty Investors, Inc. and Nationwide Life Insurance Company of America,
44 64 dated June 1, 1998 (Bradford Creek). [Incorporated by reference to Exhibit 10.8.8 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.10.1 Real Estate Note executed by Roberts Properties Residential, L.P. in favor of Freddie Mac, dated September 30, 1998, in the original principal amount of $16,000,000 (Crestmark). [Incorporated by reference to Exhibit 10.10.06 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.10.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Freddie Mac, dated September 30, 1998, and related collateral documents (Crestmark). [Incorporated by reference to Exhibit 10.10.07 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.10.3 Guaranty executed by Roberts Realty Investors, Inc. in favor of Freddie Mac, dated September 30, 1998 (Crestmark). [Incorporated by reference to Exhibit 10.10.08 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.11.1 Amended and Restated Consulting Agreement between Roberts Properties Residential, L.P. and Roberts Properties, Inc., dated June 26, 1996. [Incorporated by reference to Exhibit 10.23.1 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 10.11.2 Amended and Restated Consulting Agreement between Roberts Properties Residential, L.P. and Roberts Properties Group, Inc., dated June 26, 1996. [Incorporated by reference to Exhibit 10.23.2 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 10.12 Letter Agreement between NationsBank, N.A., Charles S. Roberts, Roberts Properties Residential, L.P., Roberts Properties, Inc., and Roberts Realty Investors, Inc. dated March 6, 1997 regarding the establishment of an Advised Guidance Line in the amount of up to $35,000.000. [Incorporated by reference to Exhibit 10.17 from our quarterly report on Form 10-QSB for the quarter ended March 31, 1997.] 10.13 Agreement and Plan of Merger by and between Roberts Properties Residential, L.P. and Roberts Properties Management, L.L.C., dated April 1, 1997 [Incorporated by reference to Exhibit 2.1 from our current report on Form 8-K dated April 1, 1997.] 10.14.01 Promissory Note executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated April 12, 1999, in the original principal amount of $9,500,000 (Addison Place Phase I). [Incorporated by reference to Exhibit 10.14.01 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.14.02 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated April 12, 1999, and related collateral documents (Addison Place Phase I). [Incorporated by reference to Exhibit 10.14.02 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.14.03 Guaranty executed by Roberts Realty Investors, Inc. in favor of Compass Bank, dated April 12, 1999 (Addison Place Phase I). [Incorporated by reference to Exhibit 10.14.03 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.14.04 Promissory Note executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated October 25, 1999, in the original principal amount of $9,500,000 (Addison Place Phase I). 10.14.05 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated October 25, 1999, and related collateral documents (Addison Place Phase I).
45 65 10.14.06 Guaranty executed by Roberts Realty Investors, Inc. in favor of The Prudential Insurance Company of America, dated October 25, 1999 (Addison Place Phase I). 10.14.07 Promissory Note executed by Roberts Properties Residential, L.P. in favor of First Union National Bank, dated October 25, 1999, in the original principal amount of $3,000,000 (Addison Place Phase II). 10.14.08 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of First Union National Bank, dated October 25, 1999, and related collateral documents (Addison Place Phase II). 10.15.01 Line of Credit Note executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated June 1, 1999, in the original principal amount of $2,000,000. [Incorporated by reference to Exhibit 10.15.01 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.15.02 Loan Agreement executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated June 1, 1999. [Incorporated by reference to Exhibit 10.15.02 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.15.03 Continuing Guaranty executed by Roberts Realty Investors, Inc. in favor of Compass Bank, dated June 1, 1999. [Incorporated by reference to Exhibit 10.15.03 from our quarterly report on Form 10-Q dated August 13, 1999.] 23.1 Consent of Arthur Andersen LLP. 27 Financial Data Schedule (for SEC use only).
(b) Current Reports on Form 8-K during the quarter ended December 31, 1999. We filed no Current Reports on Form 8-K during the quarter ended December 31, 1999. 46 66 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROBERTS REALTY INVESTORS, INC. By: /s/ Charles S. Roberts ---------------------------------------------- Charles S. Roberts, Chairman of the Board, Chief Executive Officer and President Date: March 24, 2000 In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Charles S. Roberts Chairman of the Board, Chief - -------------------------------------------- Executive Officer and President March 24, 2000 Charles S. Roberts /s/ Charles R. Elliott Secretary, Treasurer and Chief March 24, 2000 - -------------------------------------------- Financial Officer (Principal Financial Charles R. Elliott Officer and Principal Accounting Officer) /s/ James M. Goodrich Director March 24, 2000 - -------------------------------------------- James M. Goodrich /s/ Dennis H. James Director March 24, 2000 - -------------------------------------------- Dennis H. James /s/ Wm. Jarell Jones Director March 24, 2000 - -------------------------------------------- Wm. Jarell Jones /s/ Ben A. Spalding Director March 24, 2000 - -------------------------------------------- Ben A. Spalding /s/ George W. Wray, Jr. Director March 24, 2000 - -------------------------------------------- George W. Wray, Jr. /s/ Weldon R. Humphries Director March 24, 2000 - -------------------------------------------- Weldon R. Humphries
47 67 EXHIBIT INDEX We have filed some of the exhibits required by Item 601 of Regulation S-K with previous registration statements or reports. As specifically noted in the following Index to Exhibits, those previously filed exhibits are incorporated into this annual report on Form 10-K by reference. All exhibits contained in the following Index to Exhibits that are designated with an asterisk are incorporated into this annual report by reference from our initial Registration Statement on Form 10-SB filed with the SEC on March 22, 1996; the applicable exhibit number in that Registration Statement is provided beside the asterisk.
EXHIBIT NO. DESCRIPTION - ------- ----------- 3.1 Articles of Incorporation of Roberts Realty Investors, Inc. filed with the Georgia Secretary of State on July 22, 1994. [* 2.1] 3.2 Bylaws of Roberts Realty Investors, Inc. [* 2.2] 4.1 Agreement of Limited Partnership of Roberts Properties Residential, L.P., dated as of July 22, 1994. [* 3.1] 4.1.1 First Amended and Restated Agreement of Limited Partnership of Roberts Properties Residential, L.P., dated as of October 1, 1994. [* 3.1.1] 4.1.2 Amendment #1 to First Amended and Restated Agreement of Limited Partnership of Roberts Properties Residential, L.P., dated as of October 13, 1994. [* 3.1.2] 4.1.3 Amendment #2 to First Amended and Restated Agreement of Limited Partnership of Roberts Properties Residential, L.P. [Incorporated by reference to Exhibit 10.1 from our Registration Statement on Form S-3 filed July 8, 1999, registration number 333-82453.] 4.2 Certificate of Limited Partnership of Roberts Properties Residential, L.P. filed with the Georgia Secretary of State on July 22, 1994. [* 3.2] 4.2.1 Certificate of Merger filed with the Georgia Secretary of State on October 13, 1994, merging Roberts Properties River Oaks, L.P.; Roberts Properties Rosewood Plantation, L.P.; Roberts Properties Preston Oaks, L.P.; and Roberts Properties Highland Park, L.P. with and into Roberts Properties Residential, L.P. (1994 Consolidation). [* 3.2.1] 4.2.2 Certificate of Merger filed with the Georgia Secretary of State on March 24, 1995, merging Roberts Properties Holcomb Bridge, L.P. with and into Roberts Properties Residential, L.P. (Holcomb Bridge Merger). [* 3.2.2] 4.2.3 Certificate of Merger filed with the Georgia Secretary of State on May 16, 1995, merging Roberts Properties Plantation Trace, L.P. with and into Roberts Properties Residential, L.P. (Plantation Trace Merger). [* 3.2.3] 4.2.4 Certificate of Merger filed with the Georgia Secretary of State on September 27, 1995, merging Roberts Properties-St. Simons, L.P. with and into Roberts Properties Residential, L.P. (Windsong Merger). [* 3.2.4]
48 68 4.2.5 Certificate of Merger filed with the Georgia Secretary of State on March 21, 1996, merging Roberts Properties Bentley Place, L.P. with and into Roberts Properties Residential, L.P. (Bentley Place Merger). [Incorporated by reference to Exhibit 4.2.5 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 4.2.6 Certificate of Merger filed with the Georgia Secretary of State on June 26, 1996, merging The Crestmark Club, L.P. with and into Roberts Properties Residential, L.P.(Crestmark Merger). [Incorporated by reference to Exhibit 4.2.6 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 4.2.7 Certificate and Articles of Merger filed with the Georgia Secretary of State on April 1, 1997 merging Roberts Properties Management, L.L.C. with and into Roberts Properties Residential, L.P. [Incorporated by reference to Exhibit 4.2.7 from our current report on Form 8-K dated April 1, 1997.] 10.1.2 Real Estate Note executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated September 20, 1995, in the original principal amount of $8,711,000.00 (Preston Oaks). [*6.11.1] 10.1.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated September 20, 1995, and related collateral documents (Preston Oaks). [* 6.11.2] 10.2.1 Real Estate Note A executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated January 31, 1996, in the original principal amount of $6,678,000.00 (Highland Park). [* 6.18.1] 10.2.2 Real Estate Note B executed by Roberts Properties Residential, L.P. in favor of Employers Life Insurance Company of Wausau, dated January 31, 1996, in the original principal amount of $1,500,000.00 (Highland Park). [* 6.18.2] 10.2.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company and Employers Life Insurance Company of Wausau, dated January 31, 1996, and related collateral documents (Highland Park). [* 6.18.3] 10.3.1 Real Estate Note A executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated October 17, 1996, in the original principal amount of $7,250,000.00 (River Oaks). [Incorporated by reference to Exhibit 10.3.3 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.3.2 Real Estate Note B executed by Roberts Properties Residential, L.P. in favor of Nationwide Life & Annuity Insurance Company, dated October 17, 1996, in the original principal amount of $2,000,000.00 (River Oaks). [Incorporated by reference to Exhibit 10.3.4 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.3.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company and Nationwide Life & Annuity Insurance Company, dated October 17, 1996, and related collateral documents (River Oaks). [Incorporated by reference to Exhibit 10.3.5 from our annual report on Form 10-KSB for the year ended December 31, 1996.]
49 69 10.4.1 Promissory Note executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated June 23, 1998, in the original principal amount of $8,100,000.00 (Rosewood). [Incorporated by reference to Exhibit 10.4.5 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.4.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated June 23, 1998, and related collateral documents (Rosewood). [Incorporated by reference to Exhibit 10.4.6 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.4.3 Limited Guaranty between Roberts Realty Investors, Inc. and The Prudential Insurance Company of America, dated June 23, 1998 (Rosewood). [Incorporated by reference to Exhibit 10.4.7 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.5.1 Real Estate Note A executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated January 30, 1997, in the original principal amount of $5,670,000.00 (Ivey Brook - formerly Holcomb Bridge). [Incorporated by reference to Exhibit 10.5.12 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.5.2 Real Estate Note B executed by Roberts Properties Residential, L.P. in favor of West Coast Life Insurance Company, dated January 30, 1997, in the original principal amount of $750,000.00 (Ivey Brook). [Incorporated by reference to Exhibit 10.5.13 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.5.3 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company and West Coast Life Insurance Company, dated January 30, 1997, and related collateral documents (Ivey Brook). [Incorporated by reference to Exhibit 10.5.14 from our annual report on Form 10-KSB for the year ended December 31, 1996.] 10.7.1 Promissory Note executed by Roberts Properties Residential,L.P. in favor of The Prudential Insurance Company of America, dated September 29, 1998, in the original principal amount of $11,900,000 (Plantation Trace). [Incorporated by reference to Exhibit 10.07.04 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.7.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated September 29, 1998, and related collateral documents (Plantation Trace). [Incorporated by reference to Exhibit 10.07.05 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.7.3 Limited Guaranty executed by Roberts Realty Investors, Inc. in favor of The Prudential Insurance Company of America, dated September 29, 1998 (Plantation Trace). [Incorporated by reference to Exhibit 10.07.06 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.8.1 Real Estate Note executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company, dated June 1, 1998, in the original principal amount of $8,400,000.00 (Bradford Creek). [Incorporated by reference to Exhibit 10.8.6 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.]
50 70 10.8.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Nationwide Life Insurance Company of America, dated June 1, 1998, and related collateral documents (Bradford Creek). [Incorporated by reference to Exhibit 10.8.7 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.8.3 Guaranty between Roberts Realty Investors, Inc. and Nationwide Life Insurance Company of America, dated June 1, 1998 (Bradford Creek). [Incorporated by reference to Exhibit 10.8.8 from our quarterly report on Form 10-Q for the quarter ended June 30, 1998.] 10.10.1 Real Estate Note executed by Roberts Properties Residential, L.P. in favor of Freddie Mac, dated September 30, 1998, in the original principal amount of $16,000,000 (Crestmark). [Incorporated by reference to Exhibit 10.10.06 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.10.2 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Freddie Mac, dated September 30, 1998, and related collateral documents (Crestmark). [Incorporated by reference to Exhibit 10.10.07 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.10.3 Guaranty executed by Roberts Realty Investors, Inc. in favor of Freddie Mac, dated September 30, 1998 (Crestmark). [Incorporated by reference to Exhibit 10.10.08 from our quarterly report on Form 10-Q for the quarter ended September 30, 1998.] 10.11.1 Amended and Restated Consulting Agreement between Roberts Properties Residential, L.P. and Roberts Properties, Inc., dated June 26, 1996. [Incorporated by reference to Exhibit 10.23.1 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 10.11.2 Amended and Restated Consulting Agreement between Roberts Properties Residential, L.P. and Roberts Properties Group, Inc., dated June 26, 1996. [Incorporated by reference to Exhibit 10.23.2 from our quarterly report on Form 10-QSB for the quarter ended June 30, 1996.] 10.12 Letter Agreement between NationsBank, N.A., Charles S. Roberts, Roberts Properties Residential, L.P., Roberts Properties, Inc., and Roberts Realty Investors, Inc. dated March 6, 1997 regarding the establishment of an Advised Guidance Line in the amount of up to $35,000.000. [Incorporated by reference to Exhibit 10.17 from our quarterly report on Form 10-QSB for the quarter ended March 31, 1997.] 10.13 Agreement and Plan of Merger by and between Roberts Properties Residential, L.P. and Roberts Properties Management, L.L.C., dated April 1, 1997 [Incorporated by reference to Exhibit 2.1 from our current report on Form 8-K dated April 1, 1997.] 10.14.01 Promissory Note executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated April 12, 1999, in the original principal amount of $9,500,000 (Addison Place Phase I). [Incorporated by reference to Exhibit 10.14.01 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.14.02 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated April 12, 1999, and related collateral documents (Addison Place Phase I). [Incorporated by reference to Exhibit 10.14.02 from our quarterly report on Form 10-Q dated August 13, 1999.]
51 71 10.14.03 Guaranty executed by Roberts Realty Investors, Inc. in favor of Compass Bank, dated April 12, 1999 (Addison Place Phase I). [Incorporated by reference to Exhibit 10.14.03 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.14.04 Promissory Note executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated October 25, 1999, in the original principal amount of $9,500,000 (Addison Place Phase I). 10.14.05 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of The Prudential Insurance Company of America, dated October 25, 1999, and related collateral documents (Addison Place Phase I). 10.14.06 Guaranty executed by Roberts Realty Investors, Inc. in favor of The Prudential Insurance Company of America, dated October 25, 1999 (Addison Place Phase I). 10.14.07 Promissory Note executed by Roberts Properties Residential, L.P. in favor of First Union National Bank, dated October 25, 1999, in the original principal amount of $3,000,000 (Addison Place Phase II). 10.14.08 Deed to Secure Debt and Security Agreement executed by Roberts Properties Residential, L.P. in favor of First Union National Bank, dated October 25, 1999, and related collateral documents (Addison Place Phase II). 10.15.01 Line of Credit Note executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated June 1, 1999, in the original principal amount of $2,000,000. [Incorporated by reference to Exhibit 10.15.01 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.15.02 Loan Agreement executed by Roberts Properties Residential, L.P. in favor of Compass Bank, dated June 1, 1999. [Incorporated by reference to Exhibit 10.15.02 from our quarterly report on Form 10-Q dated August 13, 1999.] 10.15.03 Continuing Guaranty executed by Roberts Realty Investors, Inc. in favor of Compass Bank, dated June 1, 1999. [Incorporated by reference to Exhibit 10.15.03 from our quarterly report on Form 10-Q dated August 13, 1999.] 23.1 Consent of Arthur Andersen LLP. 27 Financial Data Schedule (for SEC use only).
52 EX-10.14.04 2 PROMISSORY NOTE 1 PROMISSORY NOTE $9,500,000.00 October 25, 1999 Loan No. 6 103 461 FOR VALUE RECEIVED, ROBERTS PROPERTIES RESIDENTIAL, L.P., a Georgia limited partnership ("BORROWER"), promises to pay to the order of THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation ("LENDER", which shall also mean successors and assigns who become holders of this Note), at Two Ravinia Drive, Suite 1400, Atlanta, Georgia 30346-2110, the principal sum of NINE MILLION FIVE HUNDRED THOUSAND AND NO/100 U.S. DOLLARS ($9,500,000.00), with interest on the unpaid balance ("BALANCE") at the rate of six and ninety-five hundredths percent (6.95%) per annum ("NOTE RATE") from the date of the first disbursement of Loan proceeds under this Note ("FUNDING DATE") until Maturity (defined below). Capitalized terms used without definition shall have the meanings ascribed to them in the Instrument (defined below). 1. Regular Payments. Principal and interest shall be payable as follows: (a) Interest from the Funding Date through November 15, 1999 shall be due and payable on December 15, 1999, together with the first regularly-scheduled payment due under 1(b) below. (b) Interest only shall be paid in arrears in twelve (12) monthly installments of Fifty-Five Thousand Twenty and 83/100 Dollars ($55,020.83) each, commencing on December 15, 1999 and continuing on the fifteenth (15th) day of each succeeding month to and including November 15, 2000. Each payment due date is referred to as a "DUE DATE". (c) Principal and interest shall be paid in one hundred eight (108) monthly installments of Sixty-Two Thousand Eight Hundred Eighty-Five and 05/100 Dollars ($62,885.05) each commencing on December 15, 2000 and continuing on the fifteenth (15th) day of each succeeding month to and including November 15, 2009. Each payment due date is referred to as a "DUE DATE". (d) The entire Obligations (as defined in the Instrument (defined below)) shall be due and payable on November 15, 2009 ("MATURITY DATE"). "MATURITY" shall mean the Maturity Date or earlier date that the Obligations may be due and payable by acceleration by Lender as provided in the Documents. (d) Interest on the Balance for any full month shall be calculated on the basis of a three hundred sixty (360) day year consisting of twelve (12) months of thirty (30) days each. For any partial month, interest shall be due in an amount equal to (i) the Note Rate divided by 360 multiplied by (ii) the number of days any Balance is outstanding through and including the day of payment. 1 2 2. Late Payment and Default Interest (a) Late Charge. If any payment due under the Documents is not fully paid by its Due Date, a late charge of $100.00 per day (the "DAILY CHARGE") shall be assessed for each day that elapses until payment in full is made (including the date payment is made); provided, however, that if any such payments, together with all accrued Daily Charges, are not fully paid by the fourteenth (14th) day following their Due Date, a late charge equal to four percent (4%) of such payments (the "LATE CHARGE") shall be assessed and be immediately due and payable. The Late Charge shall be payable in lieu of Daily Charges that shall have accrued. The Late Charge may be assessed only once on each overdue payment. These charges shall be paid to defray the expenses incurred by Lender in handling and processing such delinquent payment(s) and to compensate Lender for the loss of the use of such funds. The Daily Charge and Late Charge shall be secured by the Documents. The imposition of the Daily Charge, Late Charge, and/or requirement that interest be paid at the Default Rate (defined below) shall not be construed in any way to (i) excuse Borrower from its obligation to make each payment under this Note promptly when due or (ii) preclude Lender from exercising any rights or remedies available under the Documents upon an Event of Default. (b) Acceleration. Upon an Event of Default, including a breach of Section 5.01 of the Instrument, Lender may declare the Balance, unpaid accrued interest, the Prepayment Premium (defined below) and all other Obligations immediately due and payable in full. (c) Default Rate. Upon an Event of Default or at Maturity, whether by acceleration (due to a voluntary or involuntary default) or otherwise, the entire Obligations (excluding accrued but unpaid interest if prohibited by law) shall bear interest at the Default Rate. The "DEFAULT RATE" shall be the lesser of (i) the maximum rate allowed by the law or (ii) the greater of (A) the Note Rate plus five percent (5%) or (B) five percent (5%) plus the prime rate (for corporate loans at large United States money center commercial banks) published in the Wall Street Journal on the first Business Day (defined below) of the month in which the Event of Default or Maturity occurs or continues. The term "BUSINESS DAY" shall mean a day which commercial banks are not authorized or required by law to close in the Property State or in the State where payments made by Borrower are received. 3. Application of Payments. Before an Event of Default, all payments received under this Note shall be applied in the following order: (a) to unpaid Daily Charges, Late Charges and costs of collection; (b) to any Prepayment Premium due; (c) to interest on the Balance; and (d) then to the Balance. After an Event of Default, all payments shall be applied in any order determined by Lender in its sole discretion. 4. Prepayment. This Note may be prepaid, in whole or in part, upon at least thirty (30) days' prior written notice to Lender and upon payment of all accrued interest (and other Obligations due under the Documents) and a prepayment premium ("PREPAYMENT PREMIUM") equal to the greater of (a) one percent (1%) of the principal amount being prepaid multiplied by the quotient of the number of full months remaining until the Maturity Date divided by the number of full months comprising the term of this Note, or (b) the Present Value of the Loan (defined below) less the amount of principal and accrued interest (if any) being prepaid, calculated as of the prepayment date. The Prepayment Premium shall be due and payable, except as provided in the Instrument or as limited by law, upon any prepayment of this Note, whether voluntary or involuntary, and Lender shall not be obligated to accept any prepayment of the Note unless it is accompanied by the Prepayment Premium, all accrued interest and all other Obligations due under the Documents. Unless 2 3 prepayment occurs on a Due Date, the actual number of days until the next Due Date will be used to discount during that partial month. Lender shall notify Borrower of the amount and calculation of the Prepayment Premium. Borrower agrees that (a) Lender shall not be obligated to actually reinvest the amount prepaid in any Treasury obligation and (b) the Prepayment Premium is directly related to the damages that Lender will suffer as a result of the prepayment. The "PRESENT VALUE OF THE LOAN" shall be determined by discounting all scheduled payments remaining to the Maturity Date attributable to the amount being prepaid at the Discount Rate (defined below). The "DISCOUNT RATE" is the rate which, when compounded monthly, is equivalent to the Treasury Rate (defined below), when compounded semi-annually. The "TREASURY RATE" is the semi-annual yield on the Treasury Constant Maturity Series with maturity equal to the remaining weighted average life of the Loan (defined below), for the week prior to the prepayment date, as reported in Federal Reserve Statistical Release H.15 - Selected Interest Rates, conclusively determined by Lender (absent a clear mathematical calculation error) on the prepayment date. The rate will be determined by linear interpolation between the yields reported in Release H.15, if necessary. If Release H.15 is no longer published, Lender shall select a comparable publication to determine the Treasury Rate. Notwithstanding the foregoing, no Prepayment Premium shall be due if the Note is prepaid during the last thirty (30) days prior to the Maturity Date. 5. No Usury. Under no circumstances shall the aggregate amount paid or to be paid as interest under this Note exceed the highest lawful rate permitted under applicable usury law ("MAXIMUM RATE"). If under any circumstances the aggregate amounts paid on this Note shall include interest payments which would exceed the Maximum Rate, Borrower stipulates that payment and collection of interest in excess of the Maximum Rate ("EXCESS AMOUNT") shall be deemed the result of a mistake by both Borrower and Lender and Lender shall promptly credit the Excess Amount against the Balance or refund to Borrower any portion of the Excess Amount which cannot be so credited. 6. Security and Documents Incorporated. This Note is the Note referred to and secured by the Deed to Secure Debt and Security Agreement of even date herewith between Borrower and Lender (the "INSTRUMENT") and is secured by the Property. Borrower shall observe and perform all of the terms and conditions in the Documents. The Documents are incorporated into this Note as if fully set forth in this Note. 7. Treatment of Payments. All payments under this Note shall be made, without offset or deduction, (a) in lawful money of the United States of America at the office of Lender or at the place (and in the manner) Lender may specify by written notice to Borrower, (b) in immediately available federal funds, and (c) if received by Lender prior to 2:00 p.m. local time at such place, shall be credited on that day or else, at Lender's option, shall be credited on the next Business Day. Initially (unless waived by Lender), and until Lender shall direct Borrower otherwise, Borrower shall make all payments due under this Note in the manner set forth in Section 3.13 of the Instrument. If any Due Date falls on a day which is not a Business Day, then the payment shall be deemed to have fallen on the next succeeding Business Day. 8. Limited Recourse Liability. Except to the extent set forth in Paragraph 8 and Paragraph 9 of this Note, neither the Borrower nor any general partner(s) of Borrower (singularly or collectively, the "Exculpated Parties") shall have any personal liability for the Obligations. Notwithstanding the preceding sentence, Lender may bring a foreclosure action or other appropriate action to enforce the Documents or realize upon and protect the Property (including, without limitation, naming the Exculpated Parties in the actions) and in addition THE EXCULPATED PARTIES SHALL HAVE PERSONAL LIABILITY FOR: 3 4 (a) any indemnity, guaranty, master lease or similar instrument furnished in connection with the Loan (including, without limitation, the provisions of Sections 8.03, 8.04, 8.05, 8.06 and 8.07 of the Instrument); (b) any assessments and taxes (accrued and/or payable) with respect to the Property which are not paid and applicable to Borrower's period of ownership; (c) any security deposits of tenants (i) not turned over to Lender upon foreclosure, sale (pursuant to power of sale), or conveyance in lieu thereof, or (ii) not turned over to a receiver or trustee for the Property after appointment; (d) any insurance proceeds or condemnation awards neither turned over to Lender nor used in compliance with Section 3.07 and 3.08 of the Instrument; (e) waste of the Property; (f) any rents or other income from the Property received by any of the Exculpated Parties after a default under the Documents and not otherwise applied to the Obligations evidenced by this Note or to the current (not deferred) operating expenses of the Property; PROVIDED, HOWEVER, THAT THE EXCULPATED PARTIES SHALL HAVE PERSONAL LIABILITY for amounts paid as expenses to a person or entity related to or affiliated with any of the Exculpated Parties unless the payments are expressly permitted in the Documents; (g) Borrower's failure to maintain any letter of credit required under the Documents; and (h) all actual legal fees, including the allocated costs of Lender's staff attorneys, and other expenses incurred by Lender in enforcing the Documents if Borrower contests, delays, or otherwise hinders or opposes (including, without limitation, the filing of a bankruptcy) any of Lender's enforcement actions. 9. Full Recourse Liability. Notwithstanding the provisions of Paragraph 8 of this Note, the EXCULPATED PARTIES SHALL HAVE PERSONAL LIABILITY for the Obligations if: (a) there shall be any breach or violation of Article V of the Instrument (the amount of such personal liability under this Paragraph 9(a), however, shall be limited to the actual losses suffered by Lender because of such breach); or (b) there shall be any actual, but not constructive fraud, in connection with the Loan by any of the Exculpated Parties in connection with the Property, the Documents, the Loan application, or any other aspect of the Loan; or (c) the Property shall become an asset in (i) a voluntary bankruptcy or insolvency proceeding or (ii) an involuntary bankruptcy or insolvency proceeding which is not dismissed within ninety (90) days of filing (which Borrower has participated in causing to be filed or respecting which Borrower has colluded with a creditor or a principal in Borrower to cause such involuntary proceeding to be filed); provided, however, that this Paragraph 9(c) shall not apply if an involuntary bankruptcy is filed by Lender. 4 5 10. Joint and Several Liability. This Note shall be the joint and several obligation of all makers, endorsers, guarantors and sureties, and shall be binding upon them and their respective successors and assigns and shall inure to the benefit of Lender and its successors and assigns. 11. WAIVER OF TRIAL BY JURY. BORROWER AND LENDER HEREBY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM FILED BY EITHER PARTY, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE DOCUMENTS, OR ANY ACTS OR OMISSIONS OF LENDER OR BORROWER IN CONNECTION THEREWITH. IN WITNESS WHEREOF, this Note has been executed by Borrower as of the date first set forth above. BORROWER: ROBERTS PROPERTIES RESIDENTIAL, L.P., a Georgia limited partnership BY: Roberts Realty Investors, Inc., a Georgia corporation, its sole general partner By: /s/ Charles S. Roberts --------------------------------------- Charles S. Roberts, President [CORPORATE SEAL] 5 EX-10.14.05 3 DEED TO SECURE DEBT AND SECURITY AGREEMENT 1 EXHIBIT 10.14.05 ================================================================================ PREPARED BY AND UPON RECORDATION RETURN TO: McCullough Sherrill, LLP 1409 Peachtree Street, N.E. Atlanta, Georgia 30309 Attention: Paul P. Mattingly ROBERTS PROPERTIES RESIDENTIAL, L.P. (Borrower) to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Lender) --------------------------------- DEED TO SECURE DEBT AND SECURITY AGREEMENT --------------------------------- Dated: As of October 25, 1999 Location: 5100 Abbotts Bridge Road, Alpharetta, Georgia County: Fulton Loan Number: 6 103 461 =============================================================================== 2 TABLE OF CONTENTS ARTICLE I - OBLIGATIONS........................................................................................ 2 Section 1.01 Obligations................................................................ 2 Section 1.02 Documents.................................................................. 3 ARTICLE II - REPRESENTATIONS AND WARRANTIES.................................................................... 3 Section 2.01 Title, Legal Status and Authority.......................................... 3 Section 2.02 Validity of Documents...................................................... 3 Section 2.03 Litigation................................................................. 3 Section 2.04 Status of Property......................................................... 4 Section 2.05 Tax Status of Borrower..................................................... 4 Section 2.06 Bankruptcy and Equivalent Value............................................ 4 Section 2.07 Disclosure................................................................. 5 Section 2.08 Illegal Activity........................................................... 5 ARTICLE III - COVENANTS AND AGREEMENTS......................................................................... 5 Section 3.01 Payment of Obligations..................................................... 5 Section 3.02 Continuation of Existence.................................................. 5 Section 3.03 Taxes and Other Charges.................................................... 5 Section 3.04 Defense of Title, Litigation, and Rights under Documents................... 6 Section 3.05 Operation and Maintenance of Property...................................... 6 Section 3.06 Insurance.................................................................. 7 Section 3.07 Damage and Destruction of Property......................................... 9 Section 3.08 Condemnation............................................................... 10 Section 3.09 Liens and Liabilities...................................................... 11 Section 3.10 Tax and Insurance Deposits................................................. 11 Section 3.11 ERISA...................................................................... 12 Section 3.12 Environmental Representations, Warranties, and Covenants................... 12 Section 3.13 ........................................................................... 14 Section 3.14 Inspection................................................................. 14 Section 3.15 Records, Reports, and Audits............................................... 14 Section 3.16 Borrower's Certificates.................................................... 15 Section 3.17 Full Performance Required; Survival of Warranties.......................... 15 Section 3.18 Additional Security........................................................ 15 Section 3.19 Further Acts............................................................... 15 ARTICLE IV - ADDITIONAL ADVANCES; EXPENSES; SUBROGATION........................................................ 16 Section 4.01 Expenses and Advances...................................................... 16 Section 4.02 Subrogation................................................................ 16 ARTICLE V - SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY..................................................... 16 Section 5.01 Due-on-Sale or Encumbrance................................................. 16 Section 5.02 One-time Transfer.......................................................... 17 Section 5.03 Permitted Transfers Without Fee............................................ 18
i 3 ARTICLE VI - DEFAULTS AND REMEDIES............................................................................. 19 Section 6.01 Events of Default.......................................................... 19 Section 6.02 Remedies................................................................... 20 Section 6.03 Expenses................................................................... 21 Section 6.04 Rights Pertaining to Sales................................................. 22 Section 6.05 Application of Proceeds.................................................... 22 Section 6.06 Additional Provisions as to Remedies....................................... 22 Section 6.07 Waiver of Rights and Defenses.............................................. 22 ARTICLE VII - SECURITY AGREEMENT............................................................................... 23 Section 7.01 Security Agreement......................................................... 23 ARTICLE VIII - LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES................................................ 23 Section 8.01 Limited Recourse Liability................................................. 23 Section 8.02 General Indemnity.......................................................... 23 Section 8.03 Transaction Taxes Indemnity................................................ 23 Section 8.04 ERISA Indemnity............................................................ 23 Section 8.05 Environmental Indemnity.................................................... 23 Section 8.06 Duty to Defend, Costs and Expenses......................................... 24 Section 8.07 Recourse Obligation and Survival........................................... 24 ARTICLE IX - ADDITIONAL PROVISIONS............................................................................. 24 Section 9.01 Usury Savings Clause....................................................... 24 Section 9.02 Notices.................................................................... 24 Section 9.03 Sole Discretion of Lender.................................................. 25 Section 9.04 Applicable Law and Submission to Jurisdiction.............................. 25 Section 9.05 Construction of Provisions................................................. 25 Section 9.06 Transfer of Loan........................................................... 26 Section 9.07 Miscellaneous.............................................................. 26 Section 9.08 Entire Agreement........................................................... 27 Section 9.09 WAIVER OF TRIAL BY JURY.................................................... 27 ARTICLE X - LOCAL LAW PROVISIONS............................................................................... 27 Section 10.01 WAIVER..................................................................... 27 Section 10.02 Nature of Instrument....................................................... 27 Section 10.03 No Novation................................................................ 27 Section 10.04 Georgia Remedies........................................................... 28
ii 4 DEFINITIONS The terms set forth below are defined in the following sections of this Mortgage and Security Agreement: Action Section 9.04 Additional Funds Section 3.07 (c) Affecting the Property Section 3.12 (a) All Section 9.05 (m) Any Section 9.05 (m) Assessments Section 3.03 (a) Assignment Recitals, Section 2 (B) Awards Section 3.08 (b) Bankruptcy Code Recitals, Section 2 (A) (ix) Borrower Preamble Costs Section 4.01 Damage Section 3.07 (a) Default Rate Section 1.01 (a) Demand Section 9.12 (n) Depository Section 3.07 (c) Deposits Section 3.10 Documents Section 1.02 Environmental Indemnity Section 8.05 Environmental Law Section 3.12 (a) Environmental Liens Section 3.12 (b) Environmental Report Section 3.12 (a) ERISA Section 3.11 Event of Default Section 6.01 Flood Acts Section 2.04 (a) Foreign Person Section 2.05 Full Insurable Value Section 3.06 (a) GAAP Section 3.15 (a) Grace Period Section 6.01(b) Hazardous Materials Section 3.12 (a) Impositions Section 3.10 Improvements Recitals, Section 2 (A) (ii) Include, Including Section 9.05 (f) Indemnified Parties Section 8.02 Indemnify Section 8.02 Instrument Preamble Insurance Premiums Section 3.10 Investors Section 9.06 Land Recitals, Section 2 (A) (I) Laws Section 3.05 (c) Lease Section 9.05 (k) Leases Recitals, Section 2 (A) (ix) Lender Preamble Lessee Section 9.05 (k) Lessor Section 9.05 (k) Liens Section 3.09
i 5 Loan Recitals, Section 1 Losses Section 8.02 Major Tenants Section 3.08 (d) Net Proceeds Section 3.07 (d) Note Recitals, Section 1 Notice Section 9.02 Obligations Section 1.01 On Demand Section 9.05 (n) Organization State Section 2.01 Owned Section 9.05 (l) Permitted Encumbrances Recitals, Section 2 (B) Person Section 9.05 (i) Personal Property Section 6.02 (j) Prepayment Premium Section 1.01(a) Property Recitals, Section 2 (A) Property State Section 2.1 Provisions Section 9.05 (j) Rating Agency Section 3.06 (d) Release Section 3.12 (a) Rent Loss Proceeds Section 3.07 (c) Rents Recitals, Section 2 (A) (x) Restoration Section 3.07 (a) Securities Section 9.06 Security agreement Section 7.01 Taking Section 3.08 (a) Tenant Recitals, Section 2 (A) (vi) Tenants Section 9.05 (k) Transaction Taxes Section 3.03 (c) U.C.C. Section 2.02 Upon Demand Section 9.05 (n) Violation Section 3.11
ii 6 DEED TO SECURE DEBT AND SECURITY AGREEMENT THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT (this "INSTRUMENT") is made as of the ___ day of October, 1999, by ROBERTS PROPERTIES RESIDENTIAL, L.P., a Georgia limited partnership, having its principal office and place of business c/o Roberts Properties, Inc., 8010 Roswell Road, Suite 120, Atlanta, Georgia 30350, as mortgagor ("BORROWER"), to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey corporation, having an office at Two Ravinia Drive, Suite 1400, Atlanta, Georgia 30346, as mortgagee ("LENDER"). A POWER OF SALE HAS BEEN GRANTED IN THIS INSTRUMENT, PURSUANT TO WHICH LENDER MAY TAKE THE PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A JUDICIAL FORECLOSURE ACTION UPON DEFAULT BY BORROWER UNDER THIS INSTRUMENT. RECITALS: 1. Borrower, by the terms of its Promissory Note executed on the same date as this Instrument ("NOTE") and in connection with the loan ("LOAN") from Lender to Borrower, is indebted to Lender in the principal sum of NINE MILLION FIVE HUNDRED THOUSAND AND NO/100 U.S. DOLLARS ($9,500,000.00). 2. Borrower desires to secure the payment of and the performance of all of its obligations under the Note and certain additional Obligations (as defined in Section 1.01). THE MATURITY DATE (AS THAT TERM IS DEFINED IN THE NOTE) OF THE NOTE IS NOVEMBER 15, 2009. IN CONSIDERATION of the principal sum of the Note, and other good and valuable consideration, the receipt and sufficiency of which is acknowledged, Borrower irrevocably: A. Grants, bargains, sells, assigns, transfers, pledges, warrants, and conveys to Lender in FEE SIMPLE, subject only to the matters listed in Exhibit C, WITH POWER OF SALE, and grants Lender security title to, and a security interest in, the following property, rights, interests and estates owned by Borrower (collectively, the "PROPERTY"): (i) The real property in Fulton County, Georgia and described in Exhibit A ("LAND"); (ii) All buildings, structures and improvements (including fixtures) now or later located in or on the Land ("IMPROVEMENTS"); (iii) All easements, estates, and interests including hereditaments, servitudes, appurtenances, tenements, mineral and oil/gas rights, water rights, air rights, development power or rights, options, reversion and remainder rights, and any other rights owned by Borrower and relating to or usable in connection with or access to the Property; (iv) All right, title, and interest owned by Borrower in and to all land lying within the rights-of-way, roads, or streets, open or proposed, adjoining the Land to the center line thereof, and all sidewalks, alleys, and strips and gores of land adjacent to or used in connection with the Property; (v) All right, title, and interest of Borrower in, to, and under all plans, specifications, surveys, studies, reports, permits, licenses, agreements, contracts, instruments, books of account, insurance policies, and any other documents relating to the use, construction, occupancy, leasing, activity, or operation of the Property; 7 (vi) All of the fixtures and personal property described in Exhibit B owned by Borrower and replacements thereof; but excluding all personal property owned by any tenant (a "TENANT") of the Property; (vii) All of Borrower's right, title and interest in the proceeds (including conversion to cash or liquidation claims) of (A) insurance relating to the Property and (B) all awards made for the taking by eminent domain (or by any proceeding or purchase in lieu thereof ) of the Property, including awards resulting from a change of any streets (whether as to grade, access, or otherwise) and for severance damages; (viii) All tax refunds, including interest thereon, tax rebates, tax credits, and tax abatements, and the right to receive the same, which may be payable or available with respect to the Property; (ix) All leasehold estates, ground leases, leases, subleases, licenses, or other agreements affecting the use, enjoyment or occupancy of the Property now or later existing (including any use or occupancy arrangements created pursuant to Title 7 or 11 of the United States Code, as amended from time to time, or any similar federal or state laws now or later enacted for the relief of debtors (the "BANKRUPTCY CODE") and all extensions and amendments thereto (collectively, the "LEASES") and all Borrower's right, title and interest under the Leases, including all guaranties thereof; and (x) All rents, issues, profits, royalties, receivables, use and occupancy charges (including all oil, gas or other mineral royalties and bonuses), income and other benefits now or later derived from any portion or use of the Property (including any payments received with respect to any Tenant or the Property pursuant to the Bankruptcy Code) and all cash, security deposits, advance rentals, or similar payments relating thereto (collectively, the "RENTS") and all proceeds from the cancellation, termination, surrender, sale or other disposition of the Leases, and the right to receive and apply the Rents to the payment of the Obligations. B. Absolutely and unconditionally assigns, sets over, and transfers to Lender all of Borrower's right, title, interest and estates in and to the Leases and the Rents, subject to the terms and license granted to the Borrower under that certain Assignment of Leases and Rents made by Borrower to Lender dated the same date as this Instrument (the "ASSIGNMENT"), which document shall govern and control the provisions of this assignment. TO HAVE AND TO HOLD the Property unto the Lender and its successors and assigns forever, subject to the matters listed in Exhibit C ("PERMITTED ENCUMBRANCES") and the provisions of this Instrument. SHOULD THE OBLIGATIONS BE PAID according to the tenor and effect thereof when the same shall become due and payable, then this Instrument shall be canceled and surrendered (except for the obligations of Borrower set forth in Section 3.11 and 3.12 and Article VIII hereof, which shall survive such cancellation and surrender). IN FURTHERANCE of the foregoing, Borrower warrants, represents, covenants and agrees as follows: ARTICLE I - OBLIGATIONS SECTION 1.01 OBLIGATIONS. This Instrument is intended (i) to operate and to be construed as a deed passing title to the Property to Lender, and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage; and (ii) to constitute a security agreement pursuant to the Uniform Commercial Code as enacted in the State of Georgia, and (iii) executed, acknowledged, and delivered by Borrower to secure and enforce the following obligations (collectively, the "OBLIGATIONS"): (a) Payment of all obligations, indebtedness and liabilities under the Documents including (i) the Prepayment Premium (as defined in the Note) ("PREPAYMENT PREMIUM"), (ii) interest at both the rate specified in the Note and at the Default Rate (as defined in the Note) ("DEFAULT RATE"), if applicable and to the extent permitted by Laws (defined below), and (iii) renewals, extensions, and amendments of the Documents; 2 8 (b) Performance of every obligation, covenant, and agreement under the Documents including renewals, extensions, and amendments of the Documents; and (c) Payment of all sums advanced (including costs and expenses) by Lender pursuant to the Documents including renewals, extensions, and amendments of the Documents. SECTION 1.02 DOCUMENTS. The "DOCUMENTS" shall mean this Instrument, the Note, the Assignment, and any other written agreement executed in connection with the closing of the Loan (but excluding the Loan application and Loan commitment) and by the party against whom enforcement is sought, including those given to evidence or further secure the payment and performance of any of the Obligations, and any written renewals, extensions, and amendments of the foregoing, executed by the party against whom enforcement is sought. All of the provisions of the Documents are incorporated into this Instrument as if fully set forth in this Instrument. ARTICLE II - REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Lender as follows: SECTION 2.01 TITLE, LEGAL STATUS AND AUTHORITY. Borrower (i) is seised of the Land and Improvements in fee simple and has good and marketable title to the Property, free and clear of all liens, deeds to secure debt, charges, encumbrances, and security interests, except the Permitted Encumbrances; (ii) will forever warrant and defend its title to the Property and the validity, enforceability, and priority of the security title and security interest created by this Instrument against the claims of all persons; (iii) is a limited partnership duly organized, validly existing, and in good standing and qualified to transact business under the laws of its state of organization or incorporation ("ORGANIZATION STATE") and the state where the Property is located ("PROPERTY STATE"); and (iv) has all necessary approvals, governmental and otherwise, and full power and authority to own its properties (including the Property) and carry on its business. SECTION 2.02 VALIDITY OF DOCUMENTS. The execution, delivery and performance of the Documents and the borrowing evidenced by the Note (i) are within the power of Borrower; (ii) have been authorized by all requisite action; (iii) have received all necessary approvals and consents; (iv) will not violate, conflict with, breach, or constitute (with notice or lapse of time, or both) a default under (1) any law, order or judgment of any court, governmental authority, or the governing instrument of Borrower or (2) any indenture, agreement, or other instrument to which Borrower is a party or by which it or any of its property is bound or affected; (v) will not result in the creation or imposition of any lien, charge, security title, or encumbrance upon any of its properties or assets except for those in this Instrument; and (vi) will not require any authorization or license from, or any filing with, any governmental or other body (except for the recordation of this Instrument and Uniform Commercial Code ("U.C.C.") filings). The Documents constitute legal, valid, and binding obligations of Borrower. SECTION 2.03 LITIGATION. There is no action, suit, or proceeding, judicial, administrative, or otherwise (including any condemnation or similar proceeding), pending or, to the best knowledge of Borrower, threatened or contemplated against, or affecting, Borrower or the Property which would have a material adverse affect on either the Property or Borrower's ability to perform its obligations. 3 9 SECTION 2.04 STATUS OF PROPERTY. (a) The Land and Improvements are not located in an area identified by the Secretary of Housing and Urban Development, or any successor, as an area having special flood hazards pursuant to the National Flood Insurance Act of 1968, the Flood Disaster Protection Act of 1973, or the National Flood Insurance Reform Act of 1994, as each have been or may be amended, or any successor law (collectively, the "FLOOD ACTS") or, if located within any such area, Borrower has and will maintain the insurance prescribed in Section 3.06 below. (b) Borrower has all necessary (i) certificates, licenses, and other approvals, governmental and otherwise, for the operation of the Property and the conduct of its business and (ii) zoning, building code, land use, environmental and other similar permits or approvals, all of which are currently in full force and effect and not subject to revocation, suspension, forfeiture, or modification. The Property and its use and occupancy is in full compliance with all Laws and Borrower has received no notice of any violation or potential violation of the Laws which has not been remedied or satisfied. (c) The Property is served by all utilities (including water and sewer) required for its use. (d) All public roads and streets necessary to serve the Property for its use have been completed, are serviceable, are legally open, and have been dedicated to and accepted by the appropriate governmental entities. (e) The Property is free from damage caused by fire or other casualty. (f) All costs and expenses for labor, materials, supplies, and equipment used in the construction of the Improvements have been paid in full except for the Permitted Encumbrances. (g) Borrower owns and has paid in full for all furnishings, fixtures, and equipment (other than Tenants' property) used in connection with the operation of the Property, free of all security interests, liens, security titles, or encumbrances except the Permitted Encumbrances and those created by this Instrument. (h) The Property (1/) is assessed for real estate tax purposes as one or more wholly independent tax lot(s), separate from any adjoining land or improvements, and (2/) no other land or improvements are assessed and taxed together with the Property. (3/) SECTION 2.05 TAX STATUS OF BORROWER. Borrower is not a "foreign person" within the meaning of Sections 1445 and 7701 of the Internal Revenue Code of 1986, as amended, and the regulations thereunder. SECTION 2.06 BANKRUPTCY AND EQUIVALENT VALUE. No bankruptcy, reorganization, insolvency, liquidation, or other proceeding for the relief of debtors has been instituted by or against Borrower, any general partner of Borrower (if Borrower is a partnership), or any manager or managing member of Borrower (if Borrower is a limited liability company). Borrower has received reasonably equivalent value for granting this Instrument. - ------------------------------ (1) not, as of the date of this Instrument, (2) certain (3) Borrower agrees to cause the Property to be assessed for real estate tax purposes as one wholly independent tax lot, separate from any adjoining land or improvements, within one hundred eighty (180) days of the date of this Instrument. Failure to satisfy this obligation shall constitute a default under the Documents. 4 10 SECTION 2.07 DISCLOSURE. Borrower has disclosed to Lender all material facts and has not failed to disclose any material fact that could cause any representation or warranty made herein to be materially misleading. There has been no adverse change in any condition, fact, circumstance, or event that would make any such information materially inaccurate, incomplete or otherwise misleading. SECTION 2.08 ILLEGAL ACTIVITY. No portion of the Property has been or will be purchased, improved, fixtured, equipped or furnished with proceeds of any illegal activity and, to the best of Borrower's knowledge, there are no illegal activities at or on the Property. ARTICLE III - COVENANTS AND AGREEMENTS Borrower covenants and agrees with Lender as follows: SECTION 3.01 PAYMENT OF OBLIGATIONS. Borrower shall timely pay and cause to be performed the Obligations. SECTION 3.02 CONTINUATION OF EXISTENCE. Borrower shall not (a) dissolve, terminate, or otherwise dispose of, directly, indirectly or by operation of law, all or substantially all of its assets; (b) reorganize or change its legal structure without Lender's prior written consent (4/); (c) change its name, address, or the name under which Borrower conducts its business without promptly notifying Lender; or (d) do anything to cause the representations in Section 2.02 to become untrue. SECTION 3.03 TAXES AND OTHER CHARGES. (a) Payment of Assessments. Borrower shall pay when due all taxes, liens, assessments, utility charges (public or private and including sewer fees), ground rents, maintenance charges, dues, fines, impositions, and public and other charges of any character (including penalties and interest) assessed against, or which could become a lien against, the Property ("ASSESSMENTS") ten (10) days prior to the date any fine, penalty, interest or charge for nonpayment may be imposed. Unless Borrower is making deposits per Section 3.10, Borrower shall provide Lender with receipts evidencing such payments (except for income taxes, franchise taxes, ground rents, maintenance charges, and utility charges) within thirty (30) days after their due date. (b) Right to Contest. So long as no Event of Default (defined below) is continuing, Borrower may, prior to delinquency and at its sole expense, contest any Assessment, but this shall not change or extend Borrower's obligation to pay the Assessment as required above unless (i) Borrower gives Lender prior written notice of its intent to contest an Assessment; (ii) Borrower demonstrates to Lender's reasonable satisfaction that (1) the Property will not be sold to satisfy the Assessment prior to the final determination of the legal proceedings, (2) it has taken such actions as are required or permitted to accomplish a stay of any such sale, or (3) it has furnished a bond or surety (satisfactory to Lender in form and amount) sufficient to prevent a sale of the Property; (iii) at Lender's option, Borrower has deposited the full amount necessary to pay any unpaid portion of the Assessments with Lender; and (iv) such proceeding shall be permitted under any other instrument to which Borrower or the Property is subject (whether superior or inferior to this Instrument); provided, however, that the foregoing shall not apply to the contesting of any income taxes, franchise taxes, ground rents, maintenance charges, and utility charges. (c) Documentary Stamps and Other Charges. Borrower shall pay all taxes, assessments, charges, expenses, costs and fees (including registration and recording fees and revenue, transfer, stamp, intangible, indebtedness and any similar taxes)(collectively, the "TRANSACTION TAXES") required in connection with the making and/or recording of the Documents. If Borrower fails to pay the Transaction Taxes after demand, - ------------------------------ (4) (which consent shall not be unreasonably withheld) 5 11 Lender may (but is not obligated to) pay these and Borrower shall reimburse Lender on demand for any amount so paid with interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws. (d) Changes in Laws Regarding Taxation. If any law (i) deducts from the value of real property for the purpose of taxation any lien or encumbrance thereon, (ii) taxes deeds to secure debt or other security instruments for federal, state or local purposes or changes the manner of the collection of any such existing taxes, and/or (iii) imposes a tax, either directly or indirectly, on any of the Documents or the Obligations, Borrower shall, if permitted by law, pay such tax within the statutory period or within twenty (20) days after demand by Lender, whichever is less; provided, however, that if, in the opinion of Lender, Borrower is not permitted by law to pay such taxes, Lender shall have the option to declare the Obligations immediately due and payable (without any Prepayment Premium) upon sixty (60) days' notice to Borrower. (e) No Credits on Account of the Obligations. Borrower will not claim or be entitled to any credit(s) on account of the Obligations for any part of the Assessments and no deduction shall be made or claimed from the taxable value of the Property for real estate tax purposes by reason of the Documents or the Obligations. If such claim, credit or deduction is required by law, Lender shall have the option to declare the Obligations immediately due and payable (without any Prepayment Premium) upon sixty (60) days' notice to Borrower. SECTION 3.04 DEFENSE OF TITLE, LITIGATION, AND RIGHTS UNDER DOCUMENTS. Borrower shall forever warrant, defend and preserve Borrower's title to the Property, the validity, enforceability and priority of this Instrument and the lien, security title, or security interest created thereby, and any rights of Lender under the Documents against the claims of all persons, and shall promptly notify Lender of any such claims. Lender (whether or not named as a party to such proceedings) is authorized and empowered (but shall not be obligated) to take such additional steps as it may deem necessary or proper for the defense of any such proceeding or the protection of the lien, security title, security interest, validity, enforceability, or priority of this Instrument, title to the Property, or any rights of Lender under the Documents, including the employment of counsel, the prosecution and/or defense of litigation, the compromise, release, or discharge of such adverse claims, the purchase of any tax title, the removal of such any liens, security title and security interests, and any other actions Lender deems necessary to protect its interests. Borrower authorizes Lender to take any actions required to be taken by Borrower, or permitted to be taken by Lender, in the Documents in the name and on behalf of Borrower. Borrower shall reimburse Lender on demand for all expenses (including attorneys' fees) incurred by it in connection with the foregoing and Lender's exercise of its rights under the Documents. All such expenses of Lender, until reimbursed by Borrower, shall be part of the Obligations, bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, and shall be secured by this Instrument. SECTION 3.05 OPERATION AND MAINTENANCE OF PROPERTY. (a) Repair and Maintenance. Borrower will operate and maintain the Property in good order, repair, and operating condition. Borrower will promptly make all necessary repairs, replacements, additions, and improvements necessary to ensure that the Property shall not in any way be diminished or impaired. Borrower will not cause or allow any of the Property to be misused, wasted, or to deteriorate and Borrower will not abandon the Property. No new building, structure, or other improvement shall be constructed on the Land nor shall any material part of the Improvements be removed, demolished, or structurally or materially altered, without Lender's prior written consent. (b) Replacement of Property. Borrower will keep the Property fully equipped and will replace all worn out or obsolete Property with new, comparable fixtures or Property. Borrower will not, without Lender's prior written consent, remove any Property covered by this Instrument unless the same is replaced by Borrower with a new, comparable article (i) owned by Borrower free and clear of any lien, security title or 6 12 security interest (other than the Permitted Encumbrances and those created by this Instrument) or (ii) leased by Borrower (A) with Lender's prior written consent or (B) if the replaced Property was leased at the time of execution of this Instrument. (c) Compliance with Laws. Borrower and the Property shall be maintained, used, and operated in compliance with all (i) present and future laws, Environmental Laws (defined below), ordinances, regulations, and requirements (including zoning and building codes) of any governmental or quasi-governmental authority or agency applicable to Borrower or the Property (collectively, the "LAWS"); (ii) orders, rules, and regulations of any regulatory, licensing, accrediting, insurance underwriting or rating organization, or other body exercising similar functions; (iii) duties or obligations of any kind imposed under any Permitted Encumbrance or by law, covenant, condition, agreement, or easement, public or private; and (iv) policies of insurance at any time in force with respect to the Property. If proceedings are initiated or Borrower receives notice that it or the Property is not in compliance with any of the foregoing, Borrower will promptly send Lender notice and a copy of the proceeding or violation notice. If the Property is not in compliance with all Laws, Lender may impose additional requirements upon Borrower including monetary reserves or financial equivalents. (d) Zoning and Title Matters. Borrower shall not, without Lender's prior written consent, (i) initiate or support any zoning reclassification of the Property or variance under existing zoning ordinances; (ii) modify or supplement any of the Permitted Encumbrances; (iii) impose any restrictive covenants or encumbrances upon the Property; (iv) execute or file any subdivision plat affecting the Property; (v) consent to the annexation of the Property to any municipality; (vi) permit the Property to be used by the public or any person in a way that might make a claim of adverse possession or any implied dedication or easement possible; (vii) cause or permit the Property to become a non-conforming use under zoning ordinances or any present or future non-conforming use of the Property to be discontinued; or (viii) fail to comply with the terms of the Permitted Encumbrances. SECTION 3.06 INSURANCE. (a) Casualty Insurance. Borrower shall keep the Property insured for the benefit of Lender by (i) an "All Risk of Physical Loss" policy or the broadest form of extended coverage endorsement in an amount sufficient to prevent Lender from ever becoming a co-insurer under the policy or Laws, but in no event less than the lesser of (A) the Obligations or (B) the Full Insurable Value (defined below) of the Property, subject to verification by Lender and with a deductible not to exceed Ten Thousand Dollars ($10,000.00). "FULL INSURABLE VALUE" shall mean the one hundred percent (100%) replacement cost of the Property, without allowance for depreciation and exclusive of the cost of excavations, foundations, and footings, as determined, at Borrower's expense, periodically (but at least once per year) by the insurance company or an appraiser, engineer, architect, or contractor approved by said company and Lender; (ii) rent, business interruption, and/or use and occupancy insurance in an amount equal to one (1) year's total income from the Property including all rent, other income, and reimbursement of operating expenses; (iii) against damage by flood if the Property is located in an area identified by the Secretary of Housing and Urban Development, or any successor, as an area having special flood hazards and in which flood insurance has been made available under the Flood Acts in an amount equal to the lesser of (1) the original amount of the Note or (2) the maximum limit of coverage available for the Property under the Flood Acts; (iv) against damage or loss from (1) sprinkler system leakage and (2) boilers, boiler tanks, heating and air-conditioning equipment, pressure vessels, auxiliary piping, and similar apparatus, in the amount required by Lender; (v) during the period of any construction, repair, restoration, or replacement of the Property, a standard builder's risk policy with extended coverage in an amount at least equal to the Full Insurable Value of such Property, and worker's compensation, 7 13 in statutory amounts; and (vi) against damage or loss by earthquake(5/) and other natural phenomenon in the amounts reasonably required by Lender. (b) Liability and Other Insurance. Borrower shall maintain comprehensive general liability insurance on an occurrence basis covering Borrower and Lender, as an additional insured, against claims for bodily injury or death or property damage occurring in, upon, or about the Property or any street, drive, sidewalk, curb, or passageway adjacent thereto, in the amount required by Lender (but in no event less than Ten Million Dollars ($10,000,000.00) combined single limit per occurrence, which may be based on a combination of primary coverage plus umbrella coverage), which insurance shall include operations and blanket contractual liability coverage which insures contractual liability under the indemnifications set forth in Section 8.02 below (but such coverage or the amount thereof shall in no way limit such indemnifications). Upon request, Borrower shall maintain insurance or carry additional amounts of insurance covering Borrower or the Property as Lender shall reasonably require(6/). (c) Form of Policy. All insurance required under this Section shall be fully paid for, non-assessable, and the policies shall contain such provisions, endorsements, and expiration dates as Lender shall reasonably require. The policies shall be issued by insurance companies authorized to do business in the Property State, approved by Lender, and having (i) an investment grade rating or claims paying ability assigned by one or more credit rating agencies approved by Lender (a "RATING AGENCY") and (ii) a general policy rating of A or better and a financial class of VI or better by A.M. Best Company, Inc. (or if a rating of A.M. Best Company, Inc. is no longer available, a similar rating from a similar or successor service). In addition, all policies shall (x)include a standard mortgagee clause, without contribution, in the name of Lender and (y) provide that they shall not be canceled, amended, or materially altered (including reduction in the scope or limits of coverage) without at least thirty (30) days' prior notice to Lender. (d) Original Policies. Borrower shall deliver to Lender (i) original or certified copies of all policies (and renewals) required under this Section and (ii) receipts evidencing payment of all premiums on such policies at least thirty (30) days prior to their expiration. If original and renewal policies are unavailable or if coverage is under a blanket policy, Borrower shall deliver duplicate originals, or, if unavailable, original certificates evidencing that such policies are in full force and effect together with certified copies of the original policies. (e) General Provisions. Borrower shall not carry separate or additional insurance concurrent in form or contributing in the event of loss with that required under this Section unless endorsed in favor of Lender as per this Section and approved by Lender in all respects. In the event of foreclosure of this Instrument or other transfer of title or assignment of the Property in extinguishment, in whole or in part, of the Obligations, all right, title, and interest of Borrower in and to all policies of insurance then in force regarding the Property and all proceeds payable thereunder and unearned premiums thereon shall immediately vest in the purchaser or other transferee of the Property. No approval by Lender of any insurer shall be construed to be a representation, certification, or warranty of its solvency. No approval by Lender as to the amount, type, or form of any insurance shall be construed to be a representation, certification, or warranty of its sufficiency. - ------------------------------ (5) (Lender acknowledges that the Property is located in an area that is not considered to be at risk for earthquake damage and, accordingly, Lender, as of the date of this Instrument, has not required insurance against earthquake damage. Lender reserves the right to require insurance against earthquake damage if (i) Lender reasonably determines that the area in which the Property is located is considered to be at risk for earthquake damage, and (ii) Lender is generally requiring such insurance of other borrowers of commercial mortgage loans in the metropolitan Atlanta, Georgia area). (6) (provided that Lender is generally requiring such insurance of other borrowers of commercial mortgage loans in the metropolitan Atlanta, Georgia area) 8 14 Borrower shall comply with all insurance requirements and shall not cause or permit any condition to exist which would be prohibited by an insurance requirement or would invalidate the insurance coverage on the Property. SECTION 3.07 DAMAGE AND DESTRUCTION OF PROPERTY. (a) Borrower's Obligations. If any damage to, loss, or destruction of the Property occurs (any "DAMAGE"), (i) Borrower shall promptly notify Lender and take all necessary steps to preserve any undamaged part of the Property and (ii) if the insurance proceeds are made available for Restoration (defined below) (but regardless of whether any proceeds are sufficient for Restoration), Borrower shall promptly commence and diligently pursue to completion the restoration, replacement, and rebuilding of the Property as nearly as possible to its value and condition immediately prior to the Damage or a Taking (defined below) in accordance with plans and specifications approved by Lender ("RESTORATION"). Borrower shall comply with other reasonable requirements established by Lender to preserve the security under this Instrument. (b) Lender's Rights. If any Damage occurs and some or all of it is covered by insurance, then (i) Lender may, but is not obligated to, make proof of loss if not made promptly by Borrower and Lender is authorized and empowered by Borrower to settle, adjust, or compromise any claims for the Damage; (ii) each insurance company concerned is authorized and directed to make payment directly to Lender for the Damage; and (iii) Lender may apply the insurance proceeds in any order it determines (1) to reimburse Lender for all Costs (defined below) related to collection of the proceeds and (2) subject to Section 3.07(c) and at Lender's option, to (A) payment (without any Prepayment Premium) of all or part of the Obligations, whether or not then due and payable, in the order determined by Lender (provided that if any Obligations remains outstanding after this payment, the unpaid Obligations shall continue in full force and effect and Borrower shall not be excused in the payment thereof); (B) the cure of any default under the Documents; or (C) the Restoration. Any insurance proceeds held by Lender shall be held without the payment of interest thereon. If Borrower receives any insurance proceeds for the Damage, Borrower shall promptly deliver the proceeds to Lender. Notwithstanding anything in this Instrument or at law or in equity to the contrary, none of the insurance proceeds paid to Lender shall be deemed trust funds and Lender may dispose of these proceeds as provided in this Section. Borrower expressly assumes all risk of loss from any Damage, whether or not insurable or insured against. (c) Application of Proceeds to Restoration. Lender shall make the Net Proceeds (defined below) available to Borrower for Restoration if: (i) there shall then be no Event of Default; (ii) Lender shall be satisfied that (A) Restoration can and will be completed within one (1) year after the Damage occurs and at least (7/) prior to the maturity of the Note and (B) Leases which are terminated or terminable as a result of the Damage cover an aggregate of less than (8/) of the total rentable square footage contained in the Property at the closing of the Loan or such Tenants agree in writing to continue their Leases; (iii) Borrower shall have entered into a general construction contract acceptable in all respects to Lender for Restoration, which contract must include provision for retainage of not less than ten percent (10%) until final completion of the Restoration; and (iv) in Lender's reasonable judgment, after Restoration has been completed the net cash flow of the Property will be sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Documents. Notwithstanding any provision of this Instrument to the contrary, Lender shall not be obligated to make any portion of the Net Proceeds available for Restoration unless, at the time of the disbursement request, Lender has determined in its reasonable discretion that (y) Restoration can be completed at a cost which does not exceed the aggregate of the remaining Net - ------------------------------ (7) six (6) months (8) twenty percent (20%) 9 15 Proceeds and any funds deposited with Lender by Borrower ("ADDITIONAL FUNDS") and (z) the aggregate of any loss of rental income insurance proceeds which the carrier has acknowledged to be payable ("RENT LOSS PROCEEDS") and any funds deposited with Lender by Borrower are sufficient to cover all costs and operating expenses of the Property, including payments due and reserves required under the Documents. (d) Disbursement of Proceeds. If Lender elects or is required to make insurance proceeds available for Restoration, Lender shall, through a disbursement procedure established by Lender, periodically make available to Borrower in installments the net amount of all insurance proceeds received by Lender after deduction of all reasonable costs and expenses incurred by Lender in connection with the collection and disbursement of such proceeds ("NET PROCEEDS") and, if any, the Additional Funds. The amounts periodically disbursed to Borrower shall be based upon the amounts currently due under the construction contract for Restoration and Lender's receipt of (i) appropriate lien waivers, (ii) a certification of the percentage of Restoration completed by an architect or engineer acceptable to Lender, and (iii) title insurance protection against materialmen's and mechanic's liens. At Lender's election, the disbursement of funds may be handled by a disbursing agent selected by Lender, and such agent's reasonable fees and expenses shall be paid by Borrower. The Net Proceeds, Rent Loss Proceeds, and any Additional Funds shall constitute additional security for the Loan and Borrower shall execute, deliver, file and/or record, at its expense, such instruments as Lender requires to grant to Lender a perfected, first-priority security interest in these funds. If the Net Proceeds are made available for Restoration and (x) Borrower refuses or fails to complete the Restoration, (y) an Event of Default occurs, or (z) the Net Proceeds or Additional Funds are not applied to Restoration, then any undisbursed portion may, at Lender's option, be applied to the Obligations in any order of priority and any application to principal shall be deemed a voluntary prepayment subject to the Prepayment Premium. SECTION 3.08 CONDEMNATION. (a) Borrower's Obligations. Borrower will promptly notify Lender of any threatened or instituted proceedings for the condemnation or taking by eminent domain of the Property including any change in any street (whether as to grade, access, or otherwise) (a "TAKING"). Borrower shall, at its expense, (i) diligently prosecute these proceedings, (ii) deliver to Lender copies of all papers served in connection therewith, and (iii) consult and cooperate with Lender in the handling of these proceedings. No settlement of these proceedings shall be made by Borrower without Lender's prior written consent. Lender may participate in these proceedings (but shall not be obligated to do so) and Borrower will sign and deliver all instruments requested by Lender to permit this participation. (b) Lender's Rights to Proceeds. All condemnation awards, judgments, decrees, or proceeds of sale in lieu of condemnation ("AWARD") are assigned and shall be paid to Lender. Borrower authorizes Lender to collect and receive them, to give receipts for them, to accept them in the amount received without question or appeal, and/or to appeal any judgment, decree, or award. Borrower will sign and deliver all instruments requested by Lender to permit these actions. (c) Application of Award. Lender shall have the right to apply any Award, subject to Section 3.08(d), as per Section 3.07 for insurance proceeds held by Lender, including the waiver of Prepayment Premium. If Borrower receives any Award, Borrower shall promptly deliver it to Lender. Notwithstanding anything in this Instrument or at law or in equity to the contrary, none of the Award paid to Lender shall be deemed trust funds and Lender may dispose of these proceeds as provided in this Section. (d) Application of Award to Restoration. With respect to any portion of the Award that is not for loss of value or property, Lender shall permit the application of the Award to Restoration in accordance with the provisions of Section 3.07 if: (i) no more than (A) twenty (20%) of the gross area of the Improvements or (B) ten percent (10%) of the parking spaces is affected by the Taking, (ii) the amount of the loss does not exceed twenty percent (20%) of the original amount of the Note; (iii) the Taking does not affect access to the Property 10 16 from any public right-of-way; (iv) there is no Event of Default at the time of application; (v) after Restoration, the Property and its use will be in compliance with all Laws; (vi) in Lender's reasonable judgment, Restoration is practical and can be completed within one (1) year after the Taking and at least (9/) prior to the maturity of the Note; and (vii) the Tenants listed in Exhibit "D" ("MAJOR TENANTS") agree in writing to continue their Leases without abatement of rent. Any portion of the Award that is (i) for loss of value or property or (ii) in excess of the cost of any Restoration permitted above, may, in Lender's sole discretion, be applied against the Obligations or paid to Borrower. (e) Effect on the Obligations. Notwithstanding any Taking, Borrower shall continue to pay and perform the Obligations as provided in the Documents. Any reduction in the Obligations due to application of the Award shall take effect only upon Lender's actual receipt and application of the Award to the Obligations. If the Property shall have been foreclosed, sold pursuant to any power of sale granted hereunder, or transferred by deed-in-lieu of foreclosure prior to Lender's actual receipt of the Award, Lender may apply the Award received to the extent of any deficiency upon such sale and Costs incurred by Lender in connection with such sale. SECTION 3.09 LIENS AND LIABILITIES. Borrower shall pay, bond, or otherwise discharge all claims and demands of mechanics, materialman, laborers, and others which, if unpaid, might result in a lien, security title, or encumbrance on the Property or the Rents (collectively, "LIENS") and Borrower shall, at its sole expense, do everything necessary to preserve the lien, security title and security interest created by this Instrument and its priority. Nothing in the Documents shall be deemed or construed as constituting the consent or request by Lender, express or implied, to any contractor, subcontractor, laborer, mechanic or materialman for the performance of any labor or the furnishing of any material for any improvement, construction, alteration, or repair of the Property. Borrower further agrees that Lender does not stand in any fiduciary relationship to Borrower. Any contributions made, directly or indirectly, to Borrower by or on behalf of any of its partners, members, principals or any party related to such parties shall be treated as equity and shall be subordinate and inferior to the rights of Lender under the Documents. SECTION 3.10 TAX AND INSURANCE DEPOSITS. (10/), Borrower shall make monthly deposits ("DEPOSITS") with Lender equal to one-twelfth (1/12) of the annual Assessments (except for income taxes, franchise taxes, ground rents, maintenance charges and utility charges) and the premiums for insurance required under Section 3.06 (the "INSURANCE PREMIUMS") together with amounts sufficient to pay these items thirty (30) days before they are due (collectively, the "IMPOSITIONS"). Lender shall estimate the amount of the Deposits until ascertainable. At that time, Borrower shall promptly deposit any deficiency. Borrower shall promptly notify Lender of any changes to the amounts, schedules and instructions for payment of the Impositions. Borrower authorizes Lender or its agent to obtain the bills for Assessments directly from the appropriate tax or governmental authority. All Deposits are pledged to Lender and shall constitute additional security for the Obligations. The Deposits shall be held by Lender without interest (except to the extent required under Laws) and may be commingled with other funds. If (i) there is no Event of Default at the time of payment, (ii) Borrower has delivered bills or invoices to Lender for the Impositions in sufficient time to pay them when due, (iii) the Deposits are sufficient to pay the Impositions or Borrower has deposited the necessary additional amount, then Lender shall pay the Impositions prior to their due date. Any Deposits remaining after payment of the Impositions shall, at Lender's option, be credited against the Deposits required for the following year or paid to Borrower. If an Event of Default occurs, the Deposits may, at Lender's option, be applied to the Obligations in any order of priority. Any application to principal shall be deemed a voluntary prepayment subject to the Prepayment Premium. Borrower shall not claim any credit against the principal and interest due - ------------------------------ (9) six (6) months (10) Upon the occurrence of an Event of Default 11 17 under the Note for the Deposits. Upon an assignment or other transfer of this Instrument, Lender may pay over the Deposits in its possession to the assignee or transferee and then it shall be completely released from all liability with respect to the Deposits. Borrower shall look solely to the assignee or transferee with respect thereto. This provision shall apply to every transfer of the Deposits to a new assignee or transferee. Subject to Article V, a transfer of title to the Land shall automatically transfer to the new owner the beneficial interest in the Deposits. Upon full payment and satisfaction of this Instrument or, at Lender's option, at any prior time, the balance of the Deposits in Lender's possession shall be paid over to the record owner of the Land and no other party shall have any right or claim to the Deposits. Lender may transfer all its duties under this Section to such service or financial institution as Lender may periodically designate and Borrower agrees to make the Deposits to such service or institution. SECTION 3.11 ERISA. Borrower represents and warrants to Lender that (i) Borrower is not an "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or a "governmental plan" within the meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to state statutes regulating investments and fiduciary obligations with respect to governmental plans; (iii) the assets of the Borrower do not constitute "plan assets" of one or more plans within the meaning of 29 C.F.R. Section 2510.3-101; and (iv) one or more of the following circumstances is true: (1) Equity interests in Borrower are publicly offered securities, within the meaning of 29 C.F.R. Section 2510.3-101(b)(2); (2) Less than twenty-five percent (25%) of all equity interests in Borrower are held by "benefit plan investors" within the meaning of 29 C.F.R. Section 2510.3-101(f)(2); or (3) Borrower qualifies as an "operating company" or a "real estate operating company" within the meaning of 29 C.F.R. Section 2510.3-101(c) or (e). Borrower shall deliver to Lender such certifications and/or other evidence periodically requested by Lender, in its sole discretion, to verify these representations and warranties. Failure to deliver these certifications or evidence, breach of these representations and warranties, or consummation of any transaction which would cause this Instrument or any exercise of Lender's rights under this Instrument to (i) constitute a non-exempt prohibited transaction under ERISA or (ii) violate ERISA or any state statute regulating governmental plans (collectively, a "VIOLATION"), shall be an Event of Default. Notwithstanding anything in the Documents to the contrary, no sale, assignment, or transfer of any direct or indirect right, title, or interest in Borrower or the Property (including creation of a junior lien, security title, encumbrance or leasehold interest) shall be permitted which would, in Lender's opinion, negate Borrower's representations in this Section or cause a Violation. At least fifteen (15) days before consummation of any of the foregoing, Borrower shall obtain from the proposed transferee or lienholder (i) a certification to Lender that the representations and warranties of this Section will be true after consummation and (ii) an agreement to comply with this Section. SECTION 3.12 ENVIRONMENTAL REPRESENTATIONS, WARRANTIES, AND COVENANTS. (a) Environmental Representations and Warranties. (11/) Borrower represents and warrants, to the best of Borrower's knowledge (after due inquiry and investigation) and additionally based upon the environmental site assessment report of the Property (the "ENVIRONMENTAL REPORT"), that except as fully disclosed in the Environmental Report delivered to and approved by Lender: (i) there are no Hazardous Materials (defined below) or underground storage tanks affecting the Property ("AFFECTING THE PROPERTY" shall mean "in, on, under, stored, used or migrating to or from the Property") except for (A) routine office, cleaning, janitorial and other materials and supplies necessary to operate the Property for its current use and (B) Hazardous Materials that are (1) in compliance with Environmental Laws (defined below), (2) have all required permits, and (3) are in only the amounts necessary to operate the Property; (ii) there are no past, present or threatened Releases (defined below) of Hazardous Materials in violation of any Environmental Law affecting the Property; (iii) there is no past or present non-compliance with Environmental Laws or with permits issued - ------------------------------ (11) Based solely upon the environmental reports prepared for Lender, 12 18 pursuant thereto; (iv) Borrower does not know of, and has not received, any written or oral notice or communication from any person relating to Hazardous Materials affecting the Property; and (v) Borrower has provided to Lender, in writing, all information relating to environmental conditions affecting the Property known to Borrower or contained in Borrower's files. "ENVIRONMENTAL LAW" means any present and future federal, state and local laws, statutes, ordinances, rules, regulations, standards, policies and other government directives or requirements, as well as common law, that apply to Borrower or the Property and relate to Hazardous Materials including the Comprehensive Environmental Response, Compensation and Liability Act and the Resource Conservation and Recovery Act. "HAZARDOUS MATERIALS" shall mean petroleum and petroleum products and compounds containing them, including gasoline, diesel fuel and oil; explosives, flammable materials; radioactive materials; polychlorinated biphenyls ("PCBs") and compounds containing them; lead and lead-based paint; asbestos or asbestos-containing materials in any form that is or could become friable; underground or above-ground storage tanks, whether empty or containing any substance; any substance the presence of which on the Property is prohibited by any federal, state or local authority; any substance that requires special handling; and any other material or substance now or in the future defined as a "hazardous substance," "hazardous material", "hazardous waste," "toxic substance," "toxic pollutant," "contaminant," or "pollutant" within the meaning of any Environmental Law. "RELEASE" of any Hazardous Materials includes any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, pumping, pouring, escaping, dumping, disposing or other movement of Hazardous Materials. (b) Environmental Covenants. Borrower covenants and agrees that: (i) all use and operation of the Property shall be in compliance with all Environmental Laws and required permits; (ii) there shall be no Releases of Hazardous Materials affecting the Property; (iii) there shall be no Hazardous Materials affecting the Property except (A) routine office, cleaning and janitorial supplies, (B) in compliance with all Environmental Laws, (c) with all required permits, and (D) (1) in only the amounts necessary to operate the Property or (2) fully disclosed to and approved by Lender in writing; (iv) Borrower shall keep the Property free and clear of all liens and encumbrances imposed by any Environmental Laws due to any act or omission by Borrower or any person (the "ENVIRONMENTAL LIENS"); (v) Borrower shall, at its sole expense, fully and expeditiously cooperate in all activities in Section 3.12(c) including providing all relevant information and making knowledgeable persons available for interviews; (vi) Borrower shall, at its sole expense, (A) perform any environmental site assessment or other investigation of environmental conditions at the Property upon Lender's request based on Lender's reasonable belief that the Property is not in compliance with all Environmental Laws, (B) share with Lender the results and reports and Lender and the Indemnified Parties (defined below) shall be entitled to rely on such results and reports, and (c) complete any remediation of Hazardous Materials affecting the Property or other actions required by any Environmental Laws; (vii) Borrower shall not allow any Tenant or other user of the Property to violate any Environmental Law; and (viii) Borrower shall immediately notify Lender in writing after it becomes aware of (A) the presence, Release, or threatened Release of Hazardous Materials affecting the Property, (B) any non-compliance of the Property with any Environmental Laws, (C) any actual or potential Environmental Lien, (D) any required or proposed remediation of environmental conditions relating to the Property, or (E) any written or oral communication or notice from any person relating to Hazardous Materials. Any failure of Borrower to perform its obligations under this Section 3.12 shall constitute bad faith waste of the Property. (c) Lender's Rights. Lender and any person designated by Lender may enter the Property to assess the environmental condition of the Property and its use including (i) conducting any environmental assessment or audit (the scope of which shall be determined by Lender) and (ii) taking samples of soil, groundwater or other water, air, or building materials, and conducting other invasive testing at all reasonable times when (A) a default has occurred under the Documents, (B) Lender reasonably believes that a Release has occurred or the Property is not in compliance with all Environmental Laws, or (C) the Loan is being considered for sale. Borrower shall cooperate with and provide access to Lender and such person. 13 19 SECTION 3.13 (12/) SECTION 3.14 INSPECTION. Borrower shall allow Lender and any person designated by Lender (13/) to enter upon the Property and conduct tests or inspect the Property at all reasonable times. Borrower shall assist Lender and such person in effecting said inspection. SECTION 3.15 RECORDS, REPORTS, AND AUDITS. (a) Records and Reports. Borrower shall maintain, in accordance with generally-accepted accounting principles ("GAAP"), complete and accurate books and records with respect to all operations of or transactions involving the Property. Annually, Borrower shall furnish Lender financial statements for the most current fiscal year (including a schedule of all related Obligations and contingent liabilities) for (i) Borrower, (ii) any general partner(s) of Borrower and any general partners of such partners, (14/) (iii) any guarantors or sureties of the Note. Annually (or quarterly upon Lender's request), Borrower shall furnish Lender (i) operating statements for the Property including income and expenses (before and after Obligations service), major capital improvements; (ii) copies of paid tax receipts for the Property; (iii) a certified rent roll including security deposits held, the expiration of the terms of the Leases, and identification and explanation of any Tenants in default; (iv) (15/) a budget showing projected income and expenses (before and after Obligations service) for the next twelve (12) month budget period; and (v) upon Lender's request (16/), (A) a schedule showing the Borrower's tax basis in the Property, (B) the distribution of economic interests in the Property, and (C) copies of any other loan documents affecting the Property. (b) Delivery of Reports. All of the reports, statements, and items required under this Section shall be (i) certified as being true, correct, and accurate by an authorized person, partner, or officer of the delivering party or, at the deliverer's option, audited by a Certified Public Accountant; (ii) prepared in accordance with GAAP and satisfactory to Lender in form and substance; and (iii) delivered within (A) ninety (90) days after the end of Borrower's fiscal year for annual reports and (B) fifteen (15) days after the end of each calendar quarter for quarterly reports. If any one report, statement, or item is not received by Lender on its due date, a late fee of Five Hundred and No/100 Dollars ($500.00) per month shall be due and payable by Borrower. If any one report, statement, or item is not received within thirty (30) days of its due date, Lender may immediately declare (17/) under the Documents. Borrower shall (i) provide Lender with such additional financial, management, or other information regarding Borrower, any general partner of Borrower, or the Property, as - ------------------------------ (12) [Intentionally Omitted] (13) , upon at least two (2) days advance notice from Lender to Borrower (except that no such notice shall be required in the event of an emergency), (14) and (15) upon Lender's request (and in no event more often than once every two (2) years during the term of this Loan), (16) following the occurrence of an Event of Default (17) a default 14 20 Lender may reasonably request and (ii) upon Lender's request (18/), deliver all items required by Section 3.15 in an electronic format (i.e., on computer disks) or by electronic transmission acceptable to Lender. (c) Inspection of Records. Borrower shall allow Lender or any person designated by Lender to examine, audit, and make copies of all such books and records and all supporting data at the place where these items are located at all reasonable times after reasonable advance notice; provided that no notice shall be required after any default under the Documents. Borrower shall assist Lender in effecting such examination. Upon five (5) days' prior notice, Lender may inspect and make copies of Borrower's or any general partner of Borrower's income tax returns with respect to the Property for the purpose of verifying any items referenced in this Section. SECTION 3.16 BORROWER'S CERTIFICATES. Within ten (10) days after Lender's request, Borrower shall furnish a written certification to Lender and any Investors as to (a) the amount of the Obligations outstanding; (b) the interest rate, terms of payment, and maturity date of the Note; (c) the date to which payments have been paid under the Note; (d) whether any offsets or defenses exist against the Obligations and a detailed description of any listed; (e) whether all Leases are in full force and effect and have not been modified (or if modified, setting forth all modifications); (f) the date to which the Rents have been paid; (g) whether, to the best knowledge of Borrower, any defaults exist under the Leases and a detailed description of any listed; (h) the security deposit held by Borrower under each Lease and that such amount is the amount required under such Lease; (i) whether there are any defaults (or events which with the passage of time and/or notice would constitute a default) under the Documents and a detailed description of any listed; (j) whether the Documents are in full force and effect; and (k) any other matters reasonably requested by Lender related to the Leases, the Obligations, the Property, or the Documents. For all non-residential properties and promptly upon Lender's request, Borrower shall use its best efforts to deliver a written certification to Lender and Investors from Tenants specified by Lender that: (a) their Leases are in full force and effect; (b) there are no defaults (or events which with the passage of time and/or notice would constitute a default) under their Leases or a detailed description of any listed; (c) none of the Rents have been paid more than one month in advance; (d) there are no offsets or defenses against the Rents and a detailed description of any listed; and (e) any other matters reasonably requested by Lender related to the Leases; provided, however, that Borrower shall not have to pay money to a Tenant to obtain such certification, but it will deliver a landlord's certification for any certification it cannot obtain. SECTION 3.17 FULL PERFORMANCE REQUIRED; SURVIVAL OF WARRANTIES. All representations and warranties of Borrower in the Loan application or made in connection with the Loan shall survive the execution and delivery of the Documents and shall remain continuing warranties and representations of Borrower. SECTION 3.18 ADDITIONAL SECURITY. No other security now existing or taken later to secure the Obligations shall be affected by the execution of the Documents and all additional security shall be held as cumulative. The taking of additional security, execution of partial releases, or extension of the time of payment obligations of Borrower shall not diminish the effect, security title, and security interest of this Instrument and shall not affect the liability or obligations of any maker or guarantor. Neither the acceptance of the Documents nor their enforcement shall prejudice or affect Lender's right to realize upon or enforce any other security now or later held by Lender. Lender may enforce the Documents or any other security in such order and manner as it may determine in its discretion. SECTION 3.19 FURTHER ACTS. Borrower shall take all necessary actions to (i) keep valid and effective the security title, security interest and rights of Lender under the Documents and (ii) protect the lawful owner of the Documents. Promptly upon request by Lender and at Borrower's expense, Borrower shall execute additional instruments and take such actions as Lender reasonably believes are necessary or desirable to (a) maintain or grant Lender a first-priority, perfected security title and security interest in the Property, (b) correct any error - ------------------------------ (18) and if readily achievable without significant expenditure by Borrower 15 21 or omission in the Documents, and (c) effect the intent of the Documents, including filing/recording the Documents, additional deeds to secure debt, financing statements, and other instruments. ARTICLE IV - ADDITIONAL ADVANCES; EXPENSES; SUBROGATION SECTION 4.01 EXPENSES AND ADVANCES. Borrower shall pay all reasonable appraisal, recording, filing, registration, brokerage, abstract, title insurance (including premiums), U.C.C. search, escrow, attorneys' (both in-house staff and retained attorneys), engineers', environmental engineers', environmental testing, and architects' fees, costs (including travel), expenses, and disbursements incurred by Borrower or Lender in connection with the granting, closing, servicing, and enforcement of (a) the Loan and Documents or (b) attributable to Borrower as owner of the Property. The term "COSTS" shall mean any of the foregoing incurred in connection with (a) any default by Borrower under the Documents, (b) the servicing of the Loan, or (c) the exercise, enforcement, compromise, defense, litigation, or settlement of any of Lender's rights or remedies under the Documents or relating to the Loan or the Obligations. If Borrower fails to pay any amounts or perform any actions required under the Documents, Lender may (but shall not be obligated to) advance sums to pay such amounts or perform such actions. Borrower grants Lender the right to enter upon and take possession of the Property to prevent or remedy any such failure and the right to take such actions in Borrower's name. No advance or performance shall be deemed to have cured a default by Borrower. All (a) sums advanced by or payable to Lender per this Section or under applicable Laws, (b) except as expressly provided in the Documents, payments due under the Documents which are not paid in full when due, and (c) all Costs, shall: (i) be deemed demand obligations, (ii) bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, until paid if not paid on demand, (iii) be part of, together with such interest, the Obligations, and (iv) be secured by the Documents. Lender, upon making any such advance, shall also be subrogated to rights of the person receiving such advance. SECTION 4.02 SUBROGATION. If any proceeds of the Note were used to extinguish, extend or renew any indebtedness on the Property, then, to the extent of the funds so used, (a) Lender shall be subrogated to all rights, claims, liens, titles and interests existing on the Property held by the holder of such indebtedness and (b) these rights, claims, liens, titles and interests are not waived but rather shall (i) continue in full force and effect in favor of Lender and (ii) are merged with the security title and security interest created by the Documents as cumulative security for the payment and performance of the Obligations. ARTICLE V - SALE, TRANSFER, OR ENCUMBRANCE OF THE PROPERTY SECTION 5.01 DUE-ON-SALE OR ENCUMBRANCE. It shall be an Event of Default and, at the sole option of Lender, Lender may accelerate the Obligations and the entire Obligations (including any Prepayment Premium) shall become immediately due and payable, if Borrower, without Lender's prior written consent (which may be withheld for any or no reason including the possibility of an ERISA violation or the proposed transferee's failure to agree in writing to Lender increasing the interest payable on the Obligations to any rate, changing any other terms (including maturity) of the Obligations or Documents, or requiring the payment of a transfer fee), (a) shall sell, convey, assign, transfer, dispose of or be divested of its title to, convey security title to, mortgage, encumber or cause to be encumbered (except for the imposition of mechanics' or materialmen's liens) the Property or any interest therein, in any manner or way, whether voluntary or involuntary, or (b) in the event of (i) any merger, consolidation (19/), sale, transfer, assignment, or dissolution involving all or substantially all of the assets of Borrower or any general partner of Borrower, (ii) the transfer, pledge, voluntary or involuntary sale, or - ------------------------------ (19) (unless Borrower or such general partner of Borrower is the surviving entity in such merger or consolidation) 16 22 encumbrance (or any of the foregoing (20/) ) of (A) (21/) or more of (1) the voting stock of a corporate Borrower, any corporate general partner of Borrower, or any corporation directly or indirectly owning (22/) or more of any such corporation, (2) the beneficial interests in Borrower if a trust or the interest in any owner of fifty percent (50%) or more of such beneficial interests, or (3) the ownership interests in Borrower or any general partner of Borrower if either is a limited liability company; (B) any general partnership interest in Borrower; or (C) any partnership which is a direct or indirect general partner of Borrower or any general partner of Borrower; (iii) the conversion of any general partnership interest in Borrower to a limited partnership interest; (iv) any change, removal, or resignation of any general partner of Borrower; or (v) any change, removal, or resignation of a managing member (or if no managing member, any member) if Borrower is a limited liability company. This provision shall not apply to transfers under any will or applicable law of descent. This provision does not prohibit the transfer of any existing limited partnership interest in (i) Borrower, (ii) any general partner of Borrower, or (iii) any partner of a general partner of Borrower (23/) . SECTION 5.02 ONE-TIME TRANSFER. (24/) Section 5.01 and so long as there is no default under the Documents (or event which with the passage of time or the giving of notice or both would be a default), Lender agrees, upon thirty (30) days prior written request, to consent to one transfer of the entire Property (25/) if: (i) the proposed transferee of the Property is a person which, in the judgment of Lender, has financial capability and creditworthiness, reputation and experience in the ownership, operation, management, and leasing of similar properties, equal to or greater than Borrower; (ii) at the time of transfer the Loan to Value Ratio (defined below) does not exceed sixty-five percent (65%); (iii) Borrower pays Lender a non-refundable servicing fee (26/) at the time of the request and an additional fee equal to 1.0% of the outstanding principal balance of the Loan at the time of the transfer; (iv) at Lender's option, Lender's title policy is endorsed to verify the first priority of the Documents at Borrower's expense; - ------------------------------ (20) in one transaction (21) 49% (22) 49% (23) Notwithstanding the foregoing, if Borrower or a corporate general partner of Borrower is a corporation whose shares are traded on a major stock exchange, the transfer of such shares shall in no event constitute a default under this Instrument. (24) Beginning six (6) months from Closing, and notwithstanding (25) (with all terms and conditions of the Loan Documents remaining the same) (26) of $2,500.00 17 23 (v) the Debt Service Coverage Ratio (defined below) is at least 1.60 to 1.00 for the preceding (27/) month period and Lender receives satisfactory evidence that this Debt Service Coverage Ratio will be maintained for the next succeeding twelve (12) months; (vi) the transferee expressly assumes all obligations under the Documents and executes any documents reasonably required by Lender, and all of these documents are satisfactory in form and substance to Lender; (vii) Lender reasonably approves the form and content of all transfer documents, and Lender is furnished with a certified copy of the recorded transfer documents; (viii) the transferee complies with and delivers the ERISA Certification and Environmental Indemnity Agreement, both of even date herewith; and (ix) Borrower or the transferee pays all reasonable fees, costs, and expenses incurred by Lender in connection with the proposed transfer, including, without limitation, all legal (for both outside counsel and Lender's staff attorneys), accounting, title insurance, documentary stamps taxes, intangible taxes, mortgage taxes, recording fees, and appraisal fees, whether or not the transfer is actually consummated. The term "LOAN TO VALUE RATIO" shall mean the ratio, as reasonably determined by Lender, of (i) the aggregate principal balance of all encumbrances against the Obligations to (ii) the fair market value of the Property. The term "DEBT SERVICE COVERAGE RATIO" shall mean the ratio, as reasonably determined by Lender, calculated by dividing (i) net operating income ("NOI") by (ii) total annual debt service ("TADS"). NOI is the gross annual income realized from operations of the Obligations for the applicable twelve (12) month period after subtracting all necessary and ordinary operating expenses (both fixed and variable) for that twelve (12) month period (assuming for expense purposes only that the Property is 95% leased and occupied if actual leasing is less than 95%), including, without limitation, utilities, administrative, cleaning, landscaping, security, repairs, and maintenance, ground rent payments, management fees, reserves for replacements, real estate and other taxes, assessments and insurance, but excluding deduction for federal, state and other income taxes, debt service expenses, depreciation or amortization of capital expenditures, and other similar non-cash items. Gross income shall not be anticipated for any greater time period than that approved by generally accepted accounting principles and ordinary operating expenses shall not be prepaid. Documentation of NOI and expenses shall be certified by an officer of Borrower with detail satisfactory to Lender and shall be subject to the approval of Lender. TADS shall mean the aggregate debt service payments for any given calendar year on the Loan and on all other indebtedness secured, or to be secured, by any part of the (28/) . SECTION 5.03 PERMITTED TRANSFERS WITHOUT FEE. Notwithstanding Section 5.01, the original Borrower, and any transferee of the original Borrower permitted below, may engage in the transactions described below after at least fifteen (15) days' prior written notice to Lender, provided that all of the following conditions are met: (i) there is no default under the Documents (or event which with the passage of time or the giving of notice or both would be a default); (ii) the proposed transferee complies with and delivers the ERISA certification and indemnification agreement described herein (or, if the statements required by the certification are not true with respect to the proposed transferee, Lender shall have received such evidence as it may require in its sole discretion to determine that the proposed transfer is not and would not render the Loan a prohibited transaction under ERISA); (iii) if all of the Property is transferred, the proposed transferee shall have signed an assumption agreement acceptable to Lender with respect to the Documents; (iv) the proposed transferee shall have provided such information about the proposed transferee as requested by Lender, and Lender shall have approved the - ------------------------------ (27) six (6) (28) Property 18 24 proposed transferee, including, but not limited to, a review of the proposed transferee's creditworthiness, good character and reputation, and demonstrated ability and experience (by itself or through its manager) in the ownership, operation, and leasing of property similar to the Property; and (v) payment by Borrower or the proposed transferee of (1) all costs and expenses incurred by Lender for the processing of said transfer including a processing fee, (2) any documentary stamp taxes, intangibles taxes, recording fees, and other costs and expenses required in connection with the assumption agreement and any modification of the Documents, and (3) all other costs and expenses (including attorneys' fees and expenses for Lender's staff attorneys and outside counsel) of the preparation of the assumption agreement and any modification of the Documents. Provided all of the foregoing conditions are fulfilled with respect to each such transfer, Borrower may engage in the following transaction: (a) Borrower may transfer the entire Property (or all the ownership interests in borrower) to Roberts Realty Investors, Inc. ("RRII"), a real estate investment trust. Lender shall not be entitled to accelerate the indebtedness evidenced by the Note nor change the Loan terms in the event of a conveyance to RRII; and (b) Any merger or consolidation of Borrower or a general partner of Borrower when borrower or such general partner is the surviving entity. ARTICLE VI - DEFAULTS AND REMEDIES SECTION 6.01 EVENTS OF DEFAULT. The following shall be an "EVENT OF DEFAULT": (a) if Borrower fails to make any payment required under the Documents when due and such failure continues for five (5) days after written notice; provided, however, that if Lender gives one (1) notice of default within any twelve (12) month period, Borrower shall have no further right to any notice of monetary default during that twelve (12) month period; (b) except for defaults listed in the other subsections of this Section 6.01, if Borrower fails to perform or comply with any other provision contained in the Documents and the default is not cured within thirty (30) days after written notice (the "GRACE PERIOD"); provided, however, that Lender may extend the Grace Period up to an additional sixty (60) days (for a total of ninety (90) days from the date of default) if (i) Borrower immediately commences and diligently pursues the cure of such default and delivers (within the Grace Period) to Lender a written request for more time and (ii) Lender determines in good faith that (1) such default cannot be cured within the Grace Period but can be cured within ninety (90) days after the default, (2) no security title or security interest created by the Documents will be impaired prior to completion of such cure, and (3) Lender's immediate exercise of any remedies provided hereunder or by law is not necessary for the protection or preservation of the Property or Lender's security interest; (c) if any representation made (i) in connection with the Loan or Obligations or (ii) in the Loan application or Documents shall be false or misleading in any material respect; (d) if any default under Article V occurs; (e) if Borrower shall (i) become insolvent, (ii) make a transfer in fraud of creditors, (iii) make an assignment for the benefit of its creditors, (iv) not be able to pay its debts as such debts become due, or (v) admit in writing its inability to pay its debts as they become due; (f) if any bankruptcy, reorganization, arrangement, insolvency, or liquidation proceeding, or any other proceedings for the relief of debtors, is instituted by or against Borrower, and, if instituted against Borrower, is allowed, consented to, or not dismissed within the earlier to occur of (i) ninety (90) days after such institution or (ii) the filing of an order for relief; 19 25 (g) if any of the events in Sections 6.01 (e) or (f) shall occur with respect to any (i) general partner of Borrower or (ii) guarantor of payment or performance of any of the Obligations; (h) if the Property shall be taken, attached, or sequestered on execution or other process of law in any action against Borrower; (i) if any default occurs under the Environmental and ERISA Indemnity Agreement and such default is not cured within any applicable grace period in that document; (j) if Borrower shall fail at any time to obtain, maintain, renew, or keep in force the insurance policies required by Section 3.06 within ten (10) days after written notice; (k) if Borrower shall be in default under any other mortgage, deed of trust, deed to secure debt or security agreement covering any part of the Property, whether it be superior or junior in lien or security title to this Instrument; (l) if any claim of priority (except based upon a Permitted Encumbrance) to the Documents by title, lien, or otherwise shall be upheld by any court of competent jurisdiction or shall be consented to by Borrower; or (m) (i) the consummation by Borrower of any transaction which would cause (A) the Loan or any exercise of Lender's rights under the Documents to constitute a non-exempt prohibited transaction under ERISA or (B) a violation of a state statute regulating governmental plans; (ii) the failure of any representation in Section 3.11 to be true and correct in all respects; or (iii) the failure of Borrower to provide Lender with the written certifications required by Section 3.11. SECTION 6.02 REMEDIES. If an Event of Default occurs, Lender or any person designated by Lender may (but shall not be obligated to) take any action (separately, concurrently, cumulatively, and at any time and in any order) permitted under any Laws, without notice, demand, presentment, or protest (all of which are hereby waived), to protect and enforce Lender's rights under the Documents or Laws including the following actions: (a) accelerate and declare the entire unpaid Obligations immediately due and payable, except for defaults under Section 6.01 (f), (g), or (h) which shall automatically make the Obligations immediately due and payable; (b) judicially or otherwise, (i) completely foreclose this Instrument or (ii) partially foreclose this Instrument for any portion of the Obligations due and the security title and security interest created by this Instrument shall continue unimpaired and without loss of priority as to the remaining Obligations not yet due; (c) sell for cash or upon credit the Property and all right, title and interest of Borrower therein and rights of redemption thereof, pursuant to power of sale; (d) recover judgment on the Note either before, during or after any proceedings for the enforcement of the Documents and without any requirement of any action being taken to (i) realize on the Property or (ii) otherwise enforce the Documents; (e) seek specific performance of any provisions in the Documents; (f) apply for the appointment of a receiver, custodian, trustee, liquidator, or conservator of the Property without (i) notice to any person, (ii) regard for (A) the adequacy of the security for the Obligations or (B) the solvency of Borrower or any person liable for the payment of the Obligations; and Borrower and any person so liable waives or shall be deemed to have waived the foregoing and any other objections to the fullest extent permitted by Laws and consents or shall be deemed to have consented to such appointment; (g) with or without entering upon the Property, (i) exclude Borrower and any person from the Property without liability for trespass, damages, or otherwise; (ii) take possession of, and Borrower shall 20 26 surrender on demand, all books, records, and accounts relating to the Property; (iii) give notice to Tenants or any person, make demand for, collect, receive, sue for, and recover in its own name all Rents and cash collateral derived from the Property; (iv) use, operate, manage, preserve, control, and otherwise deal with every aspect of the Property including (A) conducting its business, (B) insuring it, (C) making all repairs, renewals, replacements, alterations, additions, and improvements to or on it, (D) completing the construction of any Improvements in manner and form as Lender deems advisable, and (E) executing, modifying, enforcing, and terminating new and existing Leases on such terms as Lender deems advisable and evicting any Tenants in default; (v) apply the receipts from the Property to payment of the Obligations, in any order or priority determined by Lender, after first deducting all Costs, expenses, and liabilities incurred by Lender in connection with the foregoing operations and all amounts needed to pay the Impositions and other expenses of the Property, as well as just and reasonable compensation for the services of Lender and its attorneys, agents, and employees; and/or (vi) in every case in connection with the foregoing, exercise all rights and powers of Borrower or Lender with respect to the Property, either in Borrower's name or otherwise; (h) release any portion of the Property for such consideration, if any, as Lender may require without, as to the remainder of the Property, impairing or affecting the security title or priority of this Instrument or improving the position of any subordinate lien or security title holder with respect thereto, except to the extent that the Obligations shall have been actually reduced, and Lender may accept by assignment, pledge, or otherwise any other property in place thereof as Lender may require without being accountable for so doing to any other lien or security title holder; (i) apply any Deposits to the following items in any order and in Lender's sole discretion: (A) the Obligations, (B) Costs, (C) advances made by Lender under the Documents, and/or (D) Impositions; (j) take all actions permitted under the U.C.C. of the Property State including (i) the right to take possession of all tangible and intangible personal property included within the Property ("PERSONAL PROPERTY") and take such actions as Lender deems advisable for the care, protection and preservation of the Personal Property and (ii) request Borrower at its expense to assemble the Personal Property and make it available to Lender at a convenient place acceptable to Lender. Any notice of sale, disposition or other intended action by Lender with respect to the Personal Property sent to Borrower at least five (5) days prior to such action shall constitute commercially reasonable notice to Borrower; or (k) take any other action permitted under any Laws. If Lender exercises any of its rights under Section 6.02(g), Lender shall not (a) be deemed to have entered upon or taken possession of the Property except upon the exercise of its option to do so, evidenced by its demand and overt act for such purpose; (b) be deemed a beneficiary or mortgagee in possession by reason of such entry or taking possession; nor (c) be liable (i) to account for any action taken pursuant to such exercise other than for Rents actually received by Lender, (ii) for any loss sustained by Borrower resulting from any failure to lease the Property, or (iii) any other act or omission of Lender except for losses caused by Lender's willful misconduct or gross negligence. Borrower hereby consents to, ratifies, and confirms the exercise by Lender of its rights under this Instrument and appoints Lender as its attorney-in-fact, which appointment shall be deemed to be coupled with an interest and irrevocable, for such purposes. SECTION 6.03 EXPENSES. All Costs, expenses, or other amounts paid or incurred by Lender in the exercise of its rights under the Documents, together with interest thereon at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, shall be (a) part of the Obligations, (b) secured by this Instrument, and (c) allowed and included as part of the Obligations in any foreclosure, decree for sale, power of sale, or other judgment or decree enforcing Lender's rights under the Documents. 21 27 SECTION 6.04 RIGHTS PERTAINING TO SALES. To the extent permitted under (and in accordance with) any Laws, the following provisions shall, as Lender may determine in its sole discretion, apply to any sales of the Property under Article VI, whether by judicial proceeding, judgment, decree, power of sale, foreclosure or otherwise: (a) Lender may conduct multiple sales of any part of the Property in separate tracts or in its entirety and Borrower waives any right to require otherwise; (b) any sale may be postponed or adjourned by public announcement at the time and place appointed for such sale or for such postponed or adjourned sale without further notice; and (c) Lender may acquire the Property and, in lieu of paying cash, may pay by crediting against the Obligations the amount of its bid, after deducting therefrom any sums which Lender is authorized to deduct under the provisions of the Documents. SECTION 6.05 APPLICATION OF PROCEEDS. Any proceeds received from any sale or disposition under Article VI or otherwise, together with any other sums held by Lender, shall, except as expressly provided to the contrary, be applied in the order determined by Lender to: (a) payment of all Costs and expenses of any enforcement action or foreclosure sale, including interest thereon at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, (b) all taxes, Assessments, and other charges unless the Property was sold subject to these items; (c) payment of the Obligations in such order as Lender may elect; (d) payment of any other sums secured or required to be paid by Borrower; and (e) payment of the surplus, if any, to any person lawfully entitled to receive it. Borrower and Lender intend and agree that during any period of time between any foreclosure judgment that may be obtained and the actual foreclosure sale that the foreclosure judgment will not extinguish the Documents or any rights contained therein including the obligation of Borrower to pay all Costs and to pay interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws. SECTION 6.06 ADDITIONAL PROVISIONS AS TO REMEDIES. No failure, refusal, waiver, or delay by Lender to exercise any rights under the Documents upon any default or Event of Default shall impair Lender's rights or be construed as a waiver of, or acquiescence to, such or any subsequent default or Event of Default. No recovery of any judgment by Lender and no levy of an execution upon the Property or any other property of Borrower shall affect the security title and security interest created by this Instrument and such liens, security title, rights, powers, and remedies shall continue unimpaired as before. Lender may resort to any security given by this Instrument or any other security now given or hereafter existing to secure the Obligations, in whole or in part, in such portions and in such order as Lender may deem advisable, and no such action shall be construed as a waiver of any of the liens, security title, rights, or benefits granted hereunder. Acceptance of any payment after any Event of Default shall not be deemed a waiver or a cure of such Event of Default and such acceptance shall be deemed an acceptance on account only. If Lender has started enforcement of any right by foreclosure, sale, entry, or otherwise and such proceeding shall be discontinued, abandoned, or determined adversely for any reason, then Borrower and Lender shall be restored to their former positions and rights under the Documents with respect to the Property, subject to the security title and security interest hereof. SECTION 6.07 WAIVER OF RIGHTS AND DEFENSES. To the fullest extent Borrower may do so under Laws, Borrower (a) will not at any time insist on, plead, claim, or take the benefit of any statute or rule of law now or later enacted providing for any appraisement, valuation, stay, extension, moratorium, redemption, or any statute of limitations; (b) for itself, its successors and assigns, and for any person ever claiming an interest in the Property (other than Lender), waives and releases all rights of redemption, reinstatement, valuation, appraisement, notice of intention to mature or declare due the whole of the Obligations, all rights to a marshaling of the assets of Borrower, including the Property, or to a sale in inverse order of alienation, in the event of foreclosure of the security title and security interests created under the Documents; (c) shall not be relieved of its obligation to pay the Obligations as required in the Documents nor shall the lien, security title or priority of the Documents be impaired by any agreement renewing, extending, or modifying the time of payment or the provisions of the Documents (including a modification of any interest rate), unless expressly released, discharged, or modified by such agreement. Regardless of consideration and without any notice to or consent by the holder 22 28 of any subordinate lien, security title, security interest, encumbrance, right, title, or interest in or to the Property, Lender may (a) release any person liable for payment of the Obligations or any portion thereof or any part of the security held for the Obligations or (b) modify any of the provisions of the Documents without impairing or affecting the Documents or the security title, security interest, or the priority of the modified Documents as security for the Obligations over any such subordinate lien, security title, security interest, encumbrance, right, title, or interest. ARTICLE VII - SECURITY AGREEMENT SECTION 7.01 SECURITY AGREEMENT. This Instrument constitutes both a real property mortgage and a "SECURITY AGREEMENT" within the meaning of the U.C.C. The Property includes real and personal property and all tangible and intangible rights and interest of Borrower in the Property. Borrower grants to Lender, as security for the Obligations, a security interest in the Personal Property to the fullest extent that the same may be subject to the U.C.C. Borrower authorizes Lender to file any financing or continuation statements and amendments thereto relating to the Personal Property without the signature of Borrower if permitted by Laws. ARTICLE VIII - LIMITATION ON PERSONAL LIABILITY AND INDEMNITIES SECTION 8.01 LIMITED RECOURSE LIABILITY. The provisions of Paragraph 8 and Paragraph 9 of the Note are incorporated into this Instrument as if such provisions were set forth in their entirety in this Instrument. SECTION 8.02 GENERAL INDEMNITY. Borrower agrees that while Lender has no liability to any person in tort or otherwise as lender and that Lender is not an owner or operator of the Property, Borrower shall, at its sole expense, protect, defend, release, indemnify and hold harmless ("INDEMNIFY") the Indemnified Parties (defined below) from any Losses (defined below) imposed on, incurred by, or asserted against the Indemnified Parties, directly or indirectly, arising out of or in connection with the Property, Loan, or Documents, including Losses; provided, however, that the foregoing indemnities shall not apply to any Losses caused by the gross negligence or willful misconduct of the Indemnified Parties. The term "LOSSES" shall mean any claims, suits, liabilities (including strict liabilities), actions, proceedings, obligations, debts, damages, losses, Costs, expenses, fines, penalties, charges, fees, judgments, awards, and amounts paid in settlement of whatever kind including attorneys' fees (both in-house staff and retained attorneys) and all other costs of defense. The term "INDEMNIFIED PARTIES" shall mean (a) Lender, (b) any prior owner or holder of the Note, (c) any existing or prior servicer of the Loan, (d) the officers, directors, shareholders, partners, employees and trustees of any of the foregoing, and (e) the heirs, legal representatives, successors and assigns of each of the foregoing. SECTION 8.03 TRANSACTION TAXES INDEMNITY. Borrower shall, at its sole expense, indemnify the Indemnified Parties from all Losses imposed upon, incurred by, or asserted against the Indemnified Parties or the Documents relating to Transaction Taxes. SECTION 8.04 ERISA INDEMNITY. Borrower shall, at its sole expense, indemnify the Indemnified Parties against all Losses imposed upon, incurred by, or asserted against the Indemnified Parties (a) as a result of a Violation, (b) in the investigation, defense, and settlement of a Violation, (c) as a result of a breach of the representations in Section 3.11 or default thereunder, (d) in correcting any prohibited transaction or the sale of a prohibited loan, and (e) in obtaining any individual prohibited transaction exemption under ERISA that may be required, in Lender's sole discretion. SECTION 8.05 ENVIRONMENTAL INDEMNITY. Borrower and other persons, if any, have executed and delivered the Environmental and ERISA Indemnity Agreement dated the date hereof to Lender ("ENVIRONMENTAL INDEMNITY"). 23 29 SECTION 8.06 DUTY TO DEFEND, COSTS AND EXPENSES. Upon request, whether Borrower's obligation to indemnify Lender arises under Article VIII or in the Documents, Borrower shall defend the Indemnified Parties (in Borrower's or the Indemnified Parties name) by attorneys and other professionals approved by the Indemnified Parties. Notwithstanding the foregoing, the Indemnified Parties may, in their sole discretion, engage their own attorneys and professionals to defend or assist them and, at their option, their attorneys shall control the resolution of any claims or proceedings. Upon demand, Borrower shall pay or, in the sole discretion of the Indemnified Parties, reimburse and/or indemnify the Indemnified Parties for all Costs imposed on, incurred by, or asserted against the Indemnified Parties by reason of any items set forth in this Article VIII and/or the enforcement or preservation of the Indemnified Parties' rights under the Documents. Any amount payable to the Indemnified Parties under this Section shall (a) be deemed a demand obligation, (b) be part of the Obligations, (c) bear interest at the applicable interest rate specified in the Note, which shall be the Default Rate unless prohibited by Laws, until paid if not paid on demand, and (d) be secured by this Instrument. SECTION 8.07 RECOURSE OBLIGATION AND SURVIVAL. Notwithstanding anything to the contrary in the Documents and in addition to the recourse obligations in the Note, the obligations of Borrower under Sections 8.03, 8.04, 8.05, and 8.06 shall be a full recourse obligation of Borrower, shall not be subject to any limitation on personal liability in the Documents, and shall survive (a) repayment of the Obligations, (b) any termination, satisfaction, assignment or foreclosure of this Instrument, (c) the acceptance by Lender (or any nominee) of a deed in lieu of foreclosure, (d) a plan of reorganization filed under the Bankruptcy Code, or (e) the exercise by the Lender of any rights in the Documents. Borrower's obligations under Article VIII shall not be affected by the absence or unavailability of insurance covering the same or by the failure or refusal by any insurance carrier to perform any obligation under any applicable insurance policy. ARTICLE IX - ADDITIONAL PROVISIONS SECTION 9.01 USURY SAVINGS CLAUSE. All agreements in the Documents are expressly limited so that in no event whatsoever shall the amount paid or agreed to be paid under the Documents for the use, forbearance, or detention of money exceed the highest lawful rate permitted by Laws. If, at the time of performance, fulfillment of any provision of the Documents shall involve transcending the limit of validity prescribed by Laws, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity. If Lender shall ever receive as interest an amount which would exceed the highest lawful rate, the receipt of such excess shall be deemed a mistake and (a) shall be canceled automatically or (b) if paid, such excess shall be (i) credited against the principal amount of the Obligations to the extent permitted by Laws or (ii) rebated to Borrower if it cannot be so credited under Laws. Furthermore, all sums paid or agreed to be paid under the Documents for the use, forbearance, or detention of money shall to the extent permitted by Laws be amortized, prorated, allocated, and spread throughout the full stated term of the Note until payment in full so that the rate or amount of interest on account of the Obligations does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Obligations for so long as the Obligations is outstanding. SECTION 9.02 NOTICES. Any notice, request, demand, consent, approval, direction, agreement, or other communication (any "NOTICE") required or permitted under the Documents shall be in writing and shall be validly given if sent by a nationally-recognized courier that obtains receipts, delivered personally by a courier that obtains receipts, or mailed by United States certified mail (with return receipt requested and postage prepaid) addressed to the applicable person as follows: 24 30 If to Borrower: With a copy to notices sent to Borrower to: ROBERTS PROPERTIES RESIDENTIAL, L.P. HOLT NEY ZATCOFF & WASSERMAN, LLP c/o Roberts Properties, Inc. 100 Galleria Parkway, Suite 600 8010 Roswell Road, Suite 120 Atlanta, Georgia 30339 Atlanta, Georgia 30350 Attention: Gregory A. Randall, Esq. Attention: Charles R. Elliott If to Lender: With a copy of notices sent to Lender to: THE PRUDENTIAL INSURANCE COMPANY THE PRUDENTIAL INSURANCE COMPANY OF AMERICA OF AMERICA Prudential Capital Group Prudential Capital Group Two Ravinia Drive, Suite 1400 Two Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Atlanta, Georgia 30346 Attention: Mortgage Loan Customer Service Attention: Regional Counsel Reference Loan No. 6 103 461 Reference Loan No. 6 103 461
Each notice shall be effective upon being so sent, delivered, or mailed, but the time period for response or action shall run from the date of receipt as shown on the delivery receipt. Refusal to accept delivery or the inability to deliver because of a changed address for which no notice was given shall be deemed receipt. Any party may periodically change its address for notice and specify up to two (2) additional addresses for copies by giving the other party at least ten (10) days' prior notice. SECTION 9.03 SOLE DISCRETION OF LENDER. Except as otherwise expressly stated, whenever Lender's judgment, consent, or approval is required or Lender shall have an option or election under the Documents, such judgment, the decision as to whether or not to consent to or approve the same, or the exercise of such option or election shall be in the sole and absolute discretion of Lender. SECTION 9.04 APPLICABLE LAW AND SUBMISSION TO JURISDICTION. The Documents shall be governed by and construed in accordance with the laws of the Property State and the applicable laws of the United States of America. Without limiting Lender's right to bring any action or proceeding against Borrower or the Property relating to the Obligations (an "ACTION") in the courts of other jurisdictions, Borrower irrevocably (a) submits to the jurisdiction of any state or federal court in the Property State, (b) agrees that any Action may be heard and determined in such court, and (c) waives, to the fullest extent permitted by Laws, the defense of an inconvenient forum to the maintenance of any Action in such jurisdiction. SECTION 9.05 CONSTRUCTION OF PROVISIONS. The following rules of construction shall apply for all purposes of this Instrument unless the context otherwise requires: (a) all references to numbered Articles or Sections or to lettered Exhibits are references to the Articles and Sections hereof and the Exhibits annexed to this Instrument and such Exhibits are incorporated into this Instrument as if fully set forth in the body of the Instrument; (b) all Article, Section, and Exhibit captions are used for convenience and reference only and in no way define, limit, or in any way affect this Instrument; (c) words of masculine, feminine, or neuter gender shall mean and include the correlative words of the other genders, and words importing the singular number shall mean and include the plural number, and vice versa; (d) no inference in favor of or against any party shall be drawn from the fact that such party has drafted any portion of this Instrument; (e) all obligations of Borrower hereunder shall be performed and satisfied by or on behalf of Borrower at Borrower's sole expense; (f) the terms "INCLUDE," "INCLUDING," and similar terms shall be construed as if followed by the phrase "WITHOUT BEING LIMITED TO"; (g) the terms "PROPERTY," "LAND," "IMPROVEMENTS," and "PERSONAL PROPERTY" shall be construed as if followed by 25 31 the phrase "OR ANY PART THEREOF"; (h) the term "OBLIGATIONS" shall be construed as if followed by the phrase "OR ANY OTHER SUMS SECURED HEREBY, OR ANY PART THEREOF"; (i) the term "PERSON" shall include natural persons, firms, partnerships, corporations, governmental authorities or agencies, and any other public or private legal entities; (j) the term "PROVISIONS," when used with respect hereto or to any other document or instrument, shall be construed as if preceded by the phrase "TERMS, COVENANTS, AGREEMENTS, REQUIREMENTS, AND/OR CONDITIONS"; (k) the term "LEASE" shall mean "TENANCY, SUBTENANCY, LEASE, SUBLEASE, OR RENTAL AGREEMENT," the term "LESSOR" shall mean "LANDLORD, SUBLANDLORD, LESSOR, AND SUBLESSOR," and the term "TENANTS" or "LESSEE" shall mean "TENANT, SUBTENANT, LESSEE, AND SUBLESSEE"; (l) the term "OWNED" shall mean "NOW OWNED OR LATER ACQUIRED"; (m) the terms "ANY" and "ALL" shall mean "ANY OR ALL"; and (n) the term "ON DEMAND" or "UPON DEMAND" shall mean "WITHIN FIVE (5) BUSINESS DAYS AFTER WRITTEN NOTICE." SECTION 9.06 TRANSFER OF LOAN. Lender may, at any time, (i) sell, transfer or assign the Documents and any servicing rights with respect thereto or (ii) grant participations therein or issue mortgage pass-through certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (collectively, the "SECURITIES"). Lender may forward to any purchaser, transferee, assignee, servicer, participant, or investor in such Securities (collectively, "INVESTORS"), any Rating Agency rating such Securities and any prospective Investor, all documents and information which Lender now has or may later acquire relating to the Obligations, Borrower, any guarantor, any indemnitor(s), the Leases, and the Property, whether furnished by Borrower, any guarantor, any indemnitor(s) or otherwise, as Lender determines advisable. Borrower, any guarantor and any indemnitor agree to cooperate with Lender in connection with any transfer made or any Securities created pursuant to this Section including the delivery of an estoppel certificate in accordance with Section 3.16 and such other documents as may be reasonably requested by Lender. SECTION 9.07 MISCELLANEOUS. If any provision of the Documents shall be held to be invalid, illegal, or unenforceable in any respect, this shall not affect any other provisions of the Documents and such provision shall be limited and construed as if it were not in the Documents. If title to the Property becomes vested in any person other than Borrower, Lender may, without notice to Borrower, deal with such person regarding the Documents or the Obligations in the same manner as with Borrower without in any way vitiating or discharging Borrower's liability under the Documents or being deemed to have consented to the vesting. If both the lessor's and lessee's interest under any Lease ever becomes vested in any one person, this Instrument and the security title and security interest created hereby shall not be destroyed or terminated by the application of the doctrine of merger and Lender shall continue to have and enjoy all its rights and privileges as to each separate estate. Upon foreclosure of this Instrument, none of the Leases shall be destroyed or terminated as a result of such foreclosure, by application of the doctrine of merger or as a matter of law, unless Lender takes all actions required by law to terminate the Leases as a result of foreclosure. All of Borrower's covenants and agreements under the Documents shall run with the land and time is of the essence. Borrower appoints Lender as its attorney-in-fact, which appointment is irrevocable and shall be deemed to be coupled with an interest, with respect to the execution, acknowledgment, delivery, filing or recording for and in the name of Borrower of any of the documents listed in Sections 3.04, 3.19, 4.01 and 6.02. The Documents cannot be amended, terminated, or discharged except in a writing signed by the party against whom enforcement is sought. No waiver, release, or other forbearance by Lender will be effective unless it is in a writing signed by Lender and then only to the extent expressly stated. The provisions of the Documents shall be binding upon Borrower and its heirs, devisees, representatives, successors, and assigns including successors in interest to the Property and inure to the benefit of Lender and its heirs, successors, substitutes, and assigns. Where two or more persons have executed the Documents, the obligations of such persons shall be joint and several, except to the extent the context clearly indicates otherwise. The Documents may be executed in any number of counterparts with the same effect as if all parties had executed the same document. All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart. Upon receipt of an affidavit of an officer of Lender as to the loss, theft, destruction or mutilation of any 26 32 Document which is not of public record, and, in the case of any mutilation, upon surrender and cancellation of the Document, Borrower will issue, in lieu thereof, a replacement Document, dated the date of the lost, stolen, destroyed or mutilated Document containing the same provisions. SECTION 9.08 ENTIRE AGREEMENT. Except as provided in Section 3.17, (a) the Documents constitute the entire understanding and agreement between Borrower and Lender with respect to the Loan and supersede all prior written or oral understandings and agreements with respect to the Loan including the Loan application and Loan commitment and (b) Borrower is not relying on any representations or warranties of Lender except as expressly set forth in the Documents. SECTION 9.09 WAIVER OF TRIAL BY JURY. BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM FILED BY EITHER PARTY, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN, THE DOCUMENTS, OR ANY ACTS OR OMISSIONS OF BORROWER OR LENDER IN CONNECTION THEREWITH. ARTICLE X - LOCAL LAW PROVISIONS SECTION 10.01 WAIVER. BORROWER HEREBY WAIVES ANY RIGHT BORROWER MAY HAVE UNDER THE CONSTITUTION OR THE LAWS OF THE STATE OF GEORGIA OR THE CONSTITUTION OR THE LAWS OF THE UNITED STATES OF AMERICA TO NOTICE, OTHER THAN EXPRESSLY PROVIDED FOR IN THIS INSTRUMENT, OR TO A JUDICIAL HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR REMEDY PROVIDED BY THIS INSTRUMENT TO LENDER, AND BORROWER WAIVES BORROWER'S RIGHTS, IF ANY, TO SET ASIDE OR INVALIDATE ANY SALE DULY CONSUMMATED IN ACCORDANCE WITH THE PROVISIONS OF THIS INSTRUMENT ON THE GROUND (IF SUCH BE THE CASE) THAT THE SALE WAS CONSUMMATED WITHOUT A PRIOR JUDICIAL HEARING. ALL WAIVERS BY BORROWER IN THIS PARAGRAPH HAVE BEEN MADE VOLUNTARILY, INTELLIGENTLY, AND KNOWINGLY, AFTER BORROWER HAS BY BORROWER'S ATTORNEY BEEN FIRST APPRISED OF AND COUNSELED WITH RESPECT TO BORROWER'S POSSIBLE ALTERNATIVE RIGHTS. /s/ Charles S. Roberts ----------------------------------------- (Initialed and Acknowledged by Borrower) SECTION 10.02 NATURE OF INSTRUMENT. THIS INSTRUMENT is a deed passing title to Lender and is made under the laws of the State of Georgia relating to deeds to secure debt, and is not a mortgage, and is given to secure the performance and repayment of the Obligations. All references in this Instrument to Borrower as "mortgagor" shall be deemed to refer to Borrower as "grantor," and all references in this Instrument to Lender as "mortgagee" shall be deemed to refer to Lender as "grantee." SECTION 10.03 NO NOVATION. Lender's acceptance of an assumption of the obligations of this Instrument and of the Note, and any release of Borrower (if any) in connection with such assumption, shall not constitute a novation. 27 33 SECTION 10.04 GEORGIA REMEDIES. Section 6.02(b) above is hereby deleted in its entirety and the following is substituted in lieu thereof: "(b) Lender, at its option, may sell the Property, or any part thereof, at public sale or sales before the door of the courthouse of the county in which the Property, or any part thereof, is situated, to the highest bidder for cash, in order to pay the Obligations and insurance premiums, liens, assessments, taxes and charges, including utility charges, if any, with accrued interest thereon, and all Costs incurred by Lender in connection with such sale and all other expenses of the sale and of all proceedings in connection therewith, including reasonable attorneys' fees, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which sheriff's sales are advertised in said county. The foregoing notwithstanding, Lender may sell, or cause to be sold, any tangible or intangible personal property, or any part thereof, and which constitutes a part of the security hereunder, in the foregoing manner, or as may otherwise be provided by law. Lender may bid and purchase at any such sale and may satisfy Lender's obligation to purchase pursuant to Lender's bid by canceling an equivalent portion of any Obligations then outstanding and secured hereby. At any such sale, Lender may execute and deliver to the purchaser a conveyance of the Property, or any part thereof, in fee simple (but without covenants and warranties, express or implied), and, to this end, Borrower hereby constitutes and appoints Lender the agent and attorney-in-fact of Borrower to make such sale and conveyance, and thereby to divest Borrower of all right, title, and equity that Borrower may have in and to the Property and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed, and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding on Borrower. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, are granted as cumulative of the other remedies provided by law for collection of the Obligations secured hereby, and shall not be exhausted by one exercise thereof but may be exercised until full payment of all Obligations secured hereby." IN WITNESS WHEREOF, the undersigned have executed this Instrument under seal as of the day first set forth above. Signed, sealed, and delivered as to the foregoing BORROWER: date in the presence of the following witnesses: ROBERTS PROPERTIES RESIDENTIAL, L.P., /S/ Charles R. Elliott a Georgia limited partnership - ------------------------------------------------ Witness BY: Roberts Realty Investors, Inc., a Georgia corporation, its sole general partner /S/ Laurie Heberle By: /S/ Charles S. Roberts - ------------------------------------------------ ---------------------------------------- Notary Public Charles S. Roberts, President Commission Expiration Date: 8/19/03 [CORPORATE SEAL] --------------------- [NOTARY SEAL]
28 34 EXHIBIT A (LEGAL DESCRIPTION) ALL THAT TRACT of land in Land Lots 230 and 235 of the 1st District, 1st Section, Fulton County, Georgia, described as follows: To find the true point of beginning, commence at the corner common to Land Lots 197, 198, 230 and 231 of the 1st District, 1st Section, Fulton County, Georgia; running thence along the land lot line common to said Land Lots 230 and 231 South 88 degrees 50 minutes 38 seconds East 771.67 feet to a property corner found; thence South 51 degrees 09 minutes 57 seconds West 296.24 feet to the TRUE POINT OF BEGINNING; from the TRUE POINT OF BEGINNING as thus established, running thence South 65 degrees 22 minutes 41 seconds East 207.50 feet to a point; thence North 75 degrees 00 minutes 00 seconds East 190.00 feet to a point; thence North 87 degrees 15 minutes 00 seconds East 300.00 feet to a point; thence South 73 degrees 51 minutes 50 seconds East 173.42 feet to a property corner found; thence South 05 degrees 27 minutes 32 seconds East 537.95 feet to a property corner found; thence South 69 degrees 52 minutes 35 seconds West 767.26 feet to a property corner found; thence South 69 degrees 38 minutes 04 seconds West 202.76 feet to a point on the northeast right-of-way line of Abbotts Bridge Road (also known as State Route 120); running thence along the northeast right-of-way line of Abbotts Bridge Road (also known as State Route 120) the following courses and distances: (1) North 33 degrees 27 minutes 01 seconds West 459.30 feet to a point, and (2) along the arc of a curve to the left (which arc is subtended by a chord having a bearing and distance of North 40 degrees 56 minutes 58 seconds West 262.88 feet and a radius of 1,120.91 feet) 263.49 feet to a point; thence, leaving said right-of-way line, North 51 degrees 09 minutes 57 seconds East 573.06 feet to the TRUE POINT OF BEGINNING, said tract containing approximately 19.23 acres as shown on Plat of Survey for Roberts Properties Residential, L.P., Fidelity National Title Insurance Company and The Prudential Insurance Company of America by Jordan Jones & Goulding, bearing the seal and certification of Charles H. Jackson, Georgia Registered Professional Land Surveyor No. 2351, dated September 23, 1999, last revised October 19, 1999. TOGETHER WITH a non-exclusive right, title and interest in and to the easements appurtenant to the above-described tract created in that certain Declaration of Easements by Roberts Properties Residential, L.P. dated October 19, 1999, filed for record October 21, 1999, and recorded in Deed Book 27850, page 040, Fulton County, Georgia. 35 EXHIBIT B DESCRIPTION OF PERSONAL PROPERTY SECURITY 1. All machinery, apparatus, goods, equipment, materials, fittings, fixtures, chattels, and tangible personal property, and all appurtenances and additions thereto and betterments, renewals, substitutions, and replacements thereof, owned by Borrower, wherever situate, and now or hereafter located on, attached to, contained in, or used or usable in connection with the real property described in Exhibit A attached hereto and incorporated herein (the "LAND"), and all improvements located thereon (the "IMPROVEMENTS") or placed on any part thereof, though not attached thereto, including all screens, awnings, shades, blinds, curtains, draperies, carpets, rugs, furniture and furnishings, heating, electrical, lighting, plumbing, ventilating, air-conditioning, refrigerating, incinerating and/or compacting plants, systems, fixtures and equipment, elevators, hoists, stoves, ranges, vacuum and other cleaning systems, call systems, sprinkler systems and other fire prevention and extinguishing apparatus and materials, motors, machinery, pipes, ducts, conduits, dynamos, engines, compressors, generators, boilers, stokers, furnaces, pumps, tanks, appliances, equipment, fittings, and fixtures. 2. All funds, accounts, deposits, instruments, documents, contract rights, general intangibles, notes, and chattel paper arising from or by virtue of any transaction related to the Land, the Improvements, or any of the personal property described in this Exhibit B. 3. All permits, licenses, franchises, certificates, and other rights and privileges now held or hereafter acquired by Borrower in connection with the Land, the Improvements, or any of the personal property described in this Exhibit B. 4. All right, title, and interest of Borrower in and to the name and style by which the Land and/or the Improvements is known, including trademarks and trade names relating thereto. 5. All right, title, and interest of Borrower in, to, and under all plans, specifications, maps, surveys, reports, permits, licenses, architectural, engineering and construction contracts, books of account, insurance policies, and other documents of whatever kind or character, relating to the use, construction upon, occupancy, leasing, sale, or operation of the Land and/or the Improvements. 6. All interests, estates, or other claims or demands, in law and in equity, which Borrower now has or may hereafter acquire in the Land, the Improvements, or the personal property described in this Exhibit B. 7. All right, title, and interest owned by Borrower in and to all options to purchase or lease the Land, the Improvements, or any other personal property described in this Exhibit B, or any portion thereof or interest therein, and in and to any greater estate in the Land, the Improvements, or any of the personal property described in this Exhibit B. 8. All of the estate, interest, right, title, other claim or demand, both in law and in equity, including claims or demands with respect to the proceeds of insurance relating thereto, which Borrower now has or may hereafter acquire in the Land, the Improvements, or any of the personal property described in this Exhibit B, or any portion thereof or interest therein, and any and all awards made for the taking by eminent domain, or by any proceeding or purchase in lieu thereof, of the whole or any part of such property, including without limitation, any award resulting from a change of any streets (whether as to grade, access, or otherwise) and any award for severance damages. 9. All right, title, and interest of Borrower in and to all contracts, permits, certificates, licenses, approvals, utility deposits, utility capacity, and utility rights issued, granted, agreed upon, or otherwise provided by any governmental or private authority, person or entity relating to the ownership, development, construction, operation, maintenance, marketing, sale, or use of the Land and/or the Improvements, including all of the Borrower's rights and privileges hereto or hereafter otherwise arising in connection with or pertaining to the Land 1 36 and/or the Improvements, including, without limiting the generality of the foregoing, all water and/or sewer capacity, all water, sewer and/or other utility deposits or prepaid fees, and/or all water and/or sewer and/or other utility tap rights or other utility rights, any right or privilege of Borrower under any loan commitment, lease, contract, Declaration of Covenants, Restrictions and Easements or like instrument, Developer's Agreement, or other agreement with any third party pertaining to the ownership, development, construction, operation, maintenance, marketing, sale, or use of the Land and/or the Improvements. AND ALL PROCEEDS AND PRODUCTS OF THE FOREGOING PERSONAL PROPERTY DESCRIBED IN THIS EXHIBIT B. A PORTION OF THE ABOVE DESCRIBED GOODS ARE OR ARE TO BE AFFIXED TO THE REAL PROPERTY DESCRIBED IN EXHIBIT A. THE BORROWER IS THE RECORD TITLE HOLDER AND OWNER OF THE REAL PROPERTY DESCRIBED IN EXHIBIT A. 2 37 EXHIBIT C Addison Place Townhomes Phase I (Permitted Exceptions) 1. Taxes and assessments for the year 1999 and subsequent years. 2. The following matters shown on Plat of Survey for Roberts Properties Residential, L.P., Fidelity National Title Insurance Company and The Prudential Insurance Company of America by Jordan Jones & Goulding, bearing the seal and certification of Charles H. Jackson, Georgia Registered Professional Land Surveyor No. 2351, dated September 23, 1999, last revised October 19, 1999: (a) 50-foot front building line along the southwesterly boundary line of subject property; (b) 20-foot landscape buffer along the southwesterly boundary line of subject property; (c) 10-foot landscape strip along the northwesterly boundary line of subject property (d) 20-foot side yard setback line along the northwesterly boundary line of subject property; (e) 60-foot side yard setback line along the southeasterly and easterly boundary lines of subject property; (f) 50-foot landscape buffer along the southeasterly and easterly boundary lines subject property; (g) 20-foot building setback lines running along interior drives; (h) wooden fence located along the southeasterly and easterly boundary lines of subject property; (i) barbed wire fence located along the southeasterly boundary line of subject property; (j) Fulton County sanitary sewer manhole located in the easterly boundary line of subject property; (k) creek running through the northeasterly portion of subject property; (1) retention pond located in the northern portion of subject property; (m) drainage facilities located throughout the subject property. 3. Rights of upper and lower riparian owners in and to the waters of lakes, rivers, creeks or branches crossing or adjoining the subject property, and the natural flow thereof, free from diminution or pollution. 4. Right-of-Way Easement from R.C. Vaughan to Sawnee Electric Membership Corporation, dated March 15, 1963, filed for record March 26, 1963, and recorded in Deed Book 4032, page 244, aforesaid records. 38 5. Right-of-Way Easement from Wallace T. Hale to Sawnee Electric Membership Corporation, dated September 11, 1974, filed for record October 31, 1974, and recorded in Deed Book 6164, page 173, aforesaid records. 6. Right-of-Way Easement from Benton A. Wood to Sawnee Electric Membership Corporation, dated June 4, 1964, filed for record June 26, 1964, and recorded in Deed Book 4256, page 561, aforesaid records. 7. Right-of-Way Easement from Jeffrey R. Novak and Stacy G. Novak to Sawnee Electric Membership Corporation, dated August 23, 1983, filed for record September 26, 1983, and recorded in Deed Book 8661, page 201, aforesaid records. NOTE: Sawnee Electric Membership Corporation does retain all rights associated with and stated in the easements set forth as Exceptions 4 through 7 hereof. Sawnee Electric Membership Corporation reserves the right to take whatever action it deems necessary within the existing easement corridor (thirty feet in width). Sawnee Electric Membership Corporation recognizes that said easements relate only to the existing corridors and thus will obtain written permission from the current property owner prior to action occurring outside said existing corridor. NOTE: A containment letter has been obtained from Sawnee Electric Membership Corporation stating that Sawnee Electric Membership Corporation claims no further interest in the Easements described in Exceptions 4 through 7 hereof except the right to operate, maintain, rebuild and renew its existing facilities within its presently maintained rights of way. 8. Flood Plain Indemnification from Roberts Properties Residential, L.P. in favor of Fulton County, dated August 18, 1998, recorded in Deed Book 24983, page 330, aforesaid records. 9. Easement contained in that certain Right-of-Way Deed from Roberts Properties Residential, L.P. to Fulton County, dated August 18, 1998, filed September 21, 1998, recorded in Deed Book 25219, page 141, aforesaid records. 10. Right-of-Way Easement from Roberts Properties Residential, L.P. to Sawnee Electric Membership Corporation, dated February 5, 1999, recorded in Deed Book 26823, page 085, aforesaid records. NOTE: A containment letter has been obtained from Sawnee Electric Membership Corporation stating that Sawnee Electric Membership Corporation claims no further interest in the Easements described in Exception 14 hereof except the right to operate, maintain, rebuild and renew its existing facilities within its presently maintained rights of way. 39 11. Rights of tenants in possession of individual apartment units under unrecorded leases, as tenants only. 12. Declaration of Easements by Roberts Properties Residential, L.P., dated October 19, 1999, filed for record October 21, 1999, and recorded in Deed Book 27850, page 040, aforesaid records. 13. All matters which are disclosed on that certain Survey for Roberts Properties Residential, L.P., Fidelity National Title Insurance Company and First Union National Bank, prepared by James C. Jones, Georgia Registered Land Surveyor No. 2298 of Rochester & Associates, Inc., dated October 5, 1999 (Affects Appurtenant Easement only). 40 EXHIBIT D LIST OF MAJOR TENANTS NONE 1 EX-10.14.06 4 GUARANTY EXECUTED BY ROBERTS REALTY INVESTORS, INC 1 LIMITED GUARANTY FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, the undersigned, ROBERTS REALTY INVESTORS, INC. (whether one or more, hereinafter together called "Guarantor" in the singular) absolutely guarantees and agrees to pay to THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (hereinafter called "Lender") at the address designated in the Instrument (as hereinafter defined) for payment thereof or as such address may be changed as provided in the Instrument, all limited and full recourse indebtedness of ROBERTS PROPERTIES RESIDENTIAL, L.P., a limited partnership organized under the laws of the State of Georgia (hereinafter called "Borrower"), under Paragraphs 8 and 9 of that certain Promissory Note, dated October 25, 1999 in the original principal amount of Nine Million Five Hundred Thousand and 00/100 Dollars ($9,500,000.00), payable to the order of Lender, and all modifications, renewals and extensions of and substitutions for said Promissory Note (said Promissory Note and all modifications, renewals and extensions thereof and all substitutions therefor hereinafter called the "Note"), together with all interest, attorneys' fees and collection costs provided in the Note (all such indebtedness is hereinafter called the "Indebtedness"), which Note is secured by the Deed to Secure Debt and Security Agreement (hereinafter called the "Instrument") of even date herewith from Borrower to Lender and to pay any and all costs, attorneys' fees and expenses incurred or expended by Lender in collecting any of the Indebtedness or in enforcing any right granted hereunder. Except as otherwise limited as provided herein, in the event Borrower fails to pay the Indebtedness, Guarantor shall immediately upon written demand of Lender promptly and with due diligence pay for the benefit of Lender all of the Indebtedness. Guarantor expressly waives presentment for payment, demand, notice of demand and of dishonor and nonpayment of the Indebtedness, notice of intention to accelerate the maturity of the Indebtedness or any part thereof, notice of disposition of collateral, notice of acceleration of the maturity of the Indebtedness or any part thereof, protest and notice of protest, diligence in collecting, and the bringing of suit against any other party. Lender shall be under no obligation to notify Guarantor of its acceptance hereof or of any advances made or credit extended on the faith hereof or the failure of Borrower to pay any of the Indebtedness as it matures or any default in the performance of any of the Obligations under the Instrument, or to use diligence in preserving the liability of any person on the Indebtedness or the Obligations or in bringing suit to enforce collection of the Indebtedness or performance of the Obligations. Guarantor waives all defenses given to sureties or guarantors at law or in equity other than the actual payment of the Indebtedness and performance of the Obligations and all defenses based upon questions as to the validity, legality or enforceability of the Indebtedness and/or the Obligations and agrees that Guarantor shall be primarily liable hereunder. Lender, without authorization from or notice to Guarantor and without impairing, modifying, changing, releasing, limiting or affecting the liability of Guarantor hereunder, may from time to time at its discretion and with or without valuable consideration, alter, compromise, accelerate, renew, extend or change the time or manner for the payment of any or all of the Indebtedness, increase or reduce the rate of interest thereon, take and surrender security, exchange security by way of substitution, or in any way it deems necessary take, accept, withdraw, subordinate, alter, amend, modify or eliminate security, add or release or discharge endorsers, guarantors or other obligors, make changes of any sort whatever in the terms of payment of the Indebtedness, in the Obligations or in the manner of doing business with Borrower, or settle or compromise with Borrower or any other person or persons liable on the Indebtedness or the Obligations on such terms as it may see fit, and may apply all moneys received from the Borrower or others, or from any security held (whether held under a security instrument or not), in such manner upon the Indebtedness (whether then due or not) as it may determine 1 2 to be in its best interest, without in any way being required to marshal securities or assets or to apply all or any part of such moneys upon any particular part of the Indebtedness. It is specifically agreed that Lender is not required to retain, hold, protect, exercise due care with respect thereto, perfect security interests in or otherwise assure or safeguard any security for the Indebtedness; no failure by Lender to do any of the foregoing and no exercise or nonexercise by Lender of any other right or remedy of Lender shall in any way affect any of Guarantor's obligations hereunder or any security furnished by Guarantor or give Guarantor any recourse against Lender. The liability of Guarantor hereunder shall not be modified, changed, released, limited or impaired in any manner whatsoever on account of any or all of the following: (a) the incapacity, death, disability, dissolution or termination of Guarantor, Borrower, Lender or any other person or entity; (b) the failure by Lender to file or enforce a claim against the estate (either in administration, bankruptcy or other proceeding) of Borrower or any other person or entity; (c) recovery from Borrower or any other person or entity becomes barred by any statute of limitations or is otherwise prevented; (d) any defenses, set-offs or counterclaims which may be available to Borrower or any other person or entity; (e) any transfer or transfers of any of the property covered by the Instrument or any other instrument securing the payment of the Note; (f) any modifications, extensions, amendments, consents, releases or waivers with respect to the Note, the Deed to Secure Debt and Security Agreement, any other instrument now or hereafter securing the payment of the Note, or this Guaranty; (g) any failure of Lender to give any notice to Guarantor of any default under the Note, the Deed to Secure Debt and Security Agreement, any other instrument securing the payment of the Note, or this Guaranty; (h) Guarantor is or becomes liable for any indebtedness owing by Borrower to Lender other than under this Guaranty; or (i) any impairment, modification, change, release or limitation of the liability of, or stay of actions or lien enforcement proceedings against, Borrower, its property, or its estate in bankruptcy resulting from the operation of any present or future provision of the Federal Bankruptcy Code or any other present or future federal or state insolvency, bankruptcy or similar law (all of the foregoing hereinafter collectively called "applicable Bankruptcy Law") or from the decision of any court. Lender shall not be required to pursue any other remedies before invoking the benefits of the guaranties contained herein, and specifically it shall not be required to make demand upon or institute suit or otherwise pursue or exhaust its remedies against Borrower or any surety other than Guarantor or to proceed against any security now or hereafter existing for the payment of any of the Indebtedness. Lender may maintain an action on this Guaranty without joining Borrower therein and without bringing a separate action against Borrower. If for any reason whatsoever (including but not limited to ultra vires, lack of authority, illegality, force majeure, act of God or impossibility) the Indebtedness or the Obligations cannot be enforced against Borrower, such unenforceability shall in no manner affect the liability of Guarantor hereunder and Guarantor shall be liable hereunder notwithstanding that Borrower may not be liable for such Indebtedness or such Obligations and to the same extent as Guarantor would have been liable if such Indebtedness or Obligations had been enforceable against Borrower. Guarantor absolutely and unconditionally covenants and agrees that in the event that Borrower does not or is unable so to pay the Indebtedness or perform the Obligations for any reason, including, without limitation, liquidation, dissolution, receivership, conservatorship, insolvency, bankruptcy, assignment for the benefit of creditors, sale of all or substantially all assets, reorganization, arrangement, composition, or readjustment of, or other similar proceedings affecting the status, composition, identity, existence, assets or obligations of Borrower, or the disaffirmance or termination of any of the Indebtedness or Obligations in or as a result of any such proceeding, Guarantor shall pay the Indebtedness and perform the Obligations and no such occurrence shall in any way affect Guarantor's obligations hereunder. 2 3 Should the status of Borrower change, this Guaranty shall continue and also cover the Indebtedness and Obligations of Borrower under the new status according to the terms hereof. This Guaranty shall remain in full force and effect notwithstanding any transfer of the property covered by the Instrument. In the event any payment by Borrower to Lender is held to constitute a preference under any applicable Bankruptcy Law, or if for any other reason Lender is required to refund such payment or pay the amount thereof to any other party, such payment by Borrower to Lender shall not constitute a release of Guarantor from any liability hereunder, but Guarantor agrees to pay such amount to Lender upon demand and this Guaranty shall continue to be effective or shall be reinstated, as the case may be, to the extent of any such payment or payments. Guarantor agrees that it shall not have (a) the right to the benefit of, or to direct the application of, any security held by Lender (including the property covered by the Deed to Secure Debt and Security Agreement and any other instrument securing the payment of the Note), any right to enforce any remedy which Lender now has or hereafter may have against Borrower, or any right to participate in any security now or hereafter held by Lender, or (b) any defense arising out of the absence, impairment or loss of any right of reimbursement or subrogation or other right or remedy of Guarantor against Borrower or against any security resulting from the exercise or election of any remedies by Lender (including the exercise of the power of sale under the Instrument), or any defense arising by reason of any disability or other defense of Borrower or by reason of the cessation, from any cause, of the liability of Borrower. The payment by Guarantor of any amount pursuant to this Guaranty shall not in any way entitle Guarantor to any right, title or interest (whether by way of subrogation or otherwise) in and to any of the Indebtedness or any proceeds thereof, or any security therefor, unless and until the full amount owing to Lender on the Indebtedness has been fully paid, but when the same has been fully paid Guarantor shall be subrogated as to any payments made by it to the rights of Lender as against Borrower and/or any endorsers, sureties or other guarantors. Notwithstanding any payments made by or for the account of Guarantor on account of the Indebtedness, Guarantor shall not be subrogated to any rights of Lender until such time as Lender shall have received payment of the full amount of all Indebtedness. For the purposes of the preceding sentence only, the Indebtedness shall not be deemed to have been paid in full by foreclosure of the Instrument or by acceptance of a deed in lieu thereof, and Guarantor hereby waives and disclaims any interest which it might have in the property covered by the Instrument or other collateral security for the Indebtedness, by subrogation or otherwise, following foreclosure of the Instrument or Lender's acceptance of a deed in lieu thereof. Guarantor expressly subordinates its rights to payment of any indebtedness owing from Borrower to Guarantor, whether now existing or arising at any time in the future, to the prior right of Lender to receive or require payment in full of the Indebtedness and until payment in full of the Indebtedness (and including interest accruing on the Note after any petition under applicable Bankruptcy Law, which post-petition interest Guarantor agrees shall remain a claim that is prior and superior to any claim of Guarantor notwithstanding any contrary practice, custom or ruling in proceedings under such applicable Bankruptcy Law generally), Guarantor agrees not to accept any payment or satisfaction of any kind of indebtedness of Borrower to Guarantor or any security for such indebtedness. If Guarantor should receive any such payment, satisfaction or security for any indebtedness of Borrower to Guarantor, Guarantor agrees forthwith to deliver the same to Lender in the form received, endorsed or assigned as may be appropriate for application on account of, or as security for, the Indebtedness and until so delivered, agrees to hold the same in trust for Lender. 3 4 Under no circumstances shall the aggregate amount paid or agreed to be paid hereunder exceed the highest lawful rate permitted under applicable usury law (the "Maximum Rate") and the payment obligations of Guarantor hereunder are hereby limited accordingly. If under any circumstances, whether by reason of advancement or acceleration of the unpaid principal balance of the Note or otherwise, the aggregate amounts paid hereunder shall include amounts which by law are deemed interest and which could exceed the Maximum Rate, Guarantor stipulates that payment and collection of such excess amounts shall have been and will be deemed to have been the result of a mistake on the part of both Guarantor and Lender, and Lender shall promptly credit such excess (to the extent only of such interest payments in excess of the Maximum Rate) against the unpaid principal balance of the Note, and any portion of such excess payments not capable of being so credited shall be refunded to Guarantor. The term "applicable law" as used in this paragraph shall mean the laws of the State of Georgia or the laws of the United States, whichever laws allow the greater rate of interest, as such laws now exist or may be changed or amended or come into effect in the future. Guarantor hereby represents, warrants and covenants to and with Lender as follows: (a) the making of the Loan by Lender to Borrower is and will be of direct interest, benefit and advantage to Guarantor; (b) Guarantor is solvent, is not bankrupt and has no outstanding liens, garnishments, bankruptcies or court actions which could render Guarantor insolvent or bankrupt, and there has not been filed by or against Guarantor a petition in bankruptcy or a petition or answer seeking an assignment for the benefit of creditors, the appointment of a receiver, trustee, custodian or liquidator with respect to Guarantor or any substantial portion of Guarantor's property, reorganization, arrangement, rearrangement, composition, extension, liquidation or dissolution or similar relief under applicable Bankruptcy Law; (c) all reports, financial statements and other financial and other data which have been or may hereafter be furnished by Guarantor to Lender in connection with this Guaranty are or shall be true and correct in all material respects and do not and will not omit to state any fact or circumstance necessary to make the statements contained therein not misleading and do or shall fairly represent the financial condition of Guarantor as of the dates and the results of Guarantor's operations for the periods for which the same are furnished, and no material adverse change has occurred since the dates of such reports, statements and other data in the financial condition of Guarantor; (d) the execution, delivery and performance of this Guaranty do not contravene, result in the breach of or constitute a default under any mortgage, deed of trust, lease, promissory note, loan agreement or other contract or agreement to which Guarantor is a party or by which Guarantor or any of its properties may be bound or affected and do not violate or contravene any law, order, decree, rule or regulation to which Guarantor is subject; (e) there are no judicial or administrative actions, suits or proceedings pending or, to the best of Guarantor's knowledge, threatened against or affecting Guarantor or involving the validity, enforceability or priority of this Guaranty; and (f) this Guaranty constitutes the legal, valid and binding obligation of Guarantor enforceable in accordance with its terms. Guarantor will deliver to Lender within sixty (60) days after each Note anniversary date financial statements of Guarantor in scope and detail satisfactory to Lender. The statements shall be sworn and certified as to accuracy by Guarantor. Where two or more persons or entities have executed this Guaranty, unless the context clearly indicates otherwise, all references herein to "Guarantor" shall mean the guarantors hereunder or either or any of them. All of the obligations and liability of said guarantors hereunder shall be joint and several. Suit may be brought against said guarantors, jointly and severally, or against any one or more of them, less than all, without impairing the rights of Lender against the other or others of said guarantors; and Lender may compound with any one or more of said guarantors for such sums or sum as it may see fit and/or release such of said guarantors from all further liability to Lender for such indebtedness without impairing the right of Lender to demand and collect the balance of such indebtedness from the other or others of said guarantors not so 4 5 compounded with or released; but it is agreed among said guarantors themselves, however, that such compounding and release shall in nowise impair the rights of said guarantors as among themselves. Except as otherwise provided herein, the rights of Lender are cumulative and shall not be exhausted by its exercise of any of its rights hereunder or otherwise against Guarantor or by any number of successive actions until and unless all Indebtedness has been paid and each of the obligations of Guarantor hereunder has been performed. All property of Guarantor now or hereafter in the possession or custody of or in transit to Lender for any purpose, including safekeeping, collection or pledge, for the account of Guarantor, or as to which Guarantor may have any right or power, shall be held by Lender subject to a lien and security interest in favor of Lender to secure payment and performance of all obligations and liabilities of Guarantor to Lender hereunder. Guarantor hereby transfers and conveys to Lender any and all balances, credits, deposits, accounts, items and moneys of Guarantor now or hereafter in the possession or control of or otherwise with Lender. Lender is hereby granted a first lien upon, and security interest in, all property of Guarantor of every kind or description now or hereafter in possession or control of Lender for any purpose, including all dividends and distributions on or other rights in connection therewith. The balance of every account of Guarantor with, and each claim of Guarantor against, Lender existing from time to time shall be subject to a lien and subject to set off against any and all liabilities of Guarantor to Lender, and Lender may, at any time and from time to time at its option and without notice, appropriate and apply toward the payment of any of such liabilities the balance of each such account or claim of Guarantor against Lender. Any notice or communication required or permitted hereunder shall be given in writing, sent by (a) personal delivery, or (b) expedited delivery service with proof of delivery, or (c) United States mail, postage prepaid, registered or certified mail, or (d) prepaid telegram, telex or telecopy, sent to the intended addressee at the address shown below, or to such other address or to the attention of such other person as hereafter shall be designated in writing by the applicable party sent in accordance herewith. Any such notice or communication shall be deemed to have been given and received either at the time of personal delivery or, in the case of delivery service or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or in the case of telegram, telex or telecopy, upon receipt. This Guaranty shall be deemed to have been made under and shall be governed by the laws of the State of Georgia in all respects. This Guaranty may be executed in any number of counterparts with the same effect as if all parties hereto had signed the same document. All such counterparts shall be construed together and shall constitute one instrument, but in making proof hereof it shall only be necessary to produce one such counterpart. This Guaranty may only be modified, waived, altered or amended by a written instrument or instruments executed by the party against which enforcement of said action is asserted. Any alleged modification, waiver, alteration or amendment which is not so documented shall not be effective as to any party. The books and records of Lender showing the accounts between Lender and Borrower shall be admissible in any action or proceeding hereon as prima facie evidence of the items set forth herein. Guarantor waives and renounces any and all homestead or exemption rights Guarantor may have under the Constitution or the laws of any state as against this Guarantor, and does transfer, convey and assign to 5 6 Lender a sufficient amount of such homestead or exemption as may be allowed, including such homestead or exemption as may be set apart in bankruptcy, to pay and perform the Indebtedness and Obligations. Guarantor hereby directs any trustee in bankruptcy having possession of such homestead or exemption to deliver to Lender a sufficient amount of property or money set apart as exempt to pay and perform the Indebtedness and Obligations. The terms, provisions, covenants and conditions hereof shall be binding upon Guarantor and the heirs, devisees, representatives, successors and assigns of Guarantor and shall inure to the benefit of Lender and all transferees, credit participants, successors, assignees and/or endorsees of Lender. Within this Guaranty, words of any gender shall be held and construed to include any other gender and words in the singular number shall be held and construed to include the plural and words in the plural number shall be held and construed to include the singular, unless the context otherwise requires. A determination that any provision of this Guaranty is unenforceable or invalid shall not affect the enforceability or validity of any other provision and any determination that the application of any provision of this Guaranty to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to any other persons or circumstances. EXECUTED this 25th day of October, 1999. ROBERTS REALTY INVESTORS, INC. By: /s/ Charles S. Roberts --------------------------------------------- Name: Charles S. Roberts Title: President Attest: /s/ Charles R. Elliott ----------------------------------------- Name: Charles R. Elliott Title: Chief Financial Officer [CORPORATE SEAL] The address of Guarantor is: Roberts Realty Investors, Inc. 8010 Roswell Road, Suite 120 Atlanta, Georgia 30350 Attention: President The address of Lender is: The Prudential Insurance Company of America Prudential Capital Group Two Ravinia Drive, Suite 1400 Atlanta, Georgia 30346 Attention: Regional Counsel Prudential Loan No. 6 103 461 Roberts Residential:Guaranty 6 EX-10.14.07 5 PROMISSORY NOTE 1 Atlanta, Georgia US $3,000,000.00 October 25, 1999 PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned, ROBERTS PROPERTIES RESIDENTIAL, L.P., a Georgia limited partnership ("Borrower"), promises to pay to the order of FIRST UNION NATIONAL BANK, a national banking association, its successors and assigns (hereinafter, together with all subsequent holders of this Note, called "Lender"), whose address is Post Office Box 740074, Mail Code 9031, Atlanta, Georgia 30374, on or before the Maturity Date (hereinafter defined), the principal sum of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), together with interest on the unpaid principal balance from time to time outstanding at the "Interest Rate" (hereinafter defined). ARTICLE I. DEFINED TERMS For purposes hereof: 1.1 "Business Day" means a day on which commercial banks and foreign exchange markets settle payments in United States dollars in New York, New York and London, England. 1.2 "Business Day Convention" means that an adjustment shall be made for any date that would otherwise fall on a day that is not a Business Day, so that such date will be the next following Business Day. 1.3 "LIBOR Market Rate Index" means, for any day, the rate for 1-month U.S. dollar deposits as reported by Telerate page 3750 as of 11:00 am, London time, on such day, or if such day is not a London Business Day, then the immediately preceding London business day (or if not so reported, then as determined by Lender from another recognized source or interbank quotation). In the event that the LIBOR Market Index Rate shall no longer be published or is no longer available for any reason, then Lender shall designate a comparable reference rate which shall be deemed to be the LIBOR Market Index Rate hereunder. 2 1.4 "Interest Rate" means the rate of interest established pursuant to Paragraph 2.2 below. 1.5 "Loan" means the loan advanced under this Note and evidenced hereby and by the other Loan Documents (hereinafter defined). 1.6 "Loan Documents" shall have the meaning given to it in the Security Deed (hereinafter defined). 1.7 "London Business Day" means any day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London, England. 1.8 "Maturity Date" means the 30th day of April, 2000, subject to the Business Day Convention or such earlier date on which this Note shall become due by acceleration by Lender, by prepayment notice from Borrower, or otherwise. 1.9 "Security Deed" means that certain Deed to Secure Debt and Security Agreement of even date herewith, executed by Borrower and given to Lender, covering certain real and personal property situated in Fulton County, Georgia, as more particularly described therein. ARTICLE II. INTEREST 2.1 Calculation of Interest. Interest based on a 360-day year will be accrued on the number of days funds are actually outstanding, and shall be calculated on a daily basis. 2.2 Interest Rate. Interest shall be charged on the outstanding principal balance from the date hereof until the full amount of principal due hereunder has been paid at a rate equal to the LIBOR Market Index Rate plus one and one-half percent (1.5%) per annum, as that rate may change from day to day in accordance with changes in the LIBOR Market Index Rate. Interest shall be calculated daily on the basis of the actual number of days elapsed over a 360 day year. 2 3 ARTICLE III. PAYMENT AND PREPAYMENT 3.1 Payment. (a) Interest. Interest will be due and payable monthly in arrears on the 1st day of each month, commencing on November 1, 1999, and continuing on the same day of each month thereafter, subject to the Business Day Convention, provided that the final interest payment date shall be the Maturity Date. (b) Principal Payments. The entire remaining outstanding principal balance and all accrued and unpaid interest shall be due and payable in full on the Maturity Date. (c) Billing. Lender will bill Borrower monthly for interest accruing on this Note. 3 2 Place of Payment. All payments hereunder shall be made to Lender at Lender's address set forth in the first paragraph on page 1 of this Note, or at such other address as Lender may from time to time designate in writing to Borrower. All amounts payable hereunder are payable in lawful money of the United States of America. 3.3 Application of Payments. All payments on this Note shall, at the option of Lender, be applied first to the payment of accrued but unpaid interest, and any remainder shall be applied to reduction of the principal balance hereof. Lender's books and records shall be presumed correct as to the sums outstanding hereunder, except in the case of manifest error. 3.4 Costs of Collection. Borrower agrees to pay all costs of collection hereof when incurred, including reasonable attorneys' fees, whether or not any legal action shall be instituted to enforce this Note. 3.5 Prepayment. (a) Borrower shall have the right, at its election, to prepay the outstanding principal balance of this Note, in whole or in part, at any time without penalty or premium. (b) If any such prepayment is only a partial payment of the then outstanding principal balance hereof, such prepayment shall be accompanied by the payment of all accrued but unpaid 3 4 interest on the portion of the outstanding principal balance of the Note being so paid through the date the prepayment is made. No partial prepayment shall affect the obligation of Borrower to make any payment of principal or interest due hereunder on the date set forth in this Note, until this Note has been paid in full. 3.6 Receipt of Payments. Payments in federal funds immediately available in the place designated for payment received by Lender prior to 2:00 p.m. local time at said place of payment shall be credited prior to close of business, while other payments may, at the option of Lender, not be credited until immediately available to Lender in federal funds in the place designated for payment prior to 2:00 p.m. local time at said place of payment on a Business Day. ARTICLE IV. DEFAULT AND REMEDIES 4.1 Events of Default. Each of the following events shall constitute an "Event of Default": (a) If Borrower shall fail, refuse or neglect to pay, in full, any installment or portion of the indebtedness evidenced hereby within five (5) days after the same shall become due and payable, whether at the due date thereof stipulated herein, or at a date fixed for prepayment, or by acceleration or otherwise; provided, however, that if such installment or portion of the indebtedness evidenced hereby becomes due and payable as a result of Lender's accelerating the maturity of this Note, the five (5) day grace period for payment set forth in this Paragraph 4.1(a) shall not apply to the accelerated Maturity Date. (b) The occurrence of any Event of Default under any other Loan Document. (c) If there shall be a default in the payment of any other loan from Lender to Borrower, whether now or hereafter existing, or such borrower shall fail to perform any of its obligations in connection therewith. 4.2 Late Payment Fee and Default Rate. (a) Upon the occurrence of an Event of Default that is a monetary default: 4 5 (a) Borrower shall, without notice or demand from lender, pay a late payment fee of five percentage points (5%) of the amount of principal and/or interest due in order to cover the extra expense involved in handling delinquent payments; and (b) at Lender's option, the interest rate shall become the Interest Rate plus five percentage points (5%) per annum, (the "Default Rate") commencing with and continuing for so long as this Note or any portion hereof is in default. (c) Payment of such late payment fee shall be a condition precedent to the curing of any monetary Event of Default. Acceptance by Lender of any late payment without an accompanying late payment fee shall not be deemed a waiver of Lender's right to receive such late payment fee or to receive a late payment fee for any subsequent payment received more than five (5) days after its due date. This paragraph shall not be deemed to be a waiver of Lender's right to accelerate payment of this Note under the terms hereof. 4.3 Acceleration; Other Remedies. Upon the occurrence of an Event of Default, Lender may, at its option, without further notice or demand, declare the unpaid principal balance and accrued interest on this Note at once due and payable, foreclose all security deeds, mortgages and liens securing payment hereof, pursue any and all other rights, remedies, and recourses available to Lender, or pursue any combination of the foregoing, all remedies hereunder and under the Loan Documents being cumulative. 4.4 No Waiver. Failure to exercise any of the foregoing options shall not constitute a waiver of the right to exercise the same or any other option at any subsequent time in respect to 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 foregoing options at that time or at any subsequent time or nullify any prior exercise of any such option without the express written consent of Lender. 5 6 ARTICLE V. MISCELLANEOUS 5.1 Waivers. (a) Except as otherwise specifically provided in the Loan Documents, Borrower and any endorsers or guarantors hereof jointly and severally waive presentment and demand for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, protest or notice of protest and nonpayment, bringing of suit and diligence in taking any action to collect any sums owing hereunder or in proceeding against any of the rights and properties securing payment hereof. Borrower and any endorsers or guarantors hereof agree that the time for any payments hereunder may be extended from time to time without notice and consent to the acceptance of further security or the release of any existing security for this Note, all without in any manner affecting 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 even though Borrower is not a party to such agreement. (b) Borrower hereby waives and renounces, to the extent same may be waived and renounced, for itself, its legal representatives, successors and assigns, all rights to the benefits of any statute of limitations and any moratorium, reinstatement, marshaling, forbearance, valuation, stay, extension, redemption, appraisement, exemption and homestead now provided or which may hereafter be provided by the Constitution and the laws of the United States and of any state, both as to itself and in and to all of its property, real and personal, against the enforcement and collection of the obligations evidenced by this Note. 5.2 Homestead. Borrower hereby transfers, assigns and conveys to Lender a sufficient amount of homestead and exemption which Borrower or Borrower's family may have under or by virtue of the Constitution and laws of the United States and of any state. In case of bankruptcy, Borrower authorizes and directs the trustee to deliver to Lender a sufficient amount of property or money claims as exempt to pay this Note and Lender is appointed attorney-in-fact for Borrower to claim any and all homestead exemptions allowed by law. 6 7 5.3 Loan Documents. This Note is issued pursuant to the Loan Documents and is secured, inter alia, by the Security Deed. All of the agreements, conditions, covenants, warranties, representations, provisions and stipulations made by or imposed upon Borrower under the Loan Documents are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully inserted herein, and Borrower covenants and agrees to keep and perform the same, or cause them to be kept and performed, strictly in accordance with their terms. 5.4 Loan for Business Purposes. This Note is given for business purposes and none of the proceeds of the Loan or this Note will be used for personal, family or household purposes. 5.5 Multiple Parties. 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 the 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, upon an occurrence of an Event of Default hereunder or under any of the Loan Documents, Lender exhaust any assets of Borrower before proceeding against such general partner's assets. 5.6 Borrower. The term "Borrower" as used in this Note shall mean and have reference to, collectively, all parties and each of them directly or indirectly obligated for the indebtedness evidenced by this Note, whether as principal maker, endorser, guarantor, or otherwise, together with all parties who have acquired the property conveyed by the Security Deed or any portion or portions thereof, together with the respective heirs, administrators, executors, legal representatives, successors and assigns of each of the foregoing. 5.7 Notice. All notices or other communications required or permitted to be given pursuant to this Note shall be in writing and shall be considered properly given if mailed by first-class United States mail, postage prepaid, registered or certified with return receipt requested, or by delivering same in person to the intended addressee, or by prepaid telegram, telex or telecopy. Notice so mailed shall be effective two (2) days after its deposit. Notice given in any other manner shall be effective only if and when received by the addressee. For 7 8 purposes of notice, the address and telecopy number of Borrower shall be the address and telecopy number listed on the final page of this Note, and Lender's address shall be 999 Peachtree Street, 9th Floor, Atlanta, Georgia 30309 (for notice delivered by personal delivery or telegram), and P. O. Box 740074, Mail Code 9031, Atlanta, Georgia 30374 (for notice delivered by registered or certified mail), and Lender's telecopy number shall be (404) 225-4113; provided, however, that either party shall have the right to change its address for notice hereunder to any other location within the continental United States by the giving of one month's notice to the other party in the manner set forth hereinabove. 5.8 Governing Law. This Note shall be governed by and construed according to the laws of the State of Georgia, except that United States federal law shall govern to the extent that it permits Lender to contract for, charge or receive a greater amount of interest, and giving effect to all other United States federal laws applicable to national banks. It is expressly stipulated and agreed to be the intent of Borrower and Lender at all times to comply with the applicable law now or hereafter governing the interest payable on this Note or the Loan. If the applicable law is ever revised, repealed, or judicially interpreted so as to render usurious any amount called for under this Note, or under any of the Loan Documents, or contracted for, charged, taken, reserved or received with respect to the Loan, or if Lender's exercise of the option herein contained to accelerate the maturity of this Note, or if any prepayment by Borrower results in Borrower's having paid any interest in excess of that permitted by applicable law, then it is Borrower's and Lender's express intent that all excess amounts theretofore collected by Lender be credited on the principal balance of this Note (or, if the Note has been paid in full, refunded to Borrower), and the provisions of this Note and the Loan Documents immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of the execution of any new documents, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. All sums paid or agreed to be paid to Lender for the use, forbearance or detention of the indebtedness evidenced hereby and by the other Loan Documents shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term of such 8 9 indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling from time to time in effect and applicable to the Loan for so long as debt is outstanding under the Loan. 5.9 Severability. 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 such 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. 5.10 Time of the Essence. BORROWER AGREES THAT TIME IS OF THE ESSENCE IN THE PERFORMANCE OF ALL OBLIGATIONS HEREUNDER. 5.11 CONSENT TO JURISDICTION; WAIVER OF RIGHT TO TRIAL BY JURY. BORROWER HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR GEORGIA STATE COURT SITTING IN FULTON COUNTY, GEORGIA, AND HEREBY EXPRESSLY AND IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY OF, ANY CLAIM, DEMAND, PROCEEDING ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS NOTE, ANY OTHER LOAN DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWER AND LENDER WITH RESPECT TO THIS NOTE, ANY OTHER LOAN DOCUMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND BORROWER HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT LENDER MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF BORROWER TO JURISDICTION AND THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. BORROWER ACKNOWLEDGES AND AGREES THAT THE WITHIN CONSENT AND WAIVER ARE MATERIAL INDUCEMENTS TO LENDER TO MAKE THE LOAN. IN WITNESS WHEREOF, this Note has been duly executed under seal in Atlanta, Georgia on the date first above written. 9 10 BORROWER ROBERTS PROPERTIES RESIDENTIAL, L.P. BY: ROBERTS REALTY INVESTORS, INC., its sole general partner By: /s/ ------------------------------------- Its: --------------------------------- Attest: /s/ Charles R. Elliott --------------------------------- Title: CFO ------------------------------- [CORPORATE SEAL] Borrower's Address: 8010 Roswell Road Suite 120 Atlanta, Georgia 30350 Borrower's Telecopy Number: 770-396-0706 Borrower's Tax Identification Number: 58-2122875 This signature page is attached to and is a part of that certain Promissory Note in the original principal amount of Three Million and No/100 Dollars ($3,000,000.00), from Roberts Properties Residential, L.P., as "Borrower," to First Union National Bank, as "Lender." 10 EX-10.14.08 6 DEED TO SECURE DEBT AND SECURITY AGREEMENT 1 AFTER RECORDING, RETURN TO: GREGORY A. RANDALL HOLT NEY ZATCOFF & WASSERMAN, LLP 100 GALLERIA PARKWAY, SUITE 600 ATLANTA, GEORGIA 30339-5911 DEED TO SECURE DEBT AND SECURITY AGREEMENT THIS DEED TO SECURE DEBT AND SECURITY AGREEMENT (herein referred to as the "Deed") made and entered into this 25 day of October, 1999 by and between ROBERTS PROPERTIES RESIDENTIAL, L.P., a Georgia limited partnership (hereinafter referred to as "Borrower"), and FIRST UNION NATIONAL BANK, whose address is 999 Peachtree Street, N.E., Ninth Floor, Atlanta, Georgia 30309, Attn: Real Estate Portfolio Management, Mail Code 9068 (hereinafter referred to as "Lender"). W I T N E S S E T H: That for and in consideration of the sum of ONE HUNDRED AND NO/100 DOLLARS ($100.00) and other good and valuable considerations, the receipt and sufficiency whereof are hereby acknowledged, and in order to secure the indebtedness and other obligations of Borrower hereinafter set forth, Borrower does hereby grant, bargain, sell, convey, assign, transfer and set over unto Lender, its successors and assigns, all of the following described land and interests in land, estates, easements, rights, improvements, personal property, fixtures, equipment, furniture, furnishings, appliances and appurtenances (hereinafter collectively referred to as the "Premises"): (a) All that certain tract or parcel of land more particularly described in Exhibit "A" attached hereto and by this reference made a part hereof (hereinafter referred to as the "Land"). (b) All buildings, structures and improvements of every nature whatsoever now or hereafter situated on the Land, and all of Borrower's interest in all gas and electric fixtures, radiators, heaters, engines and machinery, boilers, ranges, elevators and motors, 2 plumbing and heating fixtures, carpeting and other floor coverings, fire extinguishers and any other safety equipment required by governmental regulation or law, washers, dryers, water heaters, mirrors, mantels, air conditioning apparatus, refrigerating plants, refrigerators, cooking apparatus and appurtenances, window screens, awnings and storm sashes, which are or shall be attached to the Premises and all other furnishings, furniture, fixtures, machinery, equipment, appliances, vehicles, building supplies and materials, books and records, chattels, inventory, accounts, farm products, consumer goods, general intangibles and personal property of every kind and nature whatsoever now or hereafter owned by Borrower and located in, on or about, or used or intended to be used with or in connection with the use, operation or enjoyment of the Premises, including all extensions, additions, improvements, betterments, after-acquired property, renewals, replacements and substitutions, or proceeds from a permitted sale of any of the foregoing, and all the right, title and interest of Borrower in any such furnishings, furniture, fixtures, machinery, equipment, appliances, vehicles and personal property subject to or covered by any prior security agreement, conditional sales contract, chattel mortgage or similar lien or claim, together with the benefit of any deposits or payments now or hereafter made by Borrower or on behalf of Borrower; all tradenames, trademarks, servicemarks, logos, and goodwill related thereto which in any way now or hereafter belong, relate or appertain to the Premises or any part thereof or are now or hereafter acquired by Borrower; and all inventory accounts, chattel paper, documents, equipment, fixtures, farm products, consumer goods and general intangibles constituting proceeds acquired with cash proceeds of any of the property described hereinabove, all of which are hereby declared and shall be deemed to be fixtures and accessions to the Land and a part of the Premises as between the par-ties hereto and all persons claiming by, through or under them, and which shall be deemed to be a portion of the security for the indebtedness herein described and to be secured by this Deed. The location of the above described collateral is also the location of the Land. (c) All of Borrower's interest in all building materials, fixtures, building machinery and building equipment delivered on site to the real estate during the course of, or in connection with, construction of the buildings and improvements. (d) All easements, rights-of-way, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights, waters, water courses, water rights and powers, minerals, flowers, shrubs, trees, timber and other emblements now or hereafter located on the Land or under or above the same or any part or parcel thereof or appurtenant to the title to the Land, and all estates, rights, titles, interests, privileges, liberties, tenements, hereditaments and appurtenances, reversion and reversions, remainder and remainders, whatsoever, in any way belonging, relating or appertaining to the Premises or any part thereof, or which hereafter shall in any way belong, relate or appertain to the Premises or any part thereof (e) All income, rents, issues, profits, and revenues of the Premises from time to time accruing (including without limitation all payments under leases or tenancies, proceeds of insurance, condemnation payments, tenant security deposits whether held by Borrower or in a trust account, and escrow funds), and all the estate, right, title, interest, property, 2 3 possession, claim and demand whatsoever at law, as well as in equity, of Borrower of, in and to the same. TOGETHER WITH all and singular the rights, tenements, hereditaments, members and appurtenances whatsoever, in any way belonging, relating or appertaining to any of the Premises hereinabove mentioned or which hereafter shall in any way belong, relate or be appurtenant thereto, whether now owned or hereafter acquired by the Borrower, including but not limited to, all rents, profits, issues and revenues of the Premises from time to time accruing, whether under leases or tenancies now existing or hereafter created, reserving only the right to the Borrower to collect the same for its own account so long as the Borrower is not in default hereunder. TO HAVE AND TO HOLD the Premises and all parts, rights, members and appurtenances thereof, to the use, benefit and behoof of Lender, its successors and assigns, IN FEE SIMPLE forever; and Borrower covenants that Borrower is lawfully seized and possessed of the Premises and has good right to convey the same, that the same are unencumbered except for those matters (hereinafter referred to as the "Permitted Encumbrances") expressly set forth in Exhibit "B" attached hereto and incorporated herein, and that Borrower does warrant and will forever defend the title thereto against the claims of all persons whomsoever, except as to the Permitted Encumbrances. This Deed is intended to operate and is to be construed as a deed passing the title to the Premises to Lender and is made under those provisions of the existing laws of the State of Georgia relating to deeds to secure debt, and not as a mortgage, and is given to secure the payment of the following described indebtedness (hereinafter referred to collectively as the "Indebtedness"): (a) The debt evidenced by that certain Promissory Note (hereinafter referred to as the "Note") dated of even date herewith, made by Borrower, payable to the order of Lender, in the principal face amount of THREE MILLION AND NO/100 DOLLARS ($3,000,000.00), together with any and all renewals, modifications, consolidations and extensions of the indebtedness evidenced by the Note with interest on the outstanding principal at the rates provided for in the Note, with the final payment being due on April 30, 2000 (hereinafter the "Loan"); and (b) Any and all additional advances made by Lender to protect or preserve the Premises or the security interest created hereby in the Premises, or for taxes, assessments or insurance premiums as hereinafter provided or for performance of any of Borrower's obligations hereunder or for any other purpose provided herein (whether or not the original Borrower remains the owner of the Premises at the time of such advances); and (c) Any and all other obligations and indebtedness now or hereafter owing by Borrower to Lender. 3 4 The Note, this Deed, and all documents, instruments, deeds and agreements now or hereinafter evidencing, securing, guaranteeing or otherwise relating to the Note, this Deed or the Indebtedness are collectively hereinafter referred to as the "Loan Documents." Should the Indebtedness be paid according to the tenor and effect thereof when the same shall become due and payable, and should Borrower perform all covenants herein contained in a timely manner, then this Deed shall be promptly canceled and surrendered. Borrower hereby further covenants and agrees with Lender as follows: ARTICLE I 1.01 Payment of Indebtedness. Borrower will pay the Note according to the tenor thereof and the remainder of the Indebtedness promptly as the same shall become due. 1.02 Taxes, Liens and Other Charges. (a) Borrower shall pay, on or before the due date thereof or the day any fine, penalty, interest or cost may be added thereto or imposed by law for the non-payment thereof, all taxes, assessments, levies, license fees, permit fees and all other charges (in each case whether general or special, ordinary or extraordinary, or foreseen or unforeseen) of every character whatsoever (including all penalties and interest thereon) now or hereafter levied, assessed, confirmed or imposed on, or in respect of, or which may be a lien upon, the Premises, or any part thereof, or any estate, right or interest therein, or upon the rents, issues, income or profits thereof, and shall submit to Lender such evidence of the due and punctual payment of all such taxes, assessments and other fees and charges as Lender may require. (b) Borrower shall pay, on or before the due date thereof or the day any fine, penalty, interest or cost may be added thereto or imposed by law for the non-payment thereof, all taxes, assessments, charges, expenses, costs and fees which may now or hereafter be levied upon, or assessed or charged against, or incurred in connection with the Note, the remainder of the Indebtedness, this Deed or any other Loan Documents, excluding only state and federal taxes on the income earned by Lender. Borrower shall submit to Lender such evidence of the due and punctual payment of all such taxes, assessments, charges, expenses, costs, and fees as Lender may reasonably require. (c) Borrower shall pay, on or before the due date thereof, all premiums on policies of insurance covering, affecting or relating to the Premises, as required pursuant to Section 1.03. Borrower shall submit to Lender such evidence of the due and punctual payment of all such premiums as Lender may reasonably require. (d) In the event of the passage of any state, federal, municipal or other governmental law, order, rule or regulation, subsequent to the date hereof, in any manner changing or modifying the laws now in force governing the taxation of deeds to secure debt or security agreements or debts secured thereby or the manner of collecting such taxes so as to adversely 4 5 affect Lender, Borrower will promptly pay any such tax on or before the due date thereof, or the day any fine, penalty, interest or cost may be added thereto or imposed by law for the non-payment thereof. If Borrower fails to make such prompt payment or if, in the opinion of Lender, any such state, federal, municipal, or other governmental law, order, rule or regulation prohibits Borrower from making such payment or would penalize Lender if Borrower makes such payment or if, in the opinion of Lender, the making of such payment might result in the imposition of interest beyond the maximum amount permitted by applicable law, then the entire balance of the Indebtedness and all interest accrued thereon shall, at the option of Lender, become immediately due and payable. (e) Borrower will cause all debts and liabilities of any character, including without limitation all debts and liabilities for labor, material and equipment and all debts and charges for utilities servicing the Premises, incurred in the improvement, maintenance, operation and development of the Premises, to be promptly paid, and will not suffer any mechanic's, materialman's, laborer's, statutory or other lien, including, but not limited to, any lien resulting from Borrower's failure to perform under subparagraphs 1.02(a) and (b) above, to be filed of record upon all or any part of the Premises and not released (by payment, bonding or otherwise) within ten (10) days after Borrower receives actual notice thereof, unless a shorter period for the release of any specific lien is provided elsewhere in this Deed. 1.03 Insurance. (a) The Borrower shall keep any buildings and all improvements, whether now located on the Land or hereinafter constructed on the Land, continuously insured against loss or damage by fire and against such other hazards as may be required. (b) Borrower shall procure for, deliver to and maintain for the benefit of Lender during the term of this Deed, original paid up insurance policies of such insurance companies, in such amounts, in form and substance, and with such expiration dates as are acceptable to Lender and containing non-contributory standard mortgagee clauses, their equivalent or a mortgagee loss payable endorsement in favor of Lender satisfactory in all respects to Lender, providing the types of insurance covering the Premises and the interest and liabilities incident to ownership, possession and operation thereof as may be required. (c) Borrower shall provide single limit comprehensive general liability insurance in an amount satisfactory to Lender against claims and liability for bodily injury or property damage to persons or property occurring on the Premises. (d) Lender is hereby authorized and empowered, at its option, to adjust or compromise any loss under any insurance policies maintained pursuant to this Section 1.03, and to collect and receive the proceeds from any such policy or policies. Each insurance company is hereby authorized and directed to make payment for all such losses directly to Lender, instead of to Borrower or to Borrower and Lender jointly. In the event any insurance company fails to disburse directly and solely to Lender but disburses instead either solely to Borrower or to Borrower and Lender jointly, Borrower agrees immediately to endorse and transfer such 5 6 proceeds to Lender. Upon the failure of Borrower to endorse and transfer such proceeds as aforesaid, Lender may execute such endorsements or transfers for and in the name of Borrower and Borrower hereby irrevocably appoints Lender as Borrower's agent and attorney-in-fact so to do. After deducting from said insurance proceeds all of its expenses incurred in the collection and administration of such sums, including reasonable attorneys' fees actually incurred, Lender may apply the net proceeds or any part thereof, at its option, (i) to the payment of the Indebtedness, whether or not due and in whatever order Lender elects; (ii) to the repair and/or restoration of the Premises or (iii) for any other purposes or objects for which Lender is entitled to advance funds under this Deed, all without affecting the security interest created by this Deed; and any balance of such monies then remaining shall be paid to the party legally entitled thereto. Lender shall not be held responsible for any failure to collect any insurance proceeds due under the terms of any policy regardless of the cause of such failure. (e) At least thirty (30) days prior to the expiration date of each policy maintained pursuant to this Section 1.03, a renewal or replacement thereof satisfactory to Lender shall be delivered to Lender. Borrower shall deliver to Lender receipts evidencing the payment for all such insurance policies and renewals or replacements. The delivery of any insurance policies hereunder shall constitute an assignment of all unearned premiums as further security hereunder. In the event of the foreclosure of this Deed or any other transfer of title to the Premises in extinguishment of the Indebtedness, all right, title and interest of Borrower in and to all insurance policies then in force shall pass to the purchaser or to Lender, as the case may be, and Lender is hereby irrevocably appointed by Borrower as attorney-in-fact for Borrower to assign any such policy to said purchaser or to Lender, as the case may be. 1.04 Monthly Deposits. Upon the occurrence of an Event of Default, at the option of Lender and upon written notice to Borrower, and further to secure the payment of the taxes and assessments referred to in Section 1.02 and the premiums on the insurance referred to in Section 1.03, Borrower shall deposit with Lender, on the due date of each installment under the Note, such amounts as in the reasonable estimation of Lender shall be necessary to pay such charges as they become due; said deposits to be held by Lender, with interest, and free of any liens or claims on the part of Borrower or creditors of Borrower and as part of the security of Lender, and to be used by Lender to pay current taxes and assessments and insurance premiums on the Premises as the same accrue and are payable. Payment from said sums for said purposes shall be made by Lender at its discretion and may be made even though such payments will benefit subsequent owners of the Premises. Said deposits shall not be, nor be deemed to be, trust funds but may be commingled with the general funds of Lender. If said deposits are insufficient to pay the taxes and assessments in full as the same become payable, Borrower, upon written request of Lender, will deposit with Lender such additional sum or sums as may be required in order for Lender to pay such taxes and assessments in full. Upon any Event of Default or Potential Default under this Deed or the Note, or any other Loan Documents, Lender may, at its option, apply any money in the fund resulting from said deposits to the payment of the Indebtedness in such manner as it may elect. As used herein, "Potential Default" shall mean any event, circumstance or occurrence which with the giving of notice or passage of time, or both, would be an Event of Default hereunder. 6 7 1.05 Condemnation. If all or any portion of the Premises shall be damaged or taken through condemnation (which term when used in this Deed shall include any damage or taking by any governmental authority, quasi-governmental authority, or any party having the power of condemnation and any transfer by private sale in lieu thereof), either temporarily or permanently, then the entire Indebtedness shall, at the option of Lender, become immediately due and payable. Borrower, promptly upon obtaining knowledge of the institution, or the proposed, contemplated or threatened institution, of any action or proceeding for the taking through condemnation of the Premises or any part thereof will notify Lender, and Lender is hereby authorized, at its option, to commence, appear in and prosecute, through counsel selected by Lender, in its own or in Borrower's name, any action or proceeding relating to any condemnation, and to settle or compromise any claim in connection therewith. All such compensation, awards, damages, claims, rights of action and proceeds and the right thereto are hereby assigned by Borrower to Lender, and Lender is authorized, at its option, to collect and receive all such compensation, awards or damages and to give proper receipts and acquittances, therefor without any obligation to question the amount of any such compensation, awards or damages. After deducting from said condemnation proceeds all of its expenses incurred in the collection and administration of such sums, including attorney's fees, Lender may apply the net proceeds or any part thereof, at its option, (a) to the payment of the Indebtedness, whether or not due and in whatever order Lender elects, (b) to the repair and/or restoration of the Premises and/or (c) for any other purposes or objects for which Lender is entitled to advance funds under this Deed, all without affecting the lien of this Deed; and any balance of such monies then remaining shall be paid to Borrower or any other person or entity lawfully entitled thereto. Borrower agrees to execute such further assignment of any compensation, awards, damages, claims, rights of action and proceeds as Lender may reasonably require. If, prior to the receipt by Lender of such award or proceeds, the Premises shall have been sold on foreclosure of this Deed, or under the power of sale herein granted, Lender shall have the right to receive such award or proceeds to the extent of any unpaid Indebtedness following such sale, with legal interest thereon, whether or not a deficiency judgment on this Deed or the Note shall have been sought or recovered, and to the extent of reasonable counsel fees, costs and disbursements incurred by Lender in connection with the collection of such award or proceeds. 1.06 Care of Premises. (a) Borrower will keep the buildings, parking areas, roads and walkways, common areas, landscaping and all other improvements of any kind now or hereafter erected on the Land or any part thereof in good condition and repair, will not commit or suffer any waste and will not do or suffer to be done anything which will increase the risk of fire or other hazard to the Premises or any part thereof or which would or could result in the cancellation of any insurance policy carried with respect to the Premises. (b) Borrower will not remove, demolish nor alter the design or structural character of any building, fixture or other improvement now or hereafter constructed on the Land without the prior written consent of Lender. 7 8 (c) If the Premises or any part thereof is damaged by fire or any other cause, Borrower will give immediate written notice thereof to Lender. (d) Lender or its representative is hereby authorized to enter upon and inspect the Premises at any time during normal business hours, subject to rights of tenants and upon at least twenty four (24) hours notice to Borrower. (e) Borrower will promptly comply with all present and future laws, ordinances, rules and regulations of any governmental authority affecting the Premises or any part thereof. If Borrower receives notice from any federal, state, or other governmental entity that the Premises fail to comply with any applicable law, ordinance, rule, order or regulation, Borrower will promptly furnish a copy of such notice to Lender. (f) Subject to Section 1.03(d) hereof respecting insured losses, if all or any part of the Premises shall be damaged by fire or other casualty, Borrower will promptly restore the Premises to the equivalent of its original condition to the extent practical; and subject to Section 1.05 hereof respecting condemnation, if a part of the Premises shall be taken through condemnation, Borrower will promptly restore, repair or alter the remaining portions of the Premises in a manner reasonably satisfactory to Lender. Borrower shall not be obligated to so restore, repair or alter unless in each instance Lender agrees to make available to Borrower (pursuant to procedures satisfactory to Lender) any net insurance or condemnation proceeds actually received by Lender hereunder in connection with such casualty loss or condemnation, to the extent such proceeds are required to defray the expense of such restoration, repair or alteration; provided, however, the insufficiency of any such insurance or condemnation proceeds to defray the entire expense of restoration, repair or alteration shall in no way relieve Borrower of its obligation to restore, repair or alter. 1.07 Leases, Contracts, Etc. (a) As additional collateral and further security for the Indebtedness, Borrower does hereby assign to Lender Borrower's interest in any and all leases, tenant contracts, rental agreements, franchise agreements, management contracts, construction contracts, and other contracts, licenses and permits now or hereafter affecting the Premises, or any part thereof, and Borrower agrees to execute and deliver to Lender such additional instruments, in form and substance reasonably satisfactory to Lender, as may hereafter from time to time be requested by Lender further to evidence and confirm said assignment; provided, however, that acceptance of any such assignment shall not be construed as a consent by Lender to any lease, tenant contract, rental agreement, franchise agreement, management contract, construction contract, or other contract, license or permit, or to impose upon Lender any obligation with respect thereto. (b) Borrower shall not execute any further assignment of the income, rents, issues or profits, or any part thereof, from the Premises unless Lender shall first consent in writing to such assignment and unless such assignment shall expressly provide that it is subordinate to the assignment contained in this Deed and any assignment executed pursuant hereto or concerning the Indebtedness. 8 9 (c) Borrower shall furnish to Lender, within ten (10) days after a written request by Lender to do so, a certified statement setting forth the name of all lessees and tenants of the Premises, the terms of their respective leases, tenant contracts or rental agreements, the space occupied, and the rentals payable thereunder, and stating, to the best knowledge of Borrower, whether any defaults, off-sets or defenses exist under or in connection with any of said leases, tenant contracts or rental agreements. (d) As of the date hereof, there exist no leases, tenant contracts or rental agreements with respect to the Premises or any portion thereof except as previously disclosed to Lender. 1.08 Security Agreement. With respect to the machinery, apparatus, equipment, fittings, fixtures, building supplies and materials, articles of personal property, chattels, chattel paper, documents, inventory, accounts, consumer goods and general intangibles referred to or described in this Deed, or in any way connected with the use and enjoyment of the Premises, this Deed is hereby made and declared to be a security agreement, encumbering each and every item of such property included herein, in compliance with the provisions of the Uniform Commercial Code as enacted in the State of Georgia. Upon request by Lender, at any time and from time to time, a financing statement or statements reciting this Deed to be a security agreement affecting all of such property shall be executed by Borrower and Lender and appropriately filed. The remedies for any violation of the covenants, terms and conditions of the security agreement contained in this Deed shall be (i) as prescribed herein, or (ii) as prescribed by general law, or (iii) as prescribed by the specific statutory consequences now or hereafter enacted and specified in said Uniform Commercial Code, all at Lender's sole election. Borrower and Lender agree that the filing of such financing statement or statements in the records normally having to do with personal property shall not in any way affect the agreement of Borrower and Lender that everything used in connection with the production of income from the Premises or adapted for use therein or which is described or reflected in this Deed, is, and at all times and for all purposes and in all proceedings, legal or equitable, shall be regarded as part of the real estate conveyed hereby regardless of whether (a) any such item is physically attached to the improvements, (b) serial numbers are used for the better identification of certain items capable of being thus identified in an exhibit to this Deed, or (c) any such item is referred to or reflected in any such financing statement or statements so filed at any time. Similarly, the mention in any such financing statement or statements of the rights in and to (aa) the proceeds of any fire and/or hazard insurance policy, or (bb) any award in eminent domain proceedings for a taking or for loss of value, or (cc) Borrower's interest as lessor in any present or future lease or rights to income growing out of the use and/or occupancy of the Premises, whether pursuant to lease or otherwise, shall not in any way alter any of the rights of Lender as determined by this Deed or affect the priority of Lender's security interest granted hereby or by any other recorded document, it being understood and agreed that such mention in such financing statement or statements is solely for the protection of Lender in the event any court shall at any time hold with respect to the foregoing clauses (aa), (bb) or (cc) of this sentence, that notice of Lender's priority of interest to be effective against a particular class of persons, must be filed in the Uniform Commercial Code records. 9 10 1.09 Further Assurances; After Acquired Property. At any time, and from time to time, upon request by Lender, Borrower will make, execute and deliver or cause to be made, executed and delivered, to Lender and, where appropriate, cause to be recorded and/or filed and from time to time thereafter to be re-recorded and/or refiled at such time and in such offices and places as shall be deemed necessary by Lender, any and all such other and further deeds to secure debt, mortgages, deeds of trust, security agreements, financing statements, continuation statements, instruments of further assurance, certificates, and other documents as to the Premises as may, in the opinion of Lender, be reasonably necessary in order to effectuate, complete or perfect, or to continue and preserve (i) the obligations of Borrower under the Note, this Deed and the other Loan Documents and (ii) the security interest created by this Deed as a first and prior security interest upon and security title in and to all of the Premises, whether now owned or hereafter acquired by Borrower. The security title of this Deed and the security interest created hereby will automatically attach, without further act, to all after acquired property as described herein attached to and/or used in the operation of the Premises or any part thereof. 1.10 Expenses. Borrower will pay or reimburse Lender, upon demand therefore, for all reasonable attorney's fees actually incurred, costs and expenses incurred by Lender in any suit, action, legal proceeding or dispute of any kind in which Lender is made a party or appears as party plaintiff or defendant, affecting the Indebtedness, this Deed or the interest created herein, or the Premises, including, but not limited to, the exercise of the power of sale contained in this Deed, any condemnation action involving the Premises or any action to protect the security hereof; and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Deed. Notwithstanding the foregoing, in any litigation involving a dispute between Lender and Borrower, Lender shall not be entitled to recover its reasonable attorneys' fees, costs and expenses if Borrower is the prevailing party in such litigation. 1.11 Estoppel Affidavits. Borrower, upon ten (10) days prior written notice, shall furnish Lender a written statement, duly acknowledged, setting forth the unpaid principal of, and interest on, the Indebtedness secured hereby and whether or not any offsets or defenses exist against the Indebtedness, or any portion thereof, and, if such offsets or defenses exist, stating in reasonable detail the specific facts relating to each such offset or defense. 1.12 Subrogation. To the full extent of the Indebtedness, Lender is hereby subrogated to the liens, claims and demands, and to the rights of the owners and holders of each and every claim, demand and other encumbrance on the Premises which is paid or satisfied, in whole or in part, out of the proceeds of the Indebtedness, and the respective liens, claims, demands and other encumbrances shall be, and each of them is hereby, preserved and shall pass to and be held by Lender as additional collateral and further security for the Indebtedness, to the same extent they would have been preserved and would have been passed to and held by Lender, had they been duly and legally assigned, transferred, set over and delivered unto Lender by assignment, notwithstanding the fact that any instrument providing public notice of the same may be satisfied and canceled of record. 10 11 1.13 Books, Records, Accounts and Annual Reports. Borrower shall keep and maintain or shall cause to be kept and maintained, at Borrower's cost and expense, proper and accurate books, records and accounts reflecting all items of income and expense of Borrower in connection with the Premises as may be required. Upon the occurrence of an Event of Default and upon three (3) days advance notice, Lender, by Lender's agents, accountants and attorneys, shall have the right from time to time to examine such books, records and accounts at the office of Borrower or such other person or entity maintaining such books, records and accounts and to make copies or extracts thereof as Lender shall desire and to discuss Borrower's affairs, finances and accounts with Borrower and with the officers and principals of Borrower, at such reasonable times as may be requested by Lender. Borrower shall provide Lender with current financial information as may be reasonably requested by Lender from time to time. 1.14 Limit of Validity. If from any circumstances whatsoever fulfillment of any provision of this Deed or of the Note, at the time performance of such provision shall be due, shall involve transcending the limits of validity presently prescribed by any applicable usury statute or any other applicable law, with regard to obligations of like character and amount, then ipso facto the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Deed or under the Note that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. The provisions of this Section 1.14 shall control every other provision of this Deed and of the Note. 1.15 Intentionally left blank. 1.16 Conveyance of Premises. Borrower hereby acknowledges to Lender that (i) the identity and expertise of Borrower were and continue to be material circumstances upon which Lender has relied in connection with, and which constitute valuable consideration to Lender for, the extending to Borrower of the indebtedness evidenced by the Note and (ii) any change in such identity or expertise could materially impair or jeopardize the security for the payment of the Note granted to Lender by this Deed. Borrower therefore covenants and agrees with Lender, as part of the consideration for the extending to Borrower of the indebtedness evidenced by the Note, that Borrower shall not further encumber, pledge, convey, transfer, assign or sell any or all of its interest in the Premises without the prior written consent of Lender. 1.17 Use of Premises. Borrower shall not be permitted to alter or change the present use of the Premises or to abandon the Premises without the prior written consent of Lender. 1.18 Acquisition of Collateral. Borrower shall not acquire any portion of the personal property covered by this Deed subject to any security interest, conditional sales contract, title retention arrangement or other charge or lien taking precedence over the security title and lien of this Deed. 1.19 Change of Ownership. Except as expressly permitted in this Deed, the underlying ownership in Borrower shall not be changed without the prior written consent of Lender. If Borrower or any general partner of Borrower is a corporation, for purposes of this Section 1.19 a 11 12 change in ownership shall be deemed to occur upon any dissolution, merger, consolidation, or sale of the controlling percentage of the capital stock of Borrower, or the sale of more than twenty percent (20%) of the value of the assets of Borrower other than in the ordinary course of business. The phrase "controlling percentage" shall mean the ownership of, and the right to vote, stock possessing more than fifty percent (50%) of the total combined voting power of all classes of Borrower's capital stock issued, outstanding, and entitled to vote for the election of directors. If Borrower is a general partnership, joint venture or limited partnership, for purposes of this Section 1. 19, a change in ownership shall be deemed to occur upon a withdrawal, substitution or addition of any partner or joint venturer owning twenty percent (20 %) or more of the equity interest in the partnership, joint venture or limited partnership, or upon the dissolution or liquidation of the partnership, joint venture, or limited partnership. 1.20 Rules, Regulations. Borrower hereby represents and warrants: (i) that Borrower shall comply with all laws, ordinances, rules, regulations, covenants, conditions, and restrictions affecting the Premises and shall not commit or permit any act upon or concerning the Premises in violation of any such laws, ordinances, rules, regulations, covenants, conditions, and restrictions; and (ii) that, to the best of Borrower's actual knowledge, the location, construction, occupancy, operation and actual or intended use of the Premises do not violate any applicable law, ordinance, rule, regulation, covenant, condition or restriction affecting the Premises. Borrower agrees to indemnify and hold Lender harmless from and against and shall reimburse Lender for, any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses (including, without limitation, reasonable attorneys' fees and court costs) arising out of or in connection with the breach of any representation or warranty of Borrower set forth in this Section 1.20 and the failure of Borrower to perform any obligation herein required to be performed by Borrower. 1.21 Hazardous Waste and Substances: Environmental Indemnity. Borrower shall comply with all laws, governmental standards and regulations applicable to Borrower and/or to the Premises in connection with occupational health and safety, Hazardous Substances (as hereinafter defined), and environmental matters. Borrower shall promptly notify Lender of its receipt of any notice of a violation of any such law, standard or regulation. The use, generation, storage, release, threatened release, discharge, disposal or presence on, under or about the Premises of any Hazardous Substances by Borrower, Borrower's agents, or any tenant or sublessee occupying part or all of the Premises (unless permitted and in accordance with all applicable laws) which is not cured within fifteen (15) days following written notice to Borrower shall be an Event of Default under this Deed. "Hazardous Substances" shall mean any toxic or hazardous waste or substances, including, without limitation, petroleum, including crude oil or any fraction thereof, flammable explosives, radioactive materials, asbestos, any material containing polychlorinated biphenyls, and any of the substances defined as "hazardous substances" or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. ss. 9601 et seq., Hazardous Materials Transportation Act, 49 U. S. C. ss. 1802, the Resource Conservation and Recovery Act, 42 12 13 U. S. C. ss. 6901 et seq., and in the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. ss. 2601 et seq., or in any other federal, state, local or other governmental legislation, statute, law, code, rule, regulation or ordinance identified by its terms as pertaining to the disposal of hazardous substances or waste. ARTICLE II 2.01 Defaults. The terms "Event of Default" or "Events of Defaults", wherever used in this Deed, shall mean any one or more of the following events: (a) If Borrower shall fail, refuse or neglect to pay, in full, any installment or portion of the Indebtedness within five (5) days after the same shall become due and payable, whether at the due date thereof stipulated in the Loan Documents, or at a date fixed for prepayment, or by acceleration or otherwise; provided, however, that if such installment or portion of the Indebtedness becomes due and payable as a result of Lender's accelerating the maturity of the Indebtedness in accordance with the Loan Documents, the five (5) day grace period for payment set forth in this Paragraph 5.1 shall not apply to the accelerated due date. (b) Failure by Borrower to duly and timely observe or perform any other term, covenant, condition or agreement in this Deed; or (c) The occurrence of a default or event of default on the part of Borrower under any of the other Loan Documents after expiration of any applicable grace periods provided therein, if any; or (d) Except for the breach of any warranty of title, which breach shall be governed by paragraph 2. 01(j) below, any warranty or representation of Borrower contained in this Deed or in any of the other Loan Documents proves to be untrue or misleading in any material respect; or (e) The filing by Borrower, or any endorser or guarantor of the Note (any such endorser or guarantor of the Note, being hereinafter referred to as an "Affiliate") of a voluntary petition in bankruptcy or the filing by Borrower or any Affiliate of any petition or answer seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief for itself under any present or future federal, state or other statute, law or regulation relating to bankruptcy, insolvency or other relief for debtors, or Borrower's or any Affiliate's seeking or consenting to or acquiescing in the appointment of any trustee, receiver or liquidator of Borrower or such Affiliate to take possession of all or any substantial part of the Premises or of any other property or assets of Borrower or such Affiliate, or of any or all of the income, rents, issues, earnings, profits or revenues thereof, or the making by Borrower or any Affiliate of any general assignment for the benefit of creditors, or the admission in writing by Borrower or any Affiliate of its inability to pay its debts generally as they become due or the commission by Borrower or any Affiliate of an act of bankruptcy; or (f) The filing of a petition against Borrower or any Affiliate seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief 13 14 under any present or future federal, state or other law or regulation relating to bankruptcy, insolvency or other relief for debtors, or the appointment of any trustee, receiver or liquidator of Borrower or any Affiliate or of all or any substantial part of the Premises or of any or all of the income, rents, issues, profits or revenues thereof unless such petition shall be dismissed within sixty (60) days after such filing, but in any event prior to the entry of an order, judgment or decree approving such petition; or (g) The Premises or any part thereof are subjected to actual or threatened waste, or any material part thereof is removed, demolished or altered (except for replaceable personal property which is promptly replaced and except for any casualty or condemnation) without the prior written consent of Lender; or (h) (1) Borrower or any Affiliate (if a corporation) is liquidated or dissolved or its charter expires or is revoked, or (2) Borrower or any Affiliate (if a partnership or business association) is dissolved or partitioned, or (3) Borrower or any Affiliate (if a trust) is terminated or expires; or (i) The filing of any federal tax lien against Borrower or any Affiliate unless such lien is satisfied or bonded within forty-five (45) days after its filing; or (j) Any lien or other encumbrance is filed against the Premises or against the Borrower which according to law is superior to the lien or encumbrance created by this Deed (except for a lien for real property taxes which are not yet due and payable), or any claim of priority to this Deed by title, lien or otherwise is asserted in any legal or equitable proceeding, and Borrower does not provide Lender, within five (5) days of Borrower's actual notice of such lien or claim, with reasonably satisfactory assurance from the insurance company providing title insurance to Lender for the Premises that Lender has title insurance coverage over such superior lien or claim, or Borrower does not remove, satisfy or bond such lien or claim within thirty (30) days of Borrower's actual notice thereof. 2.02 Acceleration of Maturity. If an Event of Default shall have occurred then the entire Indebtedness shall, at the option of Lender, immediately become due and payable without notice, except as specifically provided herein, in the Note, and in the Loan Documents, time being of the essence of this Deed; and no omission on the part of Lender to exercise such option when entitled to do so shall be construed as a waiver of such right. 2.03 Right to Enter and Take Possession. (a) If an Event of Default shall have occurred and be continuing, Borrower, upon demand of Lender, shall forthwith surrender to Lender the actual possession of the Premises and if, and to the extent, permitted by law, Lender itself, or by such officers or agents as it may appoint, may enter and take possession of all the Premises without the appointment of a receiver, or an application therefor, and may exclude Borrower and its agents and employees wholly therefrom, 14 15 and may have joint access with Borrower to the books, papers and accounts of Borrower relating to the Premises. (b) Subject to the terms and conditions of Section 2.03(a) herein, if Borrower shall for any reason fail to surrender or deliver the Premises or any part thereof after such demand by Lender, Lender may obtain a judgment or decree conferring upon Lender the right to immediate possession or requiring Borrower to deliver immediate possession of the Premises to Lender, and Borrower hereby specifically covenants and agrees that Borrower will not oppose, contest or otherwise hinder or delay Lender in any action or proceeding by Lender to obtain such judgment or decree. Borrower will pay to Lender, upon demand, all expenses of obtaining such judgment or decree, including reasonable compensation to Lender's attorneys and agents; and all such expenses and compensation shall, until paid, become part of the Indebtedness and shall be secured by this Deed. (c) Subject to the terms and conditions of Section 2.03(a) herein, upon every such entering upon or taking of possession, Lender may hold, store, use, operate, manage and control and maintain the Premises and conduct the business thereof, and, from time to time (i) make all necessary and proper maintenance, repairs, renewals, replacements, additions, betterments and improvements thereto and thereon and purchase or otherwise acquire additional fixtures, personalty and other property; (ii) insure or keep the Premises insured; (iii) manage and operate the Premises and exercise all the rights and power of Borrower to the same extent as Borrower could in its own name or otherwise with respect to the same; and (iv) enter into any and all agreements with respect to the exercise by others of any of the powers herein granted Lender, all as Lender from time to time may determine to be in its best interest. Lender may collect and receive all the income, rents, issues, profits and revenues from the Premises, including those past due as well as those accruing thereafter, and Lender may apply any money and proceeds received by Lender, in whatever order or priority Lender in its sole discretion may determine, to the payment of (i) all expenses of taking, holding, managing and operating the Premises (including reasonable compensation for the services of all persons employed for such purposes); (ii) the cost of all such maintenance, repairs, renewals, replacements, additions, betterments, improvements, purchases and acquisitions; (iii) the cost of such insurance; (iv) such taxes, assessments and other similar charges as Lender may at its option pay; (v) other proper charges upon the Premises or any part thereof; (vi) the reasonable compensation, expenses and disbursements of the attorneys and agents of Lender; (vii) accrued interest; (viii) deposits required in Section 1.04 and other sums required to be paid under this Deed; and (ix) overdue installments of principal. Anything in this Section 2.03 to the contrary notwithstanding, Lender shall not be obligated to discharge or perform the duties of a landlord to any tenant or incur any liability as the result of any exercise by Lender of its rights under this Deed, nor shall Lender be responsible or liable for any waste committed on the Premises by any tenant or other person or for any dangerous or defective condition of the Premises, or for any negligence in the management, upkeep, repair or control of the Premises resulting in any loss, injury or death to any tenant, licensee, employee, or stranger, and Lender shall be liable to account only for the rents, incomes, issues, profits and revenues actually received by Lender. 15 16 (d) For the purpose of carrying out the provisions of this Section 2.03, the Borrower hereby constitutes and appoints the Lender the true and lawful attorney in fact of the Borrower to do and perform, from time to time, any and an actions necessary and incidental to such purpose and does, by these presents, ratify and confirm any and all actions of said attorney in fact. (e) In the event that all such interest, deposits and principal installments and other sums due under any of the terms, covenants, conditions and agreements of this Deed shall be paid and all Events of Defaults shall be cured, and as a result thereof Lender surrenders possession of the Premises to Borrower, the same right of taking possession shall continue to exist if any subsequent Event of Default shall occur. 2.04 Performance by Lender. If Borrower shall default in the payment, performance or observance of any term, covenant or condition of this Deed and after the expiration of any applicable notice and cure period, if any, Lender may, at its option, pay, perform or observe the same, and all payments made or costs or expenses incurred by Lender in connection therewith shall be secured hereby and shall be, upon demand, immediately repaid by Borrower to Lender with interest thereon at the default rate provided in the Note. Lender shall be the sole judge of the necessity for any such actions and of the amounts to be paid. Lender is hereby empowered to enter and to authorize others to enter upon the Premises or any part thereof for the purpose of performing or observing any such defaulted term, covenant or condition without thereby becoming liable to Borrower or any person in possession holding under Borrower. 2.05 Receiver. If an Event of Default shall have occurred and be continuing, Lender, upon application to a court of competent jurisdiction, shall be entitled as a matter of strict right without notice and without regard to the adequacy or value of any security for the Indebtedness secured hereby or the solvency of any party bound for its payment, to the appointment of a receiver to take possession of and to operate the Premises and to collect and apply the rents, issues, profits and revenues thereof. The receiver shall have all the rights and powers permitted under the laws of the State of Georgia. Borrower will pay to Lender upon demand all expenses, including receiver's fees, attorney's fees, costs and agent's compensation, incurred pursuant to the provisions of this Section 2.05; and any such amounts paid by Lender shall be added to the Indebtedness and shall be secured by this Deed. 2.06 Enforcement. (a) When the Indebtedness shall become due, whether by acceleration or at maturity and Borrower fails to pay the Indebtedness in full at maturity, Lender, at its option, may sell the Premises or any part of the Premises at public sale or sales before the door of the courthouse of the county in which the Premises or any part of the Premises is situated, to the highest bidder for cash, in order to pay the Indebtedness and all expenses of the sale and of all proceedings in connection therewith, including reasonable attorney's fees, if incurred, after advertising the time, place and terms of sale once a week for four (4) weeks immediately preceding such sale (but without regard to the number of days) in a newspaper in which Sheriff's sales are advertised in said county. At any such public sale, Lender may execute and deliver to the purchaser a conveyance of the Premises or any part of the Premises in fee simple, with full warranties of title, 16 17 and to this end, Borrower hereby constitutes and appoints Lender the agent and attorney-in-fact of Borrower to make such sale and conveyance, and thereby to divest Borrower of all right, title or equity that Borrower may have in and to the Premises and to vest the same in the purchaser or purchasers at such sale or sales, and all the acts and doings of said agent and attorney-in-fact are hereby ratified and confirmed and any recitals in said conveyance or conveyances as to facts essential to a valid sale shall be binding upon Borrower. The aforesaid power of sale and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise, and are granted as cumulative of the other remedies provided hereby or by law for collection of the Indebtedness and shall not be exhausted by one exercise thereof but may be exercised until full payment of all of the Indebtedness. In the event of any sale under this Deed by virtue of the exercise of the powers herein granted, or pursuant to any order in any judicial proceeding or otherwise, the Premises may be sold as an entirety or in separate parcels and in such manner or order as Lender in its sole discretion may elect, and if Lender so elects, Lender may sell the personal property covered by this Deed at one or more separate sales in any manner permitted by the Uniform Commercial Code of the State of Georgia, and one or more exercises of the powers herein granted shall not extinguish nor exhaust such powers, until the entire Premises are sold or the Indebtedness is paid in full. If the Indebtedness is now or hereafter further secured by any chattel mortgages, pledges, contracts of guaranty, assignments of lease or other security instruments, Lender may at its option exhaust the remedies granted under any of said security instruments either concurrently or independently, and in such order as Lender may determine. (b) If an Event of Default shall have occurred and be continuing, Lender may, in addition to and not in abrogation of the rights covered under subsection (a) of this Section 2.06, either with or without entry or taking possession as herein provided or otherwise, proceed by a suit or suits in law or in equity or by any other appropriate proceeding or remedy (i) to enforce payment of the Note or the performance of any term, covenant, condition or agreement of this Deed or any other right under the Loan Documents, and (ii) to pursue any other remedy available to it, all as Lender shall determine most effectual for such purposes. 2.07 Purchase by Lender. Upon any foreclosure sale or sales of all or any portion of the Premises under the power herein granted, Lender may bid and purchase at such sale or sales and shall be entitled to apply all or any part of the Indebtedness as a credit to the purchase price. 2.08 Application of Proceeds of Sale. In the event of a foreclosure or a sale of all or any portion of the Premises under the power herein granted, the proceeds of said sale shall be applied, in whatever order Lender in its sole discretion may decide, to the expenses of such sale and of all proceedings in connection therewith, including reasonable attorney's fees, to insurance premiums, liens, assessments, taxes and charges including utility charges advanced by Lender, to costs incurred by Lender in connection with any environmental surveys and testing of the Premises, to all other advances made by Lender pursuant to this Deed, to payment of the outstanding principal balance of the Indebtedness, and to the accrued interest on all of the foregoing; and the remainder, if any, shall be paid to Borrower, or to the person or entity lawfully entitled thereto. 17 18 2.09 Borrower as Tenant Holding Over. In the event of any such foreclosure sale or sales under the power herein granted, Borrower shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to provisions of law applicable to tenants holding over. 2.10 Waiver of Appraisement, Valuation, Etc. Borrower agrees to the full extent permitted by law, that in case of a default on the part of Borrower hereunder and after expiration of any applicable cure period, if any, neither Borrower nor anyone claiming through or under Borrower shall or will set up, claim or seek to take advantage of any moratorium, reinstatement, forbearance, appraisement, valuation, stay, extension, homestead, exemption or redemption laws now or hereafter in force, in order to prevent or hinder the enforcement or foreclosure of this Deed, or the absolute sale of the Premises, or the delivery of possession thereof immediately after such sale to the purchaser at such sale, and Borrower, for itself and all who may at any time claim through or under it, hereby waives to the full extent that it may lawfully so do, the benefit of all such laws, and any and all right to have the assets subject to the security interest of this Deed marshaled upon any foreclosure or sale under the power herein granted. 2.11 Waiver of Homestead. Borrower hereby waives and renounces all homestead and exemption rights provided for by the Constitution and the laws of the United States and of any state, in and to the Premises as against the collection of the Indebtedness, or any part thereof. 2.12 Leases. Lender, at its option, is authorized to foreclose this Deed subject to the rights of any tenants of the Premises, and the failure to make any such tenants parties to any such foreclosure proceedings and to foreclose their rights will not be, nor be asserted to be by Borrower, a defense to any proceedings instituted by Lender to collect the Indebtedness. 2.13 Discontinuance of Proceedings. In case Lender shall have proceeded to enforce any right, power or remedy under this Deed by foreclosure, entry or otherwise or in the event Lender commences advertising of the intended exercise of power of sale, entry or otherwise, and such proceeding or advertisement shall have been withdrawn, discontinued or abandoned for any reason, or shall have been determined adversely to Lender, then and in every such case (i) Borrower and Lender shall be restored to their former positions and rights, (ii) all rights, powers and remedies of Lender shall continue as if no such proceeding had been taken, (iii) each and every Event of Default declared or occurring prior or subsequent to such withdrawal, discontinuance or abandonment and not cured shall be a continuing Event of Default, and (iv) neither this Deed, nor the Note, nor the Indebtedness, nor any other instrument concerned therewith, shall be or shall be deemed to have been reinstated or otherwise affected by such withdrawal, discontinuance or abandonment; and Borrower hereby expressly waives the benefit of any statute or rule of law now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the above. 18 19 2.14 Remedies Cumulative. No right, power or remedy conferred upon or reserved to Lender by this Deed is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power and remedy given hereunder or now or hereafter existing at law or in equity or by statute. 2.15 Waiver. (a) No delay or omission of Lender or of any holder of the Note to exercise any right, power or remedy accruing upon any breach or Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such breach or Event of Default, or acquiescence therein; and every right, power and remedy given by this Deed to Lender may be exercised from time to time and as often as may be deemed expedient by Lender. No consent or waiver, expressed or implied, by Lender to or of any breach or default by Borrower in the performance of the obligations thereof hereunder shall be deemed or construed to be a consent or waiver to or of any other breach or default in the performance of the same or any other obligations of Borrower hereunder. Failure on the part of Lender to complain of any act or failure to act or to declare an Event of Default, irrespective of how long such failure continues, shall not constitute a waiver by Lender of its rights hereunder or impair any rights, powers or remedies of Lender hereunder, except as expressly provided in any of the Loan Documents or in any instrument or instruments executed by Lender. Acceptance by Lender or by any holder of the Note of any sum or payment from or on behalf of Borrower that is less than the then currently outstanding amount due under the Note or any of the other Loan Documents, including, but not limited to, late charges, default interest, additional interest charges, accrued interest, escrow delinquencies, or payments on principal, or any combination thereof, shall not be construed to be a waiver of any of Lender's or such holder's rights, powers or remedies under any of the Loan Documents to collect or to enforce payment of any such delinquent amount which remains due and owing after application of such lesser amount to the then current balance as provided in the Loan Documents. (b) No act or omission by Lender shall release, discharge, modify, change or affect the original liability under the Note, this Deed or any other obligation of Borrower or any subsequent purchaser of the Premises or any part thereof, or any maker, co-signer, endorser, surety or guarantor, or preclude Lender from exercising any right, power or privilege herein granted or intended to be granted in the event of any Event of Default then made or of any subsequent Event of Default, or alter the security title, security interest or lien of this Deed except as expressly provided in an instrument or instruments executed by Lender. Without limiting the generality of the foregoing, Lender may (i) grant forbearance or an extension of time for the payment of all or any portion of the Indebtedness; (ii) take other or additional security for the payment of the Indebtedness; (iii) waive or fail to exercise any right granted herein or in the Note; (iv) release any part of the Premises from the security interest or lien of this Deed or otherwise agree with Borrower to change any of the terms, covenants, conditions or agreements of the Note or this Deed; (v) consent to the filing of any map, plat or replat affecting the Premises; (vi) consent to the granting by Borrower of any easement or other right affecting the Premises; (vii) make or consent to any agreement subordinating the security title, security interest or lien hereof; or (viii) 19 20 take or omit to take any action whatsoever with respect to the Note, this Deed, the Premises or any document or instrument evidencing, securing or in any way relating to the Indebtedness; all without releasing, discharging, modifying, changing or affecting any such liability, or precluding Lender from exercising any such right, power or privilege or affecting the security title, security interest or lien of this Deed except as expressly provided in any of the Loan Documents or in any instrument or instruments executed by Lender. In the event of the sale or transfer by operation of law or otherwise of all or any part of the Premises, Lender, without notice, is hereby authorized and empowered to deal with any such vendee or transferee with reference to the Premises or the Indebtedness, or with reference to any of the terms, covenants, conditions or agreements hereof, as fully and to the same extent as it might deal with the original parties hereto and without in any way releasing and/or discharging any liabilities, obligations or undertakings. 2.16 Suits to Protect the Premises. Lender shall have power to institute and maintain such suits and proceedings as it may deem expedient (i) to prevent any impairment of the Premises by any acts which may be unlawful or constitute an Event of Default under this Deed, (ii) to preserve or protect its interest in the Premises and in the income, rents, issues, profits and revenues arising therefrom, and (iii) to restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if the enforcement of or compliance with such enactment, rule or order would impair the security hereunder or be prejudicial to the interest of Lender. 2.17 Proofs of Claim. In the case of any receivership, insolvency, bankruptcy, reorganization, arrangement, adjustment, composition or other proceedings affecting Borrower, its creditors, its property, or any endorser or guarantor of the Note, Lender, to the extent permitted by law, shall be entitled to file such proofs of claim and other documents as may be necessary or advisable in order to have the claims of Lender allowed in such proceedings for the entire amount of the Indebtedness at the date of the institution of such proceedings and for any additional amount which may become due and payable by Borrower hereunder after such date. 2.18 WAIVER OF BORROWER'S RIGHTS. BY EXECUTION OF THIS DEED, BORROWER EXPRESSLY: (A) ACKNOWLEDGES THE RIGHT OF LENDER TO ACCELERATE THE INDEBTEDNESS EVIDENCED BY THE NOTE AND ANY OTHER INDEBTEDNESS AND THE POWER OF ATTORNEY GIVEN HEREIN TO LENDER TO SELL THE PREMISES BY NONJUDICIAL FORECLOSURE UPON DEFAULT BY BORROWER WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED; (B) WAIVES ANY AND ALL RIGHTS WHICH BORROWER MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTIONS FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY LENDER OF ANY RIGHT OR REMEDY HEREIN PROVIDED TO LENDER, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF 20 21 ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) ACKNOWLEDGES THAT BORROWER HAS READ THIS DEED AND ANY AND ALL QUESTIONS REGARDING THE LEGAL EFFECT OF THIS DEED AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO BORROWER AND BORROWER HAS CONSULTED WITH COUNSEL OF BORROWER'S CHOICE PRIOR TO EXECUTING THIS DEED; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS OF BORROWER HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY BORROWER AS PART OF A BARGAINED FOR LOAN TRANSACTION AND THAT THIS DEED IS VALID AND ENFORCEABLE BY LENDER AGAINST BORROWER IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF. ARTICLE III 3.01 Successors and Assigns. This Deed shall inure to the benefit of and be binding upon Borrower and Lender and their respective heirs, executors, legal representatives, successors, successors-in-title and assigns. Whenever a reference is made in this Deed to Borrower or Lender such reference shall be deemed to include a reference to the heirs, executors, legal representatives, successors, successors-in-title and assigns of Borrower and Lender, as the case may be. The provisions of this Section 3.01 are subject to the restrictions on transfer contained in Section 1.16 and 1.19 herein. 3.02 Terminology. All personal pronouns used in this Deed, whether used in the masculine, feminine or neuter gender, shall include all other genders; the singular shall include the plural, and vice versa. Titles of articles and sections are for convenience only and neither limit nor amplify the provisions of this Deed, and all references herein to articles, sections, subsections, paragraphs or subparagraphs thereof, shall refer to the corresponding articles, sections, subsections, paragraphs or subparagraphs of this Deed unless specific reference is made to articles, sections, subsections, paragraphs or subparagraphs of another document or instrument. 3.03 Severability. If any provisions of this Deed or the application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Deed and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 3.04 Applicable Law. Borrower acknowledges that this Deed and the other Loan Documents were negotiated, executed and delivered by Borrower in the State of Georgia, shall be executed by Lender in the State of Georgia, and shall be governed by, interpreted and enforced in accordance with the laws of the State of Georgia. 21 22 3.05 Notices, Demands and Requests. Any and all notices, elections or demands permitted or required to be made under this Deed shall be in writing, signed by or on behalf of the party giving such notice, election or demand, and shall be delivered personally, or sent by overnight commercial courier or by registered or certified United States mail, postage prepaid, return receipt requested, to the other party at the address set forth below, or to such other party and at such other address within the continental United States of America as may have theretofore been designated in writing. The date of personal delivery, or one (1) day after deposit with an overnight commercial courier, if sent by overnight commercial courier, or, if mailed, the date which is three (3) days after postmark, shall be the effective date of such notice, election or demand. Rejection or other refusal to accept or inability to deliver because of a changed address of which no notice has been received by Lender shall constitute receipt of the notice, election or demand sent. For the purposes of this Deed: The address of Borrower is: Roberts Properties Residential, L.P. c/o ROBERTS PROPERTIES, INC. 8010 Roswell Road, Suite 120 Atlanta, Georgia 30350 Attn: Charles S. Roberts With a copy to: Holt, Ney, Zatcoff & Wasserman 100 Galleria Parkway, N.W. Suite 600 Atlanta, Georgia 30339 Attn: Sanford H. Zatcoff, Esq. The address of Lender is: FIRST UNION NATIONAL BANK Atlanta Real Estate 999 Peachtree Street, N.E. Ninth Floor Atlanta, Georgia 30309 Real Estate Portfolio Mail Code 9068 Attention: Mr. Greg Singleton 22 23 With a copy to: Smith, Gambrell & Russell Promenade II, Suite 3100 1230 Peachtree Street, N.E. Suite 3100, Promenade II Atlanta, Georgia 30309-3592 Attn: John P. Bailey 3.06 Replacement of Note. Upon receipt of evidence reasonably satisfactory to Borrower of the loss, theft, destruction or mutilation of the Note, and in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement, reasonably satisfactory to Borrower or in the case of any such mutilation, upon surrender of the Note, Borrower will execute and deliver, in lieu thereof, a replacement Note, identical in form and substance to the Note and dated as of the date of the Note and upon such execution and delivery all references in this Deed to the Note shall be deemed to refer to such replacement Note. 3.07 Assignment. This Deed is assignable by Lender, and any assignment hereof by Lender shall operate to vest in the assignee all rights and powers herein conferred upon and granted to Lender. 3.08 Time of the Essence. Time is of the essence with respect to each and every covenant, agreement and obligation of Borrower under this Deed, the Note and any and all other instruments now or hereafter evidencing, securing or otherwise relating to the Indebtedness. 3.09 Consent to Jurisdiction. Borrower hereby (a) submits and consents to personal jurisdiction in the State of Georgia for the enforcement of this Deed, and (b) expressly waives any and all personal rights under the law of any state to object to jurisdiction and/or venue within the State of Georgia for purposes of litigation to enforce this Deed. In the event that such litigation is commenced, Borrower agrees that service of process may be made, and personal jurisdiction obtained, by the serving of a copy of the summons and complaint upon Borrower's appointed agent for service of process in the state of Georgia, whose name and address is as follows: Mr. Charles S. Roberts 8010 Roswell Road, Suite 120 Atlanta, Georgia 30350 Borrower agrees that it may be validly served with any legal process in connection with the foregoing by the mailing of a copy thereof by registered or certified mail to said agent. 23 24 ARTICLE IV 4.01 Scope of Article. The provisions contained in this Article IV are additional covenants, terms and provisions applicable to Borrower and Lender. 4.02 Notices to Lender. Borrower further covenants and agrees with Lender that the Borrower will furnish Lender with notice of (i) any change in ownership of the Premises, (ii) any change in the Borrower's name or identity, or (iii) the establishment by Borrower of a place of business in Georgia in a county other than Fulton County, Georgia. Any such notice shall be delivered to Lender within thirty (30) days of the effective date of any such change or within thirty (30) days of the establishment of such place of business. Further, Borrower will promptly execute any and all additional financing statements, security agreements or other instruments deemed necessary by Lender in order to prevent any filed Financing Statement filed in connection herewith from becoming seriously misleading or losing its perfected status. 4.03 Waiver. Borrower hereby represents and warrants to Lender that it has no defenses, set-off, or counterclaim of any kind or nature whatsoever against Lender with respect to the Loan Documents, or any action previously taken or not taken by Lender with respect thereto or with respect to any security interest, encumbrance, lien, or collateral in connection therewith to secure the Indebtedness. 4.04 Contest of Taxes. Notwithstanding the provisions of Section 1.02 of this Deed, Borrower may in good faith and at its own expense contest the amount of any tax bill, assessment or similar charge or the validity thereof by appropriate legal proceedings which shall operate to prevent the collection thereof or other realization thereon and the sale or forfeiture of the Premises or any part thereof to satisfy same; provided that during such contest Borrower shall, at the option of Lender, provide security satisfactory to Lender, assuring the discharge of Borrower's obligations hereunder and of any additional charge, penalty or expense arising from or incurred as a result of such contest; and provided further, that if at any time payment of any obligation imposed upon Borrower by Section 1.02 shall become necessary to prevent the delivery of a tax deed conveying the Premises (or any portion thereof) or other material detriment to Lender's security because of non-payment, then Borrower shall pay same in sufficient time to prevent the delivery of such tax deed. 4.05 Notice of Default. Notwithstanding any provisions of the Note, this Deed or any other document executed in connection with the Indebtedness to the contrary, Lender agrees that upon the occurrence of an Event of Default under the provisions of sections 2.01(b), (c), (d), (g) or (h) of this Deed, prior to accelerating the Indebtedness secured hereby and instituting nonjudicial foreclosure proceedings, Lender will (i) provide written notice to Borrower of the occurrence of such Event of Default, and (ii) allow Borrower to cure such Event of Default at any time within thirty (30) days from the date of such notice; provided, that in connection with the curing of such Event of Default, Borrower pays or reimburses Lender for all expenses actually incurred by Lender as a result of the occurrence of such Event of Default. Borrower agrees that nothing contained in this Section 4.05 shall be construed to require Lender (x) to delay in exercising any remedy other than the acceleration of the Indebtedness and the institution of 24 25 nonjudicial foreclosure proceedings as the result of any Event of Default; (y) in the event of multiple defaults or Events of Default under one or more of the documents executed in connection with the Indebtedness, any notice or cure periods allowed in this Section 4.05 shall run concurrently and not consecutively. Except as specifically set forth in this Section 4.05, Borrower shall not be entitled to receive any notice of or time to cure a default or Event of Default under the provisions of this Deed. 4.06 Attorney's Fees. Any time there is a provision in this Deed or any of the Loan Documents requiring or referring to the payment by Borrower to Lender of reasonable attorneys' fees or words of like import, such words shall mean the payment by Borrower to Lender of reasonable attorneys' fees actually incurred, based upon the attorneys' normal hourly billing rates and the actual time expended, and not the statutory attorneys' fees specified in O.C.G.A. ss. 13-1-11. ARTICLE V 5.1 Covenants, Representations and Warranties. Borrower hereby unconditionally covenants, warrants and represents to Lender as follows: (a) Borrower is a duly organized, validly existing limited partnership, and is in good standing under the laws of the State of Georgia. Borrower has the power and authority to execute, deliver and perform the Obligations, to borrow hereunder and execute and perform the Note, the Security Deed and the other Loan Documents. Borrower's execution, delivery and performance hereunder shall not constitute a breach of any agreement to which Borrower is a party. (b) All financial statements submitted by Borrower to Lender are and shall be true, correct and complete, do and when submitted shall accurately present the financial conditions of Borrower. (c) Borrower is not in default in the performance, observance or fulfillment of any of its obligations, covenants or conditions contained in any agreement to which it is a party. (d) Borrower shall not use or permit the use of the Property for any illegal activity which would subject the Property to any forfeiture proceedings under any state or federal laws. (e) Borrower does not have a defined benefit pension plan under the Employee Retirement Income Security Act of 1974, as amended from time to time, the unfunded liabilities of which upon termination could be held to be a liability of Borrower by the Pension Benefit Guaranty Corporation. (f) Borrower has not directly or indirectly conveyed, assigned or otherwise disposed of or transferred (or agreed to do so) any development rights, air rights or other similar rights, privileges or attributes with respect to the Property, including those arising under and zoning or land use ordinance or other law or governmental requirement. 25 26 (g) Borrower shall notify Lender of (i) any conditions that would constitute an Event of Default; (ii) any litigation or proceedings that is brought against Borrower or the Property; and (iii) any material adverse change in the business, properties or conditions (financial or otherwise) of Borrower. (h) Borrower shall, within one hundred eighty (180) days after the date of this Deed, deliver to Lender evidence that (i) the Property is, or will be, separately assessed for tax purposes, (ii) information as to tax parcel identification numbers, tax rates and estimated tax values, and (iii) the identities of the taxing authorities. (i) Borrower shall pay to Lender a non-refundable commitment fee in the amount of Seven Thousand Five Hundred and No/100 dollars ($7,500.0), which was earned upon issuance and acceptance of the Loan Commitment and which is due and payable whether or not any disbursements are made thereunder or hereunder. (j) Borrower has not dealt with any person, firm or corporation who is or may be entitled to any finder's fee, brokerage commission, loan commission or other sum in connection with the execution of the Loan Documents, the consummation of the transactions contemplated hereby or the making of the Loan by Lender to Borrower, and Borrower does hereby indemnify and agree to hold Lender harmless from and against any and all loss, liability or expense, including court costs and reasonable attorneys' fees and expenses, which Lender may suffer or sustain should such warranty or representation prove inaccurate in whole or part. ARTICLE VI 6.1 Arbitration. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any claim or controversy arising out of, or relating to the Loan Documents between the parties hereto (a "Dispute") shall be resolved by binding arbitration conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association (the "AAA") and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, disputes as to whether a matter is subject to arbitration, claims brought as class actions, or claims arising from documents executed in the future. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. 6.2 Special Rules. All arbitration hearing shall be conducted in the city in which the office of the Bank first stated above is located. A hearing shall begin within ninety (90) days of demand for arbitration and all hearing shall be concluded within one hundred twenty (120) days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of sixty (60) days. The expedited procedures set forth in Rule 51 et. seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitration Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. 26 27 6.3 Preservation and Limitation of Remedies. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property; (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of a receiver and filing an involuntary bankruptcy proceeding; and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party's entitlement to such remedies is a Dispute. Each party agrees that it shall not have a remedy of punitive or exemplary damages the other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. 6.4 Waiver of Jury Trial. The parties acknowledge that by agreeing to binding arbitration they have irrevocably waived any right they may have to a jury trial with regard to a Dispute. IN WITNESS WHEREOF, Borrower has executed this Deed under seal as of the day and year first above written. Signed, sealed and delivered in the Borrower: presence of: ROBERTS PROPERTIES RESIDENTIAL, /s/ Charles R Elliot L.P., a Georgia limited partnership - ---------------------------------- Official Witness /s/ Joanne M. Roberts By: Roberts Realty Investors, Inc., - ---------------------------------- a Georgia corporation, Notary Public its sole general partner [NOTARIAL SEAL] By: /s/ -------------------------------- Name: ------------------------------ Title: ----------------------------- (CORPORATE SEAL) 27 28 EXHIBIT A ALL THAT TRACT of land in Land Lots 230, 231, 234 and 235 of the lst District, 1st Section, Fulton County, Georgia, described as follows: TO FIND THE TRUE POINT OF BEGINNING, commence at the intersection of the northeast right-of-way line of Abbotts Bridge Road (also known as State Route 120) (right-of-way varies) with the southeast right-of-way line of Jones Bridge Road (right-of-way varies); running thence along the southeast right-of-way line of Jones Bridge Road, the following courses and distances: (1) North 50 degrees 43 minutes 59 seconds East 330.30 feet to a 1/2-inch rebar found, (2) along the arc of a curve to the left (which arc is subtended by a chord having a bearing and distance of North 51 degrees 09 minutes 42 seconds East 140.86 feet and a radius of 12,180.58 feet) 140.86 feet to a 1/2-inch rebar set, (3) along the arc of a curve to the left (which arc is subtended by a chord having a bearing and distance of North 50 degrees 33 minutes 43 seconds East 114.03 feet and a radius of 12,180.58 feet) 114.03 feet to a 1/2-inch rebar set, (4) North 51 degrees 00 minutes 17 seconds East 454.79 feet to a point, and (5) North 49 degrees 24 minutes 30 seconds East 222.77 feet to a 1/2-inch rebar set and the TRUE POINT OF BEGINNING; from the TRUE POINT OF BEGINNING as thus establishing, continuing thence along the southeast right-of-way line of Jones Bridge Road the following courses and distances: (1) North 49 degrees 24 minutes 30 seconds East 269.76 feet to a point, (2) along the arc of a curve to the right (which arc is subtended by a chord having a bearing and distance of North 49 degrees 12 minutes 38 seconds East 374.91 feet and a radius of 4217.21 feet) 375.03 feet to a point, and (3) North 50 degrees 41 minutes 25 seconds East 284.85 feet to a 1/2-inch rebar set; thence leaving said right-of-way line and running along the southwest boundary of The Forest Unit I, The Forest Unit II and The Forest Unit IV, the following courses and distances: (1) South 43 degrees 17 minutes 02 seconds East 241.60 feet to a 1/2-inch rebar set, (2) South 31 degrees 12 minutes 02 seconds East 269.95 feet to a 1/2-inch rebar found, (3) South 43 degrees 12 minutes 02 seconds East 169.97 feet to a 1/2-inch rebar set, (4) South 35 degrees 12 minutes 02 seconds East 199.96 feet to a 1/2 inch rebar found, (5) South 35 degrees 06 minutes 54 seconds East 125.15 feet to a 1/2-inch rebar set, (6) South 22 degrees 26 minutes 33 seconds East 160.21 feet to a 1/2-inch rebar set, (7) South 29 degrees 19 minutes 38 seconds East 149.93 feet to a 1/2-inch rebar found, (8) South 37 degrees 41 minutes 40 seconds East 154.92 feet to a 1/2-inch rebar found, and (9) South 47 degrees 58 minutes 48 seconds East 164.89 feet to a 1/2-inch rebar found; thence along the north boundary of Abbotts Cove Subdivision and the north boundary of Addison Place - Phase One, the following courses and distances: (1) South 71 degrees 07 minutes 02 seconds West 134.90 feet to a 1/2-inch rebar set, (2) South 86 degrees 52 minutes 02 seconds West 299.77 feet to a 1/2-inch rebar set, (3) South 79 degrees 37 minutes 02 seconds West 124.91 feet to a 1/2-inch rebar found, (4) North 73 degrees 51 minutes 50 seconds West 173.42 feet to a point, (5) South 87 degrees 15 minutes 00 seconds West 300.00 feet to a point, (6) South 75 degrees 00 minutes 00 seconds West 190.00 feet to a point in a lake, and (7) North 65 degrees 22 minutes 41 seconds West 207.50 feet to a 1/2-inch rebar found; thence North 51 degrees 09 minutes 57 seconds East 296.24 feet to a 1/2-inch rebar found on the land lot line common to said Land Lots 230 and 231; thence along said common land lot line North 88 degrees 50 minutes 38 seconds West 389.96 feet to a 1/2-inch rebar set; thence leaving said common land lot line, North 13 degrees 49 29 minutes 17 seconds East 307.12 feet to a 1/2-inch rebar set; thence North 40 degrees 49 minutes 28 seconds West 299.85 feet to the TRUE POINT OF BEGINNING, said tract containing approximately 29.440 acres as shown on plat of ALTA/ACSM Land Title Survey for Roberts Properties Residential, L.P., First Union National Bank and Fidelity National Title Insurance Company of New York, prepared by Rochester & Associates, Inc., bearing the seal and certification of James C. Jones, Georgia Registered Land Surveyor No. 2298 dated October 5, 1999. TOGETHER WITH a non-exclusive right, title and interest in and to the easements appurtenant to the above-described tract created in that certain Declaration of Easements by Roberts Properties Residential, L.P. dated October 19, 1999, filed for record October 21, 1999, and recorded in Deed Book 27850, page 040, Fulton County, Georgia records. 30 EXHIBIT B 1. Taxes and assessments for the year 2000 and subsequent years, a lien not yet due and payable. 2. The following matters which are disclosed on that certain Survey for Roberts Properties Residential, L.P., Fidelity National Title Insurance Company and First Union National Bank, prepared by James C. Jones, Georgia Registered Land Surveyor No. 2298 of Rochester & Associates, Inc., dated October 5, 1999: a) 25-foot building lines located along the southerly, northeasterly and southwesterly boundary lines of subject property; b) 50-foot building line located along the northwesterly boundary line of subject property; c) portion of lake traverses the southerly boundary line of subject property; d) encroachment of wooden foot bridge onto subject property across the northeasterly boundary line of subject property which bridge is located southwest of Lot 25, The Forest, Unit I; e) encroachment of wooden foot bridge onto subject property across the northeasterly boundary line of subject property which bridge is located southwest of Lot 26, The Forest, Unit I; f) encroachment of wooden foot bridge onto subject property across the northeasterly boundary line of subject property which bridge is located southwest of Lot 65, The Forest, Unit IV; g) encroachment of wooden foot bridge onto subject property across the southerly boundary line of subject property which bridge is located north of Lot 19, Abbotts Cove Subdivision; h) encroachment of bridge onto the subject property across the northeasterly boundary line of subject property which bridge is located southwest of Lot 29, The Forest, Unit I; i) encroachment of block retaining wall onto the subject property across the northeasterly boundary line of subject property which wall is located southwest of Lot 44, The Forest, Unit II; j) encroachment of 6-foot wooden fence onto the subject property across the northeasterly boundary line of subject property which fence is located southwest of Lots 42 and 43, The Forest, Unit II; k) encroachment of playhouse onto the subject property across the northeasterly boundary line of subject property which playhouse is located southwest of Lot 28, The Forest, Unit I; l) encroachment of treehouse onto the subject property across the northeasterly boundary line of subject property which playhouse is located southwest of Lot 28, The Forest, Unit I; m) encroachment of 5-foot concrete sidewalk onto the subject property across the northwesterly and northeasterly boundary lines of subject property; 31 n) power and telephone line located along the northwesterly boundary line of subject property. 3. Right-of-Way Easement from R.C. Vaughan to Sawnee Electric Membership Corporation, dated March 15, 1963, filed for record March 26, 1963, and recorded in Deed Book 4032, page 244, aforesaid records. 4. Right-of-Way Easement from Benton A. Wood to Sawnee Electric Membership Corporation, dated June 4, 1964, filed for record June 26, 1964, and recorded in Deed Book 4256, page 561, aforesaid records. 5. Right-of-Way Easement from Wallace T. Hale to Sawnee Electric Membership Corporation, dated September 11, 1974, filed for record October 31, 1974, and recorded in Deed Book 6164, page 173, aforesaid records. 6. Right-of-Way Easement from Jeffrey R. Novak and Stacy G. Novak to Sawnee Electric Membership Corporation, dated August 23, 1983, filed for record September 26, 1983, and recorded in Deed Book 8661, page 201, aforesaid records. 7. Flood Plain Indemnification from Roberts Properties Residential, L.P. in favor of Fulton County, dated August 18, 1998, filed August 19, 1998, recorded in Deed Book 24983, page 330, aforesaid records. 8. Declaration of Easements by Roberts Properties Residential, L.P., dated October 19, 1999, recorded in Deed Book 27850, page 040, aforesaid records. 9. Right-of-Way Easement from Roberts Properties Residential, L.P. to Sawnee Electric Membership Corporation, dated February 5, 1999, filed April 26, 1999, recorded in Deed Book 26823, page 85, aforesaid records. (Affects Appurtenant Easement only). 10. Easement contained in that certain Right-of-Way Deed from Roberts Properties Residential, L.P. to Fulton County, dated August 18, 1998, filed September 21, 1998, recorded in Deed Book 25219, page 141, aforesaid records. (Affects Appurtenant Easement only). 11. Rights of tenants in possession of individual apartment units under unrecorded leases, as tenants only. (Affects Appurtenant Easement only). 12. All matters shown on Plat of Survey for Roberts Properties Residential, L.P., Fidelity National Title Insurance Company and The Prudential Insurance Company of America by Jordan Jones & Goulding, bearing the seal and certification of Charles H. Jackson, Georgia Registered Professional Land Surveyor No. 2351, dated September 23, 1999, last revised October 19, 1999. (Affects Appurtenant Easement only). 32 13. Rights of upper and lower riparian owners in and to the waters of lakes, rivers, creeks or branches crossing or adjoining the subject property, and the natural flow thereof, free from diminution or pollution. EX-23.1 7 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 25, 2000 included in this Form 10-K, into Roberts Realty Investors, Inc.'s previously filed Registration Statement on Form S-3 (File No. 333-82453). /s/ Arthur Andersen LLP Atlanta, Georgia March 24, 2000 EX-27 8 FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 2,875,000 0 0 0 0 2,875,000 143,850,000 21,029,000 127,078,000 92,755,000 0 0 0 49,000 22,261,000 127,078,000 0 19,384,000 0 14,181,000 152,000 0 5,244,000 900,000 0 900,000 0 (184,000) 0 716,000 0.15 0.15
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